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DWDP’s Material Science Segment: Higher Revenue Growth in 1Q18

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Materials Science segment in 1Q18

DowDuPont’s (DWDP) Material Science segment, which is expected to be spun off into a new company by the end of 1Q19, accounted for 55.9% of its total revenues. In 1Q17, this segment accounted for 50.3% of its revenues, a year-over-year increase of 5.6%. 

This segment reported revenues of $12.0 billion, an increase of 16.9% on a year-over-year basis. In 1Q17, this segment reported revenues of ~$10.3 billion on a pro forma basis.

This increase in segment revenues resulted from the strong double-digit growth seen in all businesses in this segment. The Performance Materials & Coatings business grew 12.0%, driven by higher volume growth due to continued higher demand.

The Industrial Intermediates and Infrastructure business’s revenues grew 30.0% owing to new client wins and higher pricing. The new capacity at Sadara also pushed this growth. The Packaging & Specialty Plastics business grew 12.0% due to higher volume growth in the food and specialty, industrial and consumer, and rigid packaging end markets.

Overall, the segment’s revenue growth was supported by 8.0% growth in volumes. Price increases helped grow these revenues by 5.0%, and continued weakness in the US dollar pushed these revenues by 4.0%.

Segment’s EBITDA margins

The Material Science segment’s EBITDA[1. earnings before interest, taxes, depreciation, and amortization] from all three businesses combined totaled ~$2.6 billion, a 22.6% increase on a year-over-year basis. The increase in EBITDA was primarily due to an increase in equity earnings, synergy impacts, improved pricing, and higher volumes. As a result, the segment reported an EBITDA margin of 21.5%, up from 20.5% in 1Q17. This implies a margin expansion of 100 basis points on a year-over-year basis.

Outlook

The Material Science segment is expected to continue its revenue growth, driven by higher volume growth and improved prices. EBITDA margins could still be under pressure due to an increase in raw material costs. However, cost synergies could overcome this challenge and improve the EBITDA margins.

Investors can indirectly hold DowDuPont by investing in the First Trust Indxx Global Agriculture ETF (FTAG), which invests 9.1% of its portfolio in DowDuPont. The fund also provides exposure to Monsanto (MON), Deere (DE), and FMC (FMC), which had weights of 10.4%, 4.0%, and 2.3%, respectively, on May 4.

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