(Reuters) – Dow Inc (DOW.N) forecast current-quarter revenue below analysts’ expectations on Thursday and cut 2019 spending as chemical companies grapple with U.S.-China trade dispute and an oversupply of chemicals used to make plastics.
The Dow logo is seen on a building in downtown Midland, Michigan, in this May 14, 2015 file photograph. REUTERS/Rebecca Cook/File Photo
Shares of Dow, which makes chemicals used in paints, cosmetics and plastics, fell nearly 5% as investors shrugged off a second-quarter profit that beat expectations.
Compounding the woes for chemical makers is an oversupply of ethylene and polyethylene used in making plastics from the United States, China and Korea that has hurt prices.
“Macro environment is cautious, largely driven by geopolitical volatility and prolonged trade negotiations,” Chief Executive Officer Jim Fitterling said on a post-earnings call.
Fitterling, however, said demand growth for products in China were up in double digits in the quarter.
“I think everybody had anticipated that with tariffs, it would really shut off the whole China market. We haven’t seen that.”
German chemicals giant BASF (BASFn.DE) in July forecast a 30% fall in 2019 operating profit instead of an earlier estimate of a rise, blaming trade tensions.
Dow cut its spending outlook by 25% to $2 billion in 2019 and said it would delay a 450,000-ton polyolefins plant expansion in Europe and a feasibility study for a new siloxanes plant.
It forecast third-quarter revenue of $10.50 billion to $11 billion, below estimates of $12.03 billion.
Sales at its largest unit, packaging and specialty plastics, is expected to fall 3% to 5% sequentially, after it plunged 15% in the second quarter.
“While most chemical companies have pointed to a recovery in demand by H2, our sense is that volume weakness could extend through Q3 and recovery could be delayed,” RBC Capital Markets analyst Arun Viswanathan said in a note.
Dow was spun off in April after DowDuPont, formed in 2017 as part of the $130 billion merger of chemicals giant Dow Chemical and DuPont, agreed to split into three.
Sister companies DuPont (DD.N), which makes chemicals used in the automotive and electronic industries, and Corteva CVTA.N, which makes pesticides and insecticides, are set to post their quarterly reports on Aug.1.
Dow’s net operating profit, excluding certain items, slid 39% to $649 million in the three months to June 30.
On a per share basis, earnings of 86 cents per share beat estimates of 84 cents.
Net sales fell 14% to $11.01 billion and missed estimates of $11.24 billion.
Reporting by Nishara Karuvalli Pathikkal in Bangalore; Editing by James Emmanuel and Arun Koyyur