As at DuPont
The agriculture division did well for both companies. Thanks largely to higher corn sales, revenue from Dow's agricultural sciences division climbed 14% from the year-ago quarter. But the most positive sign was the increase in volumes (albeit marginal) in its performance materials and coatings and infrastructure solutions businesses. Volumes in DuPont's performance materials and coatings businesses were lower, but it expects things to start improving on that front in a quarter or two. That raises hopes for Dow, too.
Beyond the ordinary
The sharp dip in natural gas prices has been a boon for chemical makers, since it's one of their key inputs. For Dow, low natural gas prices are also acting as a trigger for some huge investments. It has stood out as one of the few companies ready to give the U.S. some new ethylene plants after a decade-long hiatus. Ethylene has high usage as a petrochemical, and Dow is leaving no stone unturned in ensuring it remains the world's biggest ethylene maker.
After Royal Dutch Shell
Dow's ethylene production capacity in the U.S. will go up by 20% in the next three years thanks to these investments. This should, in turn, add a lot of value through margin expansions to Dow's largest businesses -- performance materials and performance plastics, the two of which accounted for nearly half of Dow's total sales in the first quarter.
More to go
Among other expansionary moves worth mentioning is Dow's recent tie-in with Ford
While such investments are impressive, Dow is also trying to save through intelligent cost-cutting. Over the next couple of years, it will shut down some insulation-products manufacturing plants in Europe, the U.S., and Brazil. Reducing workforces and consolidating some business assets are also on the agenda. Together, these moves are expected to result in annual savings of around $250 million.
In fact, Dow's first-quarter earnings took a hit primarily because of additional costs pertaining to such restructuring. Although the company reported net income of $412 million, it stood at $714 million if excluding these one-time charges.
The Foolish bottom line
Dow's business diversification is amazing, and so is its focus on each one of them. And did I mention its focus on reducing debt? It cut more than $1 billion worth of red ink during the first quarter, thus improving its total debt-to-equity ratio to 85% from 90% a year ago.
Then there's its handsome dividend yield of 3.7%. In fact, Dow recently raised its second-quarter dividend -- payable in July -- by 28% to $0.32 per share. So if you're interested in a solid growth company that pays out well to boot, Dow's the one for you. Add it to your stock Watchlist to stay updated on all its news and analysis.
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Fool contributor Neha Chamaria owns no shares of any of the companies mentioned in this article. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and creating a synthetic long position in Ford. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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