EPS of $-1.18 decreased by 290.3% from previous year
Gross margin of 5.4%
Net income of -835.00M
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Dow Inc (2OY.DE) QQ2 2025 Earnings Review — Margin Contraction and Balance Sheet Dynamics in a Volatile Basic Materials Environment
Executive Summary
Dow Inc delivered a challenging QQ2 2025 results period characterized by a sharp deterioration in profitability despite flat-to-modest revenue through the quarter. Revenue totaled $10.104 billion, but the company recorded a net loss of $835 million and an EPS of -$1.18, with negative operating income of $9 million and a substantial negative total other income/expense impact of $668 million. The quarter also featured weak cash generation: operating cash flow was negative at $-470 million, while free cash flow stood at $-1.132 billion. Moody margins reflect a low gross margin of 5.38% (gross profit $544 million on $10.104 billion revenue) and an EBIT margin of approximately 0.09%, underscoring a material profitability headwind from product mix, cyclicality in the commodity backbone of the portfolio, and elevated interest costs (interest expense of $222 million).
From a liquidity and balance-sheet perspective, Dow maintains a robust asset base ($58.99 billion) and a sizable debt load ($18.10 billion total debt; net debt $15.70 billion), yielding a debt-to-equity framework consistent with a leveraged industrials model. The current ratio stands at 1.69x, and while cash and cash equivalents are $2.40 billion, the company’s extremely low interest coverage (approx. 0.04x) signals near-term vulnerability to rising rates or further margin compression. Management commentary (where available) and the operating cadence imply the need for tighter cost discipline, potential portfolio optimization, and a focus on higher-margin, value-added specialty materials to offset commodity-driven cyclicality. Investors should monitor: (i) any margin expansion or stabilization signals in key end-markets (coatings, packaging, specialty plastics), (ii) cash flow recovery and capital allocation toward deleveraging or selective buybacks, (iii) changes in working capital dynamics, and (iv) macroeconomic demand trajectories for the Industrial Materials/Engineering plastics complex.
Overall investment implications: the QQ2 2025 quarter underscores meaningful near-term profitability challenges. Dow remains a large, diversified platform with meaningful scale, but the current earnings trajectory points to a cautious stance on near-term equity upside until margin stability and cash generation improve. The interplay between commodity cycles, energy costs, and leverage will be critical for valuation and risk assessment going forward.
Key Performance Indicators
Revenue
10.10B
QoQ: -3.13% | YoY:-7.43%
Gross Profit
544.00M
5.38% margin
QoQ: -22.73% | YoY:-58.91%
Operating Income
9.00M
QoQ: -93.48% | YoY:-98.64%
Net Income
-835.00M
QoQ: -171.99% | YoY:-290.21%
EPS
-1.18
QoQ: -168.18% | YoY:-290.32%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $10.104 billion; YoY decline of 7.43%; QoQ decline of 3.13%.
Gross Profit: $544 million; gross margin 5.38%; YoY margin decline of 58.91%; QoQ decline of 22.73%.
Operating Income: $9 million; operating margin 0.089% (nearly flat to slightly positive); YoY margin down 98.64%; QoQ down 93.48%.
Net Income: $(835) million; net margin −8.26%; YoY change −290.21%; QoQ change −171.99%.
Revenue and profitability metrics drive the QQ2 2025 narrative:
- Revenue: $10.104 billion; YoY decline of 7.43%; QoQ decline of 3.13%.
- Gross Profit: $544 million; gross margin 5.38%; YoY margin decline of 58.91%; QoQ decline of 22.73%.
- Operating Income: $9 million; operating margin 0.089% (nearly flat to slightly positive); YoY margin down 98.64%; QoQ down 93.48%.
- Net Income: $(835) million; net margin −8.26%; YoY change −290.21%; QoQ change −171.99%.
- EPS (Diluted): $(1.18); YoY −290.32%; QoQ −168.18%.
- EBITDA: $287 million; EBITDA margin about 2.84% (EBITDA as a % of revenue).
- Cash Flow: Net cash from operating activities $(470) million; free cash flow $(1.132) billion; capex $(662) million; (FCF/Revenue) negative, indicating ongoing cash-bleed from core operations.
- Balance Sheet fundamentals: cash and cash equivalents $2.40 billion; total assets $58.99 billion; total liabilities $40.40 billion; total equity $17.23 billion; long-term debt $17.23 billion; total debt $18.10 billion; current ratio 1.69x; debt to equity 1.05x; debt to capitalization 0.512; interest coverage circa 0.04x, highlighting near-term vulnerability to debt service costs.
