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Dow's (DOW) Earnings Lag Estimates in Q1, Revenues Beat
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Dow Inc. (DOW - Free Report) recorded earnings (on a reported basis) from continuing operations of 32 cents per share for first-quarter 2020 against earnings of 16 cents per share a year ago.
Barring one-time items, earnings were 59 per share for the reported quarter, falling short of the Zacks Consensus Estimate of 60 cents.
Dow realized more than $30 million of savings from stranded cost removal in the first quarter. However, it witnessed lower margins in the polyurethanes and silicones chains as well as reduced equity earnings.
Dow raked in net sales of $9,770 million for the quarter, down roughly 11% from the adjusted sales a year ago. It, however, beat the Zacks Consensus Estimate of $9,575.7 million.
Sales fell due to lower local pricing across the board resulting from a decline in global energy prices. Currency reduced sales by 1% in the quarter.
Volumes fell 2% in the quarter as higher demand in food, health & hygiene packaging, surfactants & solvents for cleaning and coatings end-markets were more than offset by declines in polyurethanes and silicones applications. The company saw lower sequential volumes in China as the coronavirus pandemic led to slower economic activities. Dow also saw an 8% decline in local prices.
Packaging & Specialty Plastics: The division’s sales fell 10% from the adjusted sales a year ago to $4.6 billion in the reported quarter. Volumes were flat while local prices slipped 9%. Currency also reduced sales by 1%.
Industrial Intermediates & Infrastructure: Sales for the unit fell 13% to $3 billion. Volumes fell 3% while local prices declined 9%. Currency lowered sales by 1%.
Performance Materials & Coatings: Revenues from the division went down 11% to $2.1 billion. Sales were impacted by volumes and local price declines of 3% and 7%, respectively. Currency also reduced sales by 1%.
Financials
Dow had cash and cash equivalents of $3,633 million at the end of the quarter. Long-term debt was $16,313 million.
Cash provided by operating activities from continuing operations was $1.2 billion in the reported quarter while free cash flow was $841 million.
The company also returned $643 million to shareholders in the quarter through dividend and share repurchase.
Outlook
Looking ahead, Dow said that it is seeing indications of a recovery from the virus outbreak in China while still assessing the impact of the pandemic in other major geographies. Factoring in a gradual and sustainable return of global economic activity and reopening of economies in May and June, the company sees a recovery as the year progresses.
Dow also said that it is taking actions to further strengthen its financial position. These include reduction of operating expenses by $350 million and further trimming of capital expenditure target to $1.25 billion (a $750 million reduction compared with 2019). The company is also temporarily idling certain manufacturing units to balance production to demand across markets that have been significantly affected by restrained economic activities.
Price Performance
Dow’s shares are down 31.5% year to date, compared with the roughly 25.4% decline recorded by the industry.
Zacks Rank & Stocks to Consider
Dow currently carries a Zacks Rank #5 (Strong Sell).
Better-ranked stocks worth considering in the basic materials space are The Scotts Miracle-Gro Company (SMG - Free Report) , NovaGold Resources Inc. (NG - Free Report) and Newmont Corporation (NEM - Free Report) .
Scotts Miracle-Gro has an expected earnings growth rate of 15.9% for the current fiscal year. The company’s shares have gained roughly 41% in the past year. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NovaGold has a projected earnings growth rate of 11.1% for the current year. It currently carries a Zacks Rank #2 (Buy). The company’s shares have surged roughly 206% in a year.
Newmont has a projected earnings growth rate of 95.5% for the current year. The company’s shares have rallied around 106% in a year. It currently has a Zacks Rank #2.
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Dow's (DOW) Earnings Lag Estimates in Q1, Revenues Beat
Dow Inc. (DOW - Free Report) recorded earnings (on a reported basis) from continuing operations of 32 cents per share for first-quarter 2020 against earnings of 16 cents per share a year ago.
Barring one-time items, earnings were 59 per share for the reported quarter, falling short of the Zacks Consensus Estimate of 60 cents.
Dow realized more than $30 million of savings from stranded cost removal in the first quarter. However, it witnessed lower margins in the polyurethanes and silicones chains as well as reduced equity earnings.
Dow raked in net sales of $9,770 million for the quarter, down roughly 11% from the adjusted sales a year ago. It, however, beat the Zacks Consensus Estimate of $9,575.7 million.
Sales fell due to lower local pricing across the board resulting from a decline in global energy prices. Currency reduced sales by 1% in the quarter.
Volumes fell 2% in the quarter as higher demand in food, health & hygiene packaging, surfactants & solvents for cleaning and coatings end-markets were more than offset by declines in polyurethanes and silicones applications. The company saw lower sequential volumes in China as the coronavirus pandemic led to slower economic activities. Dow also saw an 8% decline in local prices.
Dow Inc. Price, Consensus and EPS Surprise
Dow Inc. price-consensus-eps-surprise-chart | Dow Inc. Quote
Segment Highlights
Packaging & Specialty Plastics: The division’s sales fell 10% from the adjusted sales a year ago to $4.6 billion in the reported quarter. Volumes were flat while local prices slipped 9%. Currency also reduced sales by 1%.
Industrial Intermediates & Infrastructure: Sales for the unit fell 13% to $3 billion. Volumes fell 3% while local prices declined 9%. Currency lowered sales by 1%.
Performance Materials & Coatings: Revenues from the division went down 11% to $2.1 billion. Sales were impacted by volumes and local price declines of 3% and 7%, respectively. Currency also reduced sales by 1%.
Financials
Dow had cash and cash equivalents of $3,633 million at the end of the quarter. Long-term debt was $16,313 million.
Cash provided by operating activities from continuing operations was $1.2 billion in the reported quarter while free cash flow was $841 million.
The company also returned $643 million to shareholders in the quarter through dividend and share repurchase.
Outlook
Looking ahead, Dow said that it is seeing indications of a recovery from the virus outbreak in China while still assessing the impact of the pandemic in other major geographies. Factoring in a gradual and sustainable return of global economic activity and reopening of economies in May and June, the company sees a recovery as the year progresses.
Dow also said that it is taking actions to further strengthen its financial position. These include reduction of operating expenses by $350 million and further trimming of capital expenditure target to $1.25 billion (a $750 million reduction compared with 2019). The company is also temporarily idling certain manufacturing units to balance production to demand across markets that have been significantly affected by restrained economic activities.
Price Performance
Dow’s shares are down 31.5% year to date, compared with the roughly 25.4% decline recorded by the industry.
Zacks Rank & Stocks to Consider
Dow currently carries a Zacks Rank #5 (Strong Sell).
Better-ranked stocks worth considering in the basic materials space are The Scotts Miracle-Gro Company (SMG - Free Report) , NovaGold Resources Inc. (NG - Free Report) and Newmont Corporation (NEM - Free Report) .
Scotts Miracle-Gro has an expected earnings growth rate of 15.9% for the current fiscal year. The company’s shares have gained roughly 41% in the past year. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NovaGold has a projected earnings growth rate of 11.1% for the current year. It currently carries a Zacks Rank #2 (Buy). The company’s shares have surged roughly 206% in a year.
Newmont has a projected earnings growth rate of 95.5% for the current year. The company’s shares have rallied around 106% in a year. It currently has a Zacks Rank #2.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
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