DowDuPont Reports First Quarter 2019 Results
First Quarter Financial Highlights
- GAAP earnings per share from continuing operations totaled $0.23, a decline of 51 percent versus the year-ago period of $0.47. Adjusted earnings per share1 decreased 25 percent to $0.84, compared with the year-ago period of $1.12. Adjusted earnings per share excludes significant items in the quarter totaling net charges of $0.50 per share and an $0.11 per share charge for DuPont amortization of intangible assets. Adjusted earnings per share in the year-ago period excludes significant items totaling net charges of $0.54 per share and an $0.11 per share charge for DuPont amortization of intangible assets.
- Net sales of $19.6 billion were down 9 percent compared with the year-ago period on lower local price of 4 percent, a 3 percent currency headwind and volume declines of 2 percent.
- Volume gains of 3 percent in Asia Pacific and 1 percent in EMEA were more than offset by volume declines in U.S. & Canada of 7 percent and in Latin America of 1 percent.
- Local price increases in Specialty Products and Agriculture of 3 percent and 1 percent respectively, were more than offset by a price decline of 9 percent in Materials Science.
- GAAP Net Income from Continuing Operations totaled $0.6 billion, down 50 percent versus the year-ago period. Operating EBITDA1 was $4.0 billion, down 17 percent as compared to the year-ago period. Margin compression in the Materials Science Division, weather-related volume declines in the Agriculture Division and currency headwinds across all Divisions more than offset cost synergies.
- DowDuPont achieved year-over-year cost synergies of approximately $400 million in the quarter, and since merger close has now delivered more than $2.2 billion of cost savings.
- The Company returned $2.4 billion to shareholders in the quarter through dividends (~$0.8 billion) and share repurchases (~$1.6 billion). Since merger close, the Company has returned nearly $12.5 billion to shareholders.
“Each business aggressively managed the levers within our control and benefitted from the strong foundations we have put in place in the face of discrete headwinds, including the effects of unprecedented bad weather, margin compression in key value chains, and sluggish auto and smartphone market conditions. Our emphasis on innovation and valued-added, higher margin products enabled us to benefit from stronger pricing in both our Specialty Products and Agriculture Divisions. We also advanced our cost synergies with an additional $400 million of savings in the quarter and we completed our $3 billion share repurchase program, repurchasing $1.6 billion in the quarter,” said Ed Breen, chief executive officer of DowDuPont.
“In 30 days, we expect to complete our journey to create three leading companies in the materials science, agriculture and specialty products industries from the combination of two world-class organizations. I am confident that each of the companies we have created is a compelling investment opportunity in their respective space, with attractive financial characteristics and capital allocation policies, best-in-class cost structures and innovation priorities to accelerate growth. What we have accomplished would not have been possible without our highly talented and experienced leadership teams and their organizations. I want to thank each of my colleagues and wish them well as we move forward as new Dow, Corteva and new DuPont.”
First Quarter Division Highlights
- Net sales of $10.8 billion, down 10 percent versus the year-ago period.
- Operating EBITDA of $1.9 billion, down 24 percent versus the same quarter last year.
- Demand growth in differentiated silicones, polyurethane systems and packaging.
- Established industry-leading $2.1B annual dividend payout and $3B open share repurchase program.
- Successfully separated from DowDuPont on April 1.
Performance Materials & Coatings
Performance Materials & Coatings net sales were $2.3 billion, down 2 percent versus the year-ago period. Volume increased 1 percent, with growth in Asia Pacific and EMEA, and price was flat with the year-ago period. Currency decreased sales by 3 percent.
Consumer Solutions sales were flat with the year-ago period as gains in volume and local price were offset by currency headwinds in EMEA and Asia Pacific. The business reported local price and volume increases in all regions for its differentiated silicones products. These gains were partially offset by year-over-year price declines in siloxanes intermediates.
Coatings & Performance Monomers reported a sales decline on lower volume, local price and currency, in part due to shedding of lower margin business and weather-related delays to seasonal demand in the U.S. & Canada and EMEA regions.
Operating EBITDA was $481 million, down 18 percent from operating EBITDA of $586 million in the year-ago period, primarily due to lower prices for siloxanes and shipping restrictions from a Performance Monomers facility in Deer Park, Texas, due to a fire at a nearby third-party storage and terminal facility.
Industrial Intermediates & Infrastructure
Industrial Intermediates & Infrastructure net sales were $3.4 billion, down 8 percent versus the year-ago period. Volume grew 6 percent, with gains in all regions. Local price declined 11 percent with decreases in all regions and both businesses. Currency decreased sales by 3 percent.
