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Can DowDuPont Beat Analysts’ Adjusted EPS Estimates in Q2 2018?

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DowDuPont’s Q2 2018 adjusted EPS estimate

DowDuPont (DWDP) is expected to post adjusted EPS of $1.30 in the second quarter of 2018. In Q2 2017, Dow Chemical reported adjusted EPS of $1.08, while DuPont reported adjusted EPS of $0.99. Since the merger, DowDuPont has outperformed analysts’ estimates, and this trend is likely to continue during this quarter as well. DowDuPont posted adjusted EPS of $1.12 in Q1 2018.

DowDuPont’s adjusted EPS is expected to be driven by the cost-saving synergy from the merger. The company expects the cost-saving synergy during the second quarter to be in the range of $325 million–$350 million. As a result, analysts have predicted DWDP’s COGS (cost of goods sold) in Q2 2018 to be at $16.19 billion, which represents 68.6% of the projected sales. The combined COGS of Dow Chemical and DuPont in the second quarter of 2017 was 70.4%, which implies a gain of 180 basis points on a YoY (year-over-year) basis.

Similarly, DowDuPont’s Q2 2018 SG&A (selling, general, and administrative) expenses are expected to be $1.78 billion, which represents 7.5% of the sales. In Q2 2017, the combined SG&A expenses as a percentage of sales stood at 10.4%, which implies a gain of 290 basis points YoY.

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Share repurchases

In Q1 2018, DowDuPont returned $1 billion to its shareholders through share buybacks. At the end of Q1 2018, DowDuPont had 2.33 billion common outstanding shares. It remains to be seen how many shares DWDP will buy back during the second quarter to improve earnings per share.

Investors looking for indirect exposure to DowDuPont can invest in the Materials Select Sector SPDR Fund (XLB). XLB invests 23.2% of its portfolio in DowDuPont. The fund also provides exposure to Sherwin-Williams (SHW), PPG Industries (PPG), and FMC (FMC) with weights of 5.2%, 4.8%, and 2.1% respectively, as of July 27, 2018.

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