The Dow Chemical Company
) kickstarted the year with a mixed bag beating on earnings while
falling short on the revenue front. The Michigan-based
manufacturing giant, whose products are used across a broad
spectrum of industries, earned 61 cents a share in first-quarter
2012, excluding specific one-time items. That trounced the Zacks
Consensus Estimate of 59 cents. However, it was below the year-ago
adjusted earnings of 82 cents.
On a reported basis, Dow clocked a profit of $412 million (or 35
cents a share) in the quarter, a roughly 34% year-over-year slump.
The results were dragged down by restructuring charges of roughly
$357 million associated with plant closures and headcount haircuts,
a move which partly stemmed from weak demand of the company's
products, especially in Western Europe.
EI DuPont de Nemours & Co.
) delivered healthy first quarter results last week despite weak
demand in its consumer electronics business and softness in Europe.
Strong performance by its agriculture, performance chemicals and
food businesses drove earnings growth in the quarter.
Dow's first quarter results were much awaited as the investors
were hoping to get an insight on global economic trend. The
company's shares fell 5.35% in pre-market trading to reflect the
lower profit and revenue miss.
Revenue and Volume
Revenues dropped marginally year over year to $14,719 million,
lagging behind the Zacks Consensus Estimate of $15,342 billion.
Double-digit growth across agricultural and feedstock/energy
businesses were masked by declines in performance materials and
performance plastics franchises.
Volumes declined 1% year over year, but were up 3% excluding the
impact of divestitures. Adjusted volume crept up 2% in the U.S. On
an adjusted basis, the company saw gains across Europe, Middle East
and Africa ("EMEA") and North America and declines in Latin America
and Asia Pacific.
Electronic and Functional Materials
Revenues from this segment edged down 1% year over year to $1.1
billion as a 1% price increase was more than neutralized by a
2% decline in volumes.
Dow Electronic Materials witnessed lower sales in the quarter
given a weak electronics industry. However, the business saw
healthy demand in Display Technologies in the quarter. Functional
Materials business posted record sales as price increases offset
Coatings and Infrastructure
Sales fell 2% to $1.7 billion in the quarter as price fell 2%
and volume remained flat year over year. Dow Building and
Construction business posted higher sales across all geographies
expect Europe. The business faced weak demand in construction
end-markets in Europe.
The company's Water and Process Solutions franchise reported
strong sales on the back of price and volume gains. However, sales
shrunk in the Dow Coating Materials business in the quarter due to
The segment registered record sales of $1.8 billion, a 14%
year-over-year surge. Volumes jumped 12% while prices rose 2%.
Sales of Agricultural Chemicals increased in the quarter driven by
a 17% growth in demand. The division benefited from robust sales of
Crop Protection products revenues soared 14% riding on
double-digit growth across North America, Latin America, and Asia
Pacific. Revenues from Seeds, Traits and Oils business spiked
16%, driven by new seed technologies. Corn business continues
to see strong demand from farmers of SmartStax hybrids in North
America and increased adoption of Herculex technology in Latin
Revenues from this division dipped 2% to $3.5 billion, impacted
by price declines. Volumes rose across all geographies except Latin
Polyurethanes sales rose narrowly, helped by improving demand in
the U.S. Dow Formulated Systems reported double-digit growth in
sales with volume increases in all regions other than Asia-Pacific,
which continued to see weak demand in the wind energy segment.
Higher price led to record sales in the Polyglycols, Surfactants
and Fluids business while revenues from Chlorinated Organics fell
in the quarter. Dow Oil and Gas delivered double-digit growth.
Sales tumbled 11% to $3.6 billion in the quarter. Dow Elastomers
delivered record results and registered double-digit growth in
volume and price in North America, Asia Pacific and Latin
Electrical and Telecommunications business posted higher sales
with healthy volume gains in Asia Pacific. Revenues fell in
Performance Packaging, in part, due to price decline in Europe.
Feedstocks and Energy
The division witnessed a 13% year-over-year growth in sales,
aided by higher volume and price. The
Chlor-Alkali/Chlor-Vinyl business benefited from strong demand for
caustic soda. However, the business saw a decline in the vinyl
chloride monomer volume due to the shutdown of an asset last year.
Ethylene Oxide/Ethylene Glycol sales increased at a double-digit
clip in the quarter.
Dow exited the quarter with cash and cash equivalents of $3.6
billion, essentially flat year over year. The company de-leveraged
its balance sheet in the quarter by snipping debt of more than $1
billion. Gross long-term debt amounted to roughly $20 billion, a
decline from $20.7 million in the year-ago quarter. Net
debt-to-capitalization ratio reduced to 41.2% from 42.8% a year
Outlook and Recommendation
While Dow did not provide any specific financial guidance, it
believes economic recovery will gain momentum in the second quarter
and the remainder of the year. The company expects to meet its
short and long-term targets irrespective of economic conditions.
Moreover, Dow sees an improving U.S. economy citing tailwind from
the nation's rich access to low-cost natural gas.
Dow is benefiting from strong fundamentals in agriculture and
food markets. However, weakness in the electronics and construction
end-markets may sustain into the second quarter. Moreover, the
company will continue facing challenges in Western Europe due to
weak demand and the sovereign debt crisis.
We currently have a long-term Neutral recommendation on Dow
Chemical. The stock retains a Zacks #3 Rank, indicating a
short-term Hold rating.
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