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Chemicals maker Dow cuts costs as global slowdown bites

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10/24/2019 | 10:09am EST
A Dow sign is seen during the China International Import Expo (CIIE), at the National Exhibition and Convention Center in Shanghai

(Reuters) - Dow Inc beat Wall Street's tempered profit estimates in the third quarter as it cut costs to offset a sharp drop in demand for chemicals used in plastics and other manufacturing, sending its shares up more than 5%.

The company, which makes chemicals used in paints, cosmetics and plastics, said it had now saved about $1.37 billion (£1.06 billion) as part of a previously announced cost reduction programme, and had cut an additional $40 million in expenses in the latest quarter.

Like larger German rival BASF, which reported a 24% drop in operating income earlier on Thursday, Dow is wrestling with a sharp slowdown in global demand, with the biggest falls coming in its North America and its Europe, Middle East, Africa and India (EMEAI) business.

Dow said sales volumes fell 2% in the third quarter, while prices declined 12%. Region wise, sales fell 17.5% in EMEAI and 15.6% in the United States and Canada. Asia-Pacific sales fell 7.5%, despite China recording double-digit growth.

"If this is as bad as it gets for Dow, that's pretty good," Bernstein analyst Jonas Oxgaard said, adding that the company had more room to cut costs.

However, the company forecast current-quarter revenue of $9.8 billion to $10.2 billion, below analysts' estimates of $10.94 billion, according to Refinitiv IBES. It also expects to cut about $65 million to $75 million in costs.

Dow also said it had taken measures to boost prices and that those for polyethylene had risen in September.

Its main indicator of operating profit fell 32% to 91 cents per share but that was still 18 cents per share better than consensus forecasts.

Analysts had lowered their profit estimates by 37% since July after the company forecast disappointing revenue growth for the reported quarter and cut its full-year spending.

Net sales fell 15.2% to $10.76 billion in the third quarter, marginally beating analysts' estimate of $10.74 billion.

Dow shares, which had fallen nearly 15% since they started trading following the company's split from DowDuPont on April 2, were up 5.4% at $49.78 in premarket trading.

The other parts of DowDuPont - Corteva, which makes pesticides and insecticides, and DuPont, which makes chemicals used in the automotive and electronic industries, are set to post their quarterly reports on Oct. 31.

(Reporting by Arathy S Nair in Bengaluru; Editing by Anil D'Silva)

By Arathy S Nair

Stocks treated in this article : NASDAQ Comp., DJ Industrial, NASDAQ 100, S&P 500, BASF SE
Stocks mentioned in the article
ChangeLast1st jan.
BASF SE 0.43% 68.38 Delayed Quote.13.21%
DJ INDUSTRIAL 0.01% 28135.38 Delayed Quote.20.61%
NASDAQ 100 0.25% 8487.708348 Delayed Quote.31.98%
NASDAQ COMP. 0.20% 8734.879088 Delayed Quote.29.94%
S&P 500 0.01% 3168.8 Delayed Quote.26.41%
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