Diversified materials science manufacturer and Dow-30 component Dow Inc. (DOW – Free Dow Stock Report) has reported earnings for the third quarter. Net sales were $10.764 billion, a decline of 2% on a sequential basis and down about 15% from the pro forma results of the year-ago period. Volume decreased 2% on a year-over-year basis. Demand growth in packaging, polyurethanes, and silicones applications was more than offset by lower hydrocarbon co-product sales, resulting from a lighter feedstock slate in Europe, and increased ethylene integration from the startup of new assets in the U.S. Gulf Coast. Local price declined 12% compared with the pro forma results from the year-ago period, driven mainly by decreases in polyethylene, hydrocarbon co-products, siloaxanes, and isocyanates. Operating earnings per share were $0.91, a sequential improvement of about 6%, but well below the pro forma tally of $1.34 from the prior-year period. Sales and earnings figures came in shy of our estimates but surpassed consensus expectations, and the shares advanced moderately in price following the earnings release.
Lackluster performance was fairly broad based. Results at the Packaging & Specialty Plastics segment were hurt by pricing weakness. Moreover, lower volumes experienced by the Hydrocarbons & Energy unit were the result of lighter feedstock usage in Europe. Meanwhile, the Industrial Intermediates & Infrastructure segment was hurt by local pricing weakness. Reduced demand in energy, agricultural, and automotive end-markets impacted volumes here, though this was partly offset by improved supply of methylene diphenyl diisocyanate and volume gains from polyurethane systems. Elsewhere, the Consumer Solutions business at the Performance Materials & Coatings segment experienced volume growth in the infrastructure end market, as well as improved demand for siloxanes in the Asia/Pacific region. This more than offset demand contraction in automotive and consumer electronics end markets. Still, sales at this business fell, due to local price declines in all geographic regions. Lower demand for architectural coatings in the United States and Canada as well as for industrial coatings in the Asia/Pacific region hurt results at the Coatings & Performance Monomers line.
Unevenness will likely persist going forward, and we have pared our estimates for the remainder of the year. We now expect sales and earnings per share of $43.5 billion and $3.65, respectively, for full-year 2019. Long-term prospects appear to be somewhat better here. Demand for many of the offerings in the company's diversified product portfolio ought to improve in the years ahead, and an emphasis on high-return growth projects should pay off. As a result, this equity offers attractive long-term total return potential.
— Michael Napoli
