) started 2012 with mixed results in the first quarter, beating the
Zacks Consensus Estimate on earnings while lagging behind on the
Highlights from the Quarter
The Michigan-based company logged adjusted (excluding one-time
charges) earnings of 61 cents a share in first-quarter 2012, which
topped the Zacks Consensus Estimate 59 cents while falling below
the year-ago adjusted earnings of 82
Profit (as reported) slid 34% year over year to $412 million (or
35 cents a share), hit by restructuring charges of roughly $357
million associated with plant closures and downsizing.
Revenues fell narrowly year over year to $14,719 million,
missing the Zacks Consensus Estimate of $15,342 billion. Healthy
growth across agricultural and feedstock/energy businesses were
neutralized by declines in performance materials and performance
Volumes declined 1% year over year, but were up 3% barring the
impact of divestitures. 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.
We have discussed the quarterly results at length here:
Dow's Profit Sags on Charges.
Agreement - Estimate Revisions
Estimates for Dow for the second quarter and current fiscal have
been weighted on the negative side following the first quarter
results. Out of 12 analysts covering the stock, 8 have lowered
their estimates for the second quarter over the past 7 days with
just 1 moving in the reverse direction. Likewise, over the past
month, 8 analysts have lowered their forecast for the quarter with
2 raising their estimates.
Estimates for fiscal 2012 reflect a somewhat similar trend with
8 (out of 16 analysts) chopping their estimates over the past 7
days with a couple of upward revisions. Over the last 30 days,
there were 8 downward revisions coupled with 4 reverse
The bearishness appears to partly reflect the concerns
surrounding the U.S. and European economies and the impact of the
company's planned turnaround costs, which it expects to increase by
$100 million sequentially in the second quarter.
Magnitude - Consensus Estimate Trend
Given the downside pressure from the negative revisions,
estimate for the second quarter has gone down by 8 cents and 6
cents over the last week and month, respectively. For fiscal 2012,
there has been a decrease of 5 cents and 3 cents in the estimate
over the past 7 and 30 days, respectively.
Neutral on Dow Chemical
Moving ahead, Dow believes economic recovery will gain momentum
in the second quarter and the remainder of 2012. The company 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. The company's performance in the emerging markets
remains strong and we expect this to continue moving ahead. A
string of innovative products in its pipeline also adds to its
strength. The company's expanding technology pipeline is expected
to fetch a $2 billion opportunity by 2015. The company is also
witnessing continued increase in operating rates.
Dow expects its downstream, market-driven businesses to continue
to capture value from improving North American feedstock dynamics.
It anticipates the favorable trend in the ethylene industry to
continue. The company's strategic initiatives (including technology
licensing deals) are expected to boost ethylene production
capabilities by roughly 20% in the U.S. over the next three years,
offering significant opportunity for margin expansion.
Moreover, Dow continues to focus on cost containment
initiatives, generate enough cash flows and maximize returns to
shareholders. The company 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 is closing its manufacturing
facilities in Europe, North America and Latin America.
Separately, Dow plans to lay off 900 workers as part of its
previously announced cost-reduction efforts and its "Efficiency for
Growth" program initiated in 2011. It expects to save roughly $250
million annually from these measures.
However, Dow is witnessing softness in the electronics and
construction end-markets, which may weigh on its second-quarter
2012 results. The construction market in Europe remains soft.
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 company, which competes with
EI DuPont de Nemours & Co.
), currently holds a short-term Zacks #3 Rank (Hold).
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two
of the most celebrating stock rating systems in use today. The
Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months).
These "Earnings Estimate Scorecard" articles help analyze the
important aspects of estimate revisions for each stock after
their quarterly earnings announcements. Learn more about earnings
estimates and our proven stock ratings at
DU PONT (EI) DE (DD): Free Stock Analysis
DOW CHEMICAL (DOW): Free Stock Analysis Report
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