DowDuPont Reports First Quarter 2018 Results
- GAAP EPS from Continuing Operations of $0.47; Adj. EPS Increases 7% to $1.12
- GAAP Net Income from Continuing Operations of $1.1B; Op. EBITDA Up 6% to $4.9B
- Net Sales Rise 5% to $21.5B, driven by Segments Within the Materials Science and Specialty Products Divisions
- Cost Synergy Savings of >$300MM; Run-Rate Ahead of Plan and Now on Pace to Achieve 75% Run-Rate of $3.3B Commitment by the End of the Third Quarter of 2018
- DWDP Expects Op. EBITDA up ~15% in 1H18; 2Q Op. EBITDA up in all Divisions: Ag high-30s percent; Materials Science mid-teens percent; Specialty Products ~20%
First Quarter Financial Highlights
- GAAP earnings per share from continuing operations was $0.47. Adjusted earnings1 per share increased 7 percent to $1.12, compared with pro forma adjusted earnings per share in the year-ago period of $1.05. Adjusted earnings per share excludes significant items in the quarter totaling net charges of $0.54 per share, as well as an $0.11 per share charge for DuPont amortization of intangible assets.
- Net sales increased 5 percent to $21.5 billion, with growth in most operating segments and geographic regions, from pro forma net sales of $20.5 billion in the year-ago period. The Materials Science division increased sales 17 percent, with double-digit gains in all segments and gains in all regions. The Specialty Products division increased sales 11 percent, with gains in most segments and all regions. These increases more than offset a decline in Agriculture sales of 25 percent driven by weather-related delays to planting seasons in the Northern Hemisphere and Brazil. Net sales included a 4 percent benefit from currency, primarily from the Euro.
- Volume declined 2 percent on a pro forma basis from the year-ago period, due to a weather-related shift in Agriculture. The Materials Science division increased volume 8 percent, with gains in most segments and all regions. The Specialty Products division increased volume 3 percent, with gains in all segments and most regions.
- Local price rose 3 percent on a pro forma basis, led by increases in all regions and most operating segments. Local price increased in each division, led by a 5 percent increase in the Materials Science division.
- Operating EBITDA1 increased 6 percent on a pro forma basis from the year-ago period to $4.9 billion. The Materials Science division achieved 23 percent operating EBITDA growth, with double-digit gains in all segments. The Specialty Products division delivered 25 percent operating EBITDA growth, with double-digit gains in most segments. Earnings drivers included local price and volume gains in Materials Science and Specialty Products, cost synergies, a benefit from currency, lower pension/OPEB costs2 and higher equity earnings. These gains more than offset a decline in Agriculture due to a weather-related shift impacting seed and crop protection deliveries, higher feedstock costs in the other two divisions and planned maintenance and weather-related outages in Materials Science.
- The Company achieved cost synergy savings of more than $300 million in the first quarter, ahead of its run-rate plan and now on pace to deliver a 75 percent run-rate against its $3.3 billion cost synergy commitment by the end of the third quarter of 2018.
- DowDuPont returned nearly $2 billion to shareholders in the quarter through dividends ($0.9 billion) and share repurchases ($1 billion).
“We delivered solid first-quarter sales and operating earnings gains, while our teams advanced the intended business separations,” said Ed Breen, chief executive officer of DowDuPont. “The Materials Science and Specialty Products divisions delivered better-than-expected top- and bottom-line growth with higher prices and volume gains, including value adding product innovations. Their growth more than offset weather-related delays that are expected to shift a substantial portion of our Agriculture earnings to the second quarter. All three divisions hit their cost synergy targets, producing savings of over $300 million as we build momentum on our $3.3 billion in cost synergies and put more focus on the $1 billion in growth synergies. And we continue to expect Materials Science to spin by the end of the first quarter of 2019, with Agriculture and Specialty Products separating by June 1, 2019. These will be three world-class companies equipped to further their leadership positions in attractive growth markets.”
