Midland, Michigan-based Dow Chemical Co. (NYSE: DOW – $44.94), which agreed in December to an historic $120 billion merger with DuPont & Co., reported better-than-expected fourth-quarter earnings after its plastics business gained from the drop in oil prices. Profit, excluding some items, was $0.93, exceeding the $0.70 average estimate of analysts. Sales fell 20% to $11.5 billion from $14.4 billion due mostly to price declines and adverse foreign-exchange rates, but exceeded the $11.2 billion average estimate. Profit from Dow’s plastics business, its largest unit, was a fourth-quarter record as it paid less for the oil it used as a raw material. The merged firm of Dow and DuPont, if the deal is approved, is expected to cut some $3 billion in costs before splitting into three separate businesses 18 to 24 months after the deal closes. Longtime Dow Chemical Chief Executive Andrew Liveris said he would leave by mid-2017, after the company completes its planned merger. In the fourth quarter, Dow also completed its roughly $5 billion divestiture of Dow Chlorine Products.
For the full-year, Dow earned an adjusted $3.50 per share and estimates for 2016 appear to be in the $3.45 – $3.55 range. I expect solid improvement in sales and share earnings for the company over the pull to late decade, especially when taking into account the DuPont transaction. Along with the company’s 4.3% dividend yield, the total return potential for Dow shares remain favorable.