DowDuPont's (DWDP) Q3 Earnings In Line, Sales Rise Y/Y

DowDuPont Inc. (NYSE:DWDP) logged a profit (on a reported basis) of roughly $514 million or 32 cents per share in third-quarter 2017, down around 29% from a profit of $719 million or 63 cents per share recorded in the comparable period a year ago.

Barring one-time items, earnings came in at 55 cents per share for the quarter, which were in line the Zacks Consensus Estimate.

DowDuPont raked in net sales (on a reported basis) of $15,354 million, up roughly 23% year over year. Adjusted net sales for the quarter was $18,285 million, up 8% year over year.

Volumes (as adjusted) rose 4% in the quarter on gains across most segments. The company also saw a 3% rise in adjusted local prices on gains in all geographic areas barring Latin America.

Higher volumes and pricing, solid demand in most of the company’s core end-markets coupled with increased equity earnings more than offset higher feedstock costs, weak agriculture market conditions and unfavorable impacts of hurricanes in the reported quarter.

DowDuPont 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), which completed on Aug 31. The company plans to eventually break up into three independent companies. This is the combined company’s first post-merger earnings report.

Segment Highlights

Agriculture: Adjusted net sales fell roughly 4% year over year to $1.9 billion in the reported quarter on lower volumes and pricing. The agriculture market faced challenges from expected lower planted corn area in Brazil and a delayed start to the country’s summer season, impacting sales in the region.

Performance Materials & Coatings: Adjusted net sales from the division were $2.2 billion, up around 8%, supported by gains in all businesses as well as double-digit growth in Europe, the Middle East and Africa (EMEA).

Industrial Intermediates & Infrastructure: Adjusted net sales from the division jumped around 16% to $3.2 billion in the quarter driven by gains in all geographies, volume gains and higher pricing.

Packaging & Specialty Plastics: Adjusted net sales went up 8% to $5.5 billion. Sales were driven by higher volumes, with gains in most geographies.

Electronics & Imaging: Adjusted net sales rose 5% to $1.2 billion on the back of higher volume that more than offset a decline in local price and unfavorable impact from portfolio.

Nutrition & Biosciences: The division recorded adjusted net sales of $1.5 billion, flat year over year as favorable currency impact was offset by unfavorable impact from portfolio.

Transportation & Advanced Polymers: Adjusted net sales went up 9% to $1.3 billion, driven by higher volume and increased local price. Growth was aided by strong demand from the automotive market, especially in Asia Pacific and EMEA.

Safety & Construction: Adjusted net sales rose 6% to $1.3 billion, supported by higher volume with gains recorded in all geographies.

Financials

DowDuPont had cash and cash equivalents of roughly $13.1 billion at the end of the quarter. Long-term debt was roughly $29.8 billion.

Outlook

Moving ahead, DowDuPont said that demand outlook remains positive for most of its key end-markets. It will remain focused on executing its near-term priorities that include delivering earnings and cash flow growth, executing its $3 billion cost synergy initiatives and advancing activities to create three growth companies in Agriculture, Materials Science and Specialty Products.

DowDuPont also declared the actions it will take to generate planned cost savings of $3 billion. These include workforce reductions, buildings and facilities consolidations and select asset shutdowns. DowDuPont recorded pre-tax charges of $180 million in the third quarter in connection with the actions that are approved so far. It expects to record total pre-tax charges of around $2 billion, with around $1 billion expected in fourth-quarter 2017.

Price Performance

DowDuPont has modestly underperformed the industry it belongs to since it started trading on the NYSE on Sep 1. The company’s shares have gained around 9.2% over this period, compared with roughly 9.8% gain recorded by the industry.

Zacks Rank & Stocks to Consider

DowDuPont is a Zacks Rank #3 (Hold) stock.

Better-placed companies in the chemicals space include Westlake Chemical Corporation (NYSE:WLK) Kraton Corporation (NYSE:KRA) and FMC Corporation (NYSE:FMC) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Westlake has an expected long-term earnings growth of 8.3%.

Kraton has an expected earnings growth of 25.4% for the current year.

FMC has an expected long-term earnings growth of 11.3%.

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