DowDupont: Higher Costs for Raw Materials for Remainder of 2018

DowDupont announced that it is expecting higher costs for raw materials will hit all units it has for the remainder of this year, even as an increase in its agriculture business was able to help the chemicals producer, based in the U.S., beat Wall Street expectations for the fourth consecutive quarter.

Shares were down 3% for DowDupont on the news. CFO Howard Ungerleider said that that there were some headwinds and most notably fluctuations in currency, particularly in the area of agriculture, and higher costs of raw materials across each of the three divisions.

The two chemical giants completed their merger of $130 billion last September to create DowDupont. Three separately traded companies will be created in 2019, splitting into businesses that look at plastics, agriculture and specialty products.

During a conference call CEO Ed Breen told analysts that trade tensions increased volatility in commodity prices in the agriculture sector. He added that soybean exports from the U.S. that are normally heading to China are now being shifted to other nations.

In July, Washington placed tariffs on Chinese imports worth $34 billion. In return, Beijing put its own tariffs on products worth the same arriving from the U.S., including sorghum and soybeans. Traders in turn rushed their shipments of soy from the U.S. to China prior to the tariffs taking effect July 6.

However, DowDupont, which has operations around the world and often will source materials locally, does not expect any impact related to tariffs on its overall business in 2018.

Total sales for the largest generator of revenue for the company, its materials science business that makes chemicals that are used in packaging materials, cosmetics, and brake fluids, increased by 18% to end the second quarter at $12.6 billion.

Sales from the agricultural segment were up 25% to end the quarter just below $5.7 billion. Cold weather across the northern hemisphere pushed demand for the seeds the company sells into May from the normal April.

The agricultural unit, which prior to now has been a weak spot, has struggled because of a grains glut industry wide that led to less demand.

Overall prices, said the company were higher by 4% during the quarter, including an increase of 5% in material science business and a price increase of 4% in agriculture.

Net sales were up 17% to end the quarter at $24.2 billion. Adjusted earnings reached $1.37 a share, above the $1.30 a share expected by analysts.

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