November 3, 2017
DowDuPont released its third quarter 2017 results on Nov. 2.
DowDuPont reported GAAP diluted earnings per share of $0.32. Pro forma adjusted earnings per share of $0.55 increased 10% compared to the year-ago period. Pro forma adjusted earnings per share excludes significant items in the quarter, which totaled charges of $0.37 per share, as well as $0.08 per share for DuPont amortization of intangible assets.
GAAP net sales increased 23%. Pro forma net sales increased to $18.3 billion, up 8% versus the year-ago period, led by gains in the Materials Science segments Industrial Intermediates & Infrastructure (16%), Packaging & Specialty Plastics and Performance Materials & Coatings (8% each), and the Specialty Products segments Transportation & Advanced Polymers (9%) and Safety & Construction (6%). Sales rose double-digits in Europe, Middle East and Africa (EMEA) (16%) and in Asia Pacific (10%). Sales in North America grew 4%, while sales in Latin America declined driven by weakness in Agriculture due to expected lower corn area and a delayed start to the summer season in Brazil.
Pro forma volume grew 4%, reflecting consumer-led demand in packaging, electronics, transportation, oil and gas, building and construction, and consumer care end-markets. Volume grew in almost all operating segments, led by Electronics & Imaging (13%), as well as Packaging & Specialty Plastics and Safety & Construction (6% each). Regional volume gains were led by Asia Pacific (10%) and EMEA (5%).
Pro forma local price rose 3%, led by Industrial Intermediates & Infrastructure (12%), Performance Materials & Coatings (6%), and Transportation & Advanced Polymers (3%). Pro forma local price increased in all geographies except Latin America.
Pro forma operating EBITDA increased 7% to $3.2 billion, driven by volume and price gains; higher equity earnings; and lower pension/OPEB costs due to purchase accounting. These gains more than offset higher feedstock costs, weak conditions in agriculture markets, the unfavorable impact of hurricanes, and startup costs related to new assets on the U.S. Gulf Coast.
“We delivered top- and bottom-line growth in the third quarter – a solid start for our newly-formed company. Our operating earnings increase was the result of broad-based demand growth in most of our core end-markets and disciplined margin management, which more than offset several headwinds, from multiple hurricanes to higher feedstock costs and a delayed start to the summer agriculture season in Brazil,” said Ed Breen, chief executive officer of DowDuPont. “Moreover, we delivered these results while advancing several value-creating initiatives, including: closing the merger, completing our comprehensive portfolio review, and defining the new synergy targets for each division. Going forward, you should expect us to remain focused on executing on our $3 billion cost synergy commitment and advancing preparations to create three focused growth companies in Agriculture, Materials Science, and Specialty Products.”
On Sept. 12, DowDuPont announced certain targeted portfolio adjustments to the Materials Science and Specialty Products divisions to align with end-markets and enhance the competitive advantages of the intended companies.
The company started its new ethylene and ELITE enhanced polyethylene facilities, both in Freeport, Texas. The Sadara joint venture achieved full commercial operations of all 26 production facilities at its world-scale complex.
DowDuPont continued to satisfy conditional regulatory clearances required of the merger transaction. On Nov. 1, DuPont closed the divestiture of its cereal broadleaf herbicides and chewing insecticides portfolios, as well as certain parts of its crop protection R&D pipeline and organization to FMC, and closed its acquisition of FMC's Health and Nutrition business. On Sept. 1, Dow completed the sale of its global PRIMACOR ethylene acrylic acid copolymers and ionomers business. Dow expects to close its divestiture of a select portion of Dow AgroSciences' corn seed business in Brazil in the fourth quarter of 2017.
The company continues to make progress integrating the three divisions and has initiated work to prepare for the intended separation into three independent companies in Agriculture, Materials Science and Specialty Products.
DowDuPont reiterated its commitment to the $3 billion cost synergy target and updated expectations by division: Agriculture – $1.0 billion; Materials Science – $1.2 billion; Specialty Products – $0.8 billion.
The company began advancing its playbook to deliver $1 billion in growth synergies. For example, Agriculture will leverage its enhanced multi-brand, multi-channel approach designed to provide customers more value through broader choices and whole-farm solutions. Packaging & Specialty Plastics has begun the process of integrating DuPont’s resins and ethylene copolymers portfolio to deliver high performance packaging solutions. Electronics & Imaging has identified opportunities to leverage its deeper channel access and broader suite of materials (OLED films, laminates, semiconductor materials) with its customers.
DowDuPont announced today actions taken to generate cost savings of $3 billion. These actions are designed to integrate the organization post-merger and create strong foundations for the three intended companies. The majority of this work will come from procurement synergies, global workforce reductions, buildings and facilities consolidations and select asset shutdowns, among other activities. In connection with the actions approved to date, DowDuPont recognized pre-tax charges of $180 million in the third quarter. The company expects to recognize total pre-tax charges of approximately $2 billion, with approximately $1 billion expected in the fourth quarter of 2017.
Third Quarter Segment Information
The Agriculture segment reported pro forma net sales of $1.9 billion, down from $2.0 billion in the year-ago period. Volume and pricing headwinds were driven by weakness in Latin America as sales channels continue to hold high inventory levels of crop protection products. Additionally, an expected reduction in corn area in Brazil, as well as a delayed start to its summer season, impacted sales in the region. These headwinds were partly offset by continued penetration of new products.
Portfolio gains in the quarter reflect the Dow AgroSciences corn seed remedy in Brazil, which is expected to close in the fourth quarter.
Pro forma operating EBITDA for the segment was a loss of $239 million, versus a loss of $172 million in the year-ago period. Lower product costs, favorable currency, portfolio changes and lower pension/OPEB costs were more than offset by reduced volume and price, particularly due to weakness in Brazil.
“Consumer-led demand continues to drive global economic activity, which remains robust across most major economies, including Europe, China and the United States. Our demand outlook is positive for the majority of our key end-markets,” said Andrew Liveris, executive chairman of DowDuPont. “We still see some market headwinds, the most notable for us being in agriculture where we continue to closely monitor the situation in Brazil due to the slow start to the summer season. But we remain confident that we will have a solid year across our newly combined Ag division.
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