Here are the key take aways from the recent call for Dow Chemical (DOW)
CEO Andrew Liveris:
* record equity earnings of $1.1 billion, up 17% from 2006 and topping $1 billion for the first time
* earnings reach has been lifted to well north of $3 per share and that we will not experience the trough in 2010, ’11 (this is up from $2 to $3 earlier).
* Once the PIC JV closes, we will have a very strong cash position to fuel a share buyback if we want to versus our other options. Repeat, we will do share buybacks if we cannot find accretive M&A.
* two-thirds of sales are from outside the United States
* “US economy could go further south, especially through the first half of the year. My belief however, this is more a crisis of faith and not a crisis of markets, and as I stated the last week to the media, there are no signs of a recession in our production chains.”
Liveris in response to a question about the deployment of cash to shareholders:
“Well, I think I was very clear in my prepared remarks. I think this year we are going to have to cross the river, so to speak. It really we’ve been very disciplined on the share buyback and dividend increases. We’ve had lots of organic growth that we are funding. You can see that in our expense increase. We’ve done some bolt-ons. We have targets we are interested in, but frankly if they are not at the right price, then we will just go to the deep old strategy and just keep increasing remuneration of our shareholders and that won’t be several years out, that will be this year.”
Geoffery E. Merszei – Executive Vice President and Chief Financial Officer responding to the same question:
“Well, I mean we will as we complete our current program, we will obviously, I would say, by the again depending on how rapidly we execute the existing $800 million, $850 million, so between now and middle mid-year we will announce another program. I think when Andrew was referring to our priority is as an accretive M&A in order to complete our strategy our transformational strategy, in the event that does not happen, then I think you can count on a sizeable buyback program, which you can relate to the proceeds of our asset-light ballot.”
Bottom line? the market will not commit to Dow until they say “we are doing “x” on “y” date. Then they will pile into the shares. But, has Liveris done anything up until this point that would lead anyone to believe that either a major acquisition or a massive repurchase is not going to happen this year?
Dow currently sports a $35 billion market cap and by the time they get the $9.5 billion payment from Kuwait, they ought to be sitting on almost $12 billion (assuming no large acquisition before then). That would repurchase a whole boat load of shares. Maybe a special $3 a share dividend? With under 1 billion shares outstanding, it would cost less than $3 billion dollars and still leave plenty to repurchase shares.
This is going to happen, investors in this environment are just to skittish to commit until they are told “it will happen on this date”. It is ok, I’ll just sit back, collect my 4.5% dividend in the form of more shares and wait.
If this thing dips to $35 or $36 again, I think I may be a buyer. It is just too cheap at those levels.
Disclosure (“none” means no position): Long Dow
