Wall Street is wondering if Dow Chemical Co. has been too optimistic in its profit forecasts after second-quarter results fell short of expectations.
The nation's largest chemical maker said Tuesday that increased demand and higher prices for chemicals used in products ranging from consumer electronics to adhesives helped it swing to a profit from a year-ago loss.
But the results fell below the expectations of analysts. Dow Chemical shares dropped 9.2 percent to $25.72. S&P Equity Research cut its 12-month price target for Dow to $30 from $34 after the results were released.
Dow earned $566 million, or 50 cents per share in the second quarter, after paying preferred dividends. That compares with a loss of $486 million, or 47 cents per share, a year earlier. The results were weighed down by the impact of three plant closures during the period. Adjusted to exclude that and other items, profit was 54 cents, two cents below analyst forecasts.
Revenue jumped 20 percent to $13.62 billion, but was also shy of expectations.
Dow said sales in the second-quarter were mostly driven by higher prices. Volume overall increased 7 percent, led by the performance segment, which makes things like electrical laminates and heat transfer fluids for solar power products.
Sales of electronic and specialty materials rose the sharpest as volume jumped 20 percent. Dow reported double-digit sales gains in all geographic areas, led by North America.
The performance businesses are a collection of higher growth and higher margin products, like chemicals for consumer electronics and agricultural uses.
In an interview with The Associated Press, Dahlman Rose analyst Charles N. Neivert said that despite the growth of the performance businesses, investors are concerned that Dow hasn't placed enough focus on them. They think the units should have grown more in the April to June period, he said. They're also afraid that growth in basic plastics and chemicals won't last as economic growth levels off. The gross domestic product grew at an annual rate of 2.4 percent from April to June, down from 3.7 percent the quarter before.
"In other words, they're standing still," he said. "And people do not want them standing still."
The Midland, Mich., company, which makes products ranging from cosmetic ingredients to food additives, remains confident that economic momentum is building. But its view for the U.S. "remains guardedly optimistic." Dow still thinks the global recovery will be led by Asia, slowly helped by the U.S., with Europe lagging.
In a conference call with analysts, the company said it thinks positive factors will outnumber the negatives. Dow predicts a continued rebound in electronics, a "significant improvement" in food and nutrition products and ongoing growth in Asia Pacific. But it also expects to be hurt by more debt issues in Europe and high unemployment in developed nations.
(Copyright 2010 by The Associated Press. All Rights Reserved.)
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