DowDuPont (DWDP) Q1 Earnings: Is A Beat In The Cards?

DowDuPont Inc. (NYSE:DWDP) is set to release first-quarter 2018 results before the opening bell on May 3.

DowDuPont, which was formed through the $130-billion mega-merger of chemical giants, The Dow Chemical Company (NYSE:DOW) and E.I. du Pont de Nemours & Company (DuPont), posted adjusted earnings of 83 cents per share for the fourth quarter of 2018, which outstripped the Zacks Consensus Estimate of 67 cents.

The company raked in net sales (on a reported basis) of $20,066 million for the quarter. It also surpassed the Zacks Consensus Estimate of $19,371 million.

DowDuPont has underperformed the industry it belongs to since it started trading on the NYSE on Sep 1, 2017. The company’s shares have lost around 5.9% over this period, compared with roughly 3.1% gain recorded by the industry.

Let’s see how things are shaping up for this announcement.

Earnings Whispers

Our proven model shows that DowDuPont is likely to beat on earnings estimates this quarter. This is because it has the right combination of two key ingredients, a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Zacks ESP: Earnings ESP for DowDuPont is currently pegged at +2.91%. This is because the Most Accurate estimate stands at $1.11 while the Zacks Consensus Estimate is pegged at $1.08. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: DowDuPont currently carries a Zacks Rank #3. The combination of a favorable Zacks Rank and a positive ESP makes us reasonably confident of an earnings beat.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Factors to Watch For

DowDuPont gained from higher volumes and pricing and solid demand in its core end-markets in the fourth quarter, which is expected to continue in the March quarter.

The company, in its fourth-quarter call, said that it is seeing strong leading indicators of broad-based growth across developed economies such as in the United States, Germany and France. Moreover, the emerging middle class in developing economies, especially in China and India, continues to support sustainable growth. This augurs well for the company’s products and technologies.

The company has also realized more than $800 million in annual cost synergy run-rate from its cost synergy programs. It has raised its cost-synergy commitment from $3 billion to $3.3 billion. DowDuPont remains committed to achieve the increased cost synergy target and deliver new products from growth investments and strong innovation pipeline.

DowDuPont should gain from cost synergy realizations in the March quarter. It expects to achieve synergy savings of $225-$275 million in the first quarter.

The company, in its fourth-quarter call, said that it sees net sales to be in the range of $20.5 billion to $21.3 billion for the first quarter, a roughly 2% growth from the comparable quarter a year ago. The company sees higher sales across most of its business. The Zacks Consensus Estimate for revenues for DowDuPont for the first quarter stands at $21,320 million.

DowDuPont expects results in its agriculture business in the first quarter to be affected by a timing shift of sales into the second quarter as a result of an expected delay in growers’ final planting decisions in North America. Results in this unit are also expected to be affected by unfavorable product mix in the Brazil Safrinha season due to a delay in summer season harvest. The company expects revenues for its agriculture unit to be flat year over year in first-half 2018.

DowDuPont sees operating EBITDA, barring the agriculture business, to rise 13% year-over-year in the first quarter. The company is expected to gain from higher volumes, strong demand, cost synergies, lower pension costs, higher pricing across most of its businesses and favorable currency swings in the first quarter, offsetting headwinds from higher feedstock cost. Moreover, the company is expected to benefit from continued volume ramp up in Sadara joint venture in the March quarter.

Stocks Poised to Beat Estimates

Here are some companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:

Koppers Holdings Inc. (NYSE:KOP) has an Earnings ESP of +5.00% and flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Univar Inc. (NYSE:UNVR) has an Earnings ESP of +2.63% and sports a Zacks Rank #2.

FMC Corporation (NYSE:FMC) has an Earnings ESP of +0.31% and carries a Zacks Rank #2.

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