(Reuters) - Dow Inc (DOW.N) forecast current-quarter revenue below estimates on Thursday after posting a drop in adjusted quarterly profit as selling rates of chemicals took a hit from a slump in oil prices and the coronavirus outbreak dented demand in some end markets.
Already struggling with trade-related uncertainties, chemical companies globally are now forced to grapple with a widespread halt in industrial activity to stem the spread of the pandemic and the crash in oil prices.
“The progression of containment and recovery that we saw in China is now playing out in Europe and we expect similar patterns to evolve in the U.S. and other countries,” Chief Financial Officer Howard Ungerleider said.
“So our corridor of potential outcomes assumes that the second quarter will show the largest global economic and chemical industry impacts from COVID-19 and the collapse in energy prices.”
Dow, which makes chemicals for industries ranging from plastics to paints to building materials, forecast second-quarter sales of $7.5 billion to $8.5 billion, below $9.25 billion estimated by analysts.
Ungerleider said Dow expects China to slowly reverse demand declines in the second quarter and the global economy to come back online after that.
Dow’s product prices fell 8%, taking a hit from the crash in crude prices that drove down market rates for various derivatives and plastics, squeezing margins.
Total volumes fell 2%, hurt by lower demand for chemicals used in various industries, including construction and automobiles, which are among the worst hit due to lockdowns.
To cope with the downturn, Dow said it would further cut its spending plans by $750 million to $1.25 billion, trim operating expenses by $350 million and boost its working capital by another $500 million.
The company, which halted its share buyback, will also temporarily idle some manufacturing units to match production with demand across markets hard-hit by lower economic activity.
Net income available to Dow stockholders rose about 36%, mainly because the year-earlier quarter included higher charges related to its merger and later split from DowDupont.
Excluding items, net operating income fell 40% to 59 cents per share, marginally beating analysts’ estimates of 58 cents, according to Refinitiv IBES.
Net sales fell to $9.77 billion, topping the $9.73 billion estimate.
European rival BASF (BASFn.DE) reported lower adjusted operating profit on lower demand for basic petrochemicals as well as plastics and coatings used in manufacturing cars.
Dow shares were down 3% at $36.35.
Reporting by Taru Jain and Arathy S Nair in Bengaluru; Editing by Patrick Graham and Anil D'Silva