Third Quarter 2017 Highlights
“We delivered top- and bottom-line growth in the third quarter – a solid start for our newly-formed company. Our operating earnings increase was the result of broad-based demand growth in most of our core end-markets and disciplined margin management, which more than offset several headwinds, from multiple hurricanes to higher feedstock costs and a delayed start to the summer agriculture season in Brazil,” said Ed Breen, chief executive officer of DowDuPont. “Moreover, we delivered these results while advancing several value-creating initiatives, including: closing the merger, completing our comprehensive portfolio review, and defining the new synergy targets for each division. Going forward, you should expect us to remain focused on executing on our $3 billion cost synergy commitment and advancing preparations to create three focused growth companies in Agriculture, Materials Science, and Specialty Products.”
Third Quarter Segment Information
The segment reported pro forma net sales of $1.9 billion, down from $2.0 billion in the year-ago period. Pro forma volume and pro forma local price declines of 5 percent and 4 percent, respectively, more than offset portfolio and currency benefits.
Volume and pricing headwinds were driven by weakness in Latin America as sales channels continue to hold high inventory levels of crop protection products. Additionally, an expected reduction in corn area in Brazil, as well as a delayed start to its summer season, impacted sales in the region. These headwinds were partly offset by continued penetration of new products, including ArylexTM herbicide, Vessarya® fungicide, Leptra® corn hybrids and IsoclastTM insecticide
Portfolio gains in the quarter reflect the Dow AgroSciences corn seed remedy in Brazil, which is expected to close in the fourth quarter. Per Securities & Exchange Commission guidelines, the results of the Brazil corn remedy have been removed from pro forma results prior to the merger close date but will remain in reported results from the merger close date until the transaction has closed.
Pro forma operating EBITDA for the segment was a loss of $239 million, versus a loss of $172 million in the year-ago period. Lower product costs, favorable currency, portfolio changes and lower pension/OPEB costs were more than offset by reduced volume and price, particularly due to weakness in Brazil.
Performance Materials & Coatings
Performance Materials & Coatings reported pro forma net sales of $2.2 billion, up from $2.0 billion in the year-ago period. Pro forma net sales growth of 8 percent was primarily driven by gains in both businesses as well as double-digit growth in EMEA. Pro forma local price increased 6 percent, with gains in all geographies and both businesses. Pro forma volume grew 1 percent.
Consumer Solutions delivered sales growth in all businesses, led by volume gains in most geographies, increased local pricing and disciplined price/volume management in upstream silicone intermediate products. Coatings & Performance Monomers achieved higher sales, as local price increases in all geographies more than offset a modest decline in volume due to hurricane-related lost sales and the business’s actions to preferentially shed lower margin business.
Pro forma operating EBITDA increased to $487 million, up from $345 million in the year-ago period. The increase primarily reflected the continued realization of cost synergies related to the integration of the silicones business, increased pricing and consumer demand.
Pro forma equity earnings for the segment totaled $39 million, compared with $31 million in the yearago period.
Industrial Intermediates & Infrastructure
Industrial Intermediates & Infrastructure reported pro forma net sales of $3.2 billion, up from $2.8 billion in the year-ago period. The segment achieved pro forma net sales growth of 16 percent, with gains in all geographies. Pro forma local price rose 12 percent. Pro forma volume grew 3 percent.
Polyurethanes & Chlor-Alkali and Vinyl (CAV) grew sales on double-digit gains in all geographies. Polyurethanes reported strong demand and price increases in downstream, higher-margin systems applications and higher merchant sales of methylene diphenyl diisocyanate (MDI) where industry supply/demand fundamentals remained tight, in part due to hurricane-related supply disruptions in the United States. CAV achieved double-digit sales gains in vinyl chloride monomer and caustic soda, resulting from tighter supply/demand fundamentals, especially in EMEA. Industrial Solutions also delivered sales gains, led by glycol ethers, ethylene glycol and oxo alcohols in consumer-driven market segments of electronics processing and food and pharmaceutical applications. These gains more than offset lower sales of heat transfer fluids in project-driven concentrated solar power applications and hurricane-related supply constraints. Construction Chemicals achieved sales growth driven by demand for methyl cellulosics in EMEA and acrylics-based products in North America. Energy Solutions reported lower sales from reduced project activity in energy market sectors, in part due to hurricane-related disruptions in the United States.
