Dow Chemical’s Restructuring And Input Costs Eat Up Profits

by Trefis Team
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The Dow Chemical Company
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The Dow Chemical Company (NYSE:DOW) released its Q1 earnings with net income dropping 34% to $520 million on the back of restructuring charges of $357 million. Revenue for the quarter remained flat at $14.7 billion. Volumes were down 1%, but up 3% on an adjusted basis as gains in ‘Agricultural sciences’ and ‘Feedstock and energy’ were negatively offset by volume declines in other segments. Dow Chemical competes with companies like PPG Industries (NYSE:PPG), 3M (NYSE: MMM) and Dupont (NYSE: DD).

See our full analysis of the Dow Chemical stock here

Performance Chemicals & Materials Perform Weakly

Revenues for ‘Performance Plastics’ were down 11% to $3.6 billion due to a similar decrease in the volume. Adjusted EBITDA (company reported) for the segment slumped 27% to $718 million as favorable ethane-based margins on the U.S. Gulf Coast were more than negatively offset by naptha-based margins in Europe and Asia/Pacific.

Similarly, sales for ‘Performance Materials’ were tepid at $3.48 billion, compared to $3.57 billion in the corresponding quarter last year. Profitability was hurt badly as EBITDA dropped to $332 million down 41%. However, excluding restructuring charges of $186 million, profit was still down 8% at $518 million.

Soaring Costs Slim Down Margins for ‘Feedstock and Energy’

Revenues for the division stood at $2.94 billion, up 13.4% helped by a 7% volume growth. However, the reported EBITDA shrunk 20% to $198 million mainly because of margin contraction in ethylene glycol in the company’s joint ventures in Kuwait. Recently, Dow Chemical also announced its plans to build an ethylene plant in Texas to take advantage of low natural gas prices which represents an investment as high as $4 billion.

At the same time, ‘Agricultural Sciences’ proved to be one of the better performing segments for the company with as revenue jumped 14% to $1.84 billion. Revenue growth was helped by a 12% increase in volume and a 2% rise in prices. The company particularly has a strong presence in the crop protection business, sales of which surged 27%. Dow Chemical’s reported EBITDA was up 11% to $451 million for the quarter.

We currently have a Trefis price estimate of $39 for Dow Chemical’s Stock, which is more than 10% above the current market price. We are in the process of revising our estimate to incorporate Q1 earnings. We are also in the process of reformatting the Dow Chemical’s divisions to better reflect the company’s segments.

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