We are in the middle of the earnings season, and the materials sector is gradually becoming the largest contributor to Q3 earnings growth. This is especially true as total earnings from 78.2% of the sector's total market capitalization reported so far are up 26.9% on 5.1% revenue growth. Earnings surprises were impressive with 69.2% of the companies beating earnings estimates and 53.8% beating on revenues.
These growth rates and beat ratios are much better than the recent quarters thanks to improving performance in the chemicals and steel industries. Most of the gains were primarily driven by operating efficiencies amid global growth concerns. In particular, results from Dow Chemical (NYSE: DOW) have been robust. DuPont (NYSE: DD) has also provided decent numbers on the earnings front (read: 2 Promising ETFs and Stocks from Q3's Hot Sector).
DOW Earnings in Focus
Earnings per share came in at 72 cents, beating the Zacks Consensus Estimate by a nickel and improving from 49 cents earned a year ago. Revenues grew 5% year over year to $14.4 billion and surpassed our estimate of $14.3 billion. The robust performance was credited to gains across the materials and plastics business aided by increased pricing and lower materials' costs.
The largest U.S. chemical maker remained committed to cost reduction and efficiency programs that will likely boost margins in the coming quarters. It expects to cut fixed costs by $1 billion over the next three years.
The company is also seeking optimization of its portfolio by selectively spinning off or selling its underperforming assets and gradually shifting focus to high growth businesses like Enlist, a new version of its herbicide designed to kill weeds. The company targets $4.5 billion to $6 billion of proceeds from assets sale by year-end 2015 (read: 3 Excellent ETFs for a Low Cost Diversified Portfolio).
Impressed by solid earnings and a revenue beat, shares of Dow Chemical rose as much as 4.1% on the day of the earnings announcement on October 22. However, the stock is down 1.7% to date post ...
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