MIDLAND — Dow Chemical Co. (NYSE: DOW) reported a sharp decline in net income in the second quarter ended June 30 — but the decline was the product of a one-time gain a year ago, and earnings from continuing operations rose.
Dow revenue hit $14.92 billion in the second quarter, up from $14.58 billion a year earlier. Net income was $882 million or 73 cents a share, down from $2.34 billion or $1.87 a share a year earlier.
The company also reported adjusted net income of $893 million or 74 cents a share in the quarter, up from $770 million or 64 cents a share a year earlier. by the same adjusted yardstick The adjusted figure from last year reflects Dow’s the payment of an arbitration win on an aborted joint venture. In 2012, an arbitrator ruled Kuwait’s state-run chemical company had to pay Dow $2.16 billion for wrongly canceling a planned plastics joint venture in 2008.
Andrew N. Liveris, Dow’s chairman and CEO, said in a written statement: “Our results reflect excellent progress against Dow’s near-term priorities, and clearly illustrate our ongoing drive to execute self-help actions that are delivering growth on both the top and bottom line… As we drive these ongoing improvements to return on capital, we will further accelerate shareholder value creation and increasingly reward our shareholders — evidenced by the $3 billion we have returned year to date.”
Dow reported sales gains in all operating segments, led by Performance Plastics (up 4 percent) and Electronic and Functional Materials (up 5 percent). Agricultural Sciences also increased sales, rising 3 percent in the quarter and achieving a first-half sales record of $4 billion.
The company reported adjusted sales gains in most geographic areas, with increases reported both in developed regions (up 3 percent) and in emerging regions (up 2 percent). Gains were led by Western Europe (up 6 percent) and the United States (up 5 percent).
One-time items in the adjusted earnings also included pretax charges of $18 million for transaction costs associated with the planned separation of a significant portion of the company’s chlorine business.
Research and development expenses were flat versus the same period last year, reflecting the company’s strategy to prioritize R&D resources on high-return market sectors.
Selling, general and administrative expenses increased 5 percent as compared with the year-ago period, driven primarily by growth initiatives – including commercial activities in Agricultural Sciences.
Electronic and Functional Materials reported sales of $1.2 billion, up 5 percent versus the year-ago period. Demand for printed circuit boards – used for smartphones and the automotive market – increased sales in Interconnect Technologies. Semiconductor Technologies also reported gains due to improving foundry demand. These gains were partially offset by Display Technologies on lower sales in films and filters. Functional Materials drove broad-based sales gains, reporting increases in all businesses, led by food-related growth and demand for differentiated, organic-based pharmaceuticals. Dow Microbial Control delivered double-digit growth in North America and Asia Pacific due to strong demand within the energy and water market sectors. Equity earnings for the segment were $22 million. This compares with $28 million in the year-ago period. The segment reported EBITDA of $303 million, versus $254 million in the same quarter last year. EBITDA margins expanded as a result of top-line growth in attractive markets and disciplined cost controls.
Coatings and Infrastructure Solutions reported sales of nearly $2 billion, up 3 percent versus the year-ago period, representing the fourth consecutive quarter of year-over-year sales growth. Gains were reported in Europe, Middle East and Africa (EMEA), Asia Pacific and North America. Healthy demand within the architectural and industrial coatings market sectors drove another quarter of sales growth in Dow Coating Materials. Performance Monomers increased sales in EMEA and delivered double-digit sales gains in Asia Pacific and Latin America. Dow Water and Process Solutions also delivered higher sales on increased demand for ion exchange and reverse osmosis technologies. Equity earnings for the segment were $43 million, up from $25 million in the year-ago period. The segment reported EBITDA of $257 million, up $7 million versus the same quarter last year, as stronger demand, productivity efforts and increased equity earnings offset higher maintenance spending.
Agricultural Sciences achieved record second quarter sales of $1.9 billion, up 3 percent versus the year-ago period. On a year-to-date basis, sales were $4 billion, representing a first-half record for the segment. Crop Protection sales within the quarter rose 3 percent versus the same quarter last year, led by insecticides, which reported double-digit gains in all regions. Sales gains from herbicides in North America and Latin America were slightly offset by declines in Asia Pacific and EMEA, which was impacted by the early start of the cereal herbicides season in Europe. First-half sales rose 4 percent as new crop protection products delivered sales gains of 18 percent led by pyroxsulam herbicide and Isoclast insecticide. Within the quarter, Seeds delivered 3 percent sales gains. The business drove growth in both corn and soybeans in North America and Latin America, more than offsetting lower planted acres of sunflowers in Latin America. Equity earnings for the segment were $2 million, a slight increase versus the year-ago period. The segment reported EBITDA of $281 million, down $9 million from the same quarter last year. Demand for novel seeds technologies and higher quality crop protection molecules was more than offset by fewer applications as a result of the late start to the season in North America and continued growth investments. On a year-to-date basis, the segment achieved record first half EBITDA of $810 million.
Performance Materials reported sales of $3.4 billion, up 1 percent versus the year-ago period, with double-digit gains in EMEA. Polyurethanes achieved revenue growth as a result of a recovering Europe, strong demand in the consumer comfort market sector, and continued growth in the industrial market sector. Sales rose in Propylene Oxide/Propylene Glycol on strong demand in North America within the detergents, food, pharmaceuticals and personal care market sectors. Strong demand in Epoxy drove revenue growth in nearly all regions. Dow Oil, Gas and Mining delivered double-digit sales gains from differentiated products aligned to shale dynamics in North America and refining and processing applications in EMEA. These gains were partially offset by lower licensing in Oxygenated Solvents and the conclusion of marketing responsibilities related to a former joint venture impacting Polyglycols, Surfactants and Fluids, Oxygenated Solvents and Amines – sales for the segment were up 3 percent excluding these items. Equity losses for the quarter were $30 million. This compares with losses of $12 million in the year-ago period. The segment reported EBITDA of $386 million, an increase of $102 million or 36 percent versus the same quarter last year, as a result of ongoing productivity actions coupled with improved market dynamics.
Performance Plastics reported sales of $3.7 billion, up 2 percent versus the year-ago period. Excluding the impact of divestitures, sales were up 4 percent. Dow Packaging and Specialty Plastics continued to increase sales in attractive markets, driven by steady growth in flexible food and specialty packaging and double-digit gains in the hygiene and medical and pipe market sectors. Sales in Dow Electrical and Telecommunications and Dow Elastomers declined despite strong market demand in power, telecommunications, transportation and hot-melt adhesives, due to supply limitations resulting from feedstock disruptions and planned maintenance turnarounds. Equity earnings for the segment were $71 million. This compares with $88 million in the year-ago period. Despite unplanned outages at the Company’s Plaquemine, Louisiana, ethylene production facilities, Performance Plastics reported EBITDA of $1.1 billion, an increase of $57 million versus the same quarter last year. Performance Plastics continued to deliver profitable growth, with EBITDA margins expanding year over year for the eighth consecutive quarter.
Feedstocks and Energy reported sales of $2.6 billion, up 2 percent versus the year-ago period, driven by increased operating rates in Hydrocarbons in Europe, which more than offset lower sales in caustic soda and ethylene glycol. Equity earnings for the segment were $125 million. This compares with $105 million in the year-ago period. The segment reported EBITDA of $190 million, down from $193 million in the year-ago period, reflecting lower caustic soda prices, partially offset by increased equity earnings.
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