Dow Chemical (DOW - Analyst Report) comfortably beat earnings expectations in second-quarter 2015 and saw a healthy rise in its profits, thanks to strong margins in its performance plastics business. But its sales missed expectations, hurt by currency headwinds stemming from a stronger greenback and lower oil prices.

The U.S. chemical kingpin recorded profits of $1,135 million or 97 cents per share in the reported quarter, a roughly 29% jump from $882 million or 73 cents per share recorded a year ago.

Barring one-time items including costs related to restructuring actions, earnings of 91 cents per share trounced the Zacks Consensus Estimate of 81 cents, marking the seventh straight quarter of positive surprise.

Dow logged higher EBITDA margin (as adjusted) in the quarter on strong margins across Performance Plastics and Performance Materials & Chemicals divisions. The plastics business is gaining from Dow’s significant feedstock advantage in North America (stemming from cheaper natural gas).

However, Dow saw a double-digit decline in its sales in the quarter, hurt by unfavorable currency impact and lower oil price. Its revenues tumbled 13% year over year to $12,910 million with declines witnessed across the board. Sales trailed the Zacks Consensus Estimate of $13,115 million. Volume rose 3% on an adjusted basis in the quarter, driven by a 9% rise in volumes in the Performance Plastics unit.

Despite the healthy earnings beat, the Michigan-based company’s shares were down around 2% in early trading, which appears to reflect the top line miss.

The Dow Chemical Company - Earnings Surprise | FindTheBest

Segment Analysis:
 
Agricultural Sciences
 
Sales fell 8% year over year to $1.7 billion in the quarter, affected by weak demand in Latin America and North America, currency headwinds and lower commodity prices. Crop protection revenues declined on unfavorable currency impact and weak volumes, partly due to wet weather conditions in North America. Sales of seeds also declined in the quarter, impacted by currency and shift in acreage from corn to soybeans.

Consumer Solutions

Revenues from the division were $1.1 billion, down 8%, as gains in North America were more than masked by declines in Europe, Middle East, Africa and India (EMEAI) and Asia Pacific. Sales fell across all business due to unfavorable currency impact. Automotive Systems delivered volume gains in EMEAI and North America, aided by new business wins.

Sales also fell in Electronic Materials despite healthy demand for semiconductor technologies on continued mobile device growth. The business also saw weak demand in display technologies.

Infrastructure Solutions

Sales from the division skid around 12% to $2 billion in the quarter on lower pricing and currency headwind. Energy and Water Solutions continued to benefit from healthy demand for reverse osmosis technologies. But this was more than offset by weakness in North American energy exploration and fracturing markets.

Volumes rose in the company’s Building and Construction business across EMEAI and North America. Coating Materials volumes rose on strong industrial coating applications.

Performance Materials & Chemicals

Revenues went down 14% to $3.2 billion in the quarter as price declines and currency headwinds offset higher demand. Polyurethane volumes rose on improved operations and demand. Stable demand in Chlor-Alkali and Vinyl in North America and Asia Pacific was more than offset by declines in EMEAI and Latin America.
 

Performance Plastics

Sales slid 16% to $4.8 billion in the quarter as lower pricing and currency impact more than offset higher volumes across the board. Packaging and Specialty Plastics recorded higher volumes in food & specialty packaging and hygiene & medical markets. Elastomers business logged higher sales on double-digit volume gains. Hydrocarbons and energy sales fell on lower ethylene byproducts prices. Electrical and Telecommunications sales were impacted by supply disruptions.

Financials and Shareholder Returns
 
Dow ended the quarter with cash and cash equivalents of roughly $6.2 billion, up around 62% year over year. Total long-term debt increased around 12% year over year to roughly $19.3 billion.

Dow has returned $1.5 billion to shareholders through dividends and share repurchases so far this year. Operating cash flow, year-to-date, was $2.7 billion.

Outlook
 
Dow, a Zacks Rank #2 (Buy) stock, is seeing strength in construction, packaging and automotive markets that more than offset weakness in agriculture and energy-related markets. CEO Andrew N. Liveris said that Dow will remain focused on executing its growth actions as well as portfolio management and productivity initiatives.

Dow remains committed to invest in attractive regions through highly-accretive projects including the expansions in the U.S. Gulf Coast and Sadara joint venture in the Middle East.

Dow also continues to aggressively pursue portfolio management actions. The company is selectively spinning off or divesting its underperforming assets and gradually shifting to high-growth markets. Dow is carving out a considerable portion of its chlorine value chain and merge that with Olin Corp. (OLN - Snapshot Report) in a deal valued at around $5 billion. The transaction is expected to close by the end of 2015.

The disposal of the chlorine assets represents a significant part of Dow’s aggressive portfolio management actions as it is looking to move away from cyclical commodity chemicals businesses. With its announced divestiture transactions, Dow expects to raise more than $11 billion from asset sales by mid-2016.

Dow’s results shed light on underlying trends in the broader chemical industry. Among other major chemical names, Celanese’s (CE - Analyst Report) second-quarter results (reported on Jul 16) were a mixed bag with earnings topping expectations while sales missing. Eastman Chemical (EMN - Analyst Report) will report after the close on Jul 27.