“The global economy continues to show solid momentum and broad-based growth, driven by consumer-led demand in both developed and developing economies,” said Howard Ungerleider, chief financial officer of DowDuPont. “There are discrete headwinds, including continued volatility in our input costs and weather-related softness in agriculture. However, leading indicators from manufacturing output, to improving energy markets, to employment and consumer spending remain largely positive, reflecting increased economic activity.”
“Our portfolio benefits from these macro trends, and we see our innovations and growth investments driving above-market growth. We see this strength continuing into the second quarter. We expect second quarter net sales to be up more than 10 percent and operating EBITDA up more than 20 percent year-over-year.”
“Looking ahead, the DowDuPont team remains focused on our priorities: delivering our operating and financial plan, including executing on our growth projects and innovation launches; achieving our synergy targets; and standing and spinning the intended companies on our stated timeline.”
The Company will host a live webcast of its first quarter earnings conference call with investors to discuss its results, business outlook and other matters today at 8:00 a.m. ET. The slide presentation that accompanies the conference call will be posted on the DowDuPont Investor Relations events and presentations page. A replay of the webcast will also be available on the investor events and presentations page of www.dow-dupont.com.
DowDuPont (NYSE: DWDP) is a holding company comprised of The Dow Chemical Company and DuPont with the intent to form strong, independent, publicly traded companies in agriculture, materials science and specialty products sectors that will lead their respective industries through productive, science-based innovation to meet the needs of customers and help solve global challenges. For more information, please visit us at www.dow-dupont.com.
(1) Adjusted earnings per share, Pro forma adjusted earnings per share, Operating EBITDA and Pro forma operating EBITDA are non-GAAP measures. See page 9 for further discussion. First quarter 2017 information is on a pro forma basis and was determined in accordance with Article 11 of Regulation S-X.
(2) Pension/OPEB (other post employment benefit plans) costs include all components of net periodic benefit cost from continuing operations.
Cautionary Statement About Forward-Looking Statements
This communication contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In this context, forward-looking statements often address expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” and similar expressions and variations or negatives of these words.
On December 11, 2015, The Dow Chemical Company (“Dow”) and E. I. du Pont de Nemours and Company (“DuPont”) entered into an Agreement and Plan of Merger, as amended on March 31, 2017, (the “Merger Agreement”) under which the companies would combine in an all-stock merger of equals transaction (the “Merger”). Effective August 31, 2017, the Merger was completed and each of Dow and DuPont became subsidiaries of DowDuPont (Dow and DuPont, and their respective subsidiaries, collectively referred to as the "Subsidiaries").
Forward-looking statements by their nature address matters that are, to varying degrees, uncertain, including the intended separation, subject to approval of the Company’s Board of Directors and customary closing conditions of DowDuPont’s agriculture, materials science and specialty products businesses in one or more tax-efficient transactions on anticipated terms (the “Intended Business Separations”). Forward-looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events which may not be realized. Forward-looking statements also involve risks and uncertainties, many of which are beyond the Company’s control. Some of the important factors that could cause DowDuPont’s, Dow’s or DuPont’s actual results to differ materially from those projected in any such forward-looking statements include, but are not limited to: (i) costs to achieve and achieving the successful integration of the respective agriculture, materials science and specialty products businesses of Dow and DuPont, anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, productivity actions, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the combined operations; (ii) costs to achieve and achievement of the anticipated synergies by the combined agriculture, materials science and specialty products businesses; (iii) risks associated with the Intended Business Separations, including conditions which could delay, prevent or otherwise adversely affect the proposed transactions, including possible issues or delays in obtaining required regulatory approvals or clearances related to the Intended Business Separations, associated costs, disruptions in the financial markets or other potential barriers; (iv) disruptions or business uncertainty, including from the Intended Business Separations, could adversely impact DowDuPont’s business (either directly or as conducted by and through Dow or DuPont), or financial performance and its ability to retain and hire key personnel; (v) uncertainty as to the long-term value of DowDuPont