Diversified chemicals manufacturer and Dow-30 component Dow Inc. (DOW – Free Dow Stock Report) has reported earnings for the second quarter. Net sales were $11 billion, in line with company guidance, but down about 14% compared with pro forma results in the year-ago period. This was driven by local price declines in polyethylene, siloxanes, and isocyanates, as well as lower sales of hydrocarbon co-products. Volume fell modestly, too. This was partly offset by demand growth in plastics packaging applications, supported by new capacity on the U.S. Gulf Coast. GAAP earnings per share from continuing operations were $0.10, well below the prior-year pro forma tally of $1.05. Operating share net of $0.86 was also no match for the corresponding pro forma year-ago figure of $1.41. The stock trickled lower on today’s news.
Sales at the Performance Materials & Coatings unit were hurt by ongoing siloxane price pressures, slower demand in automotive and consumer electronics end markets, and weakness in demand for coatings owing to wet weather in the United States and Europe. Meanwhile, results at the Industrial Intermediates & Infrastructure business were hurt by lower isocyanate prices, currency headwinds, and soft demand for industrial solutions in agriculture, automotive, and electronics end-markets. Elsewhere, the Packaging & Specialty Plastics segment experienced lower polyethylene prices and currency headwinds. This was partly offset by end-market growth in industrial and consumer packaging as well as in health and hygiene applications.
Unevenness will likely persist in the near term. The company is operating in a challenging environment, due largely to ongoing trade and geopolitical uncertainties. We have reduced our estimates for full-year 2019, and now project sales and earnings per share of $45 billion and $4.20, respectively. Efforts by Dow to control costs ought to support profitability.
An emphasis on high-return growth projects should pay off down the road. With a diverse customer base, the company ought to benefit as demand improves for many of its products in the years ahead. All things considered, this equity offers attractive long-term total return potential for the pull to early next decade.
— Michael Napoli
