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Dow's Cost-Cutting Chemistry

By David Smith - Updated Apr 5, 2017 at 7:03PM

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Despite axing 5,000 workers, the chemical maker still merits Foolish attention.

As last week ended, the Labor Department announced that 533,000 jobholders nationwide had received pink slips in November. Here in mid-December, little seems to have changed.

Michigan-based Dow Chemical (NYSE:DOW) kicked off this week with an announcement that it would chop 5,000 full-time jobs, close 20 plants, and sell some businesses as it seeks to trim costs. Along with these permanent moves, the company will temporarily shutter 180 plants and cut 6,000 contract workers.

Dow expects its moves to save it about $700 million a year by 2010, an amount equal to the charge it envisions taking in the fourth quarter. Half the charge will cover severance payments, while the rest will go toward plant shutdowns. Management maintains, however, that it will continue to pay a dividend.

The company's latest moves come just a week after it announced that a joint venture partnership it had earlier agreed to with Kuwait Petroleum had been restructured. The venture, K-Dow Petrochemicals, will include 15 Dow production facilities for which Dow will receive $9 billion, $500 million less than in the original agreement.

That money will be used to partially fund Dow's $15.3 billion purchase of Rohm & Haas (NYSE:ROH), a Philadelphia-based maker of coatings and electrical materials. The acquisition will help lessen Dow's dependence on the lower-margin basic chemicals business.

But Dow wasn't the only big U.S. company to announce a smaller payroll on Monday. Minnesota-based 3M (NYSE:MMM), which makes Post-it Notes and a variety of other consumer and health-care products, also said it would cut 1,800 jobs this quarter, while eliminating overtime and ending "nice-to-do things." The company's announcement follows a similar furloughing of 1,000 employees in the previous quarter.

As the November numbers indicate, job cuts have become the global order of the day for numerous industries. Last week Freeport-McMoRan (NYSE:FCX), the largest publicly held copper producer, announced another round of job cuts. The prior week, giant steelmaker ArcelorMittal (NYSE:MT) said it intended to cut about 3% of its 326,000 global employees.

While it's certainly rough to see employees cut loose, especially at this time of year, I continue to think Dow's overall restructuring is awfully sensible. And while it doesn't appear that its industry will begin a recovery until we've rounded the bend into 2010, when things do perk up, Dow could provide a welcome addition to Foolish portfolios.

Dow retains its top-of-the-line five-star rating among Motley Fool CAPS players. Why not check in with your opinion on the company?

For related Foolishness:

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned above. He does, however, solicit your questions or comments. The Fool's disclosure policy will never be furloughed.

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Stocks Mentioned

DuPont de Nemours, Inc. Stock Quote
DuPont de Nemours, Inc.
Freeport-McMoRan Inc. Stock Quote
Freeport-McMoRan Inc.
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3M Company Stock Quote
3M Company
$149.66 (0.19%) $0.28
ArcelorMittal Stock Quote
$25.39 (-1.01%) $0.26

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