DOW Beats Consensus Estimate - Analyst Blog

Chemical giant The Dow Chemical Company (DOW) earned 37 cents per share in the fourth quarter of 2010, ahead of the Zacks Consensus Estimate of 35 cents as well as last year's 8 cents. However, including one-time charges, the company earned 47 cents compared with 18 cents in the year-ago quarter.

In fiscal 2010, Dow reported earnings of $1.72 per share versus 32 cents in the prior year. Including one-time charges, the company earned $1.97 compared with 63 cents in the prior year.

Quarterly revenues jumped 22% year over year to $13.8 billion and were above the Zacks Consensus Estimate of $12.5 billion. Volume (12%) and pricing (10%) gains across all business segments and geographical regions, particularly North America and Europe, yielded healthy revenue growth. In fiscal 2010, revenues increased 26% to $53.7 billion.

North American revenues grew 16.1% while that of Latin America shot up 15%. Demand increased 6% in Europe, Middle East and Africa, and 6% in Asia Pacific. Latin American volumes were up 5% on stronger demand in the Health and Agricultural Sciences segment. Volume in Asia Pacific decreased 2%.

A stronger top-line growth resulted in an increase of over 30% in EBITDA (adjusted) to $1.9 billion. EBITDA margin was up 200 basis points year over year. Dow's global operating rate was 81%, up 5% year over year but down 5% sequentially.

Segment Review

Electronic and Specialty Materials: Sales in the segment climbed 13% year over year to $1.3 billion, driven entirely by volume. The Electronic business saw higher volumes, particularly in the Asia-Pacific region, where volumes surged 25%.

Dow's Semiconductor Technologies along with Display Technologies and Growth Technologies delivered strong growth, driven by higher end-market demand for televisions and computer monitors. Sales volumes in the business grew 45%.

Sales in the Specialty Material business were facilitated by double-digit growth in volumes, especially in Asia-Pacific and Latin America. EBITDA was $424 million versus last year's $390 million.

Coatings and Infrastructure: Sales of $1.2 billion grew 6% year over year.  Volume inched down 1% year over year and price was up 7%. The coatings business benefited from higher sales of architectural and industrial coatings.

The infrastructure business also recorded a double-digit sales improvement, driven by volume gains despite continued weakness in residential and commercial construction end-markets. EBITDA of $128 million was higher than $123 million in the same period last year.

Health and Agricultural Sciences: This segment's sales moved up 19% to $1.3 billion in the fourth quarter, with volume gains of 20%.

Seeds, Traits and Oils posted 32% sales gains driven by growth in corn and cotton. The positive performance of new SmartStax™ hybrids in North America and a shift in Latin America toward greater use of Herculex™ insect protection drove increased volume growth for corn.

Cotton continued to experience strong sales growth with the success of Widestrike™ insect protection, while the canola business delivered double-digit gains due to higher sales of Nexera™ seeds.

Performance Systems: Sales in this segment shot up 17% to $1.6 billion, as volume increased 9% and prices surged 8%. A strong rebound in the automotive market led to higher sales in the automotive systems business in North America and Asia-Pacific.

Dow saw higher sales of polyurethane glass bonding adhesives and foams as well as higher demand for technology-differentiated products used in acoustics and body structure applications. Modest price increases led to EBDITA of $198 million versus $149 million in the prior-year period.

Performance Products: Sales soared 23% to $2.7 billion, primarily based on higher prices. Prices rose 12% while volumes were up 11%. Polyurethanes business remained strong with higher pricing. Strong demand in electrical laminates in Asia-Pacific drove higher sales in the Epoxy business. Sales volumes in the business grew 40%.

Polyglycols, Surfactants and Fluids demand remained high across all regions. Adjusted EBITDA for the segment was $264 million versus $303 million in the year-ago quarter.

Basic Plastics: Basic Plastics sales were up 20% to $2.9 billion driven by a 16% increase in prices and a 4% rise in volumes. The segment benefited from higher polyethylene demand, especially in the packaging markets. The segment's adjusted EBITDA was $765 million versus $548 million in the year-ago period.

Basic Chemicals: Sales in the segment went up 13% to $932 million due to a rise of 16% in prices and a 3% decrease in volumes. The segment saw higher volumes in the Chlor-Alkali/Chlor-Vinyl business, especially for caustic and vinyl chloride monomer on the back of a recovering alumina and the pulp and paper industries.

Demand was particularly high in export markets. Caustic soda prices continued to improve sequentially. EBITDA for the quarter was $173 million versus an adjusted income of $20 million in the year-ago period.

Balance Sheet View

Dow with its recent focus on debt reduction recorded total leverage of $20.6 billion as of December 31, 2010, of which about $1.8 billion debt would mature in the near term. Comparatively, at the end of December 31, 2010, cash and cash equivalent amounted to $7039 million versus $2,846 million at the end of December 31, 2009. Net debt-to-capital declined to 42.6% from 44% in the prior quarter.

Outlook

There was no financial guidance from Dow. However, Dow anticipates demand to improve further, especially in Asia with the global economic recovery. The US and European markets have also started showing signs of improvement. Dow is also optimistic on major consumer-markets, including electronics, coatings, automotive and packaging. However, construction markets are expected to remain weak.

Currently, DOW holds a short-term (1 to 3 months) Zacks #3 Rank (Hold).

 
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