What To Expect From Dow Chemical’s Earnings

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Dow Chemical Company (NYSE:DOW) will report its Q1 2017 earnings on April 27.  The company’s business has been facing intense pricing pressure for the last few years. In the first nine months of 2016, its revenue declined by nearly 6% because of a 9% reduction in average prices, partially offset by modest 3% growth in sales volume. However, this price decline abated to a great extent in the 4th quarter and for the full year, the revenue decline reduced to just over 1%. Q1 2017 may mark the beginning of a growth revival as pricing pressure eases off, volume growth continues and the adverse impact of currency fades away. Below we take a quick look at why this may happen. Last quarter’s results give us some clues.

Our price estimate of $60.50 for Dow Chemicals is slightly below the market.

Dow’s focus on consumer markets has helped revive its growth. Excluding the impact of acquisitions, the company saw volume growth of 7% in consumer solutions, 5% in agricultural science and 4% in performance plastics in the fourth quarter of 2016. Improved volume growth is an added benefit, and should translate into a revenue rebound as pricing pressure eases off. The agricultural science division is benefiting from growing demand for corn seeds in North America and Latin America. Additionally, the EMEA and Latin America markets continue to see a surge in volumes of crop protection products as well. In fact, the pricing for agricultural products increased by 2% in Q4 2016, which was a positive surprise and can be attributed to higher demand for corn seeds. Also, performance plastics, Dow Chemical’s biggest segment, saw growth of nearly 4% in revenue and volumes, suggesting that pricing may have bottomed out. There is a good chance that Dow will see overall revenue growth in the first quarter of 2017.

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