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Dow Chemical (DOW) Q4 Earnings, Sales Zoom Past Estimates

Dow ChemicalDOW logged forecast-topping earnings in fourth-quarter 2016, helped by its cost-cutting and productivity actions and continued focus on consumer-driven markets.

The U.S. chemical giant registered adjusted earnings (barring one-time items) of 99 cents per share for the quarter that comfortably beat the Zacks Consensus Estimate of 88 cents.

On a reported basis, the company registered a loss of $33 million or 3 cents per share, versus a profit of $3,527 million or $2.94 per share recorded a year ago. The results in the reported quarter were affected by $1.1 billion of costs related to change in accounting policy for asbestos-related matters and charges associated with environmental remediation activities.

Dow achieved $60 million in productivity savings during the reported quarter, bringing the tally to $313 million for 2016, thereby surpassing its cost savings goal for the year.

Dow's revenues rose roughly 14% year over year to $13,020 million on higher volumes, driven by the acquisition of Dow Corning's silicones business. Dow, last year, took full control of Dow Corning - earlier a 50-50 joint venture between Dow and Corning Inc. Sales topped the Zacks Consensus Estimate of $12,479 million. The company witnessed sales gains across all segments in the reported quarter.

Volumes (excluding acquisitions) rose 3% in the quarter, aided by the company's portfolio transition to consumer-driven markets. Gains were witnessed across all geographic areas barring Latin America.

For full-year 2016, earnings (as reported) were $3.52 per share, down from $6.15 per share a year ago. Adjusted earnings were $3.72 per share, versus $3.47 per share a year ago.

Revenues for the year fell 1% year over year to $48.2 billion.

Dow Chemical Company (The) Price, Consensus and EPS Surprise

Dow Chemical Company (The) Price, Consensus and EPS Surprise | Dow Chemical Company (The) Quote

Segment Highlights

Agricultural Sciences: Sales rose roughly 7% year over year to $1.7 billion in the quarter on higher volumes and pricing. Volume gains were witnessed in crop protection and seeds.

Consumer Solutions: Revenues from the division were roughly $1.6 billion, up around 48%, supported by the addition of the silicones business. Sales gains were driven by broad-based volume growth that more than offset lower pricing.

Infrastructure Solutions: Sales from the division jumped around 41% to $2.4 billion in the quarter driven by the addition of the silicones business that saw strong demand for base silicones used in a range of building and construction, coatings and energy applications. Volume increase more than offset a modest decline in pricing.

Performance Materials & Chemicals: Revenues edged up 1% to $2.4 billion in the quarter. Volume rose on gains in most geographies led by strong growth in Asia Pacific.

Performance Plastics: Sales rose 5% to $4.8 billion with gains witnessed in all businesses barring Dow Electrical and Telecommunications.

Financials and Shareholder Returns

Dow had cash and cash equivalents of roughly $6.6 billion at the end of 2016, down around 23% year over year. Total long-term debt rose around 26% year over year to roughly $20.5 billion.

Dow returned roughly $3 billion to shareholders through dividends and share repurchases in 2016.

Outlook

Dow is witnessing signs of positive economic momentum with the U.S. currently in expansionary mode while Europe continues its gradual recovery notwithstanding growing political uncertainty and geopolitical tensions. Moreover, sustained growth of middle class continues to drive demand in Asia. The company also envisions improvement in Latin America with slow but stable gains in Brazil.

The company expects demand to remain healthy, especially in the businesses that cater to packaging, infrastructure, consumer care, electronics, automotive and agriculture.

Dow has outperformed the Zacks categorized Chemicals-Diversified industry over a year, supported by sustained healthy growth fundamentals in its core end-use markets. The company's shares have gained around 45.4% over this period, compared with roughly 38.9% gain recorded by the industry.

Dow should continue to gain from its productivity improvement and cost control actions. Moreover, the company remains committed to invest in attractive regions through highly-accretive projects including the expansions in the U.S. Gulf Coast and Sadara joint venture in the Middle East.

Dow and DuPont DD agreed to combine their businesses in late 2015 in an all-stock deal to create a chemical powerhouse dubbed "DowDuPont," before eventually breaking up into three independent companies through tax-free spin-offs. The planned mega-merger is currently under investigation by the European Commission (EC).

DuPont, on Jan 24, said that it now expects the merger to complete in first-half 2017, pending regulatory approvals. Earlier, the companies expected to close the deal in first-quarter 2017. The merger is projected to deliver cost synergies of around $3 billion, expected to be achieved with the first two years after the deal closure.

Dow is a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked companies in the basic materials space include BASF SE BASFY and Methanex Corp. MEOH , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

BASF has an expected long-term growth of 7.7%.

Methanex has an expected long-term growth of 15%.

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E.I. du Pont de Nemours and Company (DD): Free Stock Analysis Report

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Methanex Corporation (MEOH): Free Stock Analysis Report

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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 Nasdaq, Inc.


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

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