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Union Carbide warns
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October 13, 2000: 3:59 p.m. ET
Stock tumbles nearly 10 percent, company cites higher costs, lower selling prices
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NEW YORK (CNNfn) - Shares of chemical maker Union Carbide dipped nearly 10 percent in trading Friday a day after saying it would miss quarterly earnings estimates.
Shares of Danbury, Conn.-based Union Carbide (UK: Research, Estimates), which is being acquired by Dow Chemical Co. (DOW: Research, Estimates), fell as low as $31.25 Friday, beating the previous 52-week low of $35.25. In late trading, shares were down $2.38 to $34.19.
The stock is down some 45 percent since the beginning of the year, similar to falls witnessed throughout most of the industry. The Standard & Poor's index of chemical companies has dropped 37 percent this year, to 333 points.
 After the closing bell Thursday, Union Carbide said high raw material and energy costs would cause the company to report third-quarter earnings of 20 cents a share compared with analysts' forecasts of 57 cents a share, according to earnings tracker First Call/Thomson Financial. That's also below the 36 cents a share it reported in the year-ago quarter.
Chairman William Joyce also blamed lower selling prices for polyethylene and ethylene glycol, chemicals widely used in plastic trash bags and shrink-wrap.
Union Carbide becomes the latest company to warn on earnings because of higher oil prices. DuPont Co. said last month that higher-than-expected energy and raw material costs would cause it to miss Wall Street earnings forecasts this year and next.
Paul Leming, an analyst with ING Barings, said Union Carbide's costs have skyrocketed in part because its production capacity for polyethylene and ethylene glycol has not kept up with demand. The company is in the process of building new plants to increase production, which will help lower costs, but they will not be completed for another two or three years he said.
"There are no signs it's a demand problem," Leming said. "It's a capacity problem, and one that's been visible for three years. It's been clear for three years. That's how long it takes to get these plants built. This has just been a ticking bomb."
Leming, who maintains a "buy" rating on the company, said rising fuel prices can severely impact the chemical industry, whose cost structure is 50-60 percent dependent on oil and natural gas costs.
Union Carbide and Dow had hoped to complete their merger, first announced in August of 1999 and valued then at $7.8 billion, by the first-quarter of the year. They are still awaiting regulatory approval, however.
Leming said that, for the moment, Union Carbide's stock is following that of Dow.
"To a certain extent, the value on Carbide is largely going to be set by where it's trading to Dow," he said.
Union Carbide will release its earnings report on Oct. 30. 
-- from staff and wire reports
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Union Carbide
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