Dow (DOW -0.47%), the global materials science leader, delivered a mixed report for the third quarter on Oct. 24. The report showcased a mixed performance, with operating earnings per share (EPS) coming in at $0.47, slightly ahead of the analysts' consensus estimate of $0.46. Net sales totaled $10.9 billion, ahead of the $10.65 billion consensus estimate. However, although the EPS surpassed predictions, it declined from the second quarter's $0.68 and also from Q3 2023's $0.48. The overall assessment indicates a stable quarter despite economic challenges, primarily due to weaknesses in European and Chinese markets, while the U.S. market remained a steady growth driver.
| Metric | Q3 2024 | Q3 2024 Analysts' Estimate | Q3 2023 | % Change YoY |
|---|---|---|---|---|
| Operating EPS | $0.47 | $0.46 | $0.48 | (2.1%) |
| Net sales | $10.9 billion | $10.65 billion | $10.73 billion | 1.6% |
| Operating EBIT | $641 million | — | $626 million | 2.4% |
| Cash from operating activities | $800 million | — | $1.658 billion | (51.8%) |
Source: Analysts' estimates provided by FactSet.
Overview of Dow's Business
Dow, a stalwart in the materials science industry, operates a global network with vast manufacturing footprints across 31 countries and a workforce of about 35,900 employees. Its capacity to produce diverse chemical products allows it to tap into various markets including packaging, infrastructure, and consumer applications. Dow’s strength comes from its ability to leverage low-cost feedstock positions and efficient manufacturing sites.
Recently, Dow has focused its efforts on global expansion, sustainability, and technological innovation. The company remains committed to becoming carbon neutral by 2050, which will involve substantial investment in sustainability initiatives. Furthermore, Dow prioritizes partnerships and innovative R&D as key success drivers to tackle industry challenges while developing cutting-edge materials solutions.
Quarterly Highlights
This past quarter, Dow demonstrated regional resilience, particularly in North America, amidst weak economic recovery signals from Europe and China. Despite these persistent global pressures, net sales in the company's packaging & specialty plastics segment -- its largest unit -- grew 1% year over year to $5.5 billion. Operating EBIT for the segment increased by $142 million year over year to $618 million, a sturdy performance despite an unplanned outage at one of its plants in Texas following Hurricane Beryl.
Conversely, the industrial intermediates & infrastructure segment faced hurdles, with net sales dipping by 2% from the previous year to $3 billion, influenced by planned maintenance activities and tighter margins. That resulted in an operating EBIT loss of $53 million, compared to positive operating EBIT of $21 million in the prior-year period.
The performance materials & coatings segment fared better, reporting a 4% uptick in net sales to $2.2 billion, driven by volume growth. However, higher raw material costs compressed its operating EBIT to $140 million, down by $39 million from last year.
Dow's global scale buffered it against some macroeconomic disruptions, aided by its strategic focus and optimization within core markets like the Americas. However, the sluggish recovery in Europe and ongoing strategic reviews of European assets underscore the need for adaptation to regional challenges.
Dow continued its focus on shareholder returns, disbursing $490 million in dividends and repurchasing $94 million worth of shares in Q3. Inventory levels also rose from $6.076 billion at the end of December 2023 to $6.741 billion at the end of Q3, indicative of strategic planning for coming quarters.
Looking Ahead
Management expects the current macroeconomic conditions to persist, with a slight tilt towards improvement driven by strategic investments. It has pointed to projects that are expected to bring about $3 billion in underlying earnings by 2030. The company emphasizes leveraging its existing technological advancements and sustainability initiatives to navigate ongoing economic constraints.
Investors should watch Dow's guidance closely, as any industry developments, especially in Europe, could materially impact it. It anticipates continued soft conditions in certain segments but remains proactive, making strategic investments in polyethylene production and Path2Zero projects that align with its broader sustainability goals. These initiatives aim to strengthen Dow’s competitive position over the long term as it adapts to near-term economic headwinds.
