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Dow Chemical Profits Rocket On 18% Sales Hike

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Midland-based Dow Chemical Co. (NYSE: DOW) Wednesday reported net income of $982 million or 84 cents a share in the second quarter, up from $566 million or 50 cents a share in the same quarter a year earlier. For the six months, net income was $1.61 billion or $1.37 a share, up from $1.03 billion or 91 cents a share a year earlier.

Revenue was $16.05 billion, the second most in any quarter in the company’s history, up from $13.62 billion in the same quarter a year earlier. For the six months, revenue was $30.78 million, up from $27.04 million a year earlier.

Earnings before interest, taxes, depreciation and amortization, a common measure of cash flow, rose 24 percent from a year earlier to $2.3 billion, with gains in every operating segment.

“This marked another quarter of tremendous progress for Dow,” said Dow CEO and chairman Andrew N. Liveris. “We delivered significant and broad-based top-line growth, and reached a new quarterly sales record in emerging geographies. The performance of our diverse and balanced portfolio once again overcame continuing headwinds in certain sectors. More importantly, we remain firmly on the trajectory to reach our near-term earnings targets, as evidenced by EBITDA growth of nearly 25 percent — up in every operating segment — as well as overall margin expansion for the Company. Further, our year-over-year EPS growth and our EBITDA run-rate of $9 billion are approaching our near-term target. “Our transformed portfolio, underpinned by our cost-advantaged and flexible operations, is now performing at a new level. This is fueling higher-growth, higher-margin performance through superior market-reach, customer intimacy and innovation. We’re delivering all of this while maintaining our steadfast commitment to enhance financial flexibility by paying down debt, and increasing shareholder remuneration. Coupled with the strength of our integrated business model, Dow is firmly on the right strategic path of sustained earnings growth.”

At a company level, volume grew 9 percent excluding the impact of divestitures, with gains in all operating segments excluding Coatings and Infrastructure, which was flat despite difficult conditions in construction end-markets, and Chemicals and Energy. On the same basis, double-digit volume growth was reported in Health and Agricultural Sciences (13 percent) and Plastics (10 percent). Volume increased in all geographic areas, led by Latin America (23 percent) and Asia-Pacific (11 percent).

Price excluding the impact of divestitures rose 19 percent, with double-digit increases in all geographic areas. All operating segments except Electronic and Specialty Materials (up 7 percent) and Health and Agricultural Sciences (up 5 percent) reported double-digit price gains. Price gains more than offset a $1.5 billion increase in purchased feedstock and energy costs.

Sales in emerging geographies reached $4.9 billion, a new quarterly record for the Company. Growth was led by Latin America, which increased more than 35 percent excluding the impact of divestitures. Volume in emerging geographies increased 14 percent excluding the impact of divestitures, with double-digit gains in Electronic and Specialty Materials, Health and Agricultural Sciences, and Plastics.

Dow’s global operating rate was 84 percent, up 4 percent from the same year-ago period. Sequentially, the company’s operating rate rose 1 percent.

Research and development expenses rose 1 percent versus the same period last year. The company continued to invest in technology-driven segments led by coatings and infrastructure for Dow Powerhouse solar shingles and electronic and specialty materials.

Selling, general and administrative expenses rose 7 percent versus the year-ago period, primarily driven by increased spending in Health and Agricultural Sciences and Electronic and Specialty Materials in support of product launches and growth initiatives.

Equity earnings were $291 million, led by Dow Corning, MEGlobal and the Company’s joint ventures in Kuwait. The company’s year-to-date equity earnings were $589 million, marking the company’s highest ever first-half equity earnings.

Commenting on the Company’s outlook, Liveris said: “Dow’s broad geographic reach and leadership in many attractive, high-growth end-markets firmly position us to benefit from the megatrends that are defining our future. On the whole we see growth continuing to gain traction in developed markets, albeit at a somewhat uneven and jagged pace given persistently high unemployment in the United States and sovereign debt concerns in Europe. In fast-growing emerging geographies, despite some inflationary pressures, the rapid expansion of the middle class continues to drive robust underlying fundamentals, and our strong presence and diversification in these high-growth economies continues to serve us well.

“Overall, while no one is immune to unexpected global economic developments, Dow’s focus remains steadfast on achieving our strategic objectives, and we are optimistic about our growth prospects in the second half and beyond. Our investments to drive growth, coupled with our actions to further enhance our financial flexibility and market diversification, provide a foundation of strength. With these strengths we will continue to mitigate volatile external conditions and capitalize on areas of greatest opportunity – evidenced by the top- and bottom-line growth we delivered once again this quarter. This is the power of our strategy in action.”

North American sales were $5.81 billion for the quarter, up from $5.05 billion a year earlier. Sales in Europe, the Middle East and Africa were $5.71 billion, up from $4.72 billion a year earlier. Sales in the Asia-Pacific region were $2.74 billion , up from $2.49 billion a year earlier. Sales in Latin America were $1.78 billion, up from $1.35 billion a year earlier.

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