Why Dow’s Agricultural Sciences Segment Revenue Fell in 1Q17



Dow Chemical’s Agricultural Sciences segment revenue in 1Q17

Dow Chemical’s (DOW) Agricultural Sciences segment is the lowest revenue contributor to DOW’s overall revenue with a revenue share of ~11.9% in 1Q17. Agricultural Sciences reported revenue of $1.57 billion in 1Q17, a 4.7% fall year-over-year compared to $1.65 billion in 1Q16.

DOW’s Agricultural Sciences segment reported an operating EBITDA (earnings before interest, tax, depreciation, and amortization) of $351.0 million in 1Q17, a fall of 12.9% year-over-year compared to $403.0 million in 1Q16. Agricultural Sciences’ operating margin fell 210 basis points to 22.4% compared to 24.5% year-over-year.

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Driving factors

Agricultural Sciences’ revenue fell primarily due to the lower volumes in the crop protection business with lower demand for herbicides and insecticides in Asia-Pacific. The 2016 floods in China led to high channel inventories, which adversely affected sales.

In the seed business, the demand for corn seeds fell in North America due to reduced acreage. On the other hand, DOW successfully launched Enlist cotton seed, which is expected to drive volumes as growers adapt to the new product.

Segment’s outlook

New products Arylex, Isoclast, and Enlist cotton are expected to drive volumes as growers adapt to these new products. However, the segment’s volume may be affected with the lower projection of acreage rotation from corn to soybeans in the United States. The problem of high channel inventory is expected to drag volumes in Asia.

You can indirectly hold Dow Chemical by investing in the iShares US Basic Materials (IYM), which has invested 11.6% of its portfolio in Dow Chemical. The other top holdings of the fund include DuPont (DD), Monsanto (MON), and Praxair (PX) with weights of 11.4%, 8.4%, and 5.8%, respectively as of April 27, 2017.

In the next part of this series, we’ll analyze the 1Q17 performance of Dow Chemical’s Consumer Solutions segment.


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