The Dow Chemical Company (NYSE:DOW) will release its quarterly report on Thursday, and investors are hoping that the chemical giant will be able to break out of a long malaise in its stock price by posting good news. Yet while analysts see good things coming in the The Dow Chemical Company (NYSE:DOW) earnings report, the longer-term question is how much natural gas will play a role in determining its growth potential in future years.
Stats on Dow Chemical
Analyst EPS Estimate | $0.63 |
Change From Year-Ago EPS | 14.5% |
Revenue Estimate | $14.48 billion |
Change From Year-Ago Revenue | (0.2%) |
Earnings Beats in Past Four Quarters | 2 |
Source: Yahoo! Finance.
Can Dow Chemical earnings pick up the pace this quarter?
In recent months, analysts have marked down their views on short-term The Dow Chemical Company (NYSE:DOW) earnings, cutting their June-quarter estimates by about 10%. Longer-term views are more mixed, with slight boosts in full-year 2013 estimates offset by declines in 2014 calls, but the stock has ignored the potential problems and risen 15% since mid-April.
Dow has done a good job of realigning its business to take advantage of changing conditions in the chemical industry. Over the past four years, the company has sold off non-core operations that contributed a total of $8 billion toward revenue before being sold. Instead, the company has focused largely on agricultural sciences, which saw a 14% increase in sales for the division in the first quarter, leading Dow’s six divisions in growth and helping contribute to 13% earnings growth.
That’s consistent with what we’ve seen at Dow’s rivals. Monsanto Company (NYSE:MON) has evolved to become primarily dependent on agriculture for its financial success. Even E I Du Pont De Nemours And Co (NYSE:DD), which still gets half its revenue from non-agricultural sources, is feeling the pressure to move more toward the high-margin business, having announced earlier today plans to seek strategic alternatives for its performance chemicals division.
But one interesting fight Dow has taken on is in trying to keep the recent glut of U.S.-produced natural gas within the nation’s borders. Gas producers have sought ways to boost exports through liquefied natural gas terminals, but given the energy-intensive nature of chemical production and Dow’s own need for nat-gas-based inputs, chemical companies would rather see prices remain low to give them a competitive advantage over foreign competitors. In particular, low ethane costs have boosted margins for Dow, E I Du Pont De Nemours And Co (NYSE:DD), and other chemical-makers. Yet already, nat-gas prices have recovered somewhat from last year’s lows, and that could increase input costs for Dow.
Another challenge for Dow and its peers comes from the labor force. Despite high unemployment, chemical companies are having trouble finding skilled workers able to perform the tasks it needs in a growing industry. If those pressures end up requiring higher wage costs, then Dow might struggle to keep its overall expenses in line.
In the Dow earnings report, watch to see how the company responds to DuPont’s report from today. With most other companies focusing on agriculture, it’ll be interesting to see if Dow follows suit or seeks to differentiate itself by remaining loyal to its chemical roots.
The article Will Nat-Gas Hikes Hurt Dow Chemical Earnings? originally appeared on Fool.com.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.
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