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Dow Chemical Profit Slips, Energy Costs Drag

Dow Chemical Thursday posted better-than-expected quarterly earnings helped by strength overseas, improved pricing and gains from its agricultural business.

Dow Chemical
Dow Chemical

The Midland, Michigan-based company said it expects a good second-quarter, on the back of strong results from its joint ventures, a strong market presence outside the United States and a continued focus on raising prices.

"(Energy) continues to be a huge headwind, $2.2 billion year-on-year, almost as much in one quarter as all of '07, which was $2.5 billion," Dow Chemical CEO Andrew Liveris told "Squawk Box."

"But our people have managed to overcome it through price increases and, of course, our strategy being very international -- 66 percent of Dow is overseas, 70 percent of our joint ventures are overseas -- so that mitigated some of the headwinds because of strong economic growth ovreseas," Liveris said.

The largest U.S. chemical maker's net income fell to $941 million, or 99 cents a share, down from $973 million, or $1 a share, a year earlier, hurt by lower volumes in North America and soaring raw material costs.

But sales in the quarter rose 19 percent to $14.8 billion, spurred by double-digit price increases in all regions and six percent volume growth in emerging economies.

Analysts, on average, had forecast first-quarter revenue of $13.64 billion, according to Reuters Estimates.

Dow is facing stiff competition from Middle Eastern chemical makers, which enjoy access to cheap crude oil and natural gas. Additional ethylene capacity that is due to come on line in the region later this year is likely to put even more pressure on Dow's profit margins.

Dow has adopted a joint-venture strategy to counter this threat, signing agreements with companies in the Middle East and North Africa that will give it access to cheaper feedstocks. Some of these partnerships, however, are still a few years away from production.

"Our customers are being prudent, but they're not panicked," Liveris said. "They are neither bullish, nor bearish; yes, the housing thing is terrible, residential construction much talked about, but people are being prudent, and I think the U.S. dollar helps on the export side, and then, of course, this big food and energy issue that we have, as a collective country and globe, that's creating all sorts of opportunities in the supply chain."

Shares of the company rose 1.5 percent in the last three months, while the Standard & Poor's Chemicals Index gained 4.5 percent.

--CNBC.com contributed to this report.

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