Earnings Preview 2013 Q3: Dow Chemical (DOW) Low Cost In Ethane Offsetting Decline In Fertilizer Sales, Helping To Boost Profit 30%

Dow Chemical Company (NYSE:DOW), one of the world’s largest petrochemical companies, is expected to post a 30 percent profit gain in the third quarter as key raw-material costs fell and its manufactured products prices rose.

Analysts polled by Thomson Reuters expect Dow to report a net income of $642.3 million, or 53 cents a share, on Thursday. They expect revenue of $14 billion.

Excluding one-time items, Dow is expected to report earnings of 54 cents.

In the same period a year earlier, Dow posted a $497 million, or 42 cents a share, profit on $13.64 billion in revenue.

Dow's profits were helped in the third quarter as its cost for ethane, a petroleum byproduct, and the feedstock it uses to manufacture ethylene, fell to a record low average price of 8 cents a pound. That boosted ethylene margins by 15 percent and offset a hike in its cost of propane. Rising petrochemical prices also contributed to Dow's improved margins and profits.

“With year-ago comparisons easing further in the third quarter, we expect both components to show better growth than that posted in quarter two,” Frank J. Mitsch, senior analyst with Wells Fargo, said in a note. “On average, commodity chemical pricing rose 7 percent year to year in the third quarter as natural gas, crude oil and propane rose between 14-30 percent (while ethane slid 28 percent). Propylene increased the most (up 35 percent), followed by derivative PP (up 25 percent).”

While the petrochemical company faced lower earnings as the summer season ended offsetting fertilizer prices. However, prices and volumes of other petrochemicals, like propane have provided a counterbalance.

Besides higher prices, volumes are expected to be higher for the recently completed quarter.

Dow’s non-U.S. business was mixed. Demand in Europe remained weak but the fast-growing emerging market economies helped offset the weakness in Europe.