Flooring News and Information

Midland, MI, Oct. 25—Dow Chemical had third quarter sales of $6.7 billion, compared with $7.4 billion a year ago, a decline of 10%. Excluding unusual items, earnings before interest, income taxes and minority interests (EBIT) were $385 million, net income was $150 million and earnings per share were $0.16. Reported net income was $57 million.

Results were unfavorably impacted by several unusual items: $46 million (pretax) for merger related expenses and restructuring; $69 million (pretax) for purchased in-process research and development costs associated with the acquisition of Rohm and Haas' agricultural chemicals business; $11 million for restructuring expenses at Dow Corning Corporation, in which Dow is a 50% shareholder; and $6 million (pretax) in costs to Dow's insurance subsidiaries for claims related to the events of September 11.

"Dow's results reflect adverse conditions both in the overall economy in general and in the chemical industry in particular," said J. Pedro Reinhard, executive vice president and chief financial officer. He cited weaker than expected demand and substantial price declines as key factors affecting the company's performance. "Clearly, these conditions require continued focus on productivity to improve our overall competitive position," he said, noting that Dow remains on track to achieve cost synergies from its various acquisitions, including a target of $1.1 billion in annual cost reductions from the Union Carbide merger by the end of first quarter 2003.

EBIT decreased 45% from a year ago, excluding unusual items, as margins were compressed by a $700 million decline in price that outpaced a more than $500 million reduction in feedstock and energy costs. Substantial EBIT reductions in the basics segments more than offset a modest rise in the combined performance businesses.

The 10% decline in sales, compared with a year ago, was due to a 10% decrease in price and flat volume. Price was lower in all geographic areas and in all segments except Performance Chemicals, which was flat versus last year. Volume increases were recorded in both Performance Plastics and Agricultural Products, due to acquisitions.

In the combined performance segments, EBIT rose 4% from a year ago, excluding unusual items. Performance Chemicals recorded a 74% increase in EBIT, as margins were restored through lower feedstock and energy costs combined with cost synergies from the Carbide merger. Performance Plastics EBIT was down from a year ago due to weaker demand in the electronics and automotive industries as well as strong competitive pressures overall. In the Agricultural Products segment, EBIT declined sharply due to a competitive pricing environment in North America as well as difficult market conditions abroad, particularly in the Mercosur region of Latin America.

In the Chemicals and Plastics segments, EBIT declined substantially from the same quarter last year—despite improved feedstock and energy costs—due to weak supply/demand fundamentals that led to significant price erosion in all businesses. Combined EBIT for Chemicals and Plastics was $140 million.

According to Reinhard, the company is cautious in its outlook for the remainder of the year. "Underlying economic trends are difficult to predict at this point, and we believe there’s some downside risk to volume estimates," he said, adding that many of Dow's businesses are also seasonally slower in the fourth quarter. "Dow will continue to focus on the implementation of its strategy. We expect to benefit increasingly from the disciplined use of Six Sigma methodology as well as through significant cost synergies from acquisitions."