By
David Lee Smith
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December 7, 2007
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Dow Chemical (NYSE: DOW ) is planning a cost-reduction effort that will involve shutting down a number of plants and laying off about 1,000 employees.
This action might be a preamble to bigger news from the company. Dow cancelled an analyst meeting last month, setting off speculation that something of substance was afoot. The company's speculations have involved a movement away from commodities chemicals, and a strengthening of its specialty chemicals business. It's possible that the belt tightening is to set the stage for a subsequent announcement along these lines.
I'm also struck that, given the soft U.S. results that big companies have reported during the past two earnings seasons, Dow's knife-wielding could become relatively common among U.S.-based multinational companies during the next few quarters.
Along with Dow's chemical cousin DuPont (NYSE: DD ) , a disparate group of companies, including General Motors (NYSE: GM ) , United Parcel Service (NYSE: UPS ) , and big oilfield services provider Schlumberger (NYSE: SLB ) , compensated for the low U.S. results in the past quarter with strength elsewhere in the world. Both Dow and DuPont have been affected by higher hydrocarbons costs.
Dow's cost reductions also will include an exit from the automotive sealers business here, in Latin America, and in the Asia-Pacific region. Dow will also close two plants in Brazil and others in France, Canada, and Louisiana. Also slated for reduction in size is a research and development facility operated by Dow's Union Carbide unit in West Virginia.
So, events continue to unfold slowly at Dow Chemical, and -- if you'll permit me to merge a couple of metaphors -- the directional picture still lacks clarity. On that basis, as I told my Foolish friends at earnings time, this one should be watched -- but not jumped on -- until that clarity improves.
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