Getting through some past information from the week away..
Dow Chemical (DOW) released earnings last week and while the results were down, the fact that they were remotely as strong as they were speaks volumes as to where we are going.
– Geographies outside of North America posted very strong growth. Europe was up 11%, Asia-Pacific was up 12%, and Latin America was up 5%, including the impact of some of the recent divestitures. Volume growth of 12% in emerging economies, which today represent 27% of Dow sales, Eastern Europe was up 19%, India was up 64%, and the Middle East was up 89%.
– Feedstock and energy costs increased $2.4 billion compared with the same quarter last year, and increased a $1 billion sequentially. These were the highest increases in Dow’s history. In this quarter oil hit $145 a barrel. It has since dropped over $20, yet Dow’s price increases will remain.
– Dow AgroSciences. Following a stellar first quarter, Dow Ag delivered even better results in the second quarter based on their strong product portfolio and robust industry conditions, posting price and volume gains in every geography. Sales of new Ag chem products increased 65% compared with the year ago, with strong growth of these products in North America, Europe, Latin America and Asia-Pacific, while sales of seeds and traits increased almost 40%.
– Dow AgroSciences made two very important announcements in the quarter. First, the business announced it has submitted SmartStax, its new 8 way gene combination for corn, in the U.S. EPA for regulatory review. This marks the critical first step in clearing SmartStax for commercialization. This is a joint venture with Monsanto (MON)
– Share buybacks, another $393 million was used to purchase 9.6 million shares of Dow stock in the second quarter. Since the beginning of 2006, they have spent $3 billion to repurchase approximately 7% of outstanding shares.
– Year-to-date return on capital and return on equity were 13% and 17% respectively
– Operations of K-Dow Petrochemicals will begin in the fourth quarter (Kuwait JV)
Regarding oil prices and it effects oi margins, in the Q&A CEO Andrew Liveris said:
“As you have noted and others have noted, what is really important to us is stability. If we can hover around these ranges now, $120, $130 oil and therefore its associated naphtha equivalents, then frankly that gives all of us a platform to operate from in terms of restoring the margin and then expanding the margins if we can.
Right now, apart from the US, I think we are all seeing great strength around the world that is enabling us to keep price momentum and therefore — we went very close Frank, if you look at how close we came to keeping our margins level despite this unprecedented surge, we did pretty good. And so with the full quarter to work with we have better certainty to get to even or better.”
More on Oil:
Jeffrey Zekauskas – JPMorgan
“Good morning. On average shouldn’t your raw material costs be down sequentially in the third quarter? Natural gas has gone from — I don’t know — $12 to $9 and oil has come from $135 to $125?”
Geoffery E. Merszei – Executive Vice President and Chief Financial Officer; Member of the Board of Directors
“Yeah Jeff, this is Geoffrey here. Just to take oil, Brent crude average price as of this morning, let’s say, $124, $125. At today’s level it is still higher than our average cost during the first quarter. The average cost in the first quarter was around $122. I’m using crude as a reference point. And we are already towards the end of the first month of one-third of the quarter. So if you use an average rate for the third quarter of let’s say around $125, $126 then you are talking about over $0.5 billion additional cost for the company to absorb.”
Share repurchases:
Kevin McCarthy – Banc of America Securities
“Okay and then financial question for Geoffery, if I may. You have been very active in repurchasing shares, including during the second quarter. Given the pending Rohm and Haas deal, should we anticipate an even keel there in the back half of the year, or would you expect activity to diminish?”
Geoffery E. Merszei – Executive Vice President and Chief Financial Officer; Member of the Board of Directors
“I think that — look, for the time being, until we close the K-Dow transaction, I think we’re going to take a little breather from a large buyback. Having said that, we do remain committed to reducing our share count over time. So, there will be a time when we will be back very actively, but we’re going to take a breather for the time being.”
Dow is inching close to the cusp of its transformation. If you read the call you can sense it not only in the executives tone but even in the analysts.
Please visit the blog Prudent speculation who had a nice post on the current price environment vs. cost from the call. I was going to get into it but Prudent does a great job in the post. Please read it here
Disclosure (“none” means no position):Long Dow
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