INDUSTRY
& B U S I N ESS
Dow's Profits Lag Behind Sales Company says depressed prices are major factor behind standstill earnings for fiscal 1961 "Life hasn't been easy in the chemical industry recently," says Dow Chemical chairman Carl Gerstacker, "but it has been interesting. ,, Some of the problems that have made life less than easy were outlined by a team of Dow executives in a session with the New York Society of Security Analysts. Dow looks for its sales during the second half of its fiscal year, which ends May 31, to be up 15% from a year earlier. Normally, a rise like that could be expected to boost earnings by 25 to 30%, says treasurer Robert B. Bennett. Actually, however, earnings probably will not vary greatly from the first half, when Dow netted $1.09 a share, or from fiscal 1961's final six months. While sales for fiscal 1962 will probably climb about 9% to about $890 million, therefore, Mr. Bennett looks for earnings to be little changed from fiscal 1961's $2.23 a share. Mr. Bennett blames much of this year's lackluster performance on depressed prices, both in the U.S. and abroad. He points to about $40 million of "lost profits" before taxes this year, more than half of it (trimming 50 cents a share from earnings) "unexpected." About $30 million was
lost through depressed prices, especially export prices; damage from Hurricane Carla on the Gulf Coast last September reduced earnings by an additional $6 million. Start-up costs at Dow's Velasco, Tex., magnesium plant and inventory write-downs account for the balance of the $40 million. But Dow thinks that the worst of its current problems will not recur after its current fiscal year. For one thing, price decreases should not be so bad, even though the company expects its average prices to continue to fall, perhaps by about 2% a year, as far into the price future as it can see. But if the decline is no worse than that, the company figures it can do very well. Into the Black. In addition, Dow sees many of its newer operations moving into the black. It expects its consumer products division to be solidly profitable by September, for example. Saran Wrap film has been making the most money, but Mr. Bennett expects that its newer Handi-Wrap polyethylene film will turn a profit this year. Other consumer products—Dowgard automotive coolant and Dow's crab grass herbi-
Robert B. Bennett Lost profits cut into 1962 results
Calvin A. Campbell You have to have plants abroad
32
C&EN
MARCH
19, 1962
cide—still pose problems, however. Dow's newest item in its consumer line, Pinkies, a polyethylene disposable glove, is now being used in beauty shops, may eventually be promoted to consumers. Magnesium operations, executive vice president Herbert D. Doan says, are now at the breakeven point and should be in the black by the end of May. Dow is now selling magnesium at a 125 million pound-a-year rate, about two thirds of capacity. Fiber operations also are improving, Mr. Doan adds. He predicts sales this year will double those of 1961, and losses will be "reduced substantially." Dow's Zefran acrylic fiber plant at Williamsburg, Va., now operating at two thirds of capacity, should be at capacity by the end of the year, he adds. Dow plans to expand the plant this year. However, Mr. Doan does not expect Dow's overall fiber business to be profitable for about three years. Dow's affiliate, Dow Badische, also is still not showing a profit, but should be in the black in about a year. Eyes Overseas. Meanwhile, Dow is stepping up its operations abroad, at least in part as a hedge against cuts in U.S. tariffs. "If you are going to sell in the European Common Market, you have to have plants abroad," vice president Calvin A. Campbell argues. Dow now sells about 12% of its output abroad and has $32 million invested in operations outside of the U.S. and Canada, half of this in the ECM nations and Great Britain. In the next three years, Mr. Campbell says, Dow expects to invest an additional $55 million in foreign plants (capital spending in the U.S. over the same period will run about $75 million a year). About half of the new overseas investment is slated for a wholly-owned chemical complex in the Netherlands, where Dow plans initially to make chemicals using raw materials from Texas. Other important overseas projects are plants for making styrene, polystyrene foam, and polyethylene in Japan and polyethylene in Spain. At the security analysts' meeting Dow also announced news that will be welcome to analysts who try to compare its operations directly with those of most other chemical firms. Starting in 1963, Dow will use the calendar year as its fiscal year, switching from its traditional fiscal year ending May 31.
