Al Root

Solid execution and a weak economy equals a stuck stock.

Commodity-chemical maker Dow reported weaker-than-expected bottom-line earnings on Thursday morning and announced cost reductions. Shares were lower in early trading.

All things considered, Dow is doing what it can. The economy isn't cooperating. What it needs more than anything is lower interest rates.

For the fourth quarter, Dow reported breakeven earnings on $10.4 billion in sales. Wall Street was looking for earnings per share of 24 cents from sales of $10.5 billion, according to FactSet.

Bottom-line numbers look disappointing, but earnings before interest, taxes, depreciation, and amortization, or Ebitda, came in at about $1.2 billion, a little better than analysts projected.

Still, Ebitda of $1.2 billion is far below the $3 billion-plus earned in many quarters of 2021 and 2022, when manufacturing activity was much stronger.

Volumes increased by 1% year over year. That's a similar increase experienced in recent quarters. Volumes rose for the full year as well, the fifth consecutive annual gain.

Dow shares were down about 2% in premarket trading at $40.21, while S&P 500 futures were up 0.2%, and Dow Jones Industrial Average futures were down 0.1%.

Dow doesn't always give detailed financial guidance but it provides some direction. "Until we see more definitive indications of a true recovery taking hold -- and in order to deliver improved margins -- we are taking actions to reduce our costs by $1 billion as well as our 2025 CapEx plans by $300 million to $500 million," said CEO Jim Fitterling. "Our proactive interventions are necessary for Dow to continue to successfully navigate this economic downcycle."

Dow is doing what it can, taking costs out and growing volumes, but the overall economy isn't helping.

Chief Financial Officer Jeff Tate points out that there are "pockets" of demand strength such as consumer electronics and packaging, but anything sensitive to interest rates -- such as construction and housing -- remains weak.

Geographically, Europe remains weak amid too-high energy costs and weak consumer sentiment, he says.

The economic turnaround just hasn't arrived yet. That's a disappointing message for investors.

Coming into Thursday trading, Dow stock is down about 25% over the past year. Still, Dow stock yields 6.8%. Dividends consume close to $2 billion of cash annually. Dow delivered $2.9 billion in cash from operations and spent about $2.9 billion on plants and equipment.

Cash from operations in 2021 and 2022 averaged about $6.6 billion. Wall Street sees closer to $5 billion for 2025. A rebound in cash will be key to maintaining the dividend.

Write to Al Root at allen.root@dowjones.com

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(END) Dow Jones Newswires

January 30, 2025 08:24 ET (13:24 GMT)

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