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Dow (DOW) Gears Up for Q4 Earnings: What's in the Offing?

Dow Inc. DOW is scheduled to come up with fourth-quarter 2020 results before the opening bell on Jan 28. Benefits of cost-reduction initiatives and healthy demand across a number of end-markets are likely to get reflected on its results. However, plant turnaround costs are likely to have impacted its fourth-quarter performance.

The company surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 18%. It posted an earnings surprise of 51.5% in the last reported quarter.

Dow’s shares are up 21.8% over a year compared with 26.8% 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 +13.50%. The Zacks Consensus Estimate for earnings for the fourth quarter is currently pegged at 66 cents. 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 #3.

What do the Estimates Say?

Dow expects revenues for the fourth quarter to be in the band of $9.5-$9.8 billion.

The Zacks Consensus Estimate for revenues for Dow is currently pegged at $9,662 million, suggesting a decline of 5.3% year over year.

The Zacks Consensus Estimate for revenues for the company’s Packaging & Specialty Plastics unit is currently pegged at $4,646 million, calling for an increase of 1.8% on a sequential comparison basis. The consensus mark for revenues for the Industrial Intermediates & Infrastructure segment stands at $3,155 million, indicating a 3.2% sequential rise. The same for the Performance Materials & Coatings unit is currently pegged at $1,893 million, reflecting a decline of 5.4% sequentially.

Factors at Play

Dow is likely to have gained from cost synergy savings and productivity actions in the fourth quarter. It remains focused on maintaining cost and operational discipline through cost synergy as well as stranded cost-removal initiatives.

The company is taking actions to cut operating expenses by $500 million through additional structural cost actions. Benefits of these cost 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 furniture & bedding, appliances, packaging, construction and automotive end markets is likely to have supported its results.

However, coatings and construction seasonality in the Northern hemisphere is expected to have hurt sales in the Performance Materials & Coatings unit in the fourth quarter. Moreover, subdued air travel is likely to have weighed on sales in the Industrial Intermediates & Infrastructure division. These headwinds may have put pressure on volumes and the company’s top line in the December quarter.

The company also likely to have faced headwind from plant turnaround costs in the fourth quarter. It envisions an unfavorable impact of $100 million in the quarter in the Packaging & Specialty Plastics unit related to turnarounds associated with the Sabine ethylene cracker and co-polymer facility. These turnarounds have been delayed from the third quarter due to hurricanes in the U.S. Gulf Coast. As such, turnaround costs are expected to have hurt margins in the fourth quarter.

 

Dow Inc. Price and EPS Surprise

 

Dow Inc. Price and EPS Surprise
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:

LyondellBasell Industries N.V. LYB, scheduled to release earnings on Jan 29, has an Earnings ESP of +5.36% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Celanese Corporation CE, scheduled to release earnings on Jan 28, has an Earnings ESP of +2.38% and carries a Zacks Rank #2.

Eastman Chemical Company EMN, scheduled to release earnings on Jan 28, has an Earnings ESP of +16.17% and carries a Zacks Rank #3.

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