Lower Margins In Material Science Business Will Likely Weigh On DowDuPont’s 2019 Earnings

A monitor displays DowDuPont Inc. signage on the floor of the New York Stock Exchange (NYSE) in New York, on Monday, Aug. 27, 2018.(Photographer: Michael Nagle/Bloomberg)© 2018 BLOOMBERG FINANCE LP

DowDuPont (NYSE:DWDP) saw high single-digit revenue growth, while its adjusted earnings were up in the low twenties percent for the full year 2018. This growth was primarily led by its Material Science business, which saw an uptick in pricing and volume. However, the company guided for a weak Q1, amid tepid economic growth. In fact, the company will likely see only a modest growth in revenues for the full year 2019, while its earnings could see modest decline, amid margin contraction. Note that the company plans to split into three different entities later in this year. We have created an interactive dashboard ~ What To Expect From DowDuPont In 2019? You can adjust various drivers to see the impact on the company’s earnings, and price estimate. Below we discuss our forecasts. In addition, all Trefis Chemicals data is here.

Expect Revenues To See Modest Growth In 2019


We forecast the Agriculture revenues to see a modest decline in 2019, due to continued currency headwinds, primarily from the Brazilian Real. The company last year saw a modest decline in sales, as gains from higher pricing were offset by lower volume, among other factors. It expects to gain from new product launches and higher pricing in 2019. Performance Materials & Coatings sales were up in high single-digits in 2018, led by double-digit pricing gains. Looking forward, the company will likely see higher sales in 2019, led by volume gains, especially for performance silicones. The overall silicones market is expected to grow at a CAGR of around 6% to $19 billion in 2022, according to a research report. This should bode well for DowDuPont, given it is one of the larger players in the silicone market. Looking at the Industrial Intermediates & Infrastructure segment, it has seen 20% revenue growth in 2018, led by double-digit volume gains. This can be attributed to the enhanced capacity at the Sadara unit, and higher demand in industrial specialties. We forecast revenue growth in low single-digits for the full year 2019, as expected volume gains will mostly be offset by pricing and currency headwinds. Packaging & Specialty Plastics will also likely see a low single-digit growth, led by continued demand for industrial and consumer packaging. The division is benefiting from added capacity at the U.S. Gulf Coast, along with higher production at the Sadara facility. Note that Performance Materials & Coatings, Industrial Intermediates & Infrastructure, and Packaging & Specialty Plastics are part of the company’s Material Sciences division, which accounted for 57% of the company’s total revenues in 2018. While the business will likely see modest revenue gains in 2019, margins will likely decline, amid headwinds in isocyanates, due to softening prices.

The Specialty Chemicals business will likely continue to see steady growth, primarily due to higher demand for the Nutrition & Biosciences product line, which saw revenue growth in low teens last year. Note that the last year double-digit growth can partly be attributed to the acquisition of FMC’s Health & Nutrition business. The company stated that volume gains last year were led by probiotics, and specialty proteins, among others. This trend will likely continue in the near term, and beyond, given the growth in the overall market. The global personalized retail nutrition and wellness market is expected to grow in high single-digits over the next few years. DowDuPont caters to the food industry at large, and it is one of the larger players for ingredients, including preservatives.

Overall, we expect the company’s top line to see only a modest growth to $87 billion, and adjusted earnings to see a low single-digit decline to $4.07 per share. Our price estimate of $63 for DowDuPont is based on a 15x forward price to earnings multiple.



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