Dow Chemical's margins hit decade high on pre-merger cost-cutting

Thu Apr 28, 2016 8:38am EDT
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By Amrutha Gayathri and Swetha Gopinath

(Reuters) - Dow Chemical Co (DOW.N: Quote), the No. 1 U.S. chemical maker by sales, reported a higher-than-expected adjusted profit as cost cutting ratcheted up margins to their highest in more than a decade.

Dow has been clearing the decks ahead of its $130 billion merger with traditional rival DuPont (DD.N: Quote) by slashing administration costs and laying off employees.

The deal, due to close later this year, is the first step toward breaking the businesses into three separate companies focused on agriculture, material science and specialty products.

The merger is expected to create cost synergies of about $3 billion, the companies have said.

However, Dow's chief financial officer, Howard Ungerleider, indicated on Thursday that further cost savings were likely.

"We feel very good that $3 billion in synergies we announced in December is a floor, not a ceiling," he told Reuters.

Dow plans to slash costs by $300 million this year. Of that, $90 million was cut in the first quarter, Ungerleider said.

Dow's strategy to focus on high-margin products by shedding volatile commodity businesses such as its century-old chlorine business has also been paying off.   Continued...

A sign is seen at an entrance to a Dow Chemical Co plant in Plaquemine, Louisiana December 12, 2015. REUTERS/Jonathan Bachman