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UPDATE 3-Dow Chemical resists spin-off pressure, raises buyback plan

Swetha Gopinath and Garima Goel
Wednesday, 29 Jan 2014 | 12:12 PM ET

* Fourth-quarter adjusted earnings $0.65/shr vs est $0.43/shr

* Expands share buyback program to $4.5 bln from $1.5 bln

* Raises quarterly dividend by 15 pct $0.37/share

* Shares rise as much as 6 percent

Jan 29 (Reuters) - Dow Chemical Co hiked its dividend and tripled its share buyback program, but signaled that it was in no hurry to fall in line with activist shareholder Daniel Loeb's demands to spin off its slow-growing petrochemical businesses.

The company also reported a quarterly profit that comfortably beat market expectations, powered by resilient agricultural demand and strong margins at its plastics business.

Shares of Dow Chemical, the largest U.S. chemical maker by sales, rose as much as 6 percent in early trading on Wednesday.

Dow and rival DuPont have recently been the target of increased activism from investors who want the companies to drive up shareholder returns.

Loeb wants Dow Chemical to spin off its petrochemical businesses to hasten its transition to a company focused on agriculture, electronics, pharmaceuticals, and food. The company is Third Point's largest investment.

While Dow Chemical's Chief Executive Andrew Liveris said Loeb's demands were similar to the company's strategy of focusing on specialty chemicals, he stressed the value of their lucrative raw material businesses.

"We're a complete value chain," Liveris said on a conference call with analysts, arguing that Dow Chemical could no longer be called a petrochemical company because it has sold off commodity assets worth more than $10 billion since 2006.

Dow Chemical depends on its commoditized raw materials businesses to keep costs down at its high-growth specialty chemicals businesses - a strategy that some analysts said was working, as was evident from the strong fourth-quarter results.

"As long as earnings estimates and the stock are going higher, I think Andrew has people's support," UBS analyst John Roberts said.

DuPont, the target of billionaire Nelson Peltz, on Tuesday said it would buy back $5 billion in stock after reporting quarterly profit above market estimates, helped by early seed shipments and strong insecticide demand.

Investor activism is speeding up restructuring in the chemical industry, said Dhaval Patel, a managing director at North American fund TIAA-CREF, which oversees about $564 billion in assets, and holds Dow Chemical shares.

"You are seeing companies take the right steps, whether it is increasing dividend, buybacks, selling non-strategic assets or acquiring assets in areas that are more exciting or interesting."

SEEDS OF GROWTH

Dow Chemical's agriculture business has been its fastest growing business in fiscal 2013 and Liveris expects the value of the unit to double over the next 5 to 7 years.

Sales at the business rose 13 percent in the fourth quarter and contributed 12 percent of total revenue, driven by demand for insecticides and herbicides in North and Latin America.

The business is expected to benefit in the current quarter as farmers buy seeds ahead of the planting season. Margins are expected to expand by 3-4 percentage points in the near term.

Margins rose 7 percentage points in the fourth quarter at the performance plastics unit, which supplies plastics to toy makers, builders and car makers among other industries.

The business has reported four straight quarters of margin expansion and is the company's biggest, accounting for more than a fourth of total sales in the quarter.

The business, along with the performance materials and feedstocks-and-energy units, is part of the company's petrochemical businesses which Loeb wants to be spun off.

Dow Chemical expects a recent run up in natural gas prices to eat into margins at its performance plastics and performance materials units in the first quarter, but remains poised to benefit from an abundant supply of gas in the United States.

The company increased its buyback from $1.5 billion to $4.5 billion, all of which it will buy back this year.

Dow Chemical, which has paid quarterly dividends since 1912, raised its first-quarter dividend by 15 percent to 37 cents per share.

Net income available for common stockholders was $963 million, or 79 cents per share, in the quarter ended Dec. 31.

Dow Chemical posted a loss of $716 million, or 61 cents per share, a year earlier due to a $990 million charge related to job cuts, plant closures and write down of the value of its lithium-ion battery business.

Adjusted profit was 65 cents per share in the latest quarter, beating the analysts' average estimate of 43 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 3 percent to $14.39 billion.

Dow Chemical shares were up 3.6 percent at $44.64 in midday trading on the New York Stock Exchange. The stock has risen 25 percent in the last year, outperforming the 19.5 percent rise in the broader S&P 500 index.

DuPont shares were up 2.3 percent at $60.99.

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