Dow beats Q3 estimates, plans $1 billion in cost cuts as energy prices rise

Reuters

Published Oct 20, 2022 06:07AM ET

Updated Oct 20, 2022 11:46AM ET

By Ruhi Soni

(Reuters) -Chemicals giant Dow Inc on Thursday beat third-quarter profit estimates and outlined plans to cut costs by $1 billion next year to combat soaring European energy prices and a looming recession, sending its shares up 5%.

The company, however, forecast current quarter net sales below Wall Street expectations and a $400 million hit to core profit from cost and inflationary pressures.

"We anticipate global energy markets to remain volatile in response to geopolitical dynamics as well as weather in the Northern Hemisphere, and continue to expect lower consumer spending, primarily in Europe," Chief Financial Officer Howard Ungerleider said during an earnings call.

Eurozone inflation that hit a record high of 10% in September will likely impact Dow's sales from the Europe, Middle East, Africa and India (EMEAI) region, which contributed nearly 36% of total revenue last year.

On the brighter side, Dow expects prices of polyethylene to stabilize in the current quarter and higher demand in the upcoming holiday season for personal care products that use its chemicals, which might offset some of the headwinds.

Besides, its cost-cut measures including idling cold furnaces at its crackers, reducing turnaround costs, shifting production to higher-margin functional polymers and easing supply chain logjams at the U.S. Gulf Coast would also help.

The company cut its 2022 capital expenditure forecast to $1.9 billion from $2.1 billion.

It forecast fourth-quarter net sales in the range of $11.5 billion to $12.0 billion, compared with Wall Street consensus of $12.30 billion, per Refinitiv data.