U.S. chemical kingpin
The Dow Chemical Company
) posted lackluster second-quarter 2012 results with both revenues
and earnings largely missing the Zacks Consensus Estimate.
DU PONT (EI) DE (DD): Free Stock Analysis
DOW CHEMICAL (DOW): Free Stock Analysis Report
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Second Quarter Hindsight
The Michigan-based 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, pummeled by the beleaguered
economic conditions in Europe and weak demand.
Revenues clipped 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 declined 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 dipped 5% in the quarter with declines
registered across the globe.
We have discussed the quarterly results at length here:
Europe Hits Dow Chemical in 2Q.
Agreement - Estimate Revisions
Estimates for Dow elicit a comprehensive downward drift, reflecting
its lackadaisical performance in the second quarter. Out of 12
analysts covering the stock, 10 have chopped their estimates for
the third quarter over the past 30 days with none moving in the
opposite direction. No movement was witnessed over the past week.
Estimates for 2012 reflect a somewhat similar trend with 16 (out of
17 analysts) slashing their estimates over the past 30 days with no
upward revisions. There was 1 downward revision over the last 7
days with no reverse movements.
The bearishness appears to reflect the concerns surrounding the
U.S. and European economies which may continue to impinge the
company's results in the second half of the year.
Magnitude - Consensus Estimate Trend
Given the directional pressure from a host of downward revision,
estimate for the third quarter has gone down by 22 cents over the
past month while remaining stationary over the past week. For 2012,
there has been a decrease of 4 cents and 43 cents in the estimate
over the past 7 and 30 days, respectively. The current Zacks
Consensus Estimates for the third quarter and 2012 are 44 cents and
$2.05 a share, respectively.
Moving ahead, Dow sees lower-than-expected recovery in global
economy in second-half 2012. The company plans to beef up cost
reduction and efficiency programs to cope with the challenging
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 expanding technology pipeline is
expected to fetch a $2 billion opportunity by 2015.
Dow is targeting faster-growing geographies. The company earns
two-thirds of its income from outside the U.S. Growth in emerging
economies has been especially fast, contributing a meaningful
portion of the company's sales.
Moreover, the company continues to focus on offering incremental
returns to its shareholders. It also continues debt repayments
while making further investments. Moreover, Dow continues its
cost-reduction initiatives under its "Efficiency for Growth"
program initiated in 2011, which are expected to yield meaningful
cost savings annually.
However, Dow witnessed slowing economic activity in the second
quarter, largely due to the beleaguered economic conditions in
Europe. Moreover, high unemployment coupled with waning consumer
confidence hindered economic recovery in the U.S. Activity in China
and other emerging markets also slowed in the quarter. All these
factors led to a weak demand for the company's products, something
which may continue into the third quarter.
Moreover, Dow contends with soft electronics and construction
end-markets, which may impact its results moving ahead. Building
and construction sales are declining due to lower volume in Europe.
Moreover, Dow is facing challenges in Western Europe due to the
recessionary conditions and expects currency headwinds to continue
given the weak euro. This is reflected in our long-term
Underperform recommendation on the stock.
Dow, which competes with
EI DuPont de Nemours & Co.
), currently holds a short-term Zacks #3 Rank (Hold).
About Earnings Estimate Scorecard
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