Dow Chemical in the Red despite 1Q17 Earnings Beat



Dow Chemical’s 1Q17 earnings

Dow Chemical (DOW) announced its 1Q17 earnings on April 27, 2017. It reported operating EPS (earnings per share) of $1.04, a rise of 16.9% over the previous year. DOW managed to beat Wall Street analysts’ consensus estimate of $0.98 per share convincingly.

In the rest of this series, we’ll be looking at DOW’s earnings details, segment performances, and latest analysts’ recommendations.

Article continues below advertisement

Driving factors of operating EPS

DOW’s strong growth in operating EPS was driven by the following:

  • Higher sales volume was one of the major drivers of DOW’s EPS growth. Sales volume rose 16.0% YoY (year-over-year) across its segments and in all geographic areas. It was further supported by the price increase across all segments.
  • DOW’s SG&A (selling, general, and administrative) expense rose $125.0 million in 1Q17, driven by various transaction costs. However, when expressed as a percentage of sales, 1Q16 SG&A expenses represented 6.9% of the total revenue, while 1Q17 SG&A expenses represented approximately 6.6%.
  • DOW’s equity earnings rose $39.0 million, from $157.0 million in 1Q16 to $196.0 million in 1Q17.
  • DOW eliminated the preferred stock dividend of $85.0 million, boosting net income. However, the conversion of preferred stock increased the outstanding common shares.

Stock price reaction

Although DOW earnings beat the analyst estimate, surprisingly, the stock fell approximately 1.8% to close at $63.19 on April 27, 2017. That same day, DOW’s peer DuPont (DD) fell 1.8%, and LyondellBasell (LYB) and Eastman Chemical (EMN) rose 0.40% and 0.30%, respectively.

You can indirectly hold Dow Chemical by investing in the Materials Select Sector SPDR ETF (XLB), which has invested 12.3% of its portfolio in Dow Chemical as of April 27, 2017.


More From Market Realist