The segment achieved pro forma operating EBITDA of $676 million, up from $401 million in the yearago period, as pricing momentum, higher equity earnings and broad-based demand growth more than offset the impact of higher raw material costs, as well as hurricane-related repair costs and lost production in North America.
Pro forma equity earnings for the segment totaled $41 million, compared with a pro forma equity loss of $7 million in the year-ago period. The improvement was driven by the Kuwait joint ventures as a result of higher monoethylene glycol (MEG) pricing.
Packaging & Specialty Plastics
The Packaging & Specialty Plastics segment reported pro forma net sales of $5.5 billion, up from $5.1 billion in the year-ago period. The segment achieved pro forma net sales growth of 8 percent, primarily driven by pro forma volume growth of 6 percent, with gains in most geographic areas. Pro forma local price rose 1 percent, led by higher cracker co-product values.
The Packaging and Specialty Plastics business grew volume on continued consumer-led demand across key end-markets, driven by higher sales in Asia Pacific and EMEA, which were primarily enabled by a ramp-up in Sadara volume. Notable demand highlights included double-digit volume growth in health and hygiene end-markets in the Americas; strong demand in food and specialty packaging solutions, particularly in Asia Pacific; and greater use of elastomers in packaging and footwear applications. Polyethylene and ethylene copolymers sales volume in North America and Latin America declined year-over-year, impacted by the hurricane-related production disruptions in the United States. Sales into wire and cable applications were impacted globally as a result of hurricanerelated supply limitations at the business’s assets in Texas.
Pro forma operating EBITDA for the segment was $1.1 billion, down from $1.4 billion in the year-ago period. Volume growth, local price gains and higher equity earnings were more than offset by increased feedstock costs, hurricane-related repair costs and lost production in the United States, and commissioning and startup costs for the U.S. Gulf Coast growth projects.
Pro forma equity earnings for the segment were $66 million, up from $44 million in the year-ago period, primarily driven by improved Sadara contributions on higher sales of polyethylene.
Electronics & Imaging
Electronics & Imaging delivered pro forma net sales of $1.2 billion, up from $1.1 billion in the year-ago period. Pro forma net sales growth of 5 percent was led by pro forma volume gains of 13 percent, which more than offset pro forma local price decline of 2 percent and a 6 percent negative pro forma impact from portfolio. Price declines were driven by pressure in photovoltaics and advanced printing applications.
The segment achieved broad-based volume growth across key end-markets, led by double-digit gains in semiconductor, consumer electronics, industrial, photovoltaics and display end-markets across almost all geographies, primarily in Asia Pacific. Continued demand for mobile phones and other consumer electronics, as well as automotive applications drove sales gains. Increased semiconductor content in end-use applications drove strong demand in both memory and logic market segments. Growth in photovoltaics led by demand for Tedlar® film was partially offset by declines in Solamet® paste. The portfolio impact from the sales of Display Films and the Authentications business also negatively impacted results.
Pro forma operating EBITDA for the segment was $382 million, up from $341 million in the year-ago period as broad-based volume growth, mix enrichment and lower pension/OPEB costs more than offset lower local price and a negative impact from portfolio.
Nutrition & Biosciences
Nutrition & Biosciences reported pro forma net sales of $1.5 billion, flat with the year-ago period. Pro forma net sales were even as a 1 percent benefit from currency was offset by a 1 percent negative impact from portfolio.
Sales growth in Industrial Biosciences was offset by declines in the Nutrition & Health business. Industrial Biosciences gains were led by double-digit growth in demand for microbial control solutions in energy markets in North America, continued growth in biomaterials on local pricing gains and strength in apparel markets, as well as increased demand for bioactives in animal nutrition markets. In Nutrition & Health, continued growth in probiotics was more than offset by declines in protein solutions and systems and texturants due to weakness in global packaged food markets and specific actions taken to exit low-margin market segments. The negative portfolio impact was driven by the sale of the Diagnostic business, which also impacted Nutrition & Health results.
Pro forma operating EBITDA for the segment was $315 million, down from $321 million in the yearago period as growth in Industrial Biosciences and lower pension/OPEB costs were more than offset by declines in Nutrition & Health.
