October 19, 2018
by Jack Kaskey
DowDuPont Inc. fell after cutting the asset value of its DuPont Co. agriculture business by $4.6 billion, less than nine months before a planned spinoff of the seed-and-pesticide unit.
The impairment charge reflects weaker markets for farm products since last year’s merger with Dow Chemical Co., DuPont said in a regulatory filing. Reduced planting areas and delays in product registrations mean that sales will grow more slowly, while an unfavorable shift to soybeans from corn in Latin America will dent profits.
The financial hit, while not a drain on cash, underscores the struggles in agriculture that are buffeted the world’s largest chemical maker. Farmers in Brazil are planting more soybeans and less corn, for example, to capitalize on China’s retaliatory tariffs against U.S. soybeans. Currency weakness in the South American country, a key market, is also weighing on DowDuPont’s farm business.
“In addition to the scale of the write-off, what’s new here is DuPont confirming farmers want lower-tech products and that prices are under pressure,” said Jason Miner, an analyst at Bloomberg Intelligence. “Large impairments are not driven off of transitory factors, like the few 2018-specific items that were already known.”
The shares fell 1.9% to $57.47 at 12:29 p.m. in New York, the second-biggest drop on the Dow Jones Industrial Average. The shares had declined 18% this year through Thursday, the largest slide on the Dow. A Standard & Poor’s index of materials companies dropped 12%.
The DuPont operation’s values were set just over a year ago, when the merger with Dow was completed. Since that “high water mark,” the economic outlook has worsened, reducing the book value of those agricultural assets, Laurence Alexander, an analyst at Jefferies, said in an investor note Friday.
“The disclosures call out slower growth prospects, delays in commercialization schedules and rising R&D costs as key factors,” he wrote. The value of the combined DuPont and Dow agriculture businesses, to be spun off as Corteva Agriscience, isn’t necessarily affected, demonstrating “the messiness of merger accounting.”
In a statement late Thursday, DowDuPont said the disclosures don’t change the company’s earnings expectations.
Alexander said he “would not be surprised” to see goodwill cut at other DowDuPont businesses if the economic outlook worsens in the next year or two.
He cited Electronics & Communications, Transportation & Advanced Polymers, and Packaging & Advanced Polymers as candidates. The latter is set to become part of the new Dow when it’s spun off in March. The others are slated for the new DuPont, which will stand alone after Corteva is separated in June.
While the asset writedown mostly reflects previously disclosed information, it’s now apparent that China is delaying approvals for Enlist and Conkesta genetically modified seeds, Jonas Oxgaard, an analyst at Sanford C. Bernstein, said in a note.
The chemical giant also filed an initial registration statement for Corteva with securities regulators and said the separation remains scheduled for June 1. The filing provides an overview of the business as well as historical financial data.
Corteva’s slumping seed sales reduced first-half earnings 2.5 percent to $2.26 billion, according to the DowDuPont’s filing.
To contact the reporter on this story: Jack Kaskey in Houston at [email protected]
To contact the editors responsible for this story: Brendan Case at [email protected] Tony Robinson
© 2018 Bloomberg L.P
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