10:37 AM | May 3, 2018 | Robert Westervelt
DowDuPont has reported net income from continuing operations of $1.1 billion, up 24% year on year (YOY). Operating EBITDA of $4.9 billion was up 6% YOY as solid price and volume gains in materials science and specialty products more than offset a decline in agriculture due to a weather-related shift impacting seed and crop protection deliveries. Net sales rose 5% YOY, to $21.5 billion.
“We had good volume growth, pricing momentum, new product launches (in material science and specialty products) that allowed us to improve margins as well as more than $300 million in cost synergies that helped drive bottom-line performance," Howard Ungerleider, DowDuPont chief financial officer told CW.
Reported adjusted earnings were $1.12/share, up 7% YOY and 4% above analyst estimates. “The materials science and specialty products divisions delivered better-than-expected top- and bottom-line growth with higher prices and volume gains,” said Ed Breen, DowDuPont CEO. “Their growth more than offset weather-related delays that are expected to shift a substantial portion of our agriculture earnings to the second quarter.”
DowDuPont expects continued momentum for the rest of the first half. Global economic conditions remain strong and sequential improvement in agriculture and infrastructure, which lagged in the first quarter because of weather-related challenges, will help improve results in key markets, Ungerleider said. Second-quarter sales are expected to be up more than 10% and operating EBITDA up more than 20% YOY, Ungerleider added. The agriculture segment is expected to post second-quarter EBITDA growth in the “high-30s percent range” YOY as volumes recover in the second quarter; materials science segments gains in the mid-teens, and specialty products gains of roughly 20%.
“The global economy continues to show solid momentum and broad-based growth, driven by consumer-led demand in both developed and developing economies,” Ungerleider says. “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.”
DowDuPont says it continue to expect the materials science division, to be called Dow, to spin off by the end of the first quarter of 2019, with agriculture, which will be called Corteva, and specialty products, which will retain the DuPont name, separating by 1 June 2019.
DowDuPont said it achieved cost savings of more than $300 million in the first quarter, ahead of its plan and is now on pace to deliver a 75% run-rate against its announced $3.3-billion cost savings target by the end of third-quarter 2018.
First-quarter materials science division operating EBITDA grew 23% YOY to $2.6 billion with double-digit gains in all segments. Segment sales increased 17%, to $12.0 billion, with double-digit gains in all segments and gains in all regions. Volume grew 8%, and local price rose 5%.
“We continue to see strength in ethylene derivatives and demand,” Ungerleider said. “That’s across flexible packaging, rigid packaging, pressure pipe, and health and hygiene applications. It’s robust around the world. We have synchronized global growth that is driving that. We don’t see demand coming off at all."
”You obviously have new capacity coming, but if you do the math around how many reactors need to come on to meet that demand growth, we see demand growth keeping pace with supply growth and things hanging in there quite nicely," he adds.
Packaging and specialty plastics segment operating EBITDA totaled $1.3 billion, up 17% YOY. Polyethylene price increases; volume gains, including the benefit of increased supply from new projects; lower commissioning and startup costs; higher joint venture equity earnings; and cost savings more than offset increased feedstock costs. Packaging and specialty plastics segment net sales of $6.0 billion were up 12% YOY. The sales gain was driven by volume growth of 8% and a currency benefit of 4%, primarily in Europe.
Industrial intermediates and infrastructure operating EBITDA in the first quarter was $654 million, up 28% YOY. Pricing momentum, cost savings, and demand growth, coupled with improved equity earnings, more than offset the impact of weather-related outages along the US Gulf Coast, higher raw material costs, and increased maintenance and turnaround activity. Industrial intermediates and Infrastructure reported net sales of $3.7 billion, up 30% YOY. Double-digit sales gains were reported in all regions. Volume grew 14% and local price rose 11%.
Specialty products division operating EBITDA grew 25% YOY in the first quarter to $1.6 billion, with gains in all segments. Specialty products sales increased 11% YOY to $5.6 billion, with gains in all regions and in most segments.
Nutrition and biosciences operating EBITDA was $418 million, up 32% YOY driven by a portfolio benefit, volume growth, cost synergies, and lower pension costs, partially offset by higher costs due to growth investments. Nutrition and biosciences reported net sales of $1.7 billion, an increase of 21% primarily due to a 12% net benefit from portfolio, a 4% benefit from volume and a 4% benefit from currency.
Transportation and advanced polymers operating EBITDA totaled $437 million, an increase of 36%. Lower pension costs, favorable currency, sales gains, and cost synergies contributed to the improvement, partly offset by higher raw material costs. Transportation and advanced polymers reported net sales of $1.4 billion, up 14%.
Safety and construction operating EBITDA totaled $354 million, an increase of 21% YOY on lower pension cost, cost synergies, reliability improvements, and favorable currency that more than offset higher costs. The segment delivered net sales of $1.3 billion and net growth of 7%.
Electronics and imaging segment operating EBITDA was $357 million, up 9% YOY. Lower pension and benefit costs, cost savings, volume growth and a benefit from currency more than offset a negative impact from portfolio and higher unit costs. Electronics and imaging net sales were $1.2 billion, a decrease of 1% versus pro forma net sales in the year-ago period.
First-quarter agriculture division operating EBITDA declined 39% YOY to $891 million. Ag division net sales decreased 25% to $3.8 billion. Declines were driven by weather-related delays in the Northern Hemisphere and Brazil seasons. Volume decreased 28%, local price rose 1%, and currency improved 2%. Volume declines were driven by weather-related delays to the start of planting seasons in the Northern Hemisphere and Brazil, lower expected planted area in both North America and Brazil, and lower sales in the Brazil safrinha season due to a shift to lower-technology corn driven by the delayed summer season harvest.