uploads///DWDP Q  Agriculture

What Drove DowDuPont’s Agriculture Segment Revenue Higher in Q2?

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Aug. 7 2018, Updated 4:50 p.m. ET

Agriculture segment in Q2 2018

DowDuPont’s (DWDP) Agriculture segment accounted for 23.6% of DWDP’s Q2 2018 revenues compared to 22.2% in Q2 2017 on a pro forma basis. This segment reported revenues of $5.73 billion in Q2 2018, an increase of 24.7% on a year-over-year basis. In Q2 2017, the segment reported revenue of $4.6 billion.

The Agriculture segment revenue growth was primarily driven by higher volumes, which grew by 20%. Local price growth helped revenues to grow by 4%, while favorable foreign exchange helped revenues grow by 1%.

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The agriculture segment volume grew primarily because of the sales push over from the previous quarter. There was a delay in corn sowing in North America and Brazil due to low soil temperatures. By business, crop protection grew by 7% and clocked revenues of $1.9 billion. The growth was driven by the strong demand for Spinosyn insecticide and new product launches. The seeds business grew by 35% to $3.9 billion.

Segment’s EBITDA and margin

DowDuPont’s (DWDP) Agriculture segment reported EBITDA of $1.68 billion in Q2 2018, an increase of 44.6% over the previous year. On a pro forma basis, the segment reported EBITDA of $1.16 billion in Q2 2017.

This increase in EBITDA resulted from higher volumes, a higher selling price, cost synergies, favorable currency, and lower pension costs, while higher soybean royalty costs and an increase in R&D expenses had an adverse impact. The overall increase in the segment’s EBITDA resulted in the expansion of the segment’s EBITDA margin. The segment EBITDA margin stood at 29.4% as compared to a pro forma EBITDA margin of 25.4% in Q2 2017, an increase of 400 basis points on a year-over-year basis.

Outlook

The segment’s revenue is expected to grow in the mid-single digits driven by higher pricing and new launches. EBITDA is expected to rise on cost synergies. However, the currency might have an adverse impact due to the strong dollar.

Investors can indirectly hold DowDuPont by investing in the iShares Edge MSCI Multifactor Materials ETF (MATF), which has invested 21.9% of its portfolio in DWDP. The fund also provides exposure to LyondellBasell (LYB), PPG Industries (PPG), and Eastman Chemical (EMN). These stocks have weights of 8.0%, 6.7%, and 4.4%, respectively, as of August 6.

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