Dow boosts Q3 profit outlook on packaging, durables, personal care

Author: Joseph Chang

2020/09/17

NEW YORK (ICIS)--US-based Dow expects Q3 earnings to come in better than previously forecast on improving key end markets and polyethylene (PE) dynamics, the chief financial officer said on Thursday.

The company expects Q3 earnings before interest, tax, depreciation and amortisation (EBITDA) of around $1.25bn, said Howard Ungerleider, CFO. He made his comments at the Credit Suisse Global Basic Materials conference.

The new guidance marks “a material increase relative to its approximate $1bn guidance post Q2 earnings and the current consensus of $1.1bn”, said Frank Mitsch, analyst with Fermium Research, in a research note.

The updated guidance reflects an expected $75m hit from plant downtime following Hurricane Laura.

The revised guidance for Q3 2020 would still represent a 33% decline from year-ago adjusted EBIDTA of $1.86bn.

Dow highlighted gradual continuing recoveries in packaging, durables and personal care, along with support for PE price increases from rising feedstock costs earlier in the quarter, improving fundamentals, continued low inventories and the supply impact from Hurricane Laura.

Mitsch raised his Q3 earnings per share (EPS) estimate on Dow from $0.11, to $0.34, and his Q4 forecast from $0.27, to $0.41.

MINIMAL EFFECTS FROM LAURA
Nearly all of Dow's sites that shut down in preparation for Hurricane Laura restarted within a week, Ungerleider said.

Dow's sites on the US Gulf Coast had minimal damage, and the company avoided major supply disruptions to its customers.

So far, Dow is expecting a $75m hit from the storm, mostly because of lost margins from downtime, Ungerleider said. Physical damage was minimal.

Hurricane Laura made landfall in Louisiana near the border with Texas on 27 August.

ECONOMIC RECOVERY CONTINUES
The economy continues to recover, although at differing speeds, depending on the region and the end market, Ungerleider said.

Improvement in the automobile and construction industries is benefitting Dow's polyurethanes business, he said. Dow is also benefitting from unplanned outages in Europe among plants that make methylene diphenyl diisocycanate (MDI), a polyurethanes component.

MDI suffered the most from the pandemic because of its exposure to such durable goods as furniture, appliances, construction and automobiles, Ungerleider said. Dow's operating rates for its polyurethanes business fell below 60% in the second quarter.

With the recovery in the durable goods markets, companies are increasing operating rates for MDI plants, Ungerleider said. Some are running their plants especially hard, which has caused some production issues among the older plants

"That's allowed us to not only get some incremental margin back not just because of the operating rate improvement, but now you are seeing pricing in Asia, pricing in Europe and now pricing in North America start to move up because you have more demand than supply," Ungerleider said.

For PE, Dow continues to see strong demand from packaging, he said. Year-to-date volumes are exceeding levels from 2019.

Dow has nominated PE price increases for September, and Ungerleider expects they should receive support from low industry inventories and from disruptions caused by Hurricane Laura.

Other markets are improving, albeit at a more gradual pace, he said. Personal care is benefiting from people returning to work. Most regions are lagging behind the progress that Asia Pacific made in the second quarter.

Cleaning products have levelled off a bit from the pandemic-driven highs they had reached earlier in the year, Ungerleider said.

Overall, the third quarter is going to be better than the second quarter, but Ungerleider expects demand and margins will not return to pre-pandemic levels until 2021 or 2022.

The downturn caused by the coronavirus was especially deep, and Ungerleider compared the second quarter with the fourth quarter of 2008, the low point of the last recession.

Additional reporting by Al Greenwood

Click here to view the ICIS Coronavirus, oil price crash - impact on chemicals topic page.

Click here to view the US Gulf storms – impacts on chemicals topic page.