Update on DowDuPont spin-off plans, Corteva Agriscience to sell some assets

Date:05-07-2018

DowDuPont Inc. is working on a series of deals to tighten the focus at two of the three spinoffs it plans for next year.

The company will divest as much 10 percent of the portfolio in specialty products, which will reclaim the DuPont name, Chief Executive Officer Ed Breen said on a conference call to discuss first-quarter earnings. The bulk of asset sales will happen after the unit is spun off as a separate company next year, although a few deals may precede that, he said.

"We do have some businesses we would like to exit, and get the cash for those and redeploy it in higher growth areas," Breen said. "We have that very defined."

The Corteva Agriscience unit also is reviewing its portfolio of seeds and pesticides, Chief Operating Officer Jim Collins said on the call. The company may sell some "tangential" crop seeds to focus on core products such as corn, soy, wheat and rice, he said. Divesting crop-protection chemicals that face generic competition would provide more cash to launch new products, he said.

DowDuPont fell 1.8 percent to $62.32 at 11:58 a.m. in New York, compared with a 1.1 percent decline in the Dow Jones Industrial Average, where DowDuPont is a member. Through Wednesday, shares declined 4.7 percent since Aug. 31 when the merger was completed.

Cost Cutting

In addition to portfolio changes, Breen is driving $3.3 billion of cost cuts as the combined Dow Chemical Co. and DuPont Co. prepare for a three-way split next year. "Robust" end-market demand make Breen "highly confident" that DowDuPont will meet analyst expectations for full-year earnings, he said. He issued second-quarter guidance that exceeded analyst estimates.

DowDuPont plans to separate into three companies by June 1 next year. The materials-science business that churns out plastic will reclaim the Dow name and lead the spinoffs at the end of March. That will be followed by the separations of Corteva Agriscience and the DuPont specialty products business.

More details about the three spinoffs will be revealed during investor presentations in September or October, Breen said. The CEO said he will remain at the company through the spinoff process and will stay "actively involved" after the separations. He declined to elaborate on his involvement, saying management positions will be announced in the August-September timeframe.

Earnings Forecast

DowDupont expects second-quarter sales in its combined businesses to increase about 14 percent to a range of $23.3 billion to $24 billion. Operating earnings will climb about 23 percent to between $5.3 billion and $5.5 billion. Analysts had predicted second-quarter revenue at $22.4 billion and earnings at $5.18 billion, according to the average of estimates compiled by Bloomberg.

First-quarter adjusted earnings rose to $1.12 a share, beating the $1.09 average of analysts' estimates. Gains at the Dow materials science unit and the DuPont specialty products business more than made up for weak results at Corteva Agriscience. Revenue rose 5 percent on a pro forma basis to $21.5 billion, compared with the $21.4 billion analysts expected.

Earnings in the Dow businesses climbed 23 percent as rising oil prices boosted profit at the chemical giant's plastics unit. A recovery in the crude market is driving up global plastic prices as producers who use oil-based raw materials try to recoup escalating costs.

That's a boon for U.S. producers, who can turn to cheaper natural gas liquids produced domestically, such as ethane, a byproduct of the shale boom. To capture that profit-margin advantage, DowDuPont's Dow unit has invested billions of dollars on new and expanded factories in the U.S. that convert ethane into ethylene and polyethylene plastics.

Earnings at DuPont specialty products rose 25 percent, with gains notched in all four units.

Agriculture Rebound

Profit in the Corteva agriculture business plunged 39 percent as cold weather delayed the start of the planting season, reducing sales volumes. Earnings will bounce back in the second quarter by a percentage in the high 30s, the company said.

The company in March named Chief Operating Officer Jim Fitterling as the CEO of the Dow spinoff, succeeding Andrew Liveris, who also stepped down as chairman of DowDuPont on April 1. Liveris plans to leave the board on July 1, when he will become a director at Saudi Aramco, helping the world's biggest crude exporter expand its business in chemicals.

The CEOs of the other two spinoff companies, Corteva and DuPont, have yet to be named.