We are in the middle of the earnings season, and the materials sector is seemingly tempering the overall Q3 growth picture after energy. This is especially true as total earnings from 60.9% of the sector’s total market capitalization reported so far are down 26.8% on 21% revenue decline.

Despite the earnings weakness, the sector is showing impressive performance, having gained an average 1.76% (average price difference between a day before and after the earnings announcement of a stock), per the Zacks Earnings Trend. In particular, Dow Chemical (DOW – Analyst Report) and DuPont (DD – Analyst Report) led the rally in the sector as both companies beat on their earnings. However, revenues remained weak and missed our estimates.  

DOW Earnings in Focus

The largest U.S. chemical maker continued its streak of earnings beat for the eight consecutive quarter. Earnings per share came in at 82 cents, easily trumping the Zacks Consensus Estimate of 68 cents and improving from 72 cents earned a year ago. Healthy earnings were credited to the incredible performance by the Performance Plastics segment due to lower cost of raw materials like oil and natural gas (read: 5 Ways to Play the Oil Rebound with ETFs).

Revenues dropped 16% year over year to $12.04 billion and missed our estimate of $12.25 billion. EBITDA margin expanded 370 bps to 20%, representing the best third-quarter margin since 2005 even as a strong dollar took a toll on revenues.

The company remained committed to cost reduction and efficiency programs that are likely to boost margins and shareholders returns in the coming quarters. It is selectively spinning off or selling its underperforming assets and gradually shifting to high-growth markets such as construction, packaging and automotive.

Dow Chemical raised its quarterly dividend by 10% to 46 cents, taking the annualized dividend to $1.84 per share, which is the highest in the company’s history. This new dividend is payable on January 29 to shareholders of record on December 31.

Driven by a solid earnings beat, shares of Dow Chemical has risen 8.2% to date post its earnings announcement on October 22.

DD Earnings in Focus

While DuPont crushed our earnings estimate due to cost reductions initiatives, revenues and profits tumbled on a strong dollar, a soft agriculture business and weakness in emerging markets (read: 3 Sector ETFs Hit Hard by the Market Sell-off).