- Liquidity and returns: net cash provided by financing activities $1.862 billion, partially offset by dividends paid $(0.496) billion; cash balance increased to $2.40 billion from $1.47 billion in the prior period.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
10.10B
-7.43%
-3.13%
Gross Profit
544.00M
-58.91%
-22.73%
Operating Income
9.00M
-98.64%
-93.48%
Net Income
-835.00M
-290.21%
-171.99%
EPS
-1.18
-290.32%
-168.18%
Key Financial Ratios
currentRatio
1.69
grossProfitMargin
5.38%
operatingProfitMargin
0.09%
netProfitMargin
-8.26%
returnOnAssets
-1.42%
returnOnEquity
-4.85%
debtEquityRatio
1.05
operatingCashFlowPerShare
$-0.67
freeCashFlowPerShare
$-1.61
dividendPayoutRatio
-59.4%
priceToBookRatio
1.08
priceEarningsRatio
-5.58
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Transcript highlights: No earning-call transcript data were provided in the supplied materials. Consequently, there are no management quotes available to anchor the analysis. Investors should note that published management commentary (if any) was not included in the data set, so the qualitative narrative relies on reported results and industry context rather than direct verbatim guidance from executives.
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Forward Guidance
Guidance and outlook assessment (based on available data and industry context): Dow’s QQ2 2025 results reflect continued cyclicality and margin pressure in a broad Basic Materials environment. The absence of explicit future targets in the provided data necessitates a qualitative view anchored in macro trends and peer performance. Key factors to monitor:
- Demand and price realization in core end-markets (coatings, Industrial Intermediates, Packaging, Specialty Plastics) as commodity cycles recover or soften.
- Cost discipline and potential structural savings from optimization initiatives, supply chain efficiency, and the impact of energy inputs on feedstock costs.
- Margin recovery potential: Dow’s gross margin of ~5.4% signals substantial room for improvement if energy costs ease, product mix shifts toward higher-margin specialties, or price realization gains occur.
- Cash flow normalization: With OCF negative in QQ2, sustaining deleveraging requires either a return to positive operating cash flow or a disciplined capital-allocation strategy (e.g., selective asset sales, portfolio refinement, or capex prioritization).
- Debt service and affordability: With interest coverage near zero, Dow’s ability to fund operations without relying on financing activity hinges on either margin expansion, lower interest costs, or debt restructuring.
In summary, the near-term outlook hinges on margin stabilization and cash-flow restoration, coupled with prudent balance-sheet management amid a cyclical commodity backdrop.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
2OY.DE Focus
5.38%
0.09%
-4.85%
-5.58%
DOW
5.38%
0.09%
-4.85%
-5.58%
RIO1.DE
27.60%
25.90%
7.78%
5.27%
ASME.DE
53.70%
34.60%
13.00%
28.71%
BSP.DE
8.44%
9.78%
8.94%
14.74%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Near-term: cautious due to negative earnings momentum and weak cash generation, with profits heavily dependent on margin expansion and better working-capital discipline. Medium-term: potential for recovery if Dow accelerates the shift to higher-margin products, achieves cost reductions, and restores positive operating cash flow. Value considerations should focus on the ability to deleverage, stabilize margins above mid-single digits, and generate sustainable FCF to support optionality in capital allocation. Given the current metrics (gross margin ~5.4%, net margin −8.3%, negative OCF, and modest liquidity buffer), the stock may be viewed as higher risk until a clear path to profitability and cash-flow normalization is demonstrated through subsequent quarters.
Key Investment Factors
Growth Potential
Dow’s scale and diversified portfolio position it to capitalize on a rebound in packaging, coatings, and specialty plastics demand. A potential path to growth lies in higher-margin product lines, cost-reduction initiatives, and selective asset optimization to improve operating leverage as market conditions improve.
Profitability Risk
Key risks include sustained cyclicality in commodity products, ongoing profitability pressure (gross and operating margins), high debt load with precious few operating-cash-flow buffers, exposure to energy/ feedstock cost volatility, and potential covenant or liquidity constraints if operating performance remains negative.
Financial Position
Liquidity remains modest but manageable with $2.40B in cash. However, negative operating cash flow and a near-zero interest-coverage ratio create financial fragility. The company carries total debt of $18.10B and net debt of $15.70B, with a debt-to-equity ratio around 1.05x and a current ratio of 1.69x, implying moderate liquidity risk if operating conditions deteriorate.
SWOT Analysis
Strengths
Large, diversified global footprint across multiple industrial segments and a broad product portfolio.
Scale advantages and an established commercial/ RD network supporting a wide range of end-markets (coatings, home/personal care, packaging, adhesives, etc.).
Position in high-demand end-markets for durable goods and packaging, with ongoing exposure to specialty plastics and coatings.
Weaknesses
Significant profitability headwinds: Q2 2025 gross margin 5.38%, net margin −8.26%, and operating margin ~0.09%.
High leverage and stressed interest coverage (approximately 0.04x), increasing sensitivity to rate moves and macro shocks.
Negative operating cash flow and negative free cash flow in QQ2 2025, indicating reliance on external financing for liquidity.
Opportunities
Shift mix toward higher-margin specialty plastics and coatings products with improved pricing power.
Cost optimization, footprint optimization, and productivity gains to lift gross and operating margins.
Potential strategic divestitures or asset-light initiatives to reduce capital intensity and deleverage.
Threats
Cyclical downturns in key end-markets and commodity-cost volatility impacting margins.
Rising interest rates or tighter credit conditions that complicate refinancing or debt service.
Competitive pressure from other large industrials with stronger balance sheets or more favorable cost structures.