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DowDuPont (DWDP) Gears Up for Q4 Earnings: What's in Store?

Anindya Barman

DowDuPont Inc. DWDP is scheduled to come up with its fourth-quarter 2018 results before the opening bell on Jan 31.

DowDuPont logged earnings (on a reported basis) from continuing operations of 21 cents per share for third-quarter 2018, compared with 33 cents per share it recorded in the comparable quarter a year ago. Adjusted earnings came in at 74 cents per share for the third quarter that topped the Zacks Consensus Estimate of 71 cents.

DowDuPont raked in net sales of $20,123 million for the quarter, up 10% from the year-ago adjusted sales. It fell short of the Zacks Consensus Estimate of $20,305 million. The company witnessed higher sales volumes and gains in local prices across all segments and geographic regions. It also gained from strong customer demand.

DowDuPont’s shares have gained around 11% over the past three months, outperforming the roughly 5.3% rise recorded by the industry.


 

Let’s see how things are shaping up for this announcement.
 
Factors to Watch For

DowDuPont gained from higher pricing and solid demand across most of its end-markets in the third quarter, which will likely continue in the December quarter. It should also benefit from cost synergy realizations and new products.

DowDuPont, in its third-quarter call, said that it is seeing strong global demand for its products, aided by business investment, manufacturing output, job growth and wage increases. It will remain focused on driving top-line growth from above-GDP demand growth for its products and new product launches as well as delivering productivity and cost synergy savings.

DowDuPont achieved cost synergy savings of more than $450 million in the third quarter. The company raised its cost synergy commitment to $3.6 billion from its earlier expectations of $3.3 billion. Moreover, it increased the expected year-over-year savings for 2018 to $1.5 billion from $1.4 billion.

For 2018, the company expects high-single digits percent growth in net sales and low-20s percent growth in adjusted earnings per share.

The Zacks Consensus Estimate for revenues for the fourth quarter for DowDuPont is currently pegged at $21,105 million, reflecting a 5.2% growth on a year over year comparison basis.

DowDuPont’s Materials Science segment gained from strength in its end-markets, cost synergies, strong demand, pricing actions and new supplies from the U.S. Gulf Coast in the last reported quarter. These factors are likely to continue to drive the segment in the to-be-reported quarter. However, the division is exposed to headwinds from higher raw material costs.

DowDuPont expects low-teens percent increase in both net sales and operating EBITDA for Materials Science for 2018.

The company’s Specialty Products division is expected to continue to benefit from strong demand in key end-markets, volume and pricing gains, new product launches and contributions from cost synergies. Pricing strength and productivity actions should offset raw material headwinds.

For full-year 2018, DowDuPont expects high-single digits percent increase in net sales and high-teens percent growth in operating EBITDA for Specialty Products.

Moreover, DowDuPont’s Agriculture unit is expected to gain from cost synergies, pricing gains and new product launches in crop protection. However, the division faces headwinds from lower planted corn area and unfavorable currency impacts related to the Brazilian real.

DowDuPont expects flat net sales and a mid-single digits percent increase in operating EBITDA for the Agriculture division for 2018. The division is on track for separation from DowDuPont as Corteva, Inc. on Jun 1, 2019.

Following the planned separations of Corteva and the Materials Science division as Dow Holdings Inc. (expected on Apr 1, 2019), DowDuPont expects to retain only the specialty products business. Following this, the company is expected to change its name to "DuPont". DowDuPont is expected to provide an update on the separation in its fourth-quarter call.

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 -3.75%. This is because the Most Accurate Estimate is currently pegged at 86 cents while the Zacks Consensus Estimate stands at 89 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 #3, which when combined with a negative ESP, makes surprise prediction difficult.  

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 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:

New Gold Inc. NGD has an Earnings ESP of +166.67% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teck Resources Limited TECK has an Earnings ESP of +6.03% and carries a Zacks Rank #3.
 
Franco-Nevada Corporation FNV has an Earnings ESP of +3.05% and carries a Zacks Rank #3.

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