The Dow Chemical Company (DOW): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report


We are reaffirming our Neutral recommendation on Dow Chemical. Both revenues and adjusted earnings for the third quarter beat Zacks Consensus Estimates. Profit surged year over year on strength across the company's performance plastics and electronic and functional materials businesses. The company expects its strategic actions to drive earnings and enhance shareholder value this year. Dow is leveraging its North American feedstock advantage and should gain from healthy fundamentals in the agriculture market. A string of innovative products in its pipeline adds to its strength. However, Dow faces challenges in Western Europe and from a still soft construction end market. The company's performance plastics business is also exposed to certain near-term challenges.


Headquartered in Michigan, The Dow Chemical Company (DOW) is the second largest chemical manufacturer in the world, offering a range of chemical, plastic and agricultural products and services. The company has a global footprint across 160 countries and employs roughly 52,000 people. It has 197 manufacturing sites in 36 countries and produces around 5,000 products. As many as 42 manufacturing sites are located in the U.S. The rest are in Europe and other regions including the Middle East, Africa and Asia. In 2013, the company derived 36% of its revenues from North America, 32% from Europe, Middle East and Africa (EMEA), 18% from Asia Pacific and 14% from Latin America. The company has six reportable business segments.

Dow is a global capacity leader in propylene oxide (PO) and propylene glycol (PG) manufacturing, with global PO capacity of more than 2,000 KTA and global PG capacity of more than 700 KTA. Dow currently has five global PG manufacturing facilities one of the world's highest capacity plants in Germany two facilities in North America a facility in Brazil and another in Australia.

Electronic and Functional Materials (8% of 2013 sales):

In the electronic material category, Dow manufactures materials for chemical mechanical planarization (a process to smoothen surfaces with the combination of chemical and mechanical forces), used in the production of electronic displays.

Under the functional materials category, Dow runs five global businesses: Dow Water and Process Solutions, Dow Home and Personal Care, Dow Microbial Control, Dow Wolff Cellulosics and Performance Materials. These businesses develop solution for clean water, air and energy, material preservation and improved health care, disease prevention, nutrition and wellness.

Coatings and Infrastructure (12%):

The building and construction business consist of Dow Building Solutions and Dow Construction Chemicals which provides insulation, house wrap, sealant and adhesive products and systems, as well as construction chemical solutions.

Dow coating materials supplies raw materials for architectural paints and industrial coatings as well as technologies used in industrial coatings, including packaging, pipelines, wood, automotive, marine, maintenance and protective industries.

Dow Water and Process Solutions develops cost-effective technologies for water purification, desalination and separation solutions for specialty applications.

The Performance Monomers business makes specialty monomer products that are used in several applications including cleaning materials, personal care products, paints, coatings and inks.

Agricultural Sciences (13%):

Dow's AgroSciences business provides agricultural and plant biotechnology products, pest management solutions and healthy oils.

Performance Materials (24%):

Dow's automotive systems provides plastics, adhesives, glass bonding systems, emissions control technology, films, fluids, structural enhancement and acoustical management solutions to original equipment manufacturers, tier, aftermarket and commercial transportation customers.

The Amines business produces ethanolamines, ethyleneamines and isopropanolamines used in gas treatment, heavy-duty liquid detergents, herbicide formulations for the agricultural industry and personal care products.

The Chlorinated Organics business supplies chlorinated organic products and services used in the production of fluoropolymers, refrigerants, methyl cellulose, quaternary ammonium compounds and silicones. It also offers solvents that are used as process agents in chemicals manufacturing, surface preparation, dry cleaning and pharmaceuticals. Moreover, it provides closed-loop delivery systems used to help manage risks associated with chlorinated solvents.

The Formulated Systems business manufactures polyurethane foams and systems and epoxy solutions and systems, which find application in appliances, athletic equipment, automotive, bedding, construction, decorative molding, furniture, shoe soles and wind turbines.

