Dow Chemical Earnings Up on Plastics, Coatings - Analyst Blog

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Dow Chemical ( DOW ) saw its profit for first-quarter 2014 jump on gains across plastics and coatings businesses, backed by its cost management actions. Gains in emerging markets, led by China, also contributed to the strong bottom-line results.

Dow saw higher margins across its key businesses in the quarter despite the impact of inclement weather and a more than $300 million spike in hydrocarbon costs.

The biggest U.S. chemical maker by sales posted profit of $964 million or 79 cents per share in the reported quarter, a 75% surge from $550 million or 46 cents per share recorded a year ago. The results trumped the Zacks Consensus Estimate by 9 cents.

Revenues edged up 0.5% year over year to $14,461 million in the quarter as gains across coatings and performance plastics was masked by declines in electronics, performance materials and feedstocks and energy. Sales fell short of the Zacks Consensus Estimate of $14,785 million.

The Michigan-based company's shares gained roughly 2% in pre-market trading , reflecting the earnings beat. The stock is up around 11% so far this year.

Volume and Pricing

Sales from emerging market moved up 3% on an adjusted basis, mainly driven by a 7% volume gain in Greater China. Higher price in North America was offset by lower volumes due to bad weather and transportation-related issues. Sales in Western Europe rose modestly on volume gains.

Segment Analysis

Electronic and Functional Materials

Revenues edged down 1% year over year to $1.1 billion in the reported quarter. Electronic Materials sales rose on strong gains in Asia Pacific. Sales of OLED materials and interconnect technologies rose on higher customer demand for mobile devices, offsetting declines in semiconductor technologies. Functional materials sales fell on lower volume.

Coatings and Infrastructure Solutions

Sales moved up 5% to $1.7 billion in the quarter on higher volume. Double-digit sales gains were recorded in Europe, Middle East and Africa (EMEA). Building and construction sales rose on higher demand for innovative materials in insulation, roofing and tile applications. Coating materials sales were boosted by strong gains in architectural and industrial coatings.

Agricultural Sciences

Sales inched up 1% year over year to $2.1 billion as gains in crop protection was offset by lower seeds sales. Crop protection revenues rose 4% on higher sales of herbicides in EMEA and insecticides in Latin America. New crop protection revenues jumped 28%.

Sales of seeds fell 7% as lower planted area of corn and sunflowers resulted in declined sales in Latin America. A late start to the season in North America contributed to a decline in corn and canola sales.

Performance Materials

Revenues fell 1% to $3.3 billion in the quarter. Continued strong industrial and energy efficiency demand across all geographies led to a rise in polyurethanes sales.

Propylene oxide/propylene glycol sales rose on improving market fundamentals, mainly in Asia Pacific. Automotive systems gains were led by strength in transportation fundamentals across the U.S., Europe and China and launch of new adhesive products. Sales of Polyglycols, surfactants and fluids were impacted by conclusion of marketing responsibilities associated with a former joint venture.

Performance Plastics

Sales went up 3% (or 6% on an adjusted basis) to $3.6 billion in the quarter on higher pricing and gains across North America, Asia Pacific and Latin America. Packaging and specialty plastics recorded double-digit gains in North America and Asia Pacific.

Sales rose in the electrical and telecommunications business in the quarter on higher demand from the telecommunications and power markets in Asia Pacific. Elastomers revenues were flat in the quarter.

Feedstocks and Energy

The segment was once again a weak spot with revenues falling 4% to $2.5 billion on lower co-product and caustic soda pricing.

Financials and Shareholder Returns

Dow ended the quarter with cash and cash equivalents of roughly $4.4 billion, up 25% year over year. Total long-term debt declined roughly 12% year over year to around $17.3 billion. Operating cash flows jumped 30% year over year in the quarter on the company's productivity improvement and cost containment actions.

Dow raised its quarterly dividend by 15% to 37 cents per share during the reported quarter. The company also repurchased shares worth $1.25 billion in the quarter and returned $1.7 billion to its shareholders through dividends and share repurchases. Dow expects to complete its $4.5 billion buyback program by end of this year.

Outlook

While Dow, a Zacks Rank #3 (Hold) stock, sees a sluggish and volatile global business environment, it remains firm in achieving its short- and medium-term earnings goals.

CEO Andrew N. Liveris said that the company will continue to aggressively pursue portfolio management and generate additional value by exiting non-strategic assets while retaining a strong focus on productivity improvement and cost controls. The company will also continue to focus on margin improvement.

Dow remains committed to its cost reduction and efficiency programs while reducing debt, improving cash flows and maximizing shareholder returns. It will continue 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 expects its strategic investments to deliver incremental earnings starting in 2015.

Dow remains actively focused on seeking opportunities to optimize its portfolio by selectively spinning off or selling its underperforming assets and gradually shift focus to high growth businesses.

The company, in late 2013, revealed its plans to exit a major portion of its chlorine business that has been in operation for over 100 years. Commodity chemicals assets that are being identified for separation represents up to $5 billion in revenues. The company targets $4.5 billion-$6 billion of proceeds from assets sale by end-2015.

Dow's results put a spotlight on demand trend for chemical products across a host of end-use markets. Among other big chemical names, DuPont ( DD ), which reported last week, saw its profit slide in the first quarter as harsh winter weather coupled with a shift in timing of seed shipments and lower corn planted area in the Americas hurt its core agriculture business.

Celanese ( CE ), which reported on Apr 21, topped revenues and earnings expectations in the first quarter. Eastman Chemical ( EMN ) will report after the close tomorrow.




CELANESE CP-A (CE): Free Stock Analysis Report

DU PONT (EI) DE (DD): Free Stock Analysis Report

DOW CHEMICAL (DOW): Free Stock Analysis Report

EASTMAN CHEM CO (EMN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: CE , EI , DD , DOW , EMN

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