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Can DowDuPont Beat Analysts’ Earnings Estimates in 3Q17?

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Analyst expectations for DowDuPont’s 3Q17 earnings

As of October 24, 2017, analysts are expecting DowDuPont (DWDP) to post adjusted earnings per share of $0.40 in 3Q17. In 3Q16, Dow Chemical reported adjusted earnings per share of $0.91 while DuPont reported adjusted earnings per share of $0.34. It remains to be seen whether DWDP can manage to beat analysts’ earnings per share estimates.

With the merger, Dow chemical shareholders received one share of DowDuPont for every one share of Dow Chemical, while DuPont shareholders received 1.3 DowDuPont shares for every one share of DuPont. As a result, the number of outstanding shares in DWDP is expected to be at approximately 2.4 billion. It’s not clear yet whether DWDP will initiate share repurchases that could help to improve its earnings per share.

Will there be any synergy impact this quarter?

It will be interesting to see whether DWDP has initiated cost savings measures to kick-start the synergy effect. Analysts have projected DWDP’s selling, general, and administrative (or SG&A) expenses to be at $1.7 billion, representing 9.5% of the expected revenue. However, it should be noted that in 3Q16, Dow Chemical and DuPont reported their SG&A expenses to be at 6.9% and 20.7% of revenues, respectively.

Similarly, analysts are expecting DWDP to report the 3Q17 cost of goods sold (or COGS) to be at 68.7% of the expected revenue. In 3Q16, Dow Chemical’s COGS stood at 77.1%, while DuPont’s COGS was at 62.8% of the revenue. It remains to be seen whether DWDP can beat the analysts’ estimate and help to improve the margins.

Investors looking for indirect exposure to DowDuPont can invest in the First Trust Indxx Global Agriculture ETF (FTAG), which has invested 10.5% of its portfolio in DWDP. The fund also provides exposure to Monsanto (MON), Deere (DE), and PotashCorp (POT), which have weights of 9.8%, 4.9%, and 3.1%, respectively, as of October 24, 2017.

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