Another fantastic management job at Dow Chemical (DOW) this quarter and more affirmation as to why the Rohm & Haas (ROH) deal went for the price it did and why it is a great purchase.
Results:
Sales for the second quarter set another Company record, rising 23 percent from the same period last year to $16.4 billion. Double-digit price increases were recorded in all operating segments and all geographic areas.
· Volume grew 5 percent, with 12 percent growth in geographic areas outside of North America, including an 11 percent volume increase in Europe.
· Earnings for the quarter were $0.81 per share, compared with earnings per share of $1.07 in the same quarter last year.
· Purchased feedstock and energy costs surged 42 percent, or $2.4 billion, compared with the same quarter last year, the largest year-over-year increase in the Company’s history.
· EBIT(1) in the combined Performance segments rose compared with the same period last year despite substantial increases in raw material and supply chain costs.
· Agricultural Sciences set a new quarterly record for both sales and EBIT. Sales rose 25 percent, and EBIT grew more than 60 percent versus the same period last year.
· Equity earnings were $251 million for the quarter, once again demonstrating consistent contributions from joint ventures to the Company’s results.
In my interview with Andrew Liveris he stated why he was most excited about Dow Ag. Today’s results would show why
The Agricultural Sciences segment posted record sales of $1.4 billion, 25 percent higher than the same period last year. All geographic areas posted double-digit increases in sales, reflecting organic growth and growth from recent acquisitions. Dow AgroSciences’ broad portfolio of both agricultural chemicals and seeds benefited from rising prices and low global inventories of farm commodities. Price was up 12 percent, with strong increases in all geographic areas. Volume was up 13 percent compared with the same period last year, with double-digit increases in North America, Europe, Latin America and Asia Pacific. Ag chemicals showed particular strength. Sales were up sharply for new cereal and rice herbicides, and for spinetoram insecticide, which continued its successful launch in the United States. Seeds and traits continued to benefit from a strong ag economy with global demand for agricultural output at record levels. The recent acquisitions of Agromen, MTI and Duo Maize continue to perform well, and the integration of newly acquired Triumph Seeds is progressing. Second quarter EBIT for Agricultural Sciences was $335 million, compared with $208 million in the year ago period.
For Dow currently it comes down to costs for the remainder of the year. Oil surged in the quarter and the price increases did not take effect until the second half of the quarter. Now that oil has come back and the full price increases are in effect, Q3 will show far better results.
At the end of the year, the commodity business goes to the Kuwaiti’s, the Rohm deal closes and the earnings profile is forever changed. Until then, you can still get shares on the cheap, oh yea, and they pack a 5% yield.
Full release:
Why Rohm & Hass(ROH)? The specialty chemical maker today reported an 8% increase in earnings. Liveris on CNBC (below) confirmed there was a 3-way bidding war for the company and the other finalist was BASF (BASF), who ultimately lacked the financial flexibility Dow now has to finalize a deal.
What is being lost currently is the cost synergies the two companies will now enjoy. Rohm is a major purchaser of Dow materials and Liveris has stated the amount come close to $800 million in annual cost savings. Should we believe it? I think when one considers every other deal he has done has recognized in excess of his stated synergies in a time frame that exceeded his estimates, I think we ought to expect more than the $800 million. In materials like Latex, the combined company with be a behemoth and enjoy added pricing power.
Disclosure (“none” means no position):Long Dow, None
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