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Dow Chemical's Q3 Earnings Trump Estimates, Shares Pop

Dow Chemical’s (DOW) profit surged year over year in third-quarter 2014, thanks to strong results across its Performance Plastics and Electronic and Functional Materials divisions.

The U.S. chemical giant recorded profits of $852 million or 71 cents per share in the reported quarter, a 43% jump from $594 million or 49 cents per share recorded a year ago.

Barring costs associated with the separation of a major portion of the company’s chlorine business, earnings of 72 cents per share topped the Zacks Consensus Estimate by a nickel, marking the fourth straight quarter of positive surprise.

Dow recorded higher EBITDA margin (as adjusted) in the quarter, aided by gains from productivity actions. The company also benefited from higher pricing as demand tightened in major regions.

Revenues rose 5% year over year to $14,405 million in the quarter on gains across performance materials, performance plastics and electronics, aided by increased pricing. Sales rose across all geographic regions in the quarter. Revenues also came ahead of the Zacks Consensus Estimate of $14,304 million.

Sales in the emerging markets moved up 6% on strength in plastics business in Latin America. North America saw a 7% gain.

The Michigan-based company’s shares gained as much as 7.5% in pre-market trading, reflecting the forecast-topping results. The stock is up around 11% so far this year.

The Dow Chemical Company - Earnings Surprise | FindTheBest

Segment Review

Electronic and Functional Materials


Revenues rose 3% year over year to $1.2 billion in the reported quarter. Electronic Materials gained from higher foundry demand in semiconductor technologies, offset by declines in display technologies. Functional materials sales also rose in the quarter on the back of gains in North America.

Coatings and Infrastructure Solutions

The division saw flat sales of $1.8 billion in the quarter as gains across North and Latin America was offset by lower sale in other regions. Coating materials sales were boosted by gains in epoxy coatings. Water and Process Solutions benefited from higher demand for ion exchange and reverse osmosis technologies in North America, but saw declines Asia Pacific and Europe, Middle East and Africa (:EMEA).

Agricultural Sciences

Sales were flat year over year at $1.4 billion as gains in seeds were offset by lower crop protection sales. Crop protection revenues clipped 1% on weakening market conditions in North America. Sales of seeds rose 5% on gains in both soybeans and sunflower across North and Latin America.

Performance Materials

Revenues rose 8% to $3.6 billion in the quarter with gains witness across all geographic regions. Gains across consumer comfort, appliance and industrial markets led to a double-digit rise in polyurethanes sales.

Propylene oxide/propylene glycol registered record sales, backed by gains in major markets. Sales gains were also witnessed across oil, gas and mining and automotive systems businesses.

Performance Plastics

Sales went up 8% to $3.9 billion in the quarter with higher sales witnessed in all regions. Packaging and specialty plastics recorded higher sales on double-digit gains in the hygiene and medical and pipe market sectors, supported by growth in the food and specialty packaging market. Sales rose in the elastomers business on higher demand in transportation and hot-melt adhesives.

Feedstocks and Energy

Revenues moved up 2% to $2.4 billion on higher pricing in olefins and aromatics.

Financials and Shareholder Returns

Dow exited the quarter with cash and cash equivalents of roughly $5.8 billion, up roughly 9% year over year. Total long-term debt increased around 6% year over year to roughly $19.3 billion. Operating cash flow for the quarter was $1.8 billion.

Dow has returned $4.4 billion to its shareholders through dividends and share repurchases so far this year.

Outlook

Dow, a Zacks Rank #3 (Hold) stock, will continue to focus on its operating priorities that are delivering healthy results amid a volatile global marketplace. CEO Andrew N. Liveris said that the company will continue to aggressively pursue actions to drive returns on capital and boost cash flows through effective portfolio management. The company will also remain focused on maximizing shareholder returns.

Dow also remains committed to its cost reduction and efficiency programs and will continue to invest in attractive regions through highly-accretive projects including the expansions in the U.S. Gulf Coast and Sadara joint venture in the Middle East. The company expects its strategic investments to deliver incremental earnings starting in 2015.

Moreover, Dow remains actively focused on seeking opportunities to optimize its portfolio by selectively spinning off or selling its underperforming assets and gradually shift focus to high growth businesses. The company targets $4.5 billion-$6 billion of proceeds from assets sale by end-2015.

Dow’s results put a spotlight on demand trends for chemical products across a host of end-use markets. Among other big chemical names, DuPont (DD) is scheduled to report ahead of the bell on Oct 28.

Celanese (CE), which reported on Oct 20, topped earnings expectations in the third quarter and saw its profit jump year over year. Eastman Chemical (EMN) will report after the close on Oct 30.

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