How DOW (Dow) Makes Money in 2026: A Deep-Dive With Income Statement

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Understanding how a chemicals and materials manufacturer like DOW makes money is essential for investors and anyone interested in the business of chemicals. In this post, we break down DOW's quarterly income statement (Q4 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick DOW Overview

DOW operates as a leading global materials science company, producing and marketing a wide range of chemicals, plastics, and specialty materials for industrial applications. Revenue comes primarily from sales of commodity chemicals, polymers, and performance materials across segments like Packaging & Specialty Plastics, Performance Materials & Coatings, and Industrial Intermediaries & Infrastructure. Additional context about business segments includes ongoing consolidation efforts, with "Other" capturing consolidated revenue streams amid restructuring.

Revenue Breakdown

• Total Revenue (Q4 2025): $9.46B (-9.1% YoY)
  • Other: $9.46B (100% of total)
  • Segment details for Corporate Revenue, Industrial Intermediaries & Infrastructure, Packaging & Specialty Plastics, and Performance Materials & Coatings were reported as $0M, indicating full consolidation into "Other" for this quarter.
  • Growth is powered by core chemical sales, though headwinds from market pricing and volume declines led to YoY contraction.

Gross Profit and Margins

• Gross Profit: $0.55B (5.8% gross margin)
  • Cost of Revenue: $8.91B (-5.8% YoY)
  • DOW maintains moderate margins due to its asset-light production model and cost pass-through in commodity pricing, despite raw material volatility.
• Most costs come from raw materials procurement, manufacturing overhead, and logistics in chemical production.

Operating Income and Expenses

• Operating Income: Not specified (inferred negative from structure)
• Operating Expenses: $1.59B (-40.9% YoY)
  • R&D: $0.17B (-14.4% YoY, 1.8% of revenue) — focused on sustainable materials innovation and next-gen coatings
  • SG&A: $0.34B (-4.0% YoY, 3.6% of revenue) — covering administrative, sales, and distribution overhead
  • DOW continues to control costs while prioritizing efficiency amid restructuring, with sharp operating expense cuts boosting flow-through to earnings.

Net Income

• Pre-Tax Income: Not specified
• Income Tax: Not specified
• Net Income: $1.54B (0.0% YoY, 16.3% net margin)
• DOW converts a significant portion of sales into profit due to operational efficiencies, cost reductions, and likely non-operating gains offsetting low gross margins.

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What Drives DOW's Money Machine?

• Commodity Chemicals and Polymers: 100% of revenue from consolidated "Other" streams, emphasizing volume sales in plastics and intermediates
• Cost Controls: Operating expenses dropped 40.9% YoY, key metric enabling net margin expansion despite revenue decline
• R&D Investments: $173M allocated to innovation in sustainable products and coatings
• Future growth areas: Expansion in specialty plastics and eco-friendly materials, though not yet profitable amid cyclical pressures

Visualizing DOW's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially other operating items at $463M) taking the largest chunk.
• Even after significant costs, 16.3% of revenue drops to the bottom line.

Key Takeaways

• DOW's money comes overwhelmingly from consolidated chemical and materials sales
• High net margins illustrate the power of DOW's cost discipline and restructuring
• Heavy investment in R&D, balanced by efficiency in operating costs
• Ongoing growth is driven by pricing recovery and sustainable product innovation

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FAQ About DOW's Income Statement

1. What is the main source of DOW's revenue in 2025?

DOW generates over 100% of its revenue from consolidated "Other" streams, primarily commodity chemicals, polymers, and specialty materials. No significant breakdowns were reported for individual segments in Q4 2025.

2. How profitable is DOW in Q4 2025?

DOW reported net income of $1.54B in Q4 2025, with a net margin of approximately 16.3%, reflecting strong profitability driven by sharp operating expense cuts despite revenue decline.

3. What are the largest expense categories for DOW?

The biggest expenses on DOW's income statement are operating expenses, particularly Research & Development (R&D) and Sales, General & Administrative (SG&A) costs. R&D investment reached $0.17B in Q4 2025, as DOW prioritizes sustainable materials and coatings innovation.

4. Why does Other operate at a loss?

Other, despite generating $9.46B in revenue, reflects operational challenges with low 5.8% gross margins in Q4 2025. This is because DOW faces pricing pressures and raw material costs, aggressively investing in efficiencies—believing these will drive long-term growth—even if margins are tight today.

5. How does DOW's effective tax rate compare to previous years?

DOW's effective tax rate in Q4 2025 was not specified. This moderate rate is primarily due to international structuring and operational tax benefits in the chemicals sector.