The Epoxy business produces epoxy resins and intermediates. Epoxies provide good adhesion and coating protection over a range of environmental conditions, making them ideal for applications such as transportation, marine and civil engineering.

The Oxygenated Solvents business offers acetone derivatives, alcohols, esters, and ethylene- and propylene-based glycol ether products that are used for cleaning, in inks, electronics, mining, paints and coatings, personal care and other applications.

Dow's Plastic Additives business is a global supplier of additives and solutions used in a vast spectrum of applications including construction materials, packaging containers, consumer appliances and electronics, business machines and automotive parts.

The Performance Fluids, Polyglycols and Surfactants business supply polyglycols and surfactants as well as lubricants, hydraulic fluids, aircraft deicing fluids and thermal fluids that are used in chemical processing, cleaning, heating, cooling, food and beverage processing, fuel additives, paints and coatings, pharmaceuticals and silicone surfactants.

The Polyurethanes business produces polyurethane raw materials, which are used in appliance, athletic equipment, automotive, bedding, construction, decorative molding, furniture and shoe soles.

Performance Plastics (26%):

Dow's Elastomers business produces performance elastomers and plastomers, specialty copolymers, synthetic rubber, specialty resins, and films and plastic additives that are used in adhesives, transportation, building and construction, packaging and consumer durables.

The Polyethylene business supplies polyethylene-based solutions.

Polypropylene business supplies polypropylene as DOW homopolymer polypropylene resins DOW impact copolymer polypropylene resins, DOW random copolymer polypropylene resins, INSPIRE performance polymers UNIPOL PP process technology SHAC and SHAC ADT catalyst systems.

Dow's Electrical and Telecommunications business offers products, technology, solutions and expertise that set standards for reliability, longevity, efficiency, ease of installation and protection used by the power and telecommunications industries.

Dow's Packaging and Converting business makes sticking and bonding solutions and specialty films for a vast range of applications, including adhesive tapes and paper labels, flexible packaging, film substrates, industrial and consumer films and foams, leather, rigid packaging, and textile and imaging.

Feedstocks and Energy (17%):

Chlor-Alkali/Chlor-Vinyl business focuses on the production of chlorine for consumption by of downstream Dow derivatives, as well as production of ethylene dichloride, vinyl chloride monomer and caustic soda. Dow is the world's largest producer of both chlorine and caustic soda.

Ethylene Oxide/Ethylene Glycol business produces purified ethylene oxide, principally used in Dow's downstream performance derivatives. Dow is also a key supplier of ethylene glycol to MEGlobal, a 50-50 joint venture and a world leader in the manufacturing and marketing of merchant monoethylene glycol and diethylene glycol.

The Hydrocarbons business is engaged in obtaining raw materials including fuels, natural gas liquids and crude oil based raw materials, as well as the supply of monomers, power and steam, principally for Dow's global operations.

The Energy business supplies power, steam and other utilities, mainly for use in the company's global operations.

Raw Materials

Dow uses Chlorine-based and hydrocarbon-based raw materials. Salt, limestone and natural brine are the base raw materials used in the production of chlor-alkali products and derivatives. Dow owns salt deposits in Louisiana and Texas Alberta, Canada Brazil and Germany. The company also owns limestone deposits in Texas. Dow purchases hydrocarbon raw materials including liquefied petroleum gases, crude oil, naphtha, natural gas and condensate. The company also purchases electric power, benzene, ethylene, propylene and styrene to supplement internal production.


Activist investor Dan Loeb's Third Point hedge fund bought a major stake in Dow in January 2014. While Third Point did not specify the number of shares it purchased, it said that Dow is its biggest investment yet. Moreover, Third Point wants Dow to spin off its sluggish petrochemicals business and focus instead on high-margin, fast-growing businesses including agricultural science and electronics and functional materials. The entity, which has roughly $14 billion in assets under management, reportedly forked out $1.3 billion for the stake buy.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: DOW , PG

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