Transportation & Advanced Polymers
Transportation & Advanced Polymers achieved pro forma net sales of $1.3 billion, up from $1.2 billion in the year-ago period. Pro forma net sales grew 9 percent, led by pro forma volume growth of 5 percent as well as pro forma local price gains of 3 percent, with gains in most geographies. Growth was led by strong demand from the automotive market, particularly in Asia Pacific and EMEA, and demand from electronics and industrial markets.
Volume growth was driven by strength in the automotive market as demand for engineering polymers, structural adhesives and MolyKote® lubricants outpaced global autobuild rates. Volume gains were also achieved by Kalrez® and Vespel® high-performance parts as strength in the aerospace and electronics markets remained robust.
Pro forma operating EBITDA increased to $325 million, up from $303 million in the year-ago period. Volume and pricing gains and lower pension/OPEB costs more than offset higher raw material costs.
Safety & Construction
The Safety & Construction segment reported pro forma net sales of $1.3 billion, up from $1.2 billion in the year-ago period. The segment delivered pro forma net sales growth of 6 percent, driven by a pro forma volume increase of 6 percent, with gains in all geographies. Regionally, volume gains came from Nomex® thermal apparel in North America, Kevlar® high-strength materials in Asia Pacific and Latin America, and Tyvek® protective materials for graphics and house wrap in EMEA and Asia Pacific
Stronger demand from industrial markets, particularly oil and gas, contributed to double-digit gains in Nomex® thermal-resistant garments and mid-single-digit gains in Kevlar® high-strength materials, including umbilicals for deep sea drilling, as well as higher sales of intermediates. Mid-single-digit gains in Tyvek® protective materials reflected growth in graphics and house wraps. Double-digit volume increases in water filtration reflected gains in reverse osmosis membranes, due to strong demand from industrial markets, as well as recent capacity increases. Building solutions sales rose modestly due to local price.
Pro forma operating EBITDA rose to $351 million, compared with $282 million in the year-ago period. Volume gains, lower pension/OPEB costs and improved plant performance more than offset the impact of higher raw material costs. The segment also benefited from one-time gains of $30 million, primarily associated with the benefit related to an acquisition.
“Consumer-led demand continues to drive global economic activity, which remains robust across most major economies, including Europe, China and the United States. Our demand outlook is positive for the majority of our key end-markets,” said Andrew Liveris, executive chairman of DowDuPont. “We still see some market headwinds, the most notable for us being in agriculture where we continue to closely monitor the situation in Brazil due to the slow start to the summer season. But we remain confident that we will have a solid year across our newly combined Ag division.
“Looking forward, DowDuPont has all the levers it needs to execute our near-term priorities: delivering earnings and cash flow growth; executing our cost synergy actions and realizing the savings; advancing stand-up activities for the intended growth companies; and unlocking the shareholder value creation envisaged through this historic transaction.”
The Company will host a live webcast of its third quarter earnings conference call with investors to discuss its results, business outlook and other matters 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.
DowDuPont (NYSE: DWDP) is a holding company comprised of The Dow Chemical Company and DuPont with the intent to form strong, independent, publicly traded companies in agriculture, materials science and specialty products sectors that will lead their respective industries through productive, science-based innovation to meet the needs of customers and help solve global challenges. For more information, please visit us at www.dow-dupont.com.
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On December 11, 2015, The Dow Chemical Company (“Dow”) and E. I. du Pont de Nemours and Company (“DuPont”) announced entry into an Agreement and Plan of Merger, as amended on March 31, 2017, (the “Merger Agreement”) under which the companies would combine in an all-stock merger of equals transaction (the “Merger Transaction”). Effective August 31, 2017, the Merger Transaction was completed and each of Dow and DuPont became subsidiaries of DowDuPont Inc. (“DowDuPont”). For more information, please see each of DowDuPont’s, Dow’s and DuPont’s latest annual, quarterly and current reports on Forms 10-K, 10-Q and 8-K, as the case may be, and the joint proxy statement/prospectus included in the registration statement on Form S-4 filed by DowDuPont with the SEC on March 1, 2016 (File No. 333- 209869), as last amended on June 7, 2016, and declared effective by the SEC on June 9, 2016 (the “Registration Statement”) in connection with the Merger Transaction.
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