Dow Chemical Expects Profit Surge to Continue

NEW YORK – Dow Chemical Co. (DOW), the largest U.S. chemicals maker, on Thursday reported an 85 percent surge in quarterly profit on higher prices for specialized plastics, and said growth would continue for the rest of 2005.

The strong results and forecast eased investor fears that slowing demand in Asia this spring had dragged down earnings, and its shares rose 2 percent in morning trading.

Demand picked up after a slow start to the quarter as Chinese customers returned to the market when they realized chemical and energy prices would not decline, the company has said.

Dow Chemical's outlook contrasted with that of rival DuPont Co. (DD), which said on Tuesday that high energy costs and weak demand could hurt its results for the rest of the year.

"As the company moves into the third quarter, price and volume trends have once again turned favorable across virtually all operating segments," said Dow Chemical Chief Financial Officer Pedro Reinhard (search).

Net income for the Midland, Michigan, company rose to $1.27 billion, or $1.30 cents a share, from $685 million, or 72 cents a share, a year earlier.

Results before special items were 2 cents below average Wall Street estimates, partly due to a bigger-than-expected jump in energy costs.

Despite the high feedstock and energy costs, Dow expects year-over-year earnings improvements through the rest of 2005 and sees further profit growth in 2006.

Deutsche Bank chemicals analyst David Begleiter called the outlook bullish, especially for normally conservative Dow.

"These comments, coupled with the roughly in-line results, should be viewed as moderately bullish for Dow and the commodity chemical cycle," he said.

Quarterly sales increased to $11.45 billion from $9.84 billion. The gains were led by a 20-percent rise in overall prices, with double-digit increases in all regions and across most businesses.

Volumes, however, were weaker, dipping less than 1 percent. Those trends were similar for rival DuPont Co. which reported earnings Tuesday.

"It's a good, solid performance by Dow," said Fulcrum Global Partners analyst Frank Mitsch. He said the more specialized "performance" chemicals and plastics businesses did well while basic chemicals weakened, as expected, on slower buying earlier in the quarter.

Also disappointing were results from the normally strong farm chemicals business, as lower volumes offset higher prices.

Shares rose $1.01, or 2 percent, to $48.62 in morning trade.