Dow forecast disappoints as inflation drags demand

A Dow sign is seen at the third China International Import Expo (CIIE) in Shanghai, China November 5, 2020. REUTERS/Aly Song/File Photo

July 21 (Reuters) – Chemicals maker Dow Inc (DOW.N) projected third-quarter sales below market estimates on Thursday, blaming a global surge in inflation for a demand slowdown and sending its shares down 3%.

The dour outlook could be a barometer of price pressures as Dow’s chemicals are used in industries ranging from automobiles and food packaging to electronics.

“We expect inflation to continue impacting global consumer durables demand, including furniture and bedding and appliance end markets,” Chief Financial Officer Howard Ungerleider said.

The comments mirror remarks from other companies and underline the toll on Corporate America from decades-high price pressures and a rise in oil rates that are at eight-year peaks.

Dow said higher energy costs were expected to drive a hit of about $125 million in its industrials business and $200 million in its performance materials and coating unit in the current quarter.

The company forecast third-quarter net sales between $14.3 billion and $14.8 billion, the midpoint of which was below market estimates of $14.7 billion, according to Refinitiv data.

In the three months ended June 30, the company’s performance was also weighed down by strength in the dollar and an economic slowdown in China due to renewed COVID-19 curbs.

Volumes at two of Dow’s three main units fell in the period, with KeyBanc Capital Markets analyst Aleksey Yefremov saying margins at those businesses had declined faster than expected.

Strong seasonal demand, however, boosted its North American business, helping total net sales rise by 13% to $15.66 billion. Dow’s adjusted profit of $2.31 per share was also better than expectations of $2.14.

“Demand (for chemicals) likely remains broadly positive but is showing signs of slower growth through year-end,” Jefferies analyst Laurence Alexander wrote in a note.

Reporting by Shariq Khan and Rithika Krishna; Editing by Aditya Soni

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