Dow expects continued volume, margin growth in Q4 as durables demand picks up - CFO

Author: Joseph Chang


NEW YORK (ICIS)--Dow expects Q4 volumes and margins to improve further sequentially after a broad-based recovery in Q3 results as a boost in consumer spending on durables takes hold, its chief financial officer said on Thursday.

“Probably what accelerated the most in the third quarter was anything that touches durables. Polyurethanes demand was up higher than 30% from Q2 - think appliances, furniture and bedding, and automotive,” said Dow CFO Howard Ungerleider in an interview with ICIS.

“The recovery from the pandemic will still be uneven. We saw a nice increase in Q3 from Q2, and we’re still expecting higher volumes sequentially in Q4, and higher margins… partly as a result of price being higher, and partly as a result of us taking additional costs out,” he added.

Dow posted Q3 adjusted earnings per share (EPS) of $0.50, down 45% year on year but reversing a loss of $0.26 in Q2. EPS handily beat Wall Street consensus estimates of $0.33.

Sales of $9.7bn were down 10% year on year, but up 16% from the prior quarter. Overall volumes were down 1% year on year, and up 9% versus Q2. Prices were down 9% year on year, and up 5% sequentially.

Ungerleider called the Q3 recovery “broad-based” with sequential volume growth in every segment and every geographic region.

“Anything that touches the consumer… that’s been resilient and higher - so things like packaging and home care have been very good,” said Ungerleider.

Polyethylene (PE) demand growth was 3% year-to-date through Q3, he pointed out.

Dow’s Packaging & Specialty Plastics (P&SP) segment saw Q3 sales of $4.6bn, down 10% year on year and up 14% versus Q2. Volumes were up 1% from the year-ago period.

Year-on-year volume gains in Asia Pacific and double-digit gains in Latin America were offset by declines in the rest of the world.

“Most of that [PE] goes into consumer staple applications and the Brazil economy… even though they are struggling with the pandemic, have done pretty well,” said Ungerleider.

“One of the reasons we had better performance in Q3 was demand was stronger for longer than we expected and inventories were lower than anybody expected,’” said Dow CEO Jim Fitterling on the company’s Q3 earnings conference call.

“My expectation is that demand is going to continue to be strong. PE demand has been stronger year over year, every month, all year long… I think that bodes well for pricing through the quarter and I think our average price through the quarter will probably tick up slightly,” he added.

Looking to Q4 overall, Dow expects sales in the range of $9.5-9.8bn with revenues flat to up 3% in its P&SP segment, flat to up 2% in Industrial Intermediates & Infrastructure (II&I) and down by 5-10% in Performance Materials & Coatings (PM&C).

“I believe were on our way [to recovery] but it’s going to be uneven, so it doesn’t mean every region or value chain will go in the same direction. And that’s on a view that we’re not going to have any significant 2nd wave impacts from the pandemic, and no one can really predict that,” said Ungerleider.

Interview article by Joseph Chang