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DowDuPont (DWDP) Gears Up for Q1 Earnings: What's in Store?

Anindya Barman

DowDuPont Inc. DWDP is scheduled to come up with its first-quarter 2019 results before the opening bell on May 2. Harsh weather conditions are expected to hurt results in the company’s agriculture business in the quarter. The company is also expected to face currency headwinds.

DowDuPont sees net sales for the first quarter to fall high-single digits percent year over year. It also envisions operating EBITDA to decline high-teens percent on a year over year basis.

The company also expects net sales for its Agriculture unit in the first quarter to be down 11% year over year to $3.4 billion and operating EBITDA to be down 25% on a year over year basis to $665 million.  

For the Specialty Products unit, DowDuPont envisions net sales to decline 3% year over year to $5.4 billion in the first quarter. Operating EBITDA is expected to remain flat at $1.6 billion.

For Materials Science, the company expects net sales to decline 10% year over year to $10.8 billion. Operating EBITDA is forecast to fall 24% to $1.9 billion.

The Zacks Consensus Estimate for revenues for the first quarter for DowDuPont is currently pegged at $8,849 million.

DowDuPont’s shares are down around 29% so far this year, underperforming the roughly 3% decline recorded by the industry.


 

Let’s see how things are shaping up for this announcement.
 
Factors at Play

DowDuPont, earlier this month, completed the separation of its Materials Science unit through the spin-off of Dow Inc., marking the completion of the first step toward the formation of three independent public companies.

DowDuPont also noted that it remains on track to complete the spin-off of its Agriculture unit, Corteva Agriscience, on Jun 1, 2019 through the planned distribution of all of the shares of common stock of its fully-owned subsidiary, Corteva, Inc., to the holders of the company's common stock on a pro rata basis. Following this, DowDuPont will retain the Specialty Products unit and change its name to "DuPont". DowDuPont is expected to provide an update on the separation in its first-quarter call.

The company’s Agriculture unit faces challenges from the impact of bad weather conditions in the to-be-reported quarter. DowDuPont recently said that flooding during March in the Midwestern region of the United States led to transportation disruptions in the region. Moreover, significant road closures halted farming operations and delayed seed deliveries into the second quarter. This is expected to hurt sales and margins in the Agriculture segment.  

Moreover, the results in Materials Science unit are expected to be hurt by reduced margins in Packaging & Specialty Plastics business and margin compression in the isocyanates chain.

DowDuPont is also expected face headwinds from currency pressures and higher raw material costs in the to-be-reported quarter. The company, during its fourth-quarter call, said that it expects currency headwinds to impact EBITDA in the range of $150-$200 million in the quarter.

Nevertheless, the company will likely benefit from cost synergy realizations, productivity actions, contributions of new capacity additions, gains in pricing and new product launches. The company expects to realize synergy savings of more than $350 million in the first quarter.

What the Zacks Model Says

Our proven model does not show that DowDuPont is likely to beat estimates this quarter. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Earnings ESP: Earnings ESP for DowDuPont is 0.00%. The Most Accurate Estimate and the Zacks Consensus Estimate both stand at 70 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: DowDuPont currently carries a Zacks Rank #5 (Strong Sell).  Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
 
Stocks That Warrant a Look

Here are some other companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:

U.S. Silica Holdings, Inc. SLCA has an Earnings ESP of +21.95% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Eldorado Gold Corporation EGO has an Earnings ESP of +21.05% and carries a Zacks Rank #3.

Ingevity Corporation NGVT has an Earnings ESP of +6.77% and carries a Zacks Rank #3.

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