Dow Chemical Co. (DOW), which is repositioning itself as advanced materials company, will report its fourth quarter earnings results on February 2, before the market opens. The company is hoping that demand from emerging regions fuelled by middle class especially in infrastructure and urbanization will somewhat offset the weakness in the Europe.
The uncertain economic situations are likely to cast shadow on Dow's earnings numbers. This is also likely to drive the company to indulge in squeezing margins for a top line growth. While releasing third quarter results, the company exuded confidence in meeting its profit targets powered by established businesses apart from favorable conditions from emerging markets.
Expectations
Street analysts' are estimating the Midland, Michigan-based Dow Chemicals to report earnings of 30 cents a share on revenues of $14.19 billion for the fourth quarter. Last year, the company earned 47 cents a share on revenues of $13.77 billion.
Third Quarter Results
Dow Chemical reported net income of $815 million, up 59 percent from $512 million and earnings increased 53 percent to 69 cents a share from 54 cents a share in the year-ago quarter. On an adjusted basis, net income increased grew 17.6 percent to $729 million from $620 million and earnings rose 14.8 percent to 62 cents a share from 53 cents a share in the year earlier quarter.
Sales increased 17 percent to $15.1 billion from $12.87 billion in the previous year quarter. Wall Street analysts had earnings estimation of 63 cents a share on revenues of $14.63 billion.
Earnings History
In the last four quarters, Dow Chemical's earnings topped analysts' estimations in three quarters and in the third quarter, it failed to meet analysts' expectations. The company earned 62 cents a share, 85 cents a share, 82 cents a share and 47 cents a share in the last four quarters.
On the top line side, the company generated revenues of $15.11 billion, $16.05 billion, $14.73 billion and $13.77 billion during the last four quarters.
The company's gross margin was 14.44 percent, 15.55 percent, 17.76 percent and 14.18 percent respectively for the last four quarters indicating volatility. Similarly, operating margin for the same periods were 9.17 percent, 10.19 percent, 8.22 percent and 7.27 percent respectively.
Versus Peers
For the trailing 12-month period, Dow Chemicals gross margin and operating margin are weaker than industry average and rival DuPont (DD). The company's gross margin was 15.77 percent versus industry average of 27.33 percent and DuPont's 29.53 percent. Similarly, operating margin of 7.55 percent is weaker than industry average of 7.78 percent and DuPont's 13.89 percent.
iStock Punch
Dow Chemicals needs to improve its margins. Its gross margin as well as operating margins is poorly placed compared with rival and industry average. The company needs to plug the loop holes to reduce its costs for better margins.