Bleak Macro-economic Conditions Cause Dow’s Profit To Fall

Bleak Macro-economic Conditions Cause Dow's Profit To Fall

The Dow Chemical Company (NYSE:DOW), the world’s second biggest producer of chemicals, reported second quarter results that missed estimates for both earnings and revenues. Earnings were lower by 31% compared to the previous year, due to slowing demand around the world and pricing pressures.

“World economic activity saw marked deterioration throughout the second quarter, driven primarily by Europe’s persistent recessionary conditions. Activity in China and elsewhere in the emerging world has decelerated, and recovery in the United States is moderating from its momentum earlier this year, due to weakening consumer confidence, softer trade flows, and high unemployment,” Chief Executive, Andrew Liveris said.

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Net income for the quarter fell to $734 million (55 cents a share) from $1.07 billion (84 cents a share) last year. Consensus was for 64 cents a share.

Revenues dropped to $14.5 billion from $16 billion, while analysts expected $15.6 billion. Volumes in North America dropped 8.1%, while they improved 15 percent across Africa, the Middle East, and Europe.

According to Liveris many factories in China were idle in view of weak demand, primarily Europe. However, he expects China to improve in the second half, in response to government measures to boost domestic demand. He thinks that the U.S. is unlikely to see a recession, though growth has been slower than expected.

Realizations dropped 5 percent due primarily to currency considerations, which also trimmed sales by over $400 million. “These are about the worst operating conditions we have seen since 2009,” Liveris said. “That gives you a fairly bleak outlook, and it’s a weak one for the rest of 2012.”

The sluggish macro environment has led the company to consider cost reduction programs and revamping efficiency. The company’s current take on the environment is at sharp variance with its previously expressed views, that the second quarter would witness global restocking amidst a global economy gaining momentum. However, it confirmed that the situation would not affect its plans for expanding in the U.S. and in the Middle East.