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Dow Chemical (DOW) Q2 Earnings Outshine, Profit Shoots Up
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Dow Chemical (DOW - Free Report) topped earnings expectations in the second quarter of 2016, aided by its cost-cutting and productivity actions. The U.S. chemical giant registered adjusted earnings (barring one-time items) of 95 cents per share for the quarter that trounced the Zacks Consensus Estimate of 85 cents.
On a reported basis, the company logged profit of roughly $3.1 billion or $2.61 per share, a nearly three-fold surge from a profit of around $1.1 billion or 97 cents per share recorded a year ago. The bottom line was boosted by a sizable gain associated with the Dow Corning ownership restructure. Dow, last month, took full control of Dow Corning – earlier a 50-50 joint venture between Dow and Corning Inc.
Dow’s EBITDA margin (as adjusted) rose 160 basis points year over year to 21% in the quarter with gains recorded across Infrastructure Solutions, Consumer Solutions and Performance Plastics businesses.
Dow achieved $90 million in productivity savings during the reported quarter, bringing the first half tally to nearly $180 million. The company expects $300 million in savings this year.
However, Dow’s revenues dropped roughly 7% year over year to $11,952 million. Lower prices of hydrocarbons and raw material and impact of the sale of the chlorine products business hurt revenues in the quarter. Sales, however, came ahead of the Zacks Consensus Estimate of $11,269 million. Volumes (excluding divestments and acquisitions) rose 4% in the quarter.
Sales fell roughly 10% year over year to $1.6 billion in the quarter, hurt by currency headwinds, high inventories and lower crop commodity prices. Crop protection volumes declined on lower demand for herbicides and the AgroFresh divestiture. Seeds volumes fell as weak demand for sunflower and soybeans more than offset growth in corn.
Consumer Solutions
Revenues from the division were roughly $1.3 billion, up around 15%, supported by the addition of the silicones business. Automotive Systems registered double-digit volume growth in the quarter. Volumes rose in Electronic Materials on new business wins and market share gains in the semiconductor and display.
Infrastructure Solutions
Sales from the division rose around 6% to $2.1 billion in the quarter as the addition of the silicones business more than offset reduced pricing in all other businesses.
Volumes rose in most geographies in the company’s building and construction business. In Energy and Water Solutions, volumes fell on weak demand in the U.S. shale gas market. Coating materials volumes rose on double-digit growth in China and gains in industrial and architectural markets. Performance Materials & Chemicals
Revenues slid 30% to $2.3 billion in the quarter, reflecting the impacts of divestments and lower pricing. Polyurethane volumes rose on higher demand for downstream, higher-margin system house applications. Volumes fell in the industrial solutions business.
Performance Plastics
Sales fell roughly 2% to $4.7 billion as volume gains across the board were more than offset by pricing headwinds. Elastomers business registered higher volumes. Moreover, Electrical and Telecommunications volumes rose across all geographies, in the quarter.
Financials and Shareholder Returns
Dow had cash and cash equivalents of roughly $7.3 billion at the end of the quarter, up around 18% year over year. Total long-term debt rose around 9% year over year to roughly $21.1 billion.
Outlook
Moving ahead, Dow 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. The company’s strong business portfolio, strategic investments and productivity actions position it well in the prevailing volatile macroeconomic environment.
Dow should continue to gain from its productivity improvement and cost control actions. Moreover, the company 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.
Dow should also gain from the synergies associated with Dow Corning Silicones business in 2016. The company, in late June, said that it 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 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 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 is projected to deliver cost synergies of around $3 billion, expected to be achieved with the first two years after the deal closure (expected to complete in the second half of 2016).
Better-ranked stocks in the diversified chemicals space include Axiall Corp. and Stepan Co. (SCL - Free Report) , both sporting a Zacks Rank #1 (Strong Buy).
