The Dow Chemical Company
) is scheduled to report its first-quarter 2012 results before the
trading begins on Thursday, April 26. Analysts polled by Zacks
currently expect revenues of $15,342 million and earnings of 59
cents a share on average for the quarter.
While Dow did not provide any financial guidance for the March
quarter, it does not envision any significant improvement in market
conditions in the quarter. However, it has projected that 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.
With respect to earnings surprises, the Michigan-based company
has beaten the Zacks Consensus Estimate in two of the trailing four
quarters. Dow has delivered an average positive earnings surprise
of 0.91% over the past four quarters.
Fourth Quarter Highlights
Dow's fourth-quarter 2011 adjusted earnings of 25 cents a share
missed the Zacks Consensus Estimate by 7 cents. Including one-time
charges, the company sank to a loss of $20 million (or 2 cents per
share) compared with a profit of $426 million (or 37 cents a share)
in the year-ago quarter. That reversed a streak of consecutive
profit increases as witnessed in the first three quarters of
Revenues inched up 2% year over year to $14.1 billion, but were
below the Zacks Consensus Estimate of $14.4 billion. The company
saw higher sales across all operating segments and geographic
areas, except Electronic and Functional Materials. Volumes dipped
3% year over year, but were flat excluding the impact of
The fourth quarter witnessed a challenging operating
environment, mostly due to the sovereign debt issues in Western
Europe. Moreover, traditional seasonality led to substantial
de-stocking across supply chains, as customers snipped inventories
prior to year end.
Estimate Revisions Trend
Estimates for the first quarter demonstrate a relative lack of
movement over the past week with just 1 (out of 13 analysts) having
lowered his/her forecast with none moving in the opposite
direction. Over the past 30 days, 3 analysts made positive
revisions while 2 lowered their estimates.
For fiscal 2012, there was a solitary (out of 16 analysts)
downward revision over the past 7 days. However, estimates for the
year were inclined towards the positive over the past 30 days with
3 analysts raising their forecasts and 1 lowering.
Given the lack of activity, the consensus estimate for the March
quarter remained stationary over the past week. However, there was
an increase of a penny over the past month. For fiscal 2012, the
consensus estimate has increased by a couple of cents over the past
30 days while declining by a penny over the past 7 days.
Dow's performance in the emerging markets remains strong and we
expect this to continue in the March quarter. A surfeit of
innovative products in its pipeline also adds to its strength.
Further, Dow continues to focus on cost reduction initiatives,
generate enough cash flows and maximize returns to
The company expects its downstream, market-driven businesses to
continue to capture value from improving North American feedstock
dynamics. Dow anticipates ethylene industry operating rates to
tighten over the next several years, driving margin expansion.
However, we expect the electronics and construction end markets
to remain weak in the first quarter. Moreover, the company will
continue facing challenges in Western Europe due to weak demand and
the debt crisis.
Dow recently announced that it will be cutting costs owing to
weak demand of its products in Europe. As a part of the move, the
company has announced the closure of its manufacturing plants in
Europe, North America and Latin America.
Separately, Dow expects to lay off 900 workers as part of its
previously announced cost-reduction efforts and its "Efficiency for
Growth" program initiated in 2011. The company anticipates saving
roughly $250 million annually from these actions. Dow expects to
incur restructuring charges and write-downs of around $350 million
in the first quarter of 2012.
We currently have a long-term Neutral recommendation on Dow
Chemical. The company, which competes with
EI DuPont de Nemours & Co.
), retains a Zacks #3 Rank, indicating a short-term Hold
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