UPDATE 3-Dow Chemical 3rd-qtr profit jumps on plastics


(Adds general outlook, analyst quote, stock activity)

By David Brinkerhoff

NEW YORK, Oct 27 (Reuters) - Dow Chemical Co.'s quarterly profit jumped 30 percent as strong sales of car plastics and construction materials offset record energy costs, the No. 1 U.S. chemical maker said on Thursday.

Dow, whose chemicals are used in everything from antifreeze to plastic pipes, said net income increased to $801 million, or 82 cents a share, from $617 million, or 65 cents, a year earlier. Analysts, on average, expected 75 cents a share, according to Reuters Estimates.

Dow stock was up nearly 2 percent in premarket trade.

Dow said product prices improved 12 percent, with increases in all geographic areas and across virtually every business. Volume held steady, despite the impact of the two hurricanes that hit the U.S. Gulf Coast.

Quarterly sales totaled $11.3 billion, a new third-quarter record, and were up 12 percent from a year earlier.

Still, Dow's feedstock and energy costs were almost $850 million higher than a year ago.

Even though feedstock and energy costs are expected to remain high and volatile, Dow expects to post increased earnings in the fourth quarter, and said 2006 results should exceed 2005 levels.

"Management did endorse year-year EPS growth in the fourth quarter, and further improvement in 2006 vs. 2005, which is saying something in today's environment," said Banc of America Securities analyst Kevin McCarthy.

Dow forecast continued global economic growth that will spur higher demand for chemicals and plastics.

In recent months, the U.S. chemical industry has struggled as energy costs spiked after Hurricanes Katrina and Rita hit the Gulf Coast. The storms also hobbled chemical output by forcing plant shutdowns.

Even before the storms, industry analysts were worried about weakening demand, rising interest rates, and high prices for natural gas, a key ingredient in many chemicals.

Sales weakened in two businesses. Farm chemical revenue fell 6 percent to $615 million, dampened by difficult market conditions in Brazil and lower-than-expected demand for fungicides as soybeans in the southern United States were mostly spared from a deadly fungus plague afflicting South America.

Sales in the chemicals segment dropped 3 percent to $1.3 billion, as the hurricanes affected about one-half of Dow's global ethylene glycol, caustic soda and vinyl chloride monomer production.

Ethylene glycol is used in antifreeze and polyester, while caustic soda is used in cleaning products. Vinyl chloride becomes plastics.

While caustic soda prices rose significantly from a year earlier, Dow said, they failed to keep up with skyrocketing natural gas costs, which have more than doubled in the last year.

Shares of Midland, Michigan-based Dow fell 6.4 percent during the quarter, compared with a 5.6 percent decline in the Standard & Poor's Chemical index.



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