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Dow Chemical (DOW) Q2 Earnings Outshine, Profit Shoots Up
Dow Chemical (DOW - Free Report) topped earnings expectations in the second quarter of 2016, aided by its cost-cutting and productivity actions. The U.S. chemical giant registered adjusted earnings (barring one-time items) of 95 cents per share for the quarter that trounced the Zacks Consensus Estimate of 85 cents.
On a reported basis, the company logged profit of roughly $3.1 billion or $2.61 per share, a nearly three-fold surge from a profit of around $1.1 billion or 97 cents per share recorded a year ago. The bottom line was boosted by a sizable gain associated with the Dow Corning ownership restructure. Dow, last month, took full control of Dow Corning – earlier a 50-50 joint venture between Dow and Corning Inc.
Dow’s EBITDA margin (as adjusted) rose 160 basis points year over year to 21% in the quarter with gains recorded across Infrastructure Solutions, Consumer Solutions and Performance Plastics businesses.
Dow achieved $90 million in productivity savings during the reported quarter, bringing the first half tally to nearly $180 million. The company expects $300 million in savings this year.
However, Dow’s revenues dropped roughly 7% year over year to $11,952 million. Lower prices of hydrocarbons and raw material and impact of the sale of the chlorine products business hurt revenues in the quarter. Sales, however, came ahead of the Zacks Consensus Estimate of $11,269 million. Volumes (excluding divestments and acquisitions) rose 4% in the quarter.
Segment Analysis
Agricultural Sciences
Sales fell roughly 10% year over year to $1.6 billion in the quarter, hurt by currency headwinds, high inventories and lower crop commodity prices. Crop protection volumes declined on lower demand for herbicides and the AgroFresh divestiture. Seeds volumes fell as weak demand for sunflower and soybeans more than offset growth in corn.
Consumer Solutions
Revenues from the division were roughly $1.3 billion, up around 15%, supported by the addition of the silicones business. Automotive Systems registered double-digit volume growth in the quarter. Volumes rose in Electronic Materials on new business wins and market share gains in the semiconductor and display.
Infrastructure Solutions
Sales from the division rose around 6% to $2.1 billion in the quarter as the addition of the silicones business more than offset reduced pricing in all other businesses.
Volumes rose in most geographies in the company’s building and construction business. In Energy and Water Solutions, volumes fell on weak demand in the U.S. shale gas market. Coating materials volumes rose on double-digit growth in China and gains in industrial and architectural markets.
Performance Materials & Chemicals
Revenues slid 30% to $2.3 billion in the quarter, reflecting the impacts of divestments and lower pricing. Polyurethane volumes rose on higher demand for downstream, higher-margin system house applications. Volumes fell in the industrial solutions business.
Performance Plastics
Sales fell roughly 2% to $4.7 billion as volume gains across the board were more than offset by pricing headwinds. Elastomers business registered higher volumes. Moreover, Electrical and Telecommunications volumes rose across all geographies, in the quarter.
Financials and Shareholder Returns
Dow had cash and cash equivalents of roughly $7.3 billion at the end of the quarter, up around 18% year over year. Total long-term debt rose around 9% year over year to roughly $21.1 billion.
Outlook
Moving ahead, Dow 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. The company’s strong business portfolio, strategic investments and productivity actions position it well in the prevailing volatile macroeconomic environment.
Dow should continue to gain from its productivity improvement and cost control actions. Moreover, the company 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.
Dow should also gain from the synergies associated with Dow Corning Silicones business in 2016. The company, in late June, said that it 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 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 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 is projected to deliver cost synergies of around $3 billion, expected to be achieved with the first two years after the deal closure (expected to complete in the second half of 2016).
DOW CHEMICAL Price, Consensus and EPS Surprise
DOW CHEMICAL Price, Consensus and EPS Surprise | DOW CHEMICAL Quote
Zacks Rank
Dow is a Zacks Rank #3 (Hold).
Better-ranked stocks in the diversified chemicals space include Axiall Corp. and Stepan Co. (SCL - Free Report) , both sporting a Zacks Rank #1 (Strong Buy).
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 >>