Dow (DOW) Gains on Cost & Productivity Actions Amid Demand Woes
Dow Inc. DOW is expected to benefit from cost synergy savings and productivity actions and investment in high-return projects amid headwinds from demand softness due to weak global economic activities.
The company’s shares are up 17.2% over a year, compared with an 11% rise recorded by its industry.
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Dow, a Zacks Rank #3 (Hold) stock, is expected to gain from cost and productivity initiatives. It focuses on maintaining cost and operational discipline. The company is realizing a full $300 million EBITDA run rate benefit from restructuring programs being initiated in the third quarter of 2020.
The company also expects its investment in digital initiatives to drive efficiency and allow it to realize $300 million EBITDA run rate by the end of 2023. The company is also implementing targeted actions focused on optimizing labor and purchased service costs, lowering turnaround spending and boosting productivity. Dow expects these initiatives to deliver $1 billion in cost savings in 2023. It delivered $250 million of savings under this program in the second quarter of 2023.
Moreover, DOW remains focused on investing in attractive areas through highly accretive projects. It is investing in several high-return growth projects including the expansion of downstream silicones capacity.
Dow’s disciplined and balanced capital allocation priorities are also supporting its “Decarbonize and Grow” strategy to deliver long-term value creation for its shareholders. The company expects the Decarbonize and Grow strategy to increase underlying earnings by $3 billion annually.
However, Dow is exposed to challenges from weaker demand in Europe and Asia Pacific. Lower consumer spending amid inflationary pressures is affecting demand in Europe. Global industrial activities have been affected by the weaker demand recovery in China. In the Performance Materials & Coatings segment, the company is seeing weaker demand in consumer electronics and industrial end markets.
Inflationary pressures are also impacting consumer durables and building and construction demand in Europe, affecting the Industrial Intermediates & Infrastructure segment. Weak conditions across these markets are likely hurt volumes in third-quarter 2023. The challenging macroeconomic environment is expected to continue in the third quarter.
Dow also faces headwinds from plant turnaround costs in the third quarter. It sees increased planned maintenance turnaround activities in the Packaging & Specialty Plastics segment in the quarter. These include the turnaround at its cracker in St. Charles. Dow expects an associated headwind of roughly $100 million in the third quarter. The company also expects a $100 million headwind on earnings in the third quarter associated with an outage at its Plaquemine glycol plant in Louisiana.
Dow Inc. Price and Consensus
Dow Inc. price-consensus-chart | Dow Inc. Quote
Stocks to Consider
Better-ranked stocks worth a look in the basic materials space include Carpenter Technology Corporation CRS, Hawkins, Inc. HWKN and Alamos Gold Inc. AGI.
The Zacks Consensus Estimate for current fiscal-year earnings for CRS is currently pegged at $3.48, implying year-over-year growth of 205.3%. Carpenter Technology currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Carpenter Technology has a trailing four-quarter earnings surprise of roughly 10%, on average. The stock has rallied around 96% over the past year.
Hawkins currently carrying a Zacks Rank #1. It has a projected earnings growth rate of 18.9% for the current year.
Hawkins has a trailing four-quarter earnings surprise of roughly 25.6%, on average. HWKN shares are up around 53% in a year.
Alamos Gold currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for AGI's current-year earnings has been revised 7.5% upward over the past 60 days.
The Zacks Consensus Estimate for current fiscal-year earnings for Alamos Gold is currently pegged at 43 cents, implying year-over-year growth of 53.6%. AGI shares have surged around 79% in a year.
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