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Why Did Dow Chemical’s Performance Plastics Revenue Fall in 2Q16?

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Dow Chemical’s Performance Plastics segment

Dow Chemical’s (DOW) Performance Plastics segment comprises Dow Elastomers, Dow Electrical and Telecommunications, Dow Packaging and Specialty Plastics, Energy, and Hydrocarbons. This segment also includes revenues from several of the company’s joint ventures. Performance Plastics is the largest revenue contributor to Dow Chemical.

In 2Q16, the Performance Plastics segment reported revenue of $4.7 billion, representing 39.2% of Dow Chemical’s total revenue. On a year-over-year basis, the segment’s revenue fell by 2.2%.

During 2Q16, the Performance Plastics segment posted operating EBITDA (earnings before interest, tax, depreciation, and amortization) of $1.24 billion compared to $1.16 billion in 2Q15. This implied a 6.9% rise in operating EBITDA year-over-year.

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Highlights of Performance Plastics in 2Q16

  • Lower prices impacted the segment by -14%. Competition in the market pushed prices down. However, the price fall was offset by a 12% rise in sales volumes.
  • The shutdown of a small manufacturing unit and other asset write-downs impacted the segment by $10 million.
  • The segment’s volumes saw growth in all geographic areas. However, the Dow Elastomers business saw volume falls in Latin America and EMEAI (Europe, the Middle East, Africa, and India).
  • Dow Chemical’s reduced stake in EQUATE, a joint venture between Dow and EQUATE Petrochemical Company, negatively impacted its revenue.
  • The segment is poised to grow as contributions from the Sadara project boost its revenue in the second half of 2016.

Investors can indirectly hold Dow Chemical by investing in the iShares U.S. Basic Materials ETF (IYM), which held 10.9% in Dow Chemical on July 29, 2016. The other holdings of this ETF include DuPont (DD), Ecolab (ECL), and Praxair (PX), with weights of 10.9%, 5.6%, and 6.0%, respectively.

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