Key Takeaways From Dow Chemical Q3’16 Earnings

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Dow Chemical (NYSE: DOW) reported its Q3’16 earnings on October 27th. The company reported revenue growth of about 4% on year-over-year basis. It has completed integrating Dow-Corning which led to strong performance in consumer solutions and infrastructure solutions businesses. Going into Q4’16 we expect revenue growth to be on similar lines. The demand across segments has been consumer driven, and we expect emerging economies driving significant volume demand.

Our price estimate for Dow stands at $58 is under update

Summary Of Q3’16 Results

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Dow Chemical reported operating EPS of $0.91 for Q3’16, up 11% from the same period last year. The company improved margins slightly on account of increased productivity and cost saving measures. Further, integration of Dow-Corning and strong performance of agriculture segment helped boost the  bottom line. The company is on track to achieve the cost synergy of $400 million from integration of Dow-Corning.

What To Expect Going Forward?

The Agriculture segment beat our expectation by posting about 6% growth in the quarter. This was driven by strong demand in Latin America. We believe some increase in demand has been on the account of early planting season. Additionally, the weakness in the crop protection market continued as expected because high inventory levels and the use of more pest resistant crops. Going forward we expect the segment to post low single digit growth due to the relative weakness of farm incomes.

Consumer solution and infrastructure solution will continue to post strong growth on account of consumer led demand in emerging economies, and demand from automotive sector.

Performance plastics is Dow’s largest segment contributing over 40% to our valuation estimate. The business is expected to experience volume demand from auto and telecom sector. However, local price pressure may off-set some of the volume demand. Overall, we expect the growth in segment to be in mid-single digit going forward.

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