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Dow Sales Fall Short

The company cites margin pressure and energy cost rises.
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Dow Chemical


posted a 10% drop in first-quarter earnings as a slow start to the year held down sales gains.

The Midland, Mich., company made $1.21 billion, or $1.24 a share, for the quarter ended March 31, down from the year-ago $1.35 billion, or $1.39 a share. Sales rose 3% from a year ago to $12.02 billion. Analysts surveyed by Thomson Financial were looking for a $1.17-a-share profit on sales of $12.26 billion.

Compared with the same period in 2005, price edged 2% higher, but this was not enough to counter a year-over-year increase of more than $800 million in feedstock and energy costs, resulting in margin erosion. Volume in the quarter increased 1%, with strong growth in Latin America and steady demand in Europe and Asia Pacific dampened by a slowdown in demand across most businesses in the U.S., where customers delayed purchases in anticipation of lower prices.

"This was a quarter in which we again benefited from our strategy -- with an increase in EBIT of our combined Performance businesses mitigating a decline in our Basics portfolio," said Geoffery E. Merszei, Dow's executive vice president and chief financial officer. "And while turnarounds during the quarter impacted volume, and U.S. sales slowed at the start of the year on the expectation of lower prices, we saw demand pick up again in March -- and that momentum has continued into the second quarter.

"Through the quarter we again demonstrated our absolute commitment to maintain a sharp focus on financial discipline. Selling, Administrative and Research and Development expenses as a percent of sales were held at a record low 5.5% and our capital expenditure program stayed firmly on track. We also raised our dividend and accelerated our share repurchase program -- investing more than $300 million during the quarter -- while at the same time further reducing our debt-to-capital ratio."