
Dow Chemical Sees Promise in Key Markets Ahead of $130B DuPont Merger
Dow Chemical (DOW) - Get Report recorded a first quarter very similar to that of merger partner DuPont (DD) - Get Report , beating earnings estimates in part thanks to the success of an aggressive campaign to bring down costs.
Midland, Mich.-based Dow reported first-quarter earnings of 89 cents a share on sales of $10.7 billion, topping the consensus earnings estimate of 83 cents and revenue forecast of $10.66 billion. The results were released just days after DuPont similarly beat analysts' earnings estimates. The two companies hope to complete their $130 billion merger before year's end.
The results didn't include a one-time charge relating to Dow's February move to settle a 2005 price fixing lawsuit. Dow shares, up 4% on the year, traded down less than 2% on Thursday morning to $52.65.
Dow, like DuPont, is streamlining ahead of the deal, completing about $90 million of its planned $300 million in 2016 cost cuts in the first quarter. The cuts helped grow operating margins to 21.1%, the company's best showing in more than a decade.
"Dow's resolute focus on our priorities was once again evident, with this quarter marking the 14th in a row of year-over-year operating EPS and EBITDA margin increases," Chairman and CEO Andrew N. Liveris said. "We see strong demand signals in North America, gradual recovery in Europe and ongoing sustainable urbanization in China."
Volumes were up in most of the world, with India (13% growth) and China (5%) particularly strong.
Liveris, a charismatic CEO and 40-year Dow veteran who has used M&A to help transform the company away from cyclical raw materials and toward higher-margin products, was notably deferential to Chief Operating Officer James Fitterling and Chief Financial Officer Howard I. Ungerleider during Thursday morning's call with analysts. Liveris has said he intends to step down sometime in 2017 after the deal is complete and the dust has settled.
Dow is a holding in Jim Cramer's the Action Alerts PLUS portfolio. Cramer and portfolio manager Jack Mohr in a note Thursday morning highlighted Dow's outperformance in both agriculture and performance materials, results that "fit well" with what DuPont is seeing.
Cramer and Mohr noted that Dow and DuPont both said they saw reason to hope agriculture demand has bottomed and could begin to trend up after a sustained period of weakness, a potentially promising sign for the two companies on their own which would also help the merged company to hit the ground running.
Post-deal, the rebranded DowDuPont intends to split itself into three smaller, more focused entities, with agriculture going out on its own.
During the call, Liveris said the companies "remain on track" to complete the DowDuPont deal this year, saying that while the two companies are still operating separately joint implementation teams created by the two sides have made "significant progress" in creating integration plans. The two companies have pledged at least $3 billion in annual cost and revenue synergies.









