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Dow (DOW) Warms Up to Q3 Earnings: What's in the Offing?

Zacks Equity Research

Dow Inc. DOW is scheduled to come up with its third-quarter 2019 results before the opening bell on Oct 24. The company’s third-quarter performance is expected to reflect the impacts of ethylene cracker downtime in Argentina and margin pressure in siloxanes. However, its earnings are likely to have benefited from cost synergy savings and lower maintenance turnaround spending in the quarter.

The company delivered a positive earnings surprise of roughly 1.2% in the last reported quarter. However, its sales for the quarter missed expectations, hurt by lower local pricing in polyethylene, siloxanes and isocyanates, and reduced hydrocarbon co-products sales.

Dow’s shares are down around 10.4% over the past three months, compared with the roughly 6% decline recorded by the industry.


 

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Let’s see how things are shaping up for this announcement.

What do the Estimates Say?

Dow expects revenues for the third quarter to be in the band of $10.5-$11 billion.

The Zacks Consensus Estimate for revenues for the third quarter for Dow is currently pegged at roughly $10.7 billion.

Factors at Play

Dow, in its second-quarter call, said that the pace of global economic growth has slowed as buying patterns remain cautious amid trade and geopolitical uncertainties.

Dow is expected to have benefited from cost synergy realizations in the third quarter. The company remains focused on maintaining cost and operational discipline through cost synergy and stranded cost-removal initiatives. Moreover, benefits of lower planned turnaround spending vis-à-vis the second quarter is likely to have contributed to margins in the September quarter.

The company expects to realize benefits of more than $90 million from cost synergy savings, stranded cost removal and lower turnaround spending in the third quarter.

However, power outage across Argentina led to the shutdown of Dow’s ethylene operations during the second quarter. The facility remained offline during the third quarter due to repair works. Dow projects this cracker downtime to have an unfavorable impact of around $100 million in the third quarter. This is likely to have hurt margins in the Packaging & Specialty Plastics unit.

Margin pressure in siloxanes owing to downward pressure on pricing is also likely to have weighed on profits in Dow’s Performance Materials & Coatings unit in the third quarter. The company expects margin pressure in siloxanes to pose a roughly $50 million headwind in the quarter.

Moreover, lower equity earnings from major join ventures (JVs) are likely to have hurt third-quarter margins in the Intermediates & Infrastructure segment. Dow expects roughly $20 million headwind related to lower equity earnings at the Sadara JV due to production issues and around $25 million headwind associated with its Kuwait JVs due to margin compression in monoethylene glycol (MEG) in the third quarter.

Zacks Model

Our proven model does not conclusively predict that Dow is likely to beat the Zacks Consensus Estimate this quarter. 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 -1.09%. The Zacks Consensus Estimate for the third quarter currently stands at 72 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 #3.  

Stocks to Consider

Here are some companies in the basic materials space that you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Agnico Eagle Mines Limited AEM, scheduled to release earnings on Oct 23, has an Earnings ESP of +7.93% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross Gold Corporation KGC, scheduled to release earnings on Nov 6, has an Earnings ESP of +25.93% and carries a Zacks Rank #1.

Newmont Goldcorp Corporation NEM, scheduled to release earnings on Nov 5, has an Earnings ESP of +3.13% and carries a Zacks Rank #2.

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Dow Inc. (DOW) : Free Stock Analysis Report
 
Newmont Mining Corporation (NEM) : Free Stock Analysis Report
 
Kinross Gold Corporation (KGC) : Free Stock Analysis Report
 
Agnico Eagle Mines Limited (AEM) : Free Stock Analysis Report
 
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Zacks Investment Research