The Dow Chemical Company
) will unfurl its third-quarter 2012 results before the opening
gong on Thursday, October 25. Estimates for Dow are on the
downswing ahead of its third quarter earnings release as analysts
expects lingering issues from the first half to continue to be a
drag on the Michigan-based company's results.
Analysts polled by Zacks currently expect revenues of $14,130
million and earnings of 37 cents a share on average for the third
quarter. The Zacks Consensus Estimate for earnings calls for an
estimated year-over-year decline of 39.7%.
While Dow did not reveal any specific financial guidance, it
sees lower-than-expected recovery in global economy in both the
third and fourth quarters this year. The company said that it
plans to beef up cost reduction and efficiency programs to cope
with the exigent macroeconomic environment.
Why It Matters
Dow's products have application in almost every industry. As
such, its third quarter results will shed light on overall
economic activity, end market scenario and demand trend for
chemical products across a wide gamut of industries. Dow's
EI DuPont de Nemours & Co.
) will report its third quarter results before the opening bell
on October 23.
Companies in the chemicals space witnessed sluggish economic
activity in the first half of the year given the fragile economic
conditions in Europe, weak recovery in the U.S. and a marked
slowdown in emerging markets. So, reports from these two chemical
titans will provide color on how the industry is faring.
Second Quarter Revisited
Dow had a drab second quarter with both revenues and earnings
largely missing the Zacks Consensus Estimate. The company earned
55 cents a share in the quarter, falling behind the Zacks
Consensus Estimate of 64 cents. Profit slipped roughly 34% year
over year, hammered by the beleaguered economic conditions in
Europe and weak demand.
Revenues slipped 10% year over year to $14,513 million, also
missing the Zacks Consensus Estimate of $15,961 million. Sales
declined across all segments except Agricultural Sciences which
achieved double-digit growth in the quarter.
Volumes dipped 5% year over year (1% on an adjusted basis) in
the quarter. However, the company saw gains across Agricultural
Sciences and Performance Plastics divisions as wells as in
Asia-Pacific. Price fell 5% with declines registered across the
Estimate Revisions Trends
Estimate for the third quarter demonstrate a comprehensive
downward drift over the last 30 days with 5 analysts (out of 13)
having reduced their forecasts with none raising the
Estimate for 2012 elicit a similar bearish sentiment over the
past month with 5 analysts (out of 18) having chopped their
forecasts with none moving in the opposite direction. No movement
was witnessed for both the third quarter and full-year 2012 over
the past week. The analysts appear to fret about the soft U.S.
and European economies and choppy global demand, which may dent
the company's results in the third quarter.
Given the directional pressure from the downward revisions,
estimate for the September quarter decreased by 2 cents over the
past month. However, it remained static (at 37 cents a share)
over the past week. The estimate for 2012 decreased by a penny
over the past 30 days while remaining unchanged (at $1.95 a
share) over the past 7 days.
With respect to earnings surprises, Dow's performance has been
tepid over the past four quarters. The company has missed the
Zacks Consensus Estimate in three of the trailing four quarters
while beating the same on one occasion. It has produced an
average negative earnings surprise of 8.92% over the past four
What We Expect in 3Q
Dow is benefiting from strong fundamentals in agriculture and
food markets. A string of innovative products in its pipeline
also adds to its strength. The company's performance in the
fast-growing emerging economies remains strong and we expect this
to continue in the September quarter.
Dow is also expected to benefit from declining feedstock costs
in the third quarter. The company continues its cost-reduction
initiatives under its "Efficiency for Growth" program, which are
expected to yield meaningful cost savings annually.
However, the recessionary conditions in Europe have taken its
toll on Dow. Moreover, a slow domestic recovery and sluggish
activity in China and other emerging markets may continue to
impact the demand for the company's products and weigh on its
third quarter results. Dow is also exposed to currency headwinds
given the weak euro and is expected to see a contraction in
ethylene margins in Europe in the quarter.
Moreover, Dow contends with soft electronics and construction
end-markets, which may also impact its September quarter results.
Building and construction sales are declining due to lower volume
in Europe. We expect the company to provide some insight on the
trends across these markets in its third quarter
Dow retains a Zacks #3 Rank, indicating a short-term Hold
rating. We currently have a long-term Underperform recommendation
on the stock.
DU PONT (EI) DE (DD): Free Stock Analysis
DOW CHEMICAL (DOW): Free Stock Analysis
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