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Dow (DOW) Gears Up for Q2 Earnings: What's in the Cards?

Dow Inc. DOW is scheduled to come up with second-quarter 2020 results before the opening bell on Jul 23. Benefits of cost synergy savings and productivity initiatives are likely to get reflected on its results. However, weak demand in certain regions, reduced equity earnings from joint ventures and lower pricing are likely to have impacted its second-quarter performance.

Dow’s shares are down 20.2% year to date compared with 8.5% decline recorded by the industry.


 

Let’s see how things are shaping up for this announcement.

What do the Estimates Say?

Dow expects revenues for the second quarter to be in the band of $7.5-$8.5 billion.

The Zacks Consensus Estimate for revenues for Dow is currently pegged at $8,234 million, suggesting a decline of 25.2% year over year.

Factors at Play

Dow is expected to have benefited from cost synergy realizations in the second quarter. It remains focused on maintaining cost and operational discipline through cost synergy and stranded cost-removal initiatives.

The company expects to complete stranded costs removal target in 2020 and capture around $140 million of savings. Dow is also taking actions to cut operating expenses by $350 million and expects to realize around 20% of that in the second quarter.

The company is also expected to have benefited from higher demand for its materials across healthcare and packaging markets, thanks to the coronavirus pandemic. The outbreak has led to a surge in demand for health, hygiene and safety products (including PPEs, sanitizers, disinfectants and cleaning products).

However, weak demand across certain industrial end markets is likely to have affected Dow’s volumes and sales in the second quarter. Demand across certain key industrial segment remains soft amid the coronavirus pandemic. The company is seeing softer demand in automotive, consumer durable and construction end markets. Weakness across these markets is likely to have continued in the June quarter.

The company is also likely to have faced some headwinds from lower equity earnings from joint ventures in the quarter to be reported. It sees an unfavorable impact of around $25 million in the second quarter in its Packaging & Specialty Plastics unit. Another $50 million headwind is expected in the Industrial Intermediates & Infrastructure segment. These are expected to have hurt margins in these segments.

Moreover, Dow is exposed to pricing pressure due to lower global energy prices. The company saw lower selling prices for its products in the first quarter due to a sharp decline in crude oil prices. Pricing weakness is likely to have continued in the second quarter amid lower energy prices. This is likely to have weighed on the company’s top line in the quarter.
 

Dow Inc. Price and EPS Surprise

 

Dow Inc. Price and EPS Surprise

Dow Inc. price-eps-surprise | Dow Inc. Quote

 

What the Zacks Model Says

Our proven model doesn’t conclusively predict an earnings beat for Dow this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that’s not the case here.

Earnings ESP: Earnings ESP for Dow is 0.00%. The Zacks Consensus Estimate for the second quarter currently stands at a loss of 30 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Dow currently carries a Zacks Rank #3.  

Stocks That Warrant a Look

Here are some companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Nucor Corporation NUE, slated to release earnings on Jul 23, has an Earnings ESP of +3.15% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Newmont Corporation NEM, slated to release earnings on Jul 30, has an Earnings ESP of +11.11% and carries a Zacks Rank #3.

Barrick Gold Corporation GOLD, scheduled to release earnings on Aug 10, has an Earnings ESP of +1.37% and carries a Zacks Rank #3.

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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.

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