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Dow (DOW) Warms Up to Q1 Earnings: What's in the Cards?

Dow Inc. DOW is scheduled to come up with first-quarter 2021 results before the opening bell on Apr 22. The company’s results are expected to reflect the benefits of cost-reduction initiatives, higher prices and healthy demand across a number of end markets. However, plant turnaround costs are likely to have impacted its first-quarter performance.

The company surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 21%. It posted an earnings surprise of 17.4% in the last reported quarter.

Dow’s shares have rallied 105.1% over a year compared with 80.6% rise recorded by the industry.

 


 

 

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

Zacks Model

Our proven model predicts an earnings beat for Dow this time around. The combination of a positive Earnings ESP  and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earning beat.

Earnings ESP: Earnings ESP for Dow is +1.73%. The Zacks Consensus Estimate for earnings for the first quarter is currently pegged at $1.10. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Dow currently carries a Zacks Rank #1.

What do the Estimates Say?

Dow expects revenues for the first quarter to be in the band of $10.7-$11.2 billion.

The Zacks Consensus Estimate for revenues for Dow is currently pegged at $10,827 million, suggesting a rise of 10.8% year over year.

The Zacks Consensus Estimate for revenues for the company’s Packaging & Specialty Plastics unit is currently pegged at $5,300 million, calling for an increase of 3.3% on a sequential comparison basis. The consensus mark for revenues for the Industrial Intermediates & Infrastructure segment stands at $3,502 million, flat sequentially. The same for the Performance Materials & Coatings unit is currently pegged at $2,086 million, reflecting a rise of 2.8% sequentially.

Some Factors at Play

Dow is likely to have benefited from cost synergy savings and productivity actions in the March quarter. It remains focused on maintaining cost and operational discipline. The company is currently executing a restructuring program being initiated in the third quarter of 2020. It expects to realize more than $300 million annualized EBITDA benefit from the program that is likely to be substantially complete by end-2021. Some benefits of these actions are likely to get reflected on the company’s bottom line in the quarter to be reported.

The company is also expected to have gained 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. Moreover, improved demand across automotive, consumer durable and construction end markets on continued economic recovery is likely to have supported its results. Benefits of higher demand in silicones from consumer end markets such as electronics, home care and mobility are also expected to reflect on Performance Materials & Coatings unit’s performance.

Higher prices are also expected to have boosted Dow’s top line in the quarter to be reported. Strong polyethylene prices on tight supply are likely to have driven results in the Packaging & Specialty Plastics unit.

However, the company is likely to have faced headwind from plant turnaround costs in the first quarter. It envisions an unfavorable impact of $30 million in the quarter in the Industrial Intermediates & Infrastructure unit related to a turnaround in industrial solutions. Moreover, headwinds from a turnaround at the siloxane facility in China are expected to be $50 million in the Performance Materials & Coatings segment. Another $40 million headwind is expected from a turnaround at the Deer Park methacrylates facility in this segment. As such, turnaround costs are expected to have impacted margins in these segments in the first quarter.

 

Dow Inc. Price and EPS Surprise

 

Dow Inc. price-eps-surprise | Dow Inc. Quote

 

Stocks That Warrant a Look

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

The Mosaic Company MOS, scheduled to release earnings on May 3, has an Earnings ESP of +3.06% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

United States Steel Corporation X, scheduled to release earnings on Apr 29, has an Earnings ESP of +20.00% and carries a Zacks Rank #3.

Albemarle Corporation ALB, scheduled to release earnings on May 5, has an Earnings ESP of +9.85% and carries a Zacks Rank #3.

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