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Why Dow’s Agricultural Sciences Segment’s Revenue Rose in 4Q16

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Jan. 31 2017, Updated 1:35 p.m. ET

Agricultural Sciences segment’s revenue

Dow Chemical’s (DOW) Agricultural Sciences segment reported revenue of $1.7 billion in 4Q16, a rise of 7% year-over-year (or YoY) compared to $1.6 billion in 4Q15.

The contribution from the Agricultural Sciences segment to DOW’s total revenue stood at 13.2% in 4Q16, compared to 14% in 4Q15, mostly due to a 14% rise in its total revenue.

DOW’s Agricultural Sciences segment reported an operating EBITDA (earnings before interest, tax, depreciation, and amortization) of $239 million in 4Q16, a rise of 8.6% YoY compared to $220 million in 4Q15. The segment’s operating margin also expanded to 13.9% compared to 13.7% YoY.

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Driving factors

DOW’s Agricultural Sciences segment’s revenue rose for two important reasons. First, increased sales volumes in corn seeds and new crop protection products such as Arylex herbicide and Isoclast insecticide contributed to volume growth. Second, DOW managed to increase the price of corn seeds.

Dow’s Agricultural Sciences segment’s EBITDA margin growth was primarily driven by improved productivity actions and cost-saving initiatives.

Segment’s outlook

DOW’s Agricultural Sciences segment is poised for some exciting growth, with Arylex herbicide awaiting to be launched in countries such as Canada, Australia, and the European Union. Further, DOW has received approval from the EPA (Environmental Protection Agency) to expand its Enlist herbicide to 34 states from 15 states. These 34 states cover the majority of cotton, corn, and soybean growing areas.

Investors can indirectly hold Dow Chemical by investing in the Materials Select Sector SPDR ETF (XLB), which invested 11.9% of its portfolio in DOW as of January 27, 2017. The other top holdings of the fund include DuPont (DD), Monsanto (MON), and Praxair (PX) with weights of 11.7%, 8.3%, and 5.9%, respectively, as of January 27, 2017.

In the next article, we’ll analyze the performances of Dow Chemical’s Consumer Solutions segment in 4Q16.

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