Chemical giant The Dow Chemical Company (DOW) intends to invest $100 million in its internally pitched projects to reduce greenhouse gas (GHG) emissions and improve energy efficiency.
Dow will choose from a group of 60 proposals that have been submitted by its various business units. Taken together, the 60 projects would cost more than $500 million to implement and would cut nearly 8 trillion British Thermal Units, or BTUs, of energy use and eliminate over 400 thousand metric tons of carbon emissions.
Since 1994 till date, Dow has saved 1,800 trillion Btu of energy, resulting in cost savings of $9.4 billion.
Earlier this month, Dow reported sales of $13.8 billion for the fourth quarter of 2010, which was up 22% year over year. The company’s net earnings were 37 cents per share in the fourth quarter of 2010, outpacing the Zacks Consensus Estimate of 35 cents as well as last year’s 8 cents.
However, including one-time charges, the company earned 47 cents compared with 18 cents in the year-ago quarter.
Dow was recognized with four 2010 American Chemistry Council (ACC) Responsible Care Energy Efficiency Awards for programs that improved energy efficiency at three of its U.S. facilities, including Exceptional Merit awards for Freeport, Texas and Houston Dow Center, as well as West Alexandra, Ohio.
Recently, Dow and ExxonMobil Chemical Company, a division of ExxonMobil Corporation, signed an agreement to divest their ownership interests in Dexco Polymers L.P. to TSRC Corporation (TSRC) of Taiwan in the second quarter of 2011. We believe through divestures and acquisitions, Dow will become an integrated, market-driven, technology-based enterprise that delivers stable earnings growth.
Dow continues to deliver cost synergies from the Rohm & Haas (ROH) acquisition, which is expected to consolidate the higher margin and higher growth specialty businesses while reducing volatility in earnings and cash flow. We believe that management’s strategy of selling equity interests in commodity assets is appropriate, though these units continue to deliver good results as the global economy strengthens.
Dow’s net debt is $20.6 billion following completion of the Rohm and Haas transaction and subsequent divestitures, equity offerings and debt retirement. Dow is focusing on its core business and has been divesting non-strategic assets. However, we are wary of the macro trends.
We believe a slower recovery in the developed markets of the US and Europe, excess supply conditions in key commodities and higher raw material costs could restrain growth.
Dow faces stiff competition from BASF SE, EI DuPont de Nemours & Co. (DD) and privately held ExxonMobil Chemical Company.
We maintain our long term Neutral recommendation on Dow Chemical. Currently, it holds a short-term Zacks #1 Rank (Strong Buy) on the stock.
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