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DowDuPont (DWDP) Q3 Earnings Preview: What to Expect?

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DowDuPont Inc. is set to release its third-quarter 2017 results ahead the bell on Nov 2.

DowDuPont was formed through the $130 billion mega-merger of chemical giants, The Dow Chemical Company and E.I. du Pont de Nemours & Company (DuPont). The merger, which was closed on Aug 31, is projected to deliver cost synergies of around $3 billion and growth synergies of roughly $1 billion. This will mark the combined company’s first post-merger earnings report.

DowDuPont has underperformed the industry it belongs to since it started trading on the NYSE on Sep 1. The company’s shares have gained around 6.7% over this period, compared with roughly 9.9% gain recorded by the industry.


 

Let’s see how things are shaping up for this announcement.

Factors to Consider

DowDuPont is presently operating with three divisions – Agriculture, Materials Science and Specialty Products. The company would eventually break up into three independent companies. The breakup is expected to take place within 18 months of the merger closing.

DowDuPont recently provided its expected results for the third quarter of 2017. The company said that it expects adjusted earnings per share of 55 cents for the quarter, up 10% from the prior-year quarter. On a reported basis, the company sees earnings of 32 cents per share.

Adjusted earnings for the third quarter exclude integration and separation costs, restructuring and asset-related charges, a tax related charge, amortization of DuPont's intangible assets and a gain from the sale of the ethylene acrylic acid copolymers and ionomers business.

The company also envisions net sales (on a reported basis) to be $15.4 billion and adjusted net sales to be $18.3 billion (up 8% year over year) for the third quarter. DowDuPont noted that sales benefited from higher pricing and volumes in the quarter. The Zacks Consensus Estimate for revenues for the third quarter stands at $17,501 million.

DowDuPont noted that it results in the third quarter benefited from solid demand in most of its core end-markets, higher prices and increased equity earnings. These more than offset increased feedstock costs, weak agriculture market conditions and unfavorable impacts of hurricanes Harvey and Irma. The agriculture market faced challenges from expected lower planted corn area and a delayed start to the Brazil summer season.

Earnings Whispers

Our proven model does not conclusively show that DowDuPont is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) 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:

Zacks ESP: The Earnings ESP for DowDuPont is +23.60% as the Most Accurate estimate stands at 55 cents while the Zacks Consensus Estimate is pegged at 45 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Zacks Rank:
DowDuPont carries a Zacks Rank #5 (Strong Sell). 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 to Consider

Here are some other companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Westlake Chemical Corporation (WLK - Free Report) has an Earnings ESP of +1.08% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

CF Industries Holdings, Inc. (CF - Free Report) has an Earnings ESP of +1.83% and a Zacks Rank #2.

Ingevity Corporation (NGVT - Free Report) has an Earnings ESP of +2.94% and sports a Zacks Rank #2.

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