Dow Chemical: We Don't Need No LNG
Chemical giant Dow Chemical has joined its peers, DuPont and Monsanto in making agricultural hay. With its chemicals businesses attempting to fight through economic quicksand in much of the world, especially Europe, Dow was able to turn out a robust quarter in part because of steadiness in its agricultural sciences segment.
Of course, Dow remains far more tied to its traditional roots than are the other two companies. While Monsanto, which once operated under the slogan "Better Living Through Chemistry," now obtains virtually all its revenues from the production of seeds, pesticides, and related products. DuPont, by comparison, is approaching the point where half its revenues are agriculture-based. At Dow, farm-related products still make up only about 15% of the top line, but the unit is expanding steadily.
As CEO Andrew Liveris told Reuters following his company's earnings release: "Two-thirds of the increase in revenues and profits came from agricultural science products. That will continue to set records for us this year, and the next several years."
Of the company's six segments, only two were in positive growth territory on the revenue line. Agricultural sciences' revenues climbed by 14%, and electronic and functional materials saw its revenues increase by 2%.
A better beat through chemistry
At the corporate level, excluding items, earnings per share were $0.69, 13% above both last year's figure and the pre-release consensus expectation, both of which were at $0.61. Revenues for the quarter were down 2.3% year over year to $14.38 billion.
As an inveterate "management freak," I've been an admirer of Liveris and his team at least since 2009, when they were able to pull off a $16.3 billion acquisition of rival chemical maker Rohm & Haas, despite having their financing fall apart at the eleventh hour. A Kuwaiti state-owned company had left Dow standing at the proverbial altar by abruptly pulling out of a planned joint venture. The partnership was to have put more than $9.5 billion in Dow's kitty.
Liveris et al. were able to raise the necessary funds by quickly issuing $7 billion in preferred stock and taking down a $9.23 short-term loan. They subsequently paid down most of the debt by selling various assets, beginning with Rohm & Haas' Morton salt unit, which they unloaded in about two shakes.
"For sale" signs abound
Now, amid the world's economic jitters, the company is continuing to selectively pare its properties. As Liveris said on his conference call:
[S]ince 2009, we have divested non-core businesses representing about $8 billion in revenue. At our investment forum in December, we announced the near-term divestiture goal of $1 billion. And in March, we accelerated this target moving to $1.5 billion of proceeds within 18 months. This demonstrates our bias to achieve more sooner.
In just the first quarter of this year, management sold the stabilizers portion of its plastic additives business and stated an agreement to sell its half-ownership in a Japanese joint venture, Nippon Unicar. It also jettisoned a half-ownership in Nichigo-Morton and made plans to unload its plastic additives and its polypropylene licensing and catalyst businesses.
Fighting the good fight
Liveris is otherwise occupied by conducting at least a pseudo-lobbying campaign against the origination of liquefied natural gas in the United States. His reason: He believes that liquefaction in the U.S. for shipment around the world could severely raise the price in our country for gas, his company's primary feedstock.
He may very well be correct. I've felt for some time that, with natural gas prices in the $3- to $4-per-Btu range in the U.S. and near $15 in places like Japan and Rio de Janeiro, a sizable natural gas liquefaction program in this country could easily cause us all to meet somewhere in the middle, maybe near $8, through an arbitrage effect.
He'd better hustle, however. Houston-based Cheniere Energy (NYSE: LNG) has been permitted to build the first LNG plant at Sabine Pass, Texas. And Golden Pass LNG, 70% owned by state-run Qatar Petroleum International and 30% by ExxonMobil , also has received permission to export LNG from the United States. Several other export permit applications are pending.
But as Liveris noted:
Positive disruptive trends in U.S. shale gas have led us to make decisions about where and how we invest for global growth. Our competitive U.S. Gulf coast investments are predicted to deliver $2 billion by 2017 and $2.5 billion when fully operational, and we are taking multiple steps to protect this profitability, not the least of which are our activities on the policy front.
Andrew Liveris knows what he wants for Dow Chemical.
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