common stock; and (vi) risks to DowDuPont’s, Dow’s and DuPont’s business, operations and results of operations from: the availability of and fluctuations in the cost of energy and feedstocks; balance of supply and demand and the impact of balance on prices; failure to develop and market new products and optimally manage product life cycles; ability, cost and impact on business operations, including the supply chain, of responding to changes in market acceptance, rules, regulations and policies and failure to respond to such changes; outcome of significant litigation, environmental matters and other commitments and contingencies; failure to appropriately manage process safety and product stewardship issues; global economic and capital market conditions, including the continued availability of capital and financing, as well as inflation, interest and currency exchange rates; changes in political conditions, including trade wars and retaliatory actions; business or supply disruptions; security threats, such as acts of sabotage, terrorism or war, natural disasters and weather events and patterns which could result in a significant operational event for the Company, adversely impact demand or production; ability to discover, develop and protect new technologies and to protect and enforce the Company’s intellectual property rights; failure to effectively manage acquisitions, divestitures, alliances, joint ventures and other portfolio changes; unpredictability and severity of catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities, as well as management’s response to any of the aforementioned factors. These risks are and will be more fully discussed in the current, quarterly and annual reports filed with the U. S. Securities and Exchange Commission by DowDuPont. While the list of factors presented here is, considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on DowDuPont’s, Dow’s or DuPont’s consolidated financial condition, results of operations, credit rating or liquidity. None of DowDuPont, Dow or DuPont assumes any obligation to publicly provide revisions or updates to any forward-looking statements whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws. A detailed discussion of some of the significant risks and uncertainties which may cause results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” (Part I, Item 1A) of DowDuPont’s 2017 annual report on Form 10-K.
The Dow Diamond, DuPont Oval logo, DuPont™, the DowDuPont logo and all products, unless otherwise noted, denoted with ™, ℠ or ® are trademarks, service marks or registered trademarks of The Dow Chemical Company, E. I. du Pont de Nemours and Company, DowDuPont Inc. or their affiliates.
Supplemental unaudited pro forma information for DowDuPont is presented to illustrate the estimated effects of the Merger, assuming that the Merger had been consummated on January 1, 2016. For 2017, activity prior to August 31, 2017 (the “Merger Date”) was prepared on a pro forma basis and activity after the Merger Date was prepared on a combined U.S. GAAP basis. The unaudited pro forma information was prepared in accordance with Article 11 of Regulation S-X. Pro forma adjustments have been made for (1) the preliminary purchase accounting impact, (2) accounting policy alignment, (3) eliminate the effect of events that are directly attributable to the Merger Agreement (e.g., one-time transaction costs), (4) eliminate the impact of transactions between Dow and DuPont, and (5) eliminate the effect of consummated or probable and identifiable divestitures agreed to with certain regulatory agencies as a condition of approval for the Merger. Events that are not expected to have a continuing impact on the combined results (e.g., inventory step-up costs) are excluded. The unaudited pro forma information does not reflect restructuring or integration activities or other costs following the Merger that may be incurred to achieve cost or growth synergies of DowDuPont. The unaudited pro forma financial information provides shareholders with summary financial information and historical data that is on a basis consistent with how DowDuPont reports current financial information.
Discussion of revenue, operating EBITDA and price/volume metrics on a divisional basis for Agriculture is based on the results of the Agriculture segment; for Materials Science is based on the combined results of the Performance Materials & Coatings, Industrial Intermediates & Infrastructure, and Packaging & Specialty Plastics segments; and for Specialty Products is based on the combined results of the Electronics & Imaging, Nutrition & Biosciences, Transportation & Advanced Polymers, and Safety & Construction segments. The divisional discussions are for informational purposes only and do not purport to be indicative of results, including on a pro forma basis, for each of Agriculture, Materials Science and Specialty Products on a standalone basis as if the Intended Business Separations had already occurred. Furthermore, the divisional discussions should not be construed as representative of future results of operations or financial condition for each of Agriculture, Materials Science and Specialty Products on a standalone basis in connection with the Intended Business Separations.