Dow Inc posted a drop in adjusted quarterly profit on Thursday as its margins were squeezed by coronavirus-led falls in demand in some end markets and lower selling prices for its chemicals due to the collapse in global oil prices.
While marginally topping analysts' estimates for net profit and sales, Dow, which makes chemicals for industries ranging from plastics, to paints to building materials, said local prices fell 8%, driven by the decline in global energy prices.
Volumes fell 2%, hurt by lower demand for polyurethanes - a plastic material - and for chemicals used in construction and automobiles, among the markets hit worst by the economic shutdowns to halt the spread of the virus.
To cope with the hit, Dow said it would further cut its spending plans to $1.25 billion, a $750 million cut from last year, trim operating expenses by $350 million, and shore up another $500 million from working capital.
The company will also temporarily idle some manufacturing units to match production with demand across markets hard-hit by lower economic activity.
"While we are beginning to see indications of a recovery from COVID-19 in China, the full extent of the impact of the pandemic in other major geographies is still being determined," Chief Executive Officer Jim Fitterling said.
Already struggling with trade-related uncertainties, the widespread halt in industrial activity to stem the spread of the pandemic, allied to March's oil crash, has added to the woes of chemical companies globally.
Falling crude prices drive down production costs as well as market prices for various derivatives and plastics, effectively restraining margins for big producers like Dow.
Dow signalled it expected a recovery this year. "Assuming a gradual and sustainable return of global economic activity and reopening of economies in May and June, we expect a recovery will begin to take hold as the year progresses," Fitterling said.
Net income available to Dow stockholders rose about 36% to $239 million on a pro forma basis, chiefly because the same quarter a year ago included higher charges related to its merger and later split from DowDupont.
Excluding items, net operating income fell to $439 million, or 59 cents per share, in the first quarter ended March 31 from $729 million, or 98 cents per share, a year earlier.
That marginally beat analysts' estimates of 58 cents, according to Refinitiv IBES.
Net sales fell to $9.77 billion, above the $9.73 billion estimated by analysts.
Shares of the company, which have lost nearly one-third of their value since the split, were broadly unchanged at $37.40 in early trading.
(Reporting by Taru Jain and Arathy S Nair in Bengaluru; Editing by Anil D'Silva and Patrick Graham) ((Taru.Jain@thomsonreuters.com;))
