Dow's results suffer from rising costs

By Katie Bird

- Last updated on GMT

Related tags Revenue Dow chemical company

Significant price increases have only partly offset rising costs for Dow Chemical as net income dropped from last year's second quarter.

Although sales revenues for the chemical giant were up 23 percent on the same period last year to $16.4bn, net income dropped from $1.04bn to $762m.

Costs up $2.4bn on last year

The US-based company said rising raw material and energy costs were the reason behind the lag, stating that costs for the quarter were up $2.4bn from the same period last year.

This 42 per cent rise is the largest year-on-year increase in costs the company has ever seen.

Dow CEO Andrew N Liveris also commented on the significant rise in oil prices from the first to the second quarter of 2008.

"The surge in oil prices from first to second quarter added another $1bn of cost sequentially, and we reacted quickly by announcing two broad-based price increase initiatives, adjusting plan operating rates and implementing additional cost cutting measures,"​ he said.

In addition to price increases, which accounted for 18 per cent of the 23 per cent sales revenue increase, the company also believes its large global footprint is helping it to weather the difficult economic climate.

Commenting on the future CFO Geoffrey E Merszei said:"We will closely manage our day to day operations, with a primary focus on recovering lost margins. And we will be utilising Dow's vast footprint to capture growth wherever it is in the world."

Acquisitions for long term growth

In light of what CEO Liveris describes as a weakening US economy and an uncertain global outlook, the company has a number of more long term strategies to help ensure continued growth.

"In addition, we remain committed to furthering our transformation, and to changing the earnings profile of our company,"​ he said.

The recent acquisition of Rohm and Haas will do just that, and create the leading specialty chemicals and advanced materials company in the world, a spokeperson said.

Weakness in the North American market

Geographically it was the American market that was hit the hardest reporting a reduction in sales volume of 6 per cent. However, price increases of 16 per cent implemented in the region led to an overall growth figure of 10 per cent.

This drop in sales volume was partly the result of restructuring in the American market including various business closures as well as the formation of Americas Styrenics, a joint venture between Dow and Chevron Phillips Chemical Company.

Growth in sales volume of 11 per cent in Europe and 12 per cent in the emerging markets helped to offset the weakness in the North American market.

Globally the company reported a growth in sales volume of 5 per cent which remains one of the highest quarterly increases since 2004.

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