Dow's Earnings Tops on Agriculture Boost


Dow Chemical (DOW) saw its profit soar in first-quarter 2013 on strength in its agriculture science business, reflected by record sales of seeds and crop protection products.

The U.S. chemical kingpin, whose products are used across a bevy of industries, racked up profit of $550 million or 46 cents a share, a roughly 33% rise from $412 million or 35 cents a share earned a year ago. A hefty restructuring charge (of $357 million) crimped the bottom line a year ago. Dow also benefited from a nearly $300 million decline in raw material costs in the reported quarter.

Barring one-time items (including charges associated with tax adjustments and loss on early extinguishment of debt), the company earned 69 cents a share in the quarter, up from 61 cents a year ago. That comfortably beat the Zacks Consensus Estimate of 60 cents.

The Michigan-based company’s shares rose 4% in pre-market trading, reflecting the handy earnings beat.

Revenue, Volume and Pricing

Dow recorded revenues of $14,383 million in the reported quarter, down 2% year over year, as gains across agricultural sciences and electronic and functional materials were marred by declines in other areas, especially the Feedstocks and Energy unit. Sales lagged the Zacks Consensus Estimate of $15,029 million.

Sales rose narrowly in North America while declining 8% in Europe, Middle East and Africa (:EMEA). Latin America saw a roughly 8% rise in sales while Asia Pacific registered a 2% decline. Price edged up 1% year over year while volume declined 3% in the quarter.

Segment Review

Electronic and Functional Materials

Revenues rose 2% year over year to $1.1 billion in the reported quarter as higher volume offset lower pricing. Electronic materials recorded modest decline while semiconductor technologies business saw volume gains on strength in memory manufacturing. Functional materials sales rose on higher volume across the board and improving pharmaceutical demand.

Coatings and Infrastructure Solutions

Sales edged down 2% to $1.7 billion in the quarter as volume fell due to weakness in Europe and price remained flat. Building and construction business saw lower volume in the quarter. Weak commercial construction demand in North America also contributed to the volume decline.  

Sales were flat in the coating materials business as volume gains across North America and Asia Pacific was offset by decline in Europe. The company’s water and process solutions business reported higher sales, aided by improving demand.

Agricultural Sciences

The segment was the bright spot with sales climbing 14% year over year to a record $2.1 billion, benefiting from strong volume gains and better pricing. Crop protection products revenues rose 7% riding on gains across America and Latin America.

New crop protection revenues rose significantly in the quarter. Sales of seeds, traits and oils surged 37% on the back of strong demand for SmartStax products in North and Latin America.

Performance Materials

Revenues clipped 4% to $3.3 billion as volume decline offset a rise in price. Higher pricing were achieved in polyurethanes, formulated systems and oxygenated solvents. Volume fell in the epoxy and polyurethanes businesses.

Performance Plastics

Sales dipped 3% to $3.5 billion in the quarter as volume fell on weak demand in Europe and closure of a polyethylene plant in Belgium. Sales fell across elastomers and electrical and telecommunications businesses. Packaging and specialty plastics registered higher volumes in North and Latin America, but witnessed a decline in Europe and Asia Pacific.

Feedstocks and Energy

The segment was the weakest link in the reported quarter with revenues slipping 13% to $2.6 billion on a double-digit decline in volumes, offsetting a modest rise in pricing. Volume fell on weak demand in Europe and the sale of the polypropylene business.

Financial Health

Dow ended the first quarter with cash and cash equivalents of roughly $3.5 billion, down 3% year over year. Total long-term debt declined roughly 2% year over year to around $19.6 billion. Operating cash flows increased $500 million year over year in the quarter.


Looking ahead, Dow noted that it will focus on organically growing its attractive businesses and driving earnings leveraging its feedstock strength. The company will continue to pursue its cost reduction and efficiency programs while reducing debt and maximizing shareholder returns. However, Dow does not see a material improvement in the macroeconomic environment this year.

Dow, under its restructuring program, is reducing its global headcount by 5% and closing some of its manufacturing facilities. The company targets aggregate cost savings of $2.5 billion with $1 billion expected this year.

Moreover, Dow continues to seek opportunities to optimize its portfolio by selectively divesting its assets. It aims to mop up nearly $1.5 billion from non-core assets sale in the near term.

Our View

Dow, which currently holds a Zacks Rank #3 (Hold), is benefiting from strong fundamentals in agriculture and food markets. A string of innovative products in its pipeline also adds to its strength.

However, Dow contends with weakness in the electronics and construction end-markets. Building and construction sales are declining due to lower volume in Europe and recovery in electronics remains slow due to sluggish growth China and the prevailing uncertainty in Europe.

Dow’s results put a spotlight on the end market scenario and demand trend for chemical products. Among the other big chemical names, DuPont (DD), which reported on Apr 23, delivered better-than-expected results on strength in its agriculture business. Gains in agriculture helped it to offset the lingering weakness across titanium dioxide and photovoltaic markets.

Celanese’s (CE) first quarter results, reported on Apr 18, were a mixed bag with earnings topping expectations while sales missing the same. Eastman Chemical (EMN) will report its first quarter results after the closing gong today.

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