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DowDuPont, Air Products, Celanese, and Ashland see earnings accelerate

Fourth-quarter results show strong demand, resurgence in global economy

by Melody M. Bomgardner
February 1, 2018 | A version of this story appeared in Volume 96, Issue 6

Fourth-quarter earnings

Sales and earnings up sharply amid global demand nm = not meaningful due to net losses.
Note: DowDuPont results for 2016 are pro forma
This chart shows percent increases in sales and earnings for the fourth quarter of 2017 for Air Products, Ashland, Celanese, and DowDuPont.
Sales and earnings up sharply amid global demand nm = not meaningful due to net losses.
Note: DowDuPont results for 2016 are pro forma

There was hardly enough time in DowDuPont’s Feb. 1 conference call with analysts for the firm’s leaders to squeeze in all the good news they wanted to share.

The firm’s fourth quarter sales volumes and prices rose dramatically compared to the prior year period and earnings grew by over 45%. Moreover, it found more merger-related cost savings, and expects to benefit from lower U.S. taxes.

“This has been a breakthrough year for DowDupont stockholders,” said Executive Chairman Andrew N. Liveris. “For first time in many years we’re seeing broad-based, synchronous growth around the world.”

Since DowDuPont has so many businesses, it was able capture growth in demand for semiconductors, nutritional ingredients, construction chemicals, and automotive materials. In 2018, the company expects sales of those products to increase at a rate higher than average global growth and says its profit margins will also expand.

While the market for agricultural commodities is still slow, Dow and DuPont’s combined seeds and crop protection businesses saw sales expand by 5% while profits doubled.

DowDuPont’s earnings per share of 83 cents handily beat analyst expectations by 12 cents. But according to Vincent Andrews, stock analyst at investment bank Morgan Stanley, the firm’s diverse businesses are a drag on its stock price. He explains that investors are anxious to get the merger cost savings on the books and move on to the planned spin-offs into agriculture, materials science, and specialty products companies.

For those shareholders, DowDuPont CEO Ed Breen had good news—the spin-off timing has advanced by approximately 6 months, with materials science being the first to go at the end of the first quarter in 2019. Meanwhile, Breen upped the firm’s expected cost savings by 10% to $3.3 billion, based on expected efficiencies in procurement.

The cherry on top of the earnings call for investors was that Breen said he is open to selling some lower-margin stand-alone nutrition and health businesses.

Air Products, Ashland, and Celanese also released fourth-quarter results and all reported higher sales and earnings compared to the prior year. At Celanese, CEO Mark Rohr reported the company’s 2017 operating profit was $901 million—its second highest ever—thanks mainly to growth in the firm’s engineering polymers business. He forecasts earnings per share would grow by 10-14% in 2018.

At Ashland, sales growth in the firm’s composites and intermediates businesses topped 30%, helping the company reduce its net loss from continuing operations from $65 million in last year’s fourth-quarter to $7 million.

Chemical executives are working the effects of the Tax Cuts and Jobs Act of 2017 into their outlooks. DowDuPont expects its tax rate to decline by 1 to 2%, Celanese estimates a 2% reduction, while Air Products expects to benefit but has not quantified the amount.

In contrast, Ashland will see its effective tax rate rise as it repatriates overseas cash over the next eight years.


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