Dow Q2-2019 earnings fall on lower volumes and prices

Dow Q2-2019 earnings fall on lower volumes and prices
Published: 29 July 2019 - 5 a.m.
By: Martin Menachery
As per the Q2-2019 results reported by Dow, net sales were $11bn, in-line with the company’s guidance and down 14% versus pro forma results in the year-ago period, driven primarily by local price declines in polyethylene, siloxanes and isocyanates and lower sales of hydrocarbon co-products.

Volume declined 3% versus pro forma results in the year-ago period, driven primarily by higher ethane feedstock usage and lower hydrocarbon co-product sales, due to increased ethylene integration from the start-up of new downstream assets. This was partly offset by demand growth in plastics packaging applications, supported by new capacity on the US Gulf Coast.

Local price declined 9% versus pro forma results in the year-ago period, with declines in all segments. Currency decreased sales by 2%, driven primarily by Europe, Middle East, Africa and India (EMEAI).

Equity losses were $15mn, compared to pro forma equity earnings of $193mn in the year-ago period. The reduction was primarily driven by margin compression in monoethylene glycol (MEG) and polyethylene at the Kuwait joint ventures and isocyanates at the Sadara joint venture.

Operating EBIT was $1.1bn, down 35% versus pro forma results in the year-ago period. Margin compression in polyethylene, isocyanates and siloxanes, as well as lower equity earnings, more than offset volume gains in packaging applications, contributions from new capacity on the US Gulf Coast and savings from cost synergies and stranded cost removal.

The company delivered more than $130mn of cost synergy savings and $45mn of stranded cost removal.

Cash provided by operating activities, continuing operations, was $960mn, up 26% versus results in the year-ago period.

The company returned $0.8bn to shareholders in the quarter, including $0.5bn in dividends and $0.3bn in share repurchases.

Jim Fitterling, chief executive officer, Dow, commented on the quarter: “In spite of challenging market conditions, our results reflect the benefits of Dow’s streamlined and more focused portfolio, continued cost synergy savings and stranded cost removal. In the quarter, we faced margin compression in our intermediate products in both our core business and equity earnings.”

“However, we achieved demand growth in packaging applications, supported by new capacity on the US Gulf Coast. We delivered more than $175mn of savings from cost synergies and stranded cost removal. We also moved quickly to further tighten our expense and capital spending in response to the macro environment. We delivered higher cash flow from operations. And on a sequential basis, after adjusting for higher planned maintenance spending, the Dow team achieved core earnings growth. This result underscores our discipline and focus on agile operational and financial management.

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