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Why Is Dow Inc. (DOW) Up 5.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Dow Inc. (DOW). Shares have added about 5.2% in that time frame, outperforming 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 drivers.

Dow's Earnings Lag Estimates in Q1, Revenues Beat

Dow recorded earnings (on a reported basis) from continuing operations of 32 cents per share for first-quarter 2020 against earnings of 16 cents per share a year ago.

Barring one-time items, earnings were 59 per share for the reported quarter, falling short of the Zacks Consensus Estimate of 60 cents.

Dow witnessed lower margins in the polyurethanes and silicones chains as well as reduced equity earnings.

Dow raked in net sales of $9,770 million for the quarter, down roughly 11% from the adjusted sales a year ago. It, however, beat the Zacks Consensus Estimate of $9,575.7 million.

Sales fell due to lower local pricing across the board resulting from a decline in global energy prices. Currency reduced sales by 1% in the quarter.

Volumes fell 2% in the quarter as higher demand in food, health & hygiene packaging, surfactants & solvents for cleaning and coatings end-markets were more than offset by declines in polyurethanes and silicones applications. The company saw lower sequential volumes in China as the coronavirus pandemic led to slower economic activities. Dow also saw an 8% decline in local prices.

Segment Highlights

Packaging & Specialty Plastics: The division’s sales fell 10% from the adjusted sales a year ago to $4.6 billion in the reported quarter. Volumes were flat while local prices slipped 9%. Currency also reduced sales by 1%.

Industrial Intermediates & Infrastructure: Sales for the unit fell 13% to $3 billion. Volumes fell 3% while local prices declined 9%. Currency lowered sales by 1%.

Performance Materials & Coatings: Revenues from the division went down 11% to $2.1 billion. Sales were impacted by volumes and local price declines of 3% and 7%, respectively. Currency also reduced sales by 1%.

Financials
 
Dow had cash and cash equivalents of $3,633 million at the end of the quarter. Long-term debt was $16,313 million.

Cash provided by operating activities from continuing operations was $1.2 billion in the reported quarter while free cash flow was $841 million.

The company also returned $643 million to shareholders in the quarter through dividend and share repurchase.

Outlook

Looking ahead, Dow said that it is seeing indications of a recovery from the virus outbreak in China while still assessing the impact of the pandemic in other major geographies. Factoring in a gradual and sustainable return of global economic activity and reopening of economies in May and June, the company sees a recovery as the year progresses.

Dow also said that it is taking actions to further strengthen its financial position. These include reduction of operating expenses by $350 million and further trimming of capital expenditure target to $1.25 billion (a $750 million reduction compared with 2019). The company is also temporarily idling certain manufacturing units to balance production to demand across markets that have been significantly affected by restrained economic activities.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -81.2% due to these changes.

VGM Scores

At this time, Dow Inc. has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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 this revision indicates a downward shift. Notably, Dow Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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