Dow Chemical Co (NYSE:DOW) has been reporting growth in its business, owing to reduced raw material costs and increased performance in the plastics business. Consequently, adjusted earnings for 3Q2015 were higher than analyst estimates, but revenues fell below expectations. This could be attributed to the recent sale of the company’s AgroFresh specialty chemical business. Currently, DOW has a lot to offer to both, short and long-term investors. This is because the company has a series of innovative products in its pipeline and it is also exercising aggressive portfolio management actions, which would eventually lead to a boost in shareholder returns.
The main advantage that DOW enjoys over its competitors is the strong feedstock of raw materials. The company has invested in a series of projects in North America and the Middle East and is also expected to further expand its presence in these regions. The most recent Sadara project, in the Middle East, is expected to produce around 3 million metric tons of high-value performance plastics and specialty chemical products. The Sadara project and the US Gulf Coast project are expected to reach full capacity in the next two years. These should help DOW counter its problem of revenues and as well as improve its earnings.
More recently, Dow’s management has begun spinning-off underperforming assets and directed its attention towards business segments that are more profitable. One of the most recent examples of this strategy was the company’s separation of its chlorine value chain and a business merger with Olin Corp. The tax efficiency of the transaction was valued at $4.6 billion. Additionally, this transaction brought the pre-tax proceeds from divestments to a total of $12 billion. This is significantly higher than the target of $8 billion set by Dow, for mid-2016.
As for the shareholders, DOW has increased its dividend to $0.46 per share and has successfully delivered $2 billion to shareholders through dividends and share repurchase programs. This number stood at $6 billion during FY2014. However, the company has also been involved in cost reduction programs and is said to be on track to reduce $1 billion in costs this year. Providing incremental returns to shareholders, while keeping in view the company’s healthy cash flow, is one of the primary concerns of Dow.
The company is also expected to continue on its path to growth, while facing fewer risks along the way. This is because the company’s strategy is to grow through acquisitions and joint ventures. This allows the company to gain access to sustainable feed stocks and as well as gain access to potential markets. The effectiveness of this strategy is visible in Dow’s recent acquisition of Rohm & Haas, for $16.3 billion.
The move made Dow the world’s leading specialty chemicals and advanced materials company. Furthermore, the acquisition allowed Dow to expand its product range to paints, electronics and coatings. Additionally, the new segment is expected to help Dow raise $14 billion in annual sales.
However, this does not mean that the company does not have any troubles. Recently, there has been a slowdown in demand for Dow products, particularly in Europe, owing to changing economic conditions and political uncertainties. While business declines, the company is also a victim of unfavorable currency movements. Altogether these factors tend to lower Dow’s margins and could create a problem in the long run.
Dow Chemical Co (NYSE:DOW) continues to expand its product range and business opportunities through acquisitions and joint ventures, which could be beneficial in the long term. Additionally, the company management is trying to become more efficient, while improving Dow’s capital position. Together, these factors should help the company counter risks relating to market slowdown. However, it still remains to be seen how the company’s expansion of its feed stock turns out.