MIDLAND — The Dow Chemical Co. will eliminate about 2,400 jobs and close roughly 20 manufacturing plants as part of a restructuring aimed at coping with slowing economic growth in Europe and elsewhere.
The manufacturing giant said Tuesday that the job cuts amount to 5 percent of the company’s workforce worldwide.
Dow expects the strategy will result in roughly $500 million in annual cost savings by the end of 2014.
The company also plans to slash capital spending and investments. It expects that will save an additional $500 million.
All told, Dow anticipates it will save $2.5 billion, including other cost-cutting measures.
Dow produces materials used in nearly every business sector and region of the world, leaving it exposed to shifts in global economic growth.
The company’s business has been hurt by Europe’s debt crisis and slower growth in China. Manufacturers, construction businesses and some transportation customers have reduced demand for Dow products. The company’s coatings and materials for electronic devices also have been weak.
“The reality is we are operating in a slow-growth environment in the near-term and, while these actions are difficult, they demonstrate our resolve to tightly manage operations particularly in Europe and mitigate the impact of current market dynamics,” Andrew Liveris, Dow’s chairman and CEO, said in a statement.
Over the next two years, Dow plans to close certain manufacturing facilities in the U.S., Belgium, The Netherlands, Spain, the United Kingdom and Japan.
The company projects it will book between 50 and 60 cents per share in charges related to the restructuring in the fourth quarter of this year. That includes a write-down of assets related to its Dow Kokam LLC joint venture — a move the company is making due to weak global demand for lithium-ion batteries.
Despite the sweeping cost reductions, Dow plans to continue to invest in areas where it believes that it can clearly expand its profit margins. Those include Dow AgroSciences, Dow Electronic Materials and its Sadara and U.S. Gulf Coast investments.
“Taken on the whole, Dow’s strategy remains intact, and our long-term growth fundamentals are strong,” Liveris said.
Later Tuesday night, Dow reported net income of $497 million or 42 cents a share in the third quarter ended Sept. 30, down from $815 million or 69 cents a share a year earlier. Revenue was $13.64 billion, down from $15.11 billion a year earlier.
Electronic and Functional Materials
Sales in Electronic and Functional Materials were $1.1 billion, down 8 percent from the same quarter last year as price declined 5 percent and volume declined 3 percent. The electronics sector continued to grow at a lower-than-forecasted rate, driving sales declines within Dow Electronic Materials. Semiconductor Technologies recorded flat sales, as a modest volume increase was offset by price declines. Interconnect Technologies sales decreased as a result of weak demand and pricing for metallization in all regions.
Functional Materials revenue declined overall as global uncertainty dampened sales. Dow Home and Personal Care reported sales decreases due to continued weakness with global brand owners. Strength in the energy sector drove volume gains in nearly all regions for Dow Microbial Control. However, these gains were offset by volume declines in North America due to lower rig counts, combined with overall price decline, which resulted in flat sales for the business.
Equity earnings for the segment were $27 million, up from $23 million versus the year-ago period. EBITDA was $273 million, compared with $306 million in the same period last year.
Coatings and Infrastructure Solutions
Coatings and Infrastructure Solutions sales were $1.7 billion, down 9 percent compared with the same period last year. Volume was up 1 percent versus the prior year, while price declined 10 percent.
Dow Coating Materials reported decreased sales as a result of declining prices. These declines were partially offset by volume gains in nearly all regions, boosted by demand growth in Industrial Coatings, with strength in traffic paint and paper coating applications. Weak pricing in epoxy-based products continued to hamper sales and profitability. Dow Building and Construction experienced volume declines as a result of actions taken within the quarter to improve profitability, particularly in Europe. The business commercialized an award-winning Polymeric Flame Retardant, an innovative response to local regulations. Dow Water and Process Solutions sales declined primarily due to weakening sales in Asia Pacific, particularly in China. In addition, the business posted a profitability decline due in part to higher comparables in the year-ago period associated with the realization of insurance claims for its operations in Soma, Japan.
Equity earnings were $29 million, down from $72 million in the same period last year. The decline was driven by Dow Corning as a result of ongoing weakness in the polysilicon value chain. EBITDA for the segment was $246 million. This compares with EBITDA of $372 million in the year-ago period.
Agricultural Sciences reported record third quarter sales of $1.3 billion, up 8 percent versus the same period last year. Volume increased 7 percent and price rose 1 percent. Double-digit sales and volume gains were reported in both North America and Latin America. The segment continues to benefit from solid industry fundamentals, with elevated farm income levels providing strong incentive for farmers to maximize yields.
