Dow Chemical Is Hitting on All Cylinders

Headlines can present inaccurate pictures of a company's quarterly performance. For instance, a gander at the few words attempting to lure you into articles about Dow Chemical (NYSE: DOW  ) might provide the impression that the company had reduced its earnings by 25% year-over-year.

Technically, I suppose, that contention is accurate, since the company's profit dipped to $597 million, or $0.45 a share, compared with $795 million, or $0.63 a share, a year earlier. But as you know, that's a careful comparison of apples to oranges. If you back out discontinued operations, along with other items, it earned $0.54 per share, a sizable $0.30 jump from the same quarter in 2009.

Furthermore, sales, excluding divestitures, jumped by 23% to $12.87 billion. On that basis, the analysts' consensus expectation that the company would earn $0.41 a share on revenues of $12.81 billion appeared straight from left field.

Dow's solid performance was hardly attributable to a single unit or two. Indeed, many of its segments checked in with double-digit sales increases, led by Basic Chemicals, with a 33% improvement.

Geographically, volume growth was highest in Europe, the Middle East, and Africa (EMEA), along with North America. Both areas grew by at least 15%.

Clearly, trends in the chemical industry can tell us a great deal about the direction of our overall economy. On that basis, increased guidance from DuPont (NYSE: DD  ) , along with record results from Tennessee's own (I have to say that, as moribund as our football team has become) Eastman Chemical (NYSE: EMN  ) , and a solid improvement from Celanese (NYSE: CE  ) all bode well for what lies ahead. At the same time, Berlin's BASF, the world's biggest chemicals manufacturer, has raised its earnings guidance and plans the same with its dividend.

Dow CEO Andrew Liveris perhaps summed up both his company's -- and the broader global industry's -- prospects: "Our view is that robust growth in emerging economies will continue as domestic demand in fast-growing geographies such as Brazil, Asia, Middle East, and Eastern Europe is further strengthening in a number of leading end-markets."

He added that "we are also encouraged to see signs of improved growth in North America and Europe, especially Germany, which point toward increased momentum in the developed nations."

So Dow has performed admirably, both operationally and financially -- its net debt to total capitalization was pared by 200 basis points in the quarter -- since its 2009 acquisition of specialty-chemicals maker Rohm & Haas. That strengthening appears to render it an especially compelling investment target for my Foolish friends.   

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We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned.  The Motley Fool has a disclosure policy.


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  • Report this Comment On October 31, 2010, at 10:44 AM, funfundvierzig wrote:

    Using the metric of gross revenues, Dow Chemical is the largest American chemical-maker (twice the size of the much shrunken DuPont) and second largest in the world after BASF.

    The gradual recovery in the global economy should put Dow shareholders in good stead.

    ...funfun..

  • Report this Comment On November 02, 2010, at 11:40 PM, Funfunchaser wrote:

    Stocks trade based on value, not size.

    and the gradual recovery will benefit all the players listed, not just the bloated ones that are choking on interest from a grossly expensive acquisition.

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