Polyurethanes & CAV sales declined, primarily driven by lower year-over-year isocyanates pricing, which were partially offset by higher volumes in all regions.
Industrial Solutions reported lower sales in all regions, driven by lower local price and currency headwinds in most regions. The business grew volume, driven by gains in EMEA and U.S. & Canada for industrial and oil and gas applications, as well as on strong demand for de-icing fluids, lubricants and fuels.
Equity affiliate losses for the segment were $48 million, compared with equity affiliate income of $149 million in the year-ago period. The year-over-year decline was driven by increased equity affiliate losses from the Sadara joint venture, driven by margin compression in isocyanates products, as well as lower margins for MEG produced by the Kuwait joint ventures.
Operating EBITDA was $448 million, down 31 percent from operating EBITDA of $654 million in the year-ago period. The decline in earnings was primarily due to lower equity affiliate income, as well as margin compression in isocyanates products.
Packaging & Specialty Plastics
Packaging & Specialty Plastics net sales were $5.1 billion, down 15 percent versus the year-ago period. Volume contracted 2 percent, driven primarily by higher ethane feedstock usage in the United States, which reduced sales of Hydrocarbons & Energy co-products. Local price declined 11 percent, driven by reduced polyethylene product prices and lower prices for Hydrocarbons & Energy co-products. Currency decreased sales 2 percent.
The Packaging and Specialty Plastics business grew volume on higher demand in Asia Pacific and EMEA, supported by new capacity adds. End-market growth was led by Industrial & Consumer Packaging and Flexible Food & Specialty Packaging.
Hydrocarbons & Energy volume declined, primarily due to increased ethylene integration from the startup of new downstream assets and higher ethane feedstock usage, which led to reduced co-product production.
Equity affiliate income was $38 million, compared with $59 million in the year-ago period. The decline was driven by lower earnings from the Kuwait joint ventures due to lower polyethylene pricing and increased turnaround costs.
Operating EBITDA was $993 million, down 24 percent from operating EBITDA of $1.3 billion in the year-ago period. Cost synergies, increased supply from growth projects and lower commissioning and startup costs were more than offset by margin compression across polyethylene products and reduced equity affiliate income.
- Net sales totaled $5.4 billion; a decline of 3 percent versus the year-ago period. Organic sales were flat with the year-ago period with strength in industrial, medical, life & personal protection, water and health & nutrition end-markets offsetting softness in automotive, smartphones and North America energy markets.
- Local price increased 3 percent with gains in all regions and most segments. Volumes declined 3 percent with decreases across all regions and most segments. Currency and portfolio were headwinds in the quarter, reducing sales by 2 percent and 1 percent, respectively.
- Operating EBITDA of $1.6 billion was flat with the year-ago period. Currency headwinds reduced operating EBITDA by 3 percent.
- Operating EBITDA margins expanded 90 bps as compared to first quarter 2018.
- Similar market conditions are anticipated in the second quarter. With the expected recovery of automotive and smartphone demand in the second half, the Specialty Products division confirms full-year guidance for net sales of about flat (up 2-3% organic) and operating EBITDA of slightly down (up 3-5% excluding impact of currency, anticipated declines in equity affiliate income and lower non-operating pension/OPEB benefits).
Electronics & Imaging
Electronics & Imaging reported net sales of $1.1 billion, down 7 percent from the year-ago period driven by volume and currency headwinds of 6 percent and 1 percent, respectively. Local price was flat with gains in the U.S. & Canada offset by declines in Asia Pacific and EMEA.
Organic sales growth in the U.S. & Canada and EMEA was more than offset by declines in Asia Pacific. Double-digit volume growth in Display Technologies was more than offset by declines in Interconnect Solutions and Photovoltaic and Advanced Materials. Soft smartphone demand, impacting both Interconnect Solutions and Semiconductor Technologies, and continued weakness in photovoltaics were the primary drivers of the volume decline.
Operating EBITDA for the segment was $385 million, a decrease of 3 percent from $398 million in the year-ago period. A gain on an asset sale and cost synergies were more than offset by higher unit cost, lower volumes and lower equity affiliate income.
Nutrition & Biosciences
Nutrition & Biosciences reported net sales of $1.7 billion, down 4 percent from the year-ago period. A 2 percent gain in local price was more than offset by headwinds from currency of 3 percent, volume of 2 percent and portfolio of 1 percent.
Volume gains in Nutrition & Health were more than offset by softer volumes in Industrial Biosciences. Nutrition & Health net volume gains were led by protein solutions and systems & texturants. Despite sequential growth from the fourth quarter 2018, probiotics realized a year-over-year volume decline due to higher than average sales in the first quarter of 2018. Industrial Biosciences volume declines were primarily the result of ongoing challenged conditions in U.S. energy markets negatively impacting demand in bioactives and microbial control.
