Courtesy of Dow
reported a great quarter Thursday morning. That is good news for its shareholders, of course, but it is also good news for all investors since the chemical conglomerate’s products touch practically every area of the economy.
Not even winter storm Uri—which severely disrupted Texas chemical production—could derail earnings, with chemical demand so strong. The storm, in fact, may even end up helping the chemical sector in coming months. The quarter’s halt to production and ongoing high demand mean that elevated prices and robust demand should continue for even longer.
For the first quarter, Dow (ticker: DOW) reported adjusted earnings of $1.36 a share from $11.9 billion in sales. Wall Street was looking for earnings of $1.14 a share from $11.1 billion in sales.
GAAP, short for generally accepted accounting principles, earnings were close to the adjusted figure at $1.32 a share.
Strong results will continue into the second quarter, according to the company. Dow management guided to $12.4 billion to $12.9 billion in second-quarter sales, far outpacing Wall Street’s current projection for $11.2 billion. “Our second quarter will be the strongest earnings quarter for new Dow or old Dow,” says CFO Howard Ungerleider.
Dow’s roots stretch back to the 19th century, but this version of Dow was spun out of
in 2019.
Dow stock slid 4% after the open Thursday. The
and
for comparison, were down less than half a percent.
Dow doesn’t typically move like a tech stock when earnings are reported—the largest one-day, post-earnings move since being spun out as a new company was a 4.7% gain in October 2019.
But the decline after Thursday morning’s blockbuster report is a head-scratcher. Dow stock didn’t run up after this latest quarter ended, so it wasn’t primed for profit-taking. In fact, shares were up less than 2% from the end of the first quarter coming into the earnings report—less than comparable gains of the broader market.
Early takes on the quarter from Wall Street have been positive. Alembic analyst Hassan Ahmed, for instance, wrote early Thursday, “we expect DOW shares to rally today on this earnings beat.”
Year to date, Dow stock is up about 17%, a little better than comparable gains of the broader market.
Having the best quarter ever amid a pandemic and winter storms might not be what investors expected. “The winter storm knocked out between 60% to 70% of every molecule in the U.S. for about four to six weeks,” says Ungerleider. A huge portion of Dow’s U.S. production was taken off line. Now the impacts of the storm will likely linger into coming quarters.
“This is a least a six-month recovery …and longer depending on demand,” adds Ungerleider. But industry demand is strong, and he says the operating environment is as good as he has seen it since the 2005 time frame.
There isn’t much to complain about in the quarter. The company generated strong free cash flow, even after management’s decision to add $1 billion to its defined benefit pension plans. That is effectively debt reduction—something investors will be happy to see.
Write to Al Root at allen.root@dowjones.com
