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Dow Chemical (DOW) Q3: Another Earnings Beat in Store?
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Dow Chemical (DOW - Free Report) is gearing up to release third-quarter 2016 results ahead of the bell on Oct 27.
Last quarter, the U.S. chemical kingpin delivered a 11.76% positive earnings surprise, aided by its cost-cutting and productivity actions. Sales fell on lower pricing and the impact of the sale of the chlorine products business, but beat expectations.
Dow has beaten the Zacks Consensus Estimate in all of the trailing 4 quarters with an average beat of 18.11%. Is the company poised for another winning quarter? Let's see how things are shaping up for this announcement.
Factors to Watch For
Dow, in its last earnings call, said that it sees sustained momentum in consumer driven end-markets. The company is witnessing healthy demand in North America and continued recovery in Europe, despite geopolitical uncertainties. Latin America is also showing signs of improvement.
Dow should continue to gain from its productivity improvement and cost control actions in the September quarter. The company remains on track to deliver $1 billion of cost reduction under its three-year productivity program. Dow achieved $90 million in productivity savings during second-quarter 2016, bringing the first-half tally to nearly $180 million. The company expects $300 million in savings in 2016.
Dow should also gain from the synergies associated with Dow Corning Silicones business in 2016. Dow has taken full control of Dow Corning – earlier a 50-50 joint venture between Dow and Corning Inc.
Dow expects to achieve combined run rate annual synergies of $500 million from the restructured ownership in Dow Corning, consisting of $400 million in cost synergies and $100 million in growth synergies. The company also expects to realize $1 billion in annual EBITDA synergies. Dow is taking a number of actions (including closure of silicones manufacturing plants in Greensboro, NC, and Yamakita, Japan) to attain synergies from the restructuring of its ownership in Dow Corning.
Dow also remains committed to invest in attractive regions through highly-accretive projects including the expansions in the U.S. Gulf Coast and Sadara joint venture in the Middle East. The company's propane dehydrogenation unit (PDH) in Freeport, TX started commenced commercial operations in Dec 2015 and is now operating at full capacity. The PDH unit represents a major part of Dow's roughly $4 billion U.S. Gulf Coast investments. Dow is also making progress with the construction of the new ethylene cracker that is on track to be operational by mid-2017.
Dow, in August, also declared that its joint venture in the Middle East, Sadara Chemical Company, has started the operations of its mixed feed cracker, marking an important milestone for the joint venture. Sadara is a JV between Dow and Saudi Arabian Oil Company (Saudi Aramco).
However, Dow is facing challenges in its agriculture business. Depressed farm commodity prices and weak demand in Latin America remain headwinds for this business. Lower demand for insecticides and generic herbicides and pricing pressure are expected to keep crop protection volumes under pressure through second-half 2016.
Dow is also seeing weakness in the energy market, stemming from the low oil price environment that is hurting oil and gas exploration project demand. Moreover, the company is exposed to currency headwinds. Unfavorable currency translation contributed to lower sales in its agriculture business in the second quarter and is expected to continue to weigh on sales in the September quarter.
Dow is moving ahead with its planned mega-merger with DuPont (DD - Free Report) . The companies agreed to combine their businesses in late 2015 in an all-stock deal to create a chemical behemoth (dubbed "DowDuPont"), before eventually breaking up into three independent companies through tax-free spin-offs.
The combined company would split into pure-play agricultural, material science and specialty products businesses that will be leading players in their respective fields. The breakup is expected to take place 18-24 months after the completion of the deal.
The deal secured approvals from shareholders of both companies in July and is now subject to customary closing conditions including receipt of regulatory clearances. The European Commission (EC), in August, started a Phase II review for the planned merger of equals of the two companies.
The mega merger is projected to deliver cost synergies of around $3 billion, expected to be achieved with the first two years after the deal closure. Both companies expect the planned merger to enhance their growth profiles through expanded scale and complementary offerings (especially in agriculture) and drive shareholder value. We expect Dow to provide an update on the merger in its third-quarter call.
Our proven model shows that Dow is likely to beat earnings because it has the right combination of the two key ingredients.
Zacks ESP: The Earnings ESP for Dow is +1.25% as the Most Accurate Estimate stands at 81 cents while the Zacks Consensus Estimate is pegged at 80 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Zacks Rank: Dow currently carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank of #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings.
Conversely, sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
The combination of Dow’s Zacks Rank #2 and positive ESP makes us reasonably confident of an earnings beat.
Stocks That Warrant a Look
Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Teck Resources Limited has Earnings ESP of +4.55% and carries a Zacks Rank #1.
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Dow Chemical (DOW) Q3: Another Earnings Beat in Store?
