Dow Inc Earnings Impress. Why China Could be Key This Year.

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Dow CFO Howard Ungerleider calls 2023 a year of self help for the company. Dow needs to focus on self help because the economy isn’t helping.


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Results from chemical giant
Dow Inc
show 2023 is the year companies have to help themselves because the economy won’t lend a hand.

Dow (ticker: DOW) Tuesday morning reported adjusted earnings per share of 58 cents from $11.9 billion in sales. Wall Street was looking for 36 cents and $11.4 billion, respectively. A year ago, Dow reported EPS of $2.34 a share from $15.3 billion in sales.

Earnings in commodity chemicals businesses always matter more than sales, which are a function of raw material prices that fluctuate with oil and natural gas. Chemical makers typically earn a spread from the input costs. Spreads are higher when demand is high and lower when the economy weakens.

Shares were down about 0.7% in premarket trading.
S&P 500
and
Dow Jones Industrial Average
futures were up about 0.2% and 0.1%, respectively.

A weaker economy is responsible for weaker results, which has the company focused on things it can control. “The Dow team remained disciplined through a challenging macro,” CFO Howard Ungerleider told Barron’s, adding this is likely going to be a year of “self help.”

Dow is focused on taking $1 billion in costs out of the company in 2023. For context, Dow is expected to generate about $3.6 billion in 2023 operating profit, which last year came in at $6.6 billion.

Those cost reductions include 2,000 layoffs that were announced earlier in 2023.

There are some bright spots Ungerleider highlighted that investors can focus on. Consumer spending in the U.S. rose in March. And consumer spending in China rose about 10% year over year in the same month. China’s is growing and the reopening of its economy after Covid-19 lockdowns should be a tailwind for the remainder of the year.

Dow management hosts a conference call at 8 a.m. Eastern time to discuss results. The economy, and how to manage through it, should be a big topic of discussion.

Free cash flow came in at less than $100 million in the quarter. Dow typically generates more of its full-year free cash flow in the second half of a year. For the full year, analysts project about $2.5 billion in free cash flow. Annual dividend payouts amount to about $2 billion.

Dow stock currently has a free-cash-flow yield north of 5%.

Write to Al Root at [email protected]

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