There are two main items here:
1- The businesses Dow is retaining are profitable at these levels
2- The possibility of a Dow Ag sale seems to be slipping farther away almost daily
The cheat sheet:
Second Quarter 2009 Highlights
• Dow reported a loss of $0.47 per share. Excluding certain items and discontinued operations
in the quarter, the Company earned $0.05 per share, driven by favorable volume trends,
management’s accelerated cost interventions and the Company’s ability to maintain price
from the prior quarter.• The Company is ahead of its commitments to reduce structural costs, with a decrease of more
than $375 million in costs in the quarter and more than $600 million year to date due to
ongoing cost reduction and restructuring efforts, as well as cost synergies achieved as a result
of the acquisition of Rohm and Haas. To date, the Company has achieved more than
70 percent of its 12-month cost synergy run rate goal, which began on April 1.• Volume and price were each down 20 percent on a pro forma basis versus the year-ago
period. Sequentially, volume increased five percent with growth of at least 20 percent in
Electronic and Specialty Materials, Coatings and Infrastructure, and Performance Systems.• Dow’s global operating rate improved seven percentage points to 75 percent versus the prior
quarter, driven by double-digit volume growth (compared with pro forma sales) in Asia
Pacific; India, Middle East and Africa (IMEA); and Latin America.• At a company level, EBITDA excluding certain items improved sequentially by 64 percent
on a pro forma basis. This was driven by increases in the Advanced Materials and
Performance Products and Systems segments, which were up by $634 million; and Basic
Plastics, which improved by $284 million. Health and Agricultural Sciences decreased by
$238 million due to declines in agricultural chemicals.
What to look for in the future?
1- Dow Ag sales officially comes off the table
2- The dividend……does it get raised?
3- Operating rates creep above those of last year
4- Basics division, does it get sold?
Pretty simple. Management is great at controlling costs and is very proactive in that area. I would not expect the any dividend action this year or even into next depending clearly on what happens with additional asset sales. But it is something to watch that is a clear determinant of the general health of the company and managements outlook.
Shares are up 46% this year (down 30% for the past 12 months). When shares cratered in March to $6 it was the buying opportunity of a lifetime in shares (no I did not get them there, we bought at $8-$9). Dow’s overall business environment continues to improve so I will hold shares.
Full Report:
Dow Chemical Q2
Disclosure (“none” means no position):