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BASF And Dow Post Big Gains

Chemical Earnings: Second-quarter results are strong, but future is cloudy

by Alexander H. Tullo
August 9, 2010 | APPEARED IN VOLUME 88, ISSUE 32

The world’s two biggest chemical companies, BASF and Dow Chemical, posted second-quarter earnings that vastly exceed results from the year-ago quarter. BASF beat analysts’ expectations, but Dow did not.

BASF, the world’s largest chemical maker, had a strong showing throughout the quarter. Its revenues increased by nearly 30% compared with those from 2009, hitting $21.3 billion. And its earnings more than tripled to $1.6 billion, a result that exceeded analysts’ expectations of $1.3 billion.

Although BASF Chairman Jürgen Hambrecht is thrilled with the performance, he isn’t overconfident. “The most severe global economic crisis of recent decades is still very much on our minds,” he told analysts. “We know that major threats remain.”

Dow posted income from continuing operations, excluding exceptional items, of $707 million, a sharp increase from the $203 million it reported in the same quarter a year ago. Sales in the second quarter were $13.6 billion, up 26%. But Dow’s earnings of 54 cents per share were below the consensus estimate of 56 cents from Wall Street analysts.

The company blamed the miss on production glitches in the U.S. and Argentina that cut into earnings per share by 7 cents. CEO Andrew N. Liveris told analysts that Dow has solved those problems. “We were firing on seven of eight cylinders in the quarter,” he said.

Some stock analysts were less forgiving than others. “Dow’s results, in comparison to those of the other major chemical companies, fell short in the areas of revenue growth, business execution, and realization of cost-reduction efforts and business synergies,” wrote JPMorgan analyst Jeffrey Zekauskas in a note to clients. “It seemed a quarter of lost opportunity.” But to Citigroup analyst P. J. Juvekar, Dow’s poorer-than-expected results were only a “speed bump.”

Dow updated investors on its major projects. The massive chemical complex planned for Ras Tanura, Saudi Arabia, is being moved to the city of Al Jubail, where infrastructure is better developed. The company plans to complete engineering next year. Liveris told analysts that the project will emphasize specialty chemical building blocks such as propylene oxide, epichlorohydrin, and acrylic acid.



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