Crop Protection reported sales growth of 6 percent, driven by significant volume and sales gains in Latin America, as well as continued adoption of new products. Seeds, Traits and Oils reported a 21 percent sales increase as a result of the introduction and ramp-up of new technologies.
Year to date, new Crop Protection molecules are up 21 percent, led by spinetoram insecticide, aminopyralid herbicide and pyroxsulam herbicide. Seeds, Traits and Oils has achieved strong growth through the third quarter in key crops, including corn, soybeans, healthy oils, and cotton. Strong customer and channel support fueled gains for SmartStax®corn hybrids.
EBITDA for the segment was $63 million, compared with $75 million in the year-ago period, due to continued investments in growth.
Sales in Performance Materials were $3.4 billion, down 8 percent versus the year-ago period, or 7 percent on an adjusted basis. Volume increased 4 percent and price declined 11 percent on an adjusted basis compared to the same period last year. The segment reported volume growth in nearly all geographic areas, excluding Latin America, where declines were driven primarily by the shutdown of toluene diisocyanate capacity in Brazil.
Polyurethanes reported demand growth in Asia Pacific driven by new propylene oxide capacity in Thailand. These volume gains more than offset the price declines in Asia Pacific. Dow Oil and Gas reported double-digit sales gains fueled by strong sector fundamentals in both exploration and production, and refining and processing. Dow Formulated Systems experienced volume growth in nearly all geographic areas. However, this was offset by price declines primarily in Europe, Middle East and Africa (EMEA). Polyglycols, Surfactants and Fluids reported both price and volume declines, as sales growth in Asia Pacific and Latin America was more than offset by declines in North America and EMEA.
Equity losses were $30 million, versus a loss of $11 million in the same period last year. EBITDA for the segment was $491 million, compared with EBITDA of $478 million in the year-ago period. The increase was driven by volume growth and margin expansion.
Sales in Performance Plastics were $3.5 billion. Sales declined 15 percent, or 5 percent on an adjusted basis. The segment posted a 5 percent increase in volume on the same basis, with gains in all geographic areas. However, these gains were offset by a 10 percent decline in price.
Dow Elastomers reported sales gains driven by double-digit volume growth. NORDELTM achieved record volume in the quarter due to strong customer demand. Dow Performance Packaging recorded volume gains in all geographic areas led by Asia Pacific and North America. Despite achieving price increases throughout the quarter, the business reported overall price declines compared with the year-ago period.
Dow Electrical and Telecommunications sales were up versus the year-ago period, with large volume gains recorded in Asia-Pacific. Dow Hygiene and Medical sales rose, fueled by volume gains in EMEA, Asia Pacific, and Latin America, supported by strong customer demand for ASPUN Fiber Grade Resins.
Equity earnings were $28 million, compared with $150 million, or $64 million excluding certain items in the year-ago period. EBITDA for the segment was $737 million, compared with $834 million, or $748 million excluding certain items in the year-ago period. Lower-cost feedstocks continued to drive higher margins in North America and Latin America. This positive impact was partially offset by naphtha-based margin pressure in Europe and Asia Pacific.
Feedstocks and Energy
Sales in Feedstocks and Energy were $2.5 billion, down 13 percent versus the same period last year. Volume decreased 1 percent and price declined 12 percent. Lower sales in the Chlor-Alkali/Chlor-Vinyl business were driven by price declines resulting from weak polyvinyl chloride (PVC) market fundamentals. The year-ago shutdown of the Company’s vinyl chloride monomer (VCM) asset in Louisiana drove volume declines in the business. Caustic soda reported strong year-over-year demand growth for the fourth consecutive quarter. However, this was more than offset by price declines in all geographic areas. Ethylene Oxide/ Ethylene Glycol maximized asset utilization, resulting in volume growth, while weakening global ethylene glycol dynamics drove sales and price declines.
Equity Earnings were $123 million, down from $153 million from the same period last year. Equity earnings were unfavorably impacted by a production outage at EQUATE during the quarter. EBITDA for the segment was $200 million, compared with $263 million in the same period last year.
“Dow’s results this quarter demonstrate the acceleration and delivery of our cost reduction actions,” Liveris said. “We focused on execution and intervened to protect our prioritized growth path. Our low-cost feedstock advantage enabled us to deliver volume growth – despite weakening demand. And we have delivered improvements in operating cash flow through our disciplined approach. The purposeful actions we announced earlier this year are gaining momentum, and will be bolstered by our new, streamlined operating model. Further, with today’s restructuring announcement, we now have a full array of aggressive cash generation measures in place, with tight controls on working capital, and reductions in costs and capital expenditures — particularly in Europe — and by strict and firm prioritization of our growth projects. Moving forward, Dow is squarely focused on driving cost efficiencies, generating cash and earnings growth.”