Preview: Excess stock to drag chemical makers as demand falls short

Westlake

23/10/2023 17:52

By Saikeerthi .
       Oct 23 (Reuters) - U.S. chemical companies are likely to
report a fall in third-quarter revenue as they struggle to trim
excess inventory due to a slower-than-expected rebound in demand
from Europe and China.
    Chemical makers Dow  DOW.N , which reports quarterly results
on Oct. 24, is expected to post a 26.9% drop in revenue, while
DuPont, which is set to report on Nov. 1, is expected to post a
5% decline, according to LSEG data. 
   
    
   Brokerages had previously predicted a better second half for
chemical makers, with the China reopening expected to result in
higher demand as well as a reduction in destocking - the process
of emptying out excess inventory levels following low demand.
   However, "we didn't get the sense that demand has improved"
on a sequential basis, RBC Capital Markets analyst Arun
Viswanathan said.
    Analysts at KeyBanc Capital Markets said the outlook for
both demand and earnings was expected to remain bleak heading
into the fourth quarter as well, since "China's recovery is so
far failing to take hold, while Europe is 'stuck' at a low level
of demand". 
    Destocking has hit many chemical companies this year as they
struggle to offload excess inventory that stemmed from shortages
in 2021 and the first half of 2022.   
    "We are pretty deep into the destocking cycle, but it's
probably not going to end this year," said Aleksey Yefremov,
equity research analyst at KeyBanc Capital Markets.
    Supply chain challenges and transport disruptions that
emerged during the pandemic have continued to plague the U.S.
chemical manufacturing companies.
    "I'm not sure that things will get better, they just might
not get materially worse," Morningstar analyst Seth Goldstein
said. 
    
 FUNDAMENTALS:     
                          LSEG Q3                    LSEG Q3
 Company      revenue estimate           EPS estimate
                                         
 Dow          $10.32 billion (down       44 cents (down 60%
              26.9% YoY)                 YoY)
 DuPont de    $3.15 billion (down 5%     84 cents (up 2.4% YoY)
 Nemours      YoY)                       
 WALL STREET SENTIMENT: 
                         Recommendation              
  Company                                             Median
                                                     price
                                                     target
                                                     
 Dow         Five of 23 analysts rate the stock      $55
             "buy" or higher and 18 "hold"           
 DuPont de   Twelve of 18 analysts rate the stock    $83
 Nemours     "buy" or higher and six "hold"          
 
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Chemical Makers' sales    https://tmsnrt.rs/3FsWng9
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 (Reporting by Saikeerthi in Bengaluru; Editing by Pooja Desai)
 ((Saikeerthi@thomsonreuters.com;))