Earnings misses at solid companies typically don't constitute the end of the world, especially when you understand the reasons behind the slippage and they clearly are temporary. In my opinion, that was the circumstance at Dow Chemical (NYSE: DOW), which slid below expectations for its second quarter.
Quite simply, profit declined for the biggest U.S.-based chemical maker in the quarter because of non-anticipated loss of production at several plants. One of the plants is in Argentina and two others are in Texas. The South American facility, which is the company's largest polyethylene plant in Latin America, was down for a full 30 days thanks to a water outage. The two in Texas were down thanks to a heat exchanger problem in one, and an incident involving production of methyl methacrylate at the other. Financially, the outages lowered profits by $0.07 per share and revenue by $300 million. But according to CEO Andrew Liveris, they will not affect the third quarter.
Otherwise, Dow Chemical recorded net income of $566 million, or $0.50 a share, compared with income of $486 million, or $0.47 per share, for the second quarter of 2009. But backing out one-time items, the per-share number would have reached $0.54, or $0.01 below analysts' expectations. Revenues increased by 20% to $13.62 billion.
Looking at the company's individual segments, seven of the eight reported double-digit revenue growth. The exception was health and agricultural sciences, where revenue increased by 4%, a level the company said resulted largely from flooding in Canada, along with wet weather in the United States that led to delayed herbicide applications. Of the other units, performance products led the parade with 35% higher sales.
At the same time, the company is trying to vastly improve the performance of its advanced materials business, which includes the businesses acquired last year from Rohm & Haas. The business's two reporting units make specialty equipment such as solar panels, televisions, and Apple's iPhone. Management has the business targeted for a six-fold revenue increase in just more than five years.
As Liveris noted on the call, "We remain firmly on the path we laid out at the beginning of the year, and we are delivering the financial performance we promised. The best proof point that our strategic agenda is the right one is the continued strength in our performance businesses, which delivered 70% of our EBITDA for the quarter."
Dow Chemical fell behind DuPont (NYSE: DD) in the quarter, along with other chemical producers FMC (NYSE: FMC), Eastman (NYSE: EMN), and Westlake (NYSE: WLK), all of which beat analyst expectations. However, with its difficulties behind it, we should expect Dow Chemical to make up lost ground.