Dow Chemical (DOW - Free Report) is gearing up to release third-quarter 2016 results ahead of the bell on Oct 27.
Last quarter, the U.S. chemical kingpin delivered a 11.76% positive earnings surprise, aided by its cost-cutting and productivity actions. Sales fell on lower pricing and the impact of the sale of the chlorine products business, but beat expectations.
Dow has beaten the Zacks Consensus Estimate in all of the trailing 4 quarters with an average beat of 18.11%. Is the company poised for another winning quarter? Let's see how things are shaping up for this announcement.
Factors to Watch For
Dow, in its last earnings call, said that it sees sustained momentum in consumer driven end-markets. The company is witnessing healthy demand in North America and continued recovery in Europe, despite geopolitical uncertainties. Latin America is also showing signs of improvement.
Dow should continue to gain from its productivity improvement and cost control actions in the September quarter. The company remains on track to deliver $1 billion of cost reduction under its three-year productivity program. Dow achieved $90 million in productivity savings during second-quarter 2016, bringing the first-half tally to nearly $180 million. The company expects $300 million in savings in 2016.
Dow should also gain from the synergies associated with Dow Corning Silicones business in 2016. Dow has taken full control of Dow Corning – earlier a 50-50 joint venture between Dow and Corning Inc.
Dow expects to achieve combined run rate annual synergies of $500 million from the restructured ownership in Dow Corning, consisting of $400 million in cost synergies and $100 million in growth synergies. The company also expects to realize $1 billion in annual EBITDA synergies. Dow is taking a number of actions (including closure of silicones manufacturing plants in Greensboro, NC, and Yamakita, Japan) to attain synergies from the restructuring of its ownership in Dow Corning.
Dow also remains committed to invest in attractive regions through highly-accretive projects including the expansions in the U.S. Gulf Coast and Sadara joint venture in the Middle East. The company's propane dehydrogenation unit (PDH) in Freeport, TX started commenced commercial operations in Dec 2015 and is now operating at full capacity. The PDH unit represents a major part of Dow's roughly $4 billion U.S. Gulf Coast investments. Dow is also making progress with the construction of the new ethylene cracker that is on track to be operational by mid-2017.
Dow, in August, also declared that its joint venture in the Middle East, Sadara Chemical Company, has started the operations of its mixed feed cracker, marking an important milestone for the joint venture. Sadara is a JV between Dow and Saudi Arabian Oil Company (Saudi Aramco).
However, Dow is facing challenges in its agriculture business. Depressed farm commodity prices and weak demand in Latin America remain headwinds for this business. Lower demand for insecticides and generic herbicides and pricing pressure are expected to keep crop protection volumes under pressure through second-half 2016.
Dow is also seeing weakness in the energy market, stemming from the low oil price environment that is hurting oil and gas exploration project demand. Moreover, the company is exposed to currency headwinds. Unfavorable currency translation contributed to lower sales in its agriculture business in the second quarter and is expected to continue to weigh on sales in the September quarter.
Dow is moving ahead with its planned mega-merger with DuPont (DD - Free Report) . The companies agreed to combine their businesses in late 2015 in an all-stock deal to create a chemical behemoth (dubbed "DowDuPont"), before eventually breaking up into three independent companies through tax-free spin-offs.
The combined company would split into pure-play agricultural, material science and specialty products businesses that will be leading players in their respective fields. The breakup is expected to take place 18-24 months after the completion of the deal.
The deal secured approvals from shareholders of both companies in July and is now subject to customary closing conditions including receipt of regulatory clearances. The European Commission (EC), in August, started a Phase II review for the planned merger of equals of the two companies.
The mega merger is projected to deliver cost synergies of around $3 billion, expected to be achieved with the first two years after the deal closure. Both companies expect the planned merger to enhance their growth profiles through expanded scale and complementary offerings (especially in agriculture) and drive shareholder value. We expect Dow to provide an update on the merger in its third-quarter call.
DOW CHEMICAL Price and EPS Surprise
DOW CHEMICAL Price and EPS Surprise | DOW CHEMICAL Quote
Earnings Whispers
Our proven model shows that Dow is likely to beat earnings because it has the right combination of the two key ingredients.
Zacks ESP: The Earnings ESP for Dow is +1.25% as the Most Accurate Estimate stands at 81 cents while the Zacks Consensus Estimate is pegged at 80 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Zacks Rank: Dow currently carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank of #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings.
Conversely, sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
The combination of Dow’s Zacks Rank #2 and positive ESP makes us reasonably confident of an earnings beat.
Stocks That Warrant a Look
Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
The Chemours Company (CC - Free Report) has an Earnings ESP of +25.71% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Teck Resources Limited has Earnings ESP of +4.55% and carries a Zacks Rank #1.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>