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Dow Chemical in the Red despite 1Q17 Earnings Beat

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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.

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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.

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