Dow (DOW) Warms Up to Q3 Earnings: What's in the Offing?

Dow Inc. DOW is scheduled to come up with third-quarter 2020 results before the opening bell on Oct 22. Benefits of cost-reduction initiatives are likely to get reflected on its results. However, plant turnaround costs and charges related to restructuring are likely to have impacted its third-quarter performance.

Dow’s shares are down 9.9% year to date compared with 0.2% rise recorded by the industry.



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

Zacks Model

Our proven model predicts 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 earning beat.

Earnings ESP: Earnings ESP for Dow is +10.83%. The Zacks Consensus Estimate for earnings for the third quarter is currently pegged at 31 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.

What do the Estimates Say?

Dow expects revenues for the third quarter to be in the band of $8.5-$9 billion.

The Zacks Consensus Estimate for revenues for Dow is currently pegged at $9,340 million, suggesting a decline of 13.2% year over year.

The Zacks Consensus Estimate for revenues for the company’s Packaging & Specialty Plastics unit is currently pegged at $4,126 million, calling for an increase of 3.1% on a sequential comparison basis. The consensus mark for revenues for the Industrial Intermediates & Infrastructure segment stands at $2,760 million, indicating a 14.2% sequential rise. The same for the Performance Materials & Coatings unit is currently pegged at $1,980 million, reflecting a rise of 6.7% sequentially.

Factors at Play

Dow is expected to have benefited from cost synergy realizations in the third 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 $500 million through additional structural cost actions. Benefits of these cost actions are likely to get reflected on the company’s bottom line in the quarter to be reported.

The company is also expected to have gained 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). Moreover, demand recovery across automotive, construction and electronics end markets is likely to have supported its results.

However, the company is likely to have faced some headwinds from plant turnaround costs in the third quarter. It envisions an unfavorable impact of $70 million in the quarter in the Packaging & Specialty Plastics unit related to higher ethylene turnaround expenses. Dow also sees a $20 million headwind in the Industrial Intermediates & Infrastructure unit and another $10 million headwind in the Performance Materials & Coatings segment associated with planned maintenance. As such, turnaround costs are expected to have hurt margins in these segments.

Moreover, Dow is implementing a restructuring program that will rationalize certain manufacturing assets and lower global workforce costs by nearly 6%. The company expects these actions to generate total annualized EBITDA savings of more than $300 million by the end of 2021.

However, in regards to these restructuring actions, the company expects to record a charge of $500-$600 million in the third quarter related to severance and related benefit costs, asset write-downs and write-offs as well as costs associated with exit and disposal activities. This is likely to have weighed on its bottom line in the third quarter.

Dow Inc. Price and EPS Surprise


Dow Inc. Price and EPS Surprise

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


Other Stocks That Warrant a Look

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

Agnico Eagle Mines Limited AEM, scheduled to release earnings on Oct 28, has an Earnings ESP of +14.25% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Newmont Corporation NEM, scheduled to release earnings on Oct 29, has an Earnings ESP of +0.97% and carries a Zacks Rank #1.

Eastman Chemical Company EMN, scheduled to release earnings on Oct 29, has an Earnings ESP of +1.97% 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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