Yahoo Finance Dow (DOW) Warms Up to Q1 Earnings: What's in the Cards?
Dow Inc. DOW is scheduled to come up with first-quarter 2020 results before the opening bell on Apr 30. The company’s earnings are likely to have benefited from cost synergy savings and its U.S. Gulf Coast investments. However, its first-quarter performance is expected to reflect lower equity earnings from joint ventures, higher pension expenses and some unfavorable impacts of turnarounds and outages.
The company delivered a positive earnings surprise of 5.4% in the last reported quarter. It had benefited from its actions to reduce costs in the period.
Dow’s shares are down 39.5% year to date, compared with 29.5% decline recorded by the industry.
Let’s see how things are shaping up for this announcement.
What do the Estimates Say?
Dow expects revenues for the first quarter to be in the band of $10-$10.4 billion.
The Zacks Consensus Estimate for revenues for Dow is currently pegged at roughly $9,584 million.
The Zacks Consensus Estimate for the company’s Packaging & Specialty Plastics unit is pegged at $4,656 million, suggesting a 3.8% decline on a sequential comparison basis. The same for the Industrial Intermediates & Infrastructure segment stands at $3,100 million, indicating a 4.7% sequential decline. The consensus estimate for the Performance Materials & Coatings unit is pegged at $2,058 million, suggesting a 1.1% sequential rise.
Factors at Play
Dow is expected to have benefited from cost synergy realizations in the first quarter. It remains focused on maintaining cost and operational discipline through cost synergy and stranded cost-removal initiatives. It expects to complete stranded costs removal target in 2020 and capture $140 million of savings.
Dow also remains committed to invest in attractive areas through highly accretive projects. The company is likely to have gained, in the first quarter, from the contributions of new capacity from its U.S. Gulf Coast investments.
The company is also expected to have benefited from higher demand for its materials across healthcare and packaging markets, thanks to the coronavirus pandemic. The outbreak has led to a surge in demand for health, hygiene and safety products (including PPEs, sanitizers, disinfectants and cleaning products).
However, the company is likely to have faced some headwinds from lower equity earnings from joint ventures in the quarter to be reported. It envisions an unfavorable impact of $20 million for in the Packaging & Specialty Plastics unit and another $30 million in the Industrial Intermediates & Infrastructure segment. This is expected to have hurt margins in these segments.
Higher pension expenses are also likely to have affected margins in the quarter to be reported. The company expects a $15-$20 million associated headwind in the Packaging & Specialty Plastics unit for the quarter. Moreover, both the Performance Materials & Coatings and Industrial Intermediates & Infrastructure units are projected to witness a $5-$10 million headwind in the first quarter.
The impacts of turnaround activities at the performance monomers site in Texas and third-party supplier outages are also expected to get reflected on the company’s results. The company expects roughly $35 million headwind in the first quarter in its Performance Materials & Coatings unit due to higher turnaround activity at its performance monomers site. It also sees a $40 million impact from an outage in Spain at the Industrial Intermediates & Infrastructure unit.
Moreover, soft demand across certain industrial end markets is likely to have affected Dow’s volumes in the first quarter. Dow is exposed to a challenging demand environment in certain markets. The company is seeing softer demand in automotive and consumer electronics end markets as witnessed in the last reported quarter. Weakness across these markets is likely to have continued in the March quarter amid the coronavirus outbreak.
Dow Inc. Price and EPS Surprise
Dow Inc. price-eps-surprise | Dow Inc. Quote
Zacks Model
Our proven model does not conclusively predict an earnings beat for Dow this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that’s not the case here.
Earnings ESP: Earnings ESP for Dow is -7.00%. This is because the Most Accurate Estimate is currently pegged at 56 cents while the Zacks Consensus Estimate stands at 60 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Dow carries a Zacks Rank #5 (Strong Sell).
Stocks Poised to Beat Estimates
Here are some companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Verso Corporation VRS, expected to release earnings on May 13, has an Earnings ESP of +20.00% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Scotts Miracle-Gro Company SMG, scheduled to release earnings on May 6, has an Earnings ESP of +1.49% and carries a Zacks Rank #2.
Franco-Nevada Corporation FNV, scheduled to release earnings on May 6, has an Earnings ESP of +1.38% and carries a Zacks Rank #2.
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