Why DOW’s Performance Plastics Segment Revenue Rose in 2Q17

Dow Chemical’s (COW) Performance Plastics segment is the company’s largest revenue generator, accounting for 36.7% of DOW’s total revenue. In 2Q16, this segment accounted for 39.3% of total revenues. The segment reported revenue of $5.1 billion in 2Q17, an increase of 8.2% on a year-over-year basis. In 2Q16, this segment reported revenue of $4.7 billion.

The segment revenue growth was primarily driven by price increases supported by volume growth. Dow Chemical’s joint venture with Sadara in Saudi Arabia has begun to cater to the growing demand from emerging geographies. DOW announced the commercialization of its plastic franchise from the Sadara facility in April 2017. Dow Packaging and its specialty plastics business witnessed major volume growth in the EMEAI (Europe, Middle-East, Africa, and India) and Asia-Pacific regions.

Despite pricing and volume growth, the segment reported operating EBITDA (earnings before interest, taxes, depreciation, and amortization) of $1.06 billion in 2Q17, a decrease of 14.8% on a year-over-year basis. In 2Q16, the segment’s operating EBITDA came in at $1.3 billion. The higher feed stock and energy costs, planned maintenance, and start-up costs reduced the segment’s EBITDA and EBITDA margins. The segment reported EBITDA margins of 20.9% in 2Q17 as compared to 26.6%, a decrease of 570 basis points on a year-over year basis.

Investors can invest in the iShares Global Materials ETF (MXI) for indirect exposure to Dow Chemical. The fund has invested 4.0% of its holdings in DOW. The top holdings of the fund include DuPont (DD), Monsanto (MON), and Praxair (PX), which have weights of 3.9%, 2.8%, and 2.0%, respectively, as of July 27, 2017.