Dow Inc Stock Falls. Earnings Have a Not-So-Great Message About the Economy.

Sales and earnings are down because energy prices are lower and a slowing economy has compressed spreads over raw materials for commodity chemical producers. Unit volumes shipped dropped 8% year over year. Still, it looks like a solid quarter relative to expectations.

“We proactively navigated the challenging near-term macro environment by implementing our targeted cost savings actions while capitalizing on our advantaged feedstock position and participation in attractive end-markets,” said CEO Jim Fitterling in a news release.

That’s good news but the outlook isn’t great. “Looking ahead, we will continue to execute our near-term cost savings actions and advance our longer-term strategic priorities as we manage through a macro environment that is expected to remain challenging in the second half of the year.”

Dow doesn’t give full financial guidance for a quarter, but provides “modeling guidance” for analysts. Earnings in the third quarter should be similar to the second quarter, which is a little worse than Wall Street is currently projecting.

If there is good news, it’s that things aren’t getting much worse. “We’re bouncing along the bottom of a global industrial slowdown,” CFO Howard Ungerleider tells Barron’s. He says Dow typically goes into a slowdown early and feels the turn early. Dow was warning about inventory destocking at the end of 2022. “That gives you a little bit a hope for 2024.” It’s too soon to call improvement, but destocking is basically done, he says.

Dow shares were down 0.9% in early trading Tuesday.
S&P 500
futures were up 0.1%.
Dow Jones Industrial
Average futures are flat.

Coming into Tuesday trading, Dow Inc stock is up about 2% over the past 52 weeks. The S&P is up about 15% over the same span. The economy has weighed on the company’s stock, but shares have been supported by a 5.3% dividend yield.

Dow has generated roughly $900 million in free cash flow in the first half of 2023. Dividend payments have amounted to about $1 billion over that span. The $100 million gap between cash and cash payouts reflects the economy. It isn’t all that concerning. Dow generated about $5.4 billion in free cash flow on average over the past three years. Free cash flow in 2023 is expected to be roughly $2.5 billion.

Management hosts a conference call at 8 a.m. Eastern time to discuss results. Investors will be looking for hints about when and how fast the economy can improve.

Write to Al Root at [email protected]