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Why DWDP’s Materials Science Segment EBITDA Margin Expanded in Q2

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Materials Science segment in Q2 2018

DowDuPont’s (DWDP) Material Science segment, which will be spun off and called Dow by the end of Q1 2019, accounted for 51.9% of DWDP’s total revenues in Q2 2018. In Q2 2017, this segment accounted for 51.6% of DWDP’s total revenue, a year-over-year decrease of 0.3 percentage points.

This segment reported revenue of $12.6 billion in Q2 2018, an increase of 17.6% on a year-over-year basis. In Q2 2017, this segment reported revenues of ~$10.7 billion on a pro forma basis.

The Materials Science segment revenue increase was primarily driven by double-digit growth across all the businesses under this segment. The Industrial Intermediates & Infrastructure segment led with growth of 29% followed by the Performance Materials & Coatings segment with revenue growth of 15%. Finally, the Packaging & Specialty business reported an increase of 12%.

Overall, the segment’s revenue growth was supported by 10.0% growth in volumes. Price increases helped boost these revenues by 5.0%, and the continued weakness in the US dollar pushed the revenues by 3.0%.

Segment’s EBITDA and margin

The Material Science segment’s EBITDA from all three businesses combined totaled ~$2.58 billion, a 21.75% increase on a year-over-year basis. The increase in EBITDA was primarily due to the rise in equity earnings driven by joint ventures, synergy impacts, improved pricing, and higher volumes. As a result, the segment reported an EBITDA margin of 20.5%, up from 19.8% in Q2 2017, which implies a margin expansion of 70 basis points on a year-over-year basis.

Outlook

The segment revenue is expected to continue its growth trend on higher volumes and increased prices. The segment’s EBITDA will likely continue to improve on the synergy impact and higher equity earnings from Sadara and other joint ventures.

Investors can indirectly hold DowDuPont by investing in the First Trust Indxx Global Agriculture ETF (FTAG), which invests 9.8% of its portfolio in DowDuPont. The fund also provides exposure to Deere (DE), CNH Industrials (CNHI), and FMC (FMC), which had weights of 9.5%, 3.5%, and 2.6%, respectively, on August 6.

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