Operating EBITDA for the segment was $390 million, down 7 percent from operating EBITDA of $418 million in the year-ago period on higher raw materials and a currency headwind, which more than offset cost synergy savings.
Transportation & Advanced Polymers
Transportation & Advanced Polymers reported net sales of $1.4 billion, down 5 percent from the year-ago period. Local price increases of 7 percent were more than offset by 9 percent lower volume and a 3 percent currency headwind.
Organic sales growth in the U.S. & Canada and EMEA was offset by declines in Asia Pacific.
Local price increased 7 percent, mainly within Engineering Polymers, reflecting tight polymer supply and higher feedstock costs. Local price improved in all regions, led by Asia Pacific and EMEA.
Volume declined 9 percent due to lower autobuilds year-over-year, continued de-stocking in the channel, and weaker electronics demand. Volume was down in all regions except the U.S. & Canada.
Operating EBITDA for the segment totaled $414 million, a decrease of 5 percent from $437 million in the year-ago period. Higher local price and cost synergies were more than offset by higher raw material costs, lower volumes and currency headwinds.
Safety & Construction
Safety & Construction reported net sales of $1.3 billion, up 2 percent from the year-ago period. Organic sales increased 8 percent driven equally by local price gains and higher volumes. The December 1, 2018 divestiture of the European STYROFOAM™ business reduced sales by 4 percent and currency was a 2 percent headwind.
Volume gains of 4 percent were driven by continued strength across industrial, life & personal protection and medical end markets, resulting in strong growth in the Water Solutions business, Tyvek® protective garments and Kevlar® high-strength materials, more than offsetting continued softness in North America residential construction demand. Volume increased in all regions.
Local price improved 4 percent with gains in all regions and across all lines of business, led by strength in Kevlar® and Nomex® fibers.
Operating EBITDA for the segment totaled $411 million, an increase of 16 percent from $354 million in the year-ago period. Cost synergies, local price gains, and higher volume drove the improvement, which more than offset higher raw material costs and a currency headwind.
- Net sales of $3.4 billion decreased 11 percent from the year-ago period. In the quarter, volume declined 7 percent, price increased 1 percent, and currency was a headwind of 5 percent, largely driven by the Euro, other Eastern European currencies and the Brazilian Real.
- In the United States, the effects of flooding in the western corn belt, as well as cold and wet weather throughout the rest of the country, delayed seed shipments into the second quarter and decreased sales of early season crop protection products. Volume declined 23 percent in the U.S. in the quarter and price was about flat relative to the year-ago period.
- Volume and price growth were generally strong outside of the U.S.
o Volume increased 7 percent in EMEA, 7 percent in Asia Pacific, and 1 percent in Latin America. Volume in Canada declined 2 percent.
o Price increased 6 percent in Latin America, 7 percent in Asia Pacific, 8 percent in Canada, and 1 percent in EMEA.
- Operating EBITDA of $667 million decreased 25 percent from the year-ago period, driven by the impact of decreased sales in the corn belt, which are expected to be largely recovered in the second quarter. Synergy benefits were more than offset by higher input costs and negative currency impacts.
Sales in Crop Protection decreased 5 percent with increased price of 3 percent more than offset by 2 percent lower volume and currency headwinds of 6 percent. All regions outside North America delivered strong volume gains. Severe weather-related disruptions in North America drove an overall net volume decrease of 2 percent. Volume gains in EMEA, Latin America and Asia Pacific were driven by strength in the insecticide portfolio.
Sales in Seeds decreased 15 percent. Volume decreased 10 percent, primarily driven by weather in the corn belt, delaying seed deliveries into the second quarter. Volume in the U.S. & Canada was also impacted by early deliveries of seed in the fourth quarter of 2018. Volume increases in EMEA were largely driven by favorable weather leading to a strong corn season. Currency negatively impacted sales by 5 percent and pricing was about flat.
The Agriculture division confirms full year guidance of operating EBITDA of about $2.8 billion. Sales are expected to be flat with organic sales up low single digits percent. The division expects to overcome the first half decline through realization of price and volume opportunities on high demand products and new product launches and accelerated cost synergy delivery, resulting in an improvement in second half performance versus prior year.
The Company will host a live webcast of its first quarter earnings conference call with investors to discuss its results and business outlook 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.
Dow will also hold a conference call for the first quarter of 2019, at 9 a.m. ET, to discuss the Materials Science Division’s financial results within DowDuPont as well as Dow’s outlook.