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Fourth-Quarter Earnings Surge For Chemical Makers

Finances: Strong earnings reports help executives appeal to investors

by Melody M. Bomgardner
February 3, 2014 | A version of this story appeared in Volume 92, Issue 5

The fourth quarter is the seasonable low point for the chemical industry and is often glossed over by executives. But not in 2013. Both Dow Chemical and DuPont beat earnings expectations, and their CEOs were eager to discuss how they can continue to increase shareholder value.

The two chemical giants have been targets of investor activism in recent months. The hedge fund of billionaire Daniel S. Loeb purchased a large stake in Dow and is advocating that it break into separate specialties and commodities firms.

Instead, Dow will buy $4.5 billion of its own shares, $3.0 billion more than previously disclosed, and increase its dividend 15%. “You can expect a drumbeat of actions from Dow to liberate cash and reward shareholders,” CEO Andrew N. Liveris told analysts in a conference call.

Meanwhile, DuPont CEO Ellen J. Kullman in a conference call highlighted a plan to buy back $2.0 billion in shares in 2014, part of an eventual $5.0 billion buyback program. DuPont is already on the path to spin off its performance chemicals unit, a move announced in October 2013. Activist investor Nelson Peltz and his Trian Fund Management reportedly lobbied for the change.

But activist investors can’t take credit for increased demand for the industry’s products in the quarter. Dow’s earnings doubled to $793 million compared with last year’s fourth quarter, thanks to stronger sales of agricultural products, coatings, and performance plastics and higher earnings from petrochemical joint ventures in Kuwait and Thailand. The company’s earnings per share of 65 cents were 22 cents above analysts’ expectations.

DuPont saw a broad uptick in demand across businesses including agriculture, electronic chemicals, nutrition, and performance materials. Overall, sales increased 5.8% compared with the year-ago quarter. Earnings skyrocketed despite a $168 million charge to acknowledge overvalued assets in the struggling thin-film photovoltaic market.

At Ashland, earnings were up by more than 23% compared with the year-ago quarter, although sales were flat. The company’s personal care ingredients, coatings, and adhesives businesses all enjoyed strong demand. Ashland announced that it will follow the planned sale of its water technologies business with a reorganization into three units: specialty ingredients, performance materials, and Valvoline. To cut costs, the company will reduce its staff by 800–1,000 workers this year (see page 12).

PPG Industries had 14.2% higher sales in the quarter, thanks in part to its acquisition of AkzoNobel’s architectural coatings business in April 2013. In addition, the firm reported a 10% rise in global demand for industrial coatings from auto manufacturers. Overall, PPG saw earnings rise by a third.



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