Technology

Dow Inc. (DOW) Up 1.8% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Dow Inc. (DOW). Shares have added about 1.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Dow Inc. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Dow's Earnings and Revenues Beat Estimates in Q2

Dow recorded loss (on a reported basis) from continuing operations of 31 cents per share for second-quarter 2020 against earnings of 10 cents per share a year ago.

Barring one-time items, adjusted loss was 26 cents per share for the reported quarter, narrower than the Zacks Consensus Estimate of a loss of 30 cents.

Dow raked in net sales of $8,354 million for the quarter, down roughly 24% year over year. It, however, beat the Zacks Consensus Estimate of $7,963.3 million.

Sales fell due to lower local pricing and a decline in volumes resulting from the coronavirus pandemic. Currency reduced sales by 1% in the quarter.

Volumes fell 9% in the quarter as higher demand in food packaging, health & hygiene, home care and pharma applications was more than offset by softness in durable good end-markets. Dow also saw a 14% decline in local prices, mainly resulting from reduced global energy prices.

Segment Highlights

Packaging & Specialty Plastics: The division’s sales fell 23% year over year to $4 billion in the reported quarter. Volumes were flat while local prices slipped 22%. Currency also reduced sales by 1%.

Industrial Intermediates & Infrastructure: Sales for the unit fell 28% year over year to $2.4 billion. Volumes fell 18% while local prices declined 9%. Currency lowered sales by 1%.

Performance Materials & Coatings: Revenues from the division went down 21% year over year to $1.9 billion. Sales were impacted by volumes and local price declines of 14% and 6%, respectively. Currency also reduced sales by 1%.

Financials

Dow had cash and cash equivalents of $3,724 million at the end of the quarter. Long-term debt was $16,288 million.

Cash provided by operating activities from continuing operations was $1.6 billion in the reported quarter while free cash flow was $1.3 billion.

Dow also returned $516 million to shareholders in the second quarter through dividends. It also paid down roughly $600 million of debt in the quarter.

Outlook

Looking ahead, Dow sees a gradual and uneven recovery based on what it has witnessed in the second quarter and in July. The company noted that its structural cost improvements coupled with disciplined approach to cash generation and capital allocation will help it to capture significant value as markets recover.

Dow further noted that it will increase its operating expense reduction target for 2020 to $500 million from $350 million through additional structural cost actions. It will initiate a restructuring program, aiming more than $300 million in annualized EBITDA benefit by the end of next year. This includes a 6% reduction in its global workforce and actions to exit uncompetitive assets.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -47.54% due to these changes.

VGM Scores

Currently, Dow Inc. has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Dow Inc. has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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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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