We are retaining our Neutral recommendation on Dow Chemical. The
company swung to a profit in the fourth quarter on continued
strength across the agriculture, coatings and plastics businesses,
along with healthy gains from emerging markets. Both revenues and
adjusted earnings topped Zacks Consensus Estimates. The company
expects its strategic actions to boost earnings and enhance
shareholder value this year. Dow is benefiting from strong
fundamentals in the agriculture and food markets, and is leveraging
its North American feedstock advantage. A string of innovative
products in its pipeline adds to its strength. However, weakness in
the performance materials (especially Epoxy) and feedstocks &
energy businesses may continue. Moreover, Dow faces challenges in
Western Europe and from a still soft construction end market.
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
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
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
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
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
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
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
The Polyethylene business supplies polyethylene-based
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
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
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.
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 recently
bought a major stake in Dow. 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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