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Dow Chemical in the Red despite 1Q17 Earnings Beat

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Part 6
Dow Chemical in the Red despite 1Q17 Earnings Beat PART 6 OF 9

Dow Chemical’s Performance Materials & Chemicals Segment in 1Q17

Dow Chemical’s Performance Materials & Chemicals segment’s performance

Dow Chemical’s (DOW) Performance Materials & Chemicals segment reported revenues of $2.4 billion in 1Q17, a 12.0% rise year-over-year compared to $2.2 billion in 1Q16. The segment accounted for 18.5% of DOW’s total revenue compared to 20.4% in 1Q16, representing a fall of 1.9 percentage points year-over- year.

Dow Chemical&#8217;s Performance Materials &amp; Chemicals Segment in 1Q17

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DOW’s Performance Materials & Chemicals segment reported an operating EBITDA (earnings before interest, tax, depreciation, and amortization) of $435.0 million in 1Q17, a rise of 29.9% year-over-year compared to $335.0 million in 1Q16. The segment’s operating EBITDA margin rose 17.8% in 1Q17 compared to 15.4% year-over-year, representing a fall in margins of 240 basis points.

Driving factors

DOW’s Performance Materials & Chemicals segment’s revenue growth was mainly driven by volume and price growth across all businesses and all regions. Increased demand from the pulp and paper sector drove volume growth in the Chlor-Alkali and Vinyl business. The segment’s revenue also got a boost from equity earnings of $73.0 million compared to -$31.0 million in 1Q16 from the Kuwait joint ventures. As a result, the segment’s EBITDA and margins improved.

Segment’s outlook

DOW expects the current trend to continue in the next quarter. However, the segment’s revenue may be adversely impacted due to lower equity earnings.

You can indirectly hold Dow Chemical by investing in the iShares Global Materials (MXI), which has invested 3.9% of its portfolio in Dow Chemical. The other top holdings of the fund include DuPont (DD), Monsanto (MON), and LyondellBasell (LYB) with weights of 3.8%, 2.8%, and 1.6%, respectively, as of April 27, 2017.

In the next part, we’ll analyze the performance of Dow Chemical’s Performance Plastics segment in 1Q17.

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