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How DOW’s Performance Materials and Chemicals Segment Performed

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Dow Chemical’s Performance Materials and Chemicals segment in 2Q17

Dow Chemical’s (DOW) Performance Materials and Chemicals (or PM&C) segment is the company’s third-largest revenue generator, accounting for 18.5% of the company’s revenue. In 2Q16, this segment accounted for 18.9% of total revenues. The PM&C segment reported revenue of $2.6 billion as compared to $2.3 billion in 2Q16, which implies an increase of 13.7% on a year-over-year basis.

The segment’s revenue grew due to demand for polyurethanes, lubricants, chlor-alkali, and vinyl, which resulted in higher volume growth. Tighter supply constraints gave DOW an opportunity to increase prices. The volumes grew across all regions. On the other hand, planned maintenance from suppliers had an adverse impact on the segment’s revenue.

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Segment EBITDA and margins

The segment reported operating EBITDA (earnings before interest, taxes, depreciation, and amortization) of $347 million as compared to $295 million, which implies an increase of 16.9% on a year-over-year basis. Despite an increase in raw material prices and maintenance from suppliers, the segment managed to increase its margins. The segment reported an operating EBITDA margin of 13.5% as compared to 13.0% in 2Q16. This implies an increase of EBITDA margin by 50 basis points on a year-over-year basis.

Outlook

If the supply constraint continues, DOW may continue to increase prices, which could help to increase revenues.

Investors can indirectly hold Dow Chemical by investing in the iBillionaire Index ETF (IBLN), which invests 4.0% of its portfolio in Dow Chemical. The fund also invests in PayPal (PYPL), Amazon (AMZN), and AbbVie (ABBV), which have weights of 5.4%, 4.4%, and 4.3%, respectively, as of July 27, 2017.

In the next part, we’ll analyze DOW’s Performance Plastics segment in 2Q17.

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