Diversified chemicals manufacturer and Dow-30 component Dow Inc. (DOW – Free Dow Stock Report) has reported earnings for the fourth quarter. Specifically, the company posted sales of $10.2 billion. This compared unfavorably with the $10.7 billion reported for the third quarter, and the pro forma figure of $12 billion from the prior-year period. Volume fell 2% compared with the year-ago level, primarily due to lower hydrocarbon co-product sales, resulting from planned turnaround activity. It's worth mentioning that excluding the Hydrocarbons & Energy business, volume increased 2%, driven by growth in packaging and construction chemicals applications. Still, local prices declined 12%, year over year. Operating earnings came in at $0.78 per share, which was no match for the third-quarter level of $0.91 or the pro forma prior-year figure of $1.07. (Our bottom-line presentation excludes nonrecurring items, including a restructuring charge of $3.84 a share.)
For full-year 2019, sales and operating earnings per share were $43 billion and $3.53, respectively. Dow has been operating in a challenging environment lately, and this is reflected in the company's fourth-quarter results. Economic headwinds have been partly due to additional supply and macroeconomic uncertainty. The stock actually rose moderately following the earnings report, as the aforementioned unfavorable news had likely already been factored into the valuation during a selloff in previous weeks.
Performance at the Packaging and Specialty Plastics segment was impacted by a reduction in polyethylene product prices and lower hydrocarbon co-product sales (owing to planned turnaround activity in Europe). Greater demand from several end-markets provided some support. Meanwhile, results at the Industrial Intermediates & Infrastructure segment were constrained by lower prices for polyurethane intermediates and performance intermediates. Elsewhere, the Performance Materials & Coatings segment also experienced pricing weakness. Soft demand for siloxanes, coatings, and performance monomers played a role.
We have pared our estimates slightly for the current year, and we now expect sales and operating earnings per share will clock in at $45.5 billion and $4.25, respectively. This would still mark a healthy improvement from the 2019 levels. Growth ought to continue thereafter. The company's core strengths include feedstock flexibility, a lean cost structure, and leading positions in consumer-driven end markets. These should allow Dow to capture demand in the years ahead. Low-risk, high-return investments ought to bear fruit, and an emphasis on cost control should support the bottom line.
At this juncture, Dow stock offers healthy long-term total return potential, which is helped by a generous dividend yield. That said, we do expect a measure of unevenness along the way. As a diversified chemicals manufacturer, the company remains vulnerable to weakness in the global economy.
— Michael Napoli
