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Dow Chemical (DOW) Q2: Another Earnings Beat in the Cards?
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Dow Chemical (DOW - Free Report) is set to release second-quarter 2016 results ahead of the bell on Jul 28.
Last quarter, the U.S. chemical kingpin delivered a 7.23% positive earnings surprise. Earnings were driven by strong margins, aided by the company’s cost-management actions. Sales fell by double-digits on lower pricing and unfavorable currency impact, but beat expectations.
Dow has beaten the Zacks Consensus Estimate in the trailing 4 quarters with an average beat of 18.26%. Is the company poised for another winning quarter? Let's see how things are shaping up for this announcement.
Factors to Watch
Dow, in its last earnings call, said that it sees sustained momentum in consumer driven end-markets, especially packaging, transportation and infrastructure. It expects strong demand in North America and gradual recovery in Europe. CEO Andrew N. Liveris noted that Dow will remain focused on its productivity actions, innovation and strategic growth measures in a still uncertain macro environment.
Dow should continue to gain from its productivity improvement and cost control actions in the second quarter. The company remains on track to deliver $1 billion of cost reduction under its three-year productivity program.
Dow is also selectively spinning off or selling its underperforming assets and gradually shifting to high-growth markets. Moreover, Dow 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 also remains on track with its new world-scale ethylene production facility in Freeport. This new cracker represents a major part of Dow’s Texas Operations in Freeport. The facility is expected to facilitate growth and expansion of the company’s performance plastics business.
Dow should also gain from the synergies associated with Dow Corning Silicones business in 2016. Dow, last month, took full control of Dow Corning – earlier a 50-50 joint venture between Dow and Corning Inc. The company, in late June, said that it is taking a number of actions to attain synergies from the recent restructuring of its ownership in Dow Corning.
As part of these actions, Dow is shuttering silicones manufacturing plants in Greensboro, NC and Yamakita, Japan, and will also close certain administrative, corporate and manufacturing facilities to enhance competitiveness and streamline costs. These actions will result in the elimination of roughly 2,500 jobs globally, representing around 4% of Dow’s workforce.
Dow expects to take a charge of roughly $410 million to $460 million in second-quarter 2016 for costs associated with these actions that are expected to complete in the next two years.
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.
However, Dow is facing challenges in its agriculture business. Weak farm commodity prices and soft demand in Latin America (especially in Brazil) remain headwinds for this business. Dow is seeing weakness in the energy market, stemming from depressed oil prices. In Performance Plastics, the company expects year-over-year margin compression in Europe and lower earnings from Latin America in the second quarter.
Moreover, the company remains exposed to significant currency headwinds. Unfavorable currency translation contributed to lower sales in the first quarter and is expected to continue to weigh on sales in the June quarter. The company also faces headwinds associated with sequentially higher turnarounds and maintenance spending in the second quarter.
Dow is moving ahead with its planned mega-merger with DuPont (DD - Free Report) . The companies agreed to combine their businesses in Dec 2015 in an all-stock deal to create a chemical powerhouse (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, which is expected in second-half 2016. The deal recently secured approvals from shareholders of both companies and is now subject to customary closing conditions including receipt of regulatory clearances.
The proposed ‘merger of equals’ 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 second-quarter call.
Our proven model does not conclusively show that Dow is likely to beat the Zacks Consensus Estimate in the second quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP for Dow is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 84 cents.
Zacks Rank: Dow’s Zacks Rank #3, when combined with a 0.00% ESP, makes surprise prediction difficult. We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some stocks in the chemicals 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:
Huntsman Corp. (HUN - Free Report) has an Earnings ESP of +7.84% and a Zacks Rank #1.
FMC Corp. (FMC - Free Report) has an Earnings ESP of +4.48% and a Zacks Rank #2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>
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Dow Chemical (DOW) Q2: Another Earnings Beat in the Cards?
Dow Chemical (DOW - Free Report) is set to release second-quarter 2016 results ahead of the bell on Jul 28.
Last quarter, the U.S. chemical kingpin delivered a 7.23% positive earnings surprise. Earnings were driven by strong margins, aided by the company’s cost-management actions. Sales fell by double-digits on lower pricing and unfavorable currency impact, but beat expectations.
Dow has beaten the Zacks Consensus Estimate in the trailing 4 quarters with an average beat of 18.26%. Is the company poised for another winning quarter? Let's see how things are shaping up for this announcement.
Factors to Watch
Dow, in its last earnings call, said that it sees sustained momentum in consumer driven end-markets, especially packaging, transportation and infrastructure. It expects strong demand in North America and gradual recovery in Europe. CEO Andrew N. Liveris noted that Dow will remain focused on its productivity actions, innovation and strategic growth measures in a still uncertain macro environment.
Dow should continue to gain from its productivity improvement and cost control actions in the second quarter. The company remains on track to deliver $1 billion of cost reduction under its three-year productivity program.
Dow is also selectively spinning off or selling its underperforming assets and gradually shifting to high-growth markets. Moreover, Dow 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 also remains on track with its new world-scale ethylene production facility in Freeport. This new cracker represents a major part of Dow’s Texas Operations in Freeport. The facility is expected to facilitate growth and expansion of the company’s performance plastics business.
Dow should also gain from the synergies associated with Dow Corning Silicones business in 2016. Dow, last month, took full control of Dow Corning – earlier a 50-50 joint venture between Dow and Corning Inc. The company, in late June, said that it is taking a number of actions to attain synergies from the recent restructuring of its ownership in Dow Corning.
As part of these actions, Dow is shuttering silicones manufacturing plants in Greensboro, NC and Yamakita, Japan, and will also close certain administrative, corporate and manufacturing facilities to enhance competitiveness and streamline costs. These actions will result in the elimination of roughly 2,500 jobs globally, representing around 4% of Dow’s workforce.
Dow expects to take a charge of roughly $410 million to $460 million in second-quarter 2016 for costs associated with these actions that are expected to complete in the next two years.
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.
However, Dow is facing challenges in its agriculture business. Weak farm commodity prices and soft demand in Latin America (especially in Brazil) remain headwinds for this business. Dow is seeing weakness in the energy market, stemming from depressed oil prices. In Performance Plastics, the company expects year-over-year margin compression in Europe and lower earnings from Latin America in the second quarter.
Moreover, the company remains exposed to significant currency headwinds. Unfavorable currency translation contributed to lower sales in the first quarter and is expected to continue to weigh on sales in the June quarter. The company also faces headwinds associated with sequentially higher turnarounds and maintenance spending in the second quarter.
Dow is moving ahead with its planned mega-merger with DuPont (DD - Free Report) . The companies agreed to combine their businesses in Dec 2015 in an all-stock deal to create a chemical powerhouse (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, which is expected in second-half 2016. The deal recently secured approvals from shareholders of both companies and is now subject to customary closing conditions including receipt of regulatory clearances.
The proposed ‘merger of equals’ 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 second-quarter call.
DOW CHEMICAL Price and EPS Surprise
DOW CHEMICAL Price and EPS Surprise | DOW CHEMICAL Quote
Earnings Whispers
Our proven model does not conclusively show that Dow is likely to beat the Zacks Consensus Estimate in the second quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP for Dow is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 84 cents.
Zacks Rank: Dow’s Zacks Rank #3, when combined with a 0.00% ESP, makes surprise prediction difficult. We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some stocks in the chemicals 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:
Huntsman Corp. (HUN - Free Report) has an Earnings ESP of +7.84% and a Zacks Rank #1.
FMC Corp. (FMC - Free Report) has an Earnings ESP of +4.48% and a Zacks Rank #2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>