DowDuPont Inc warned that it expects profit to fall this year amid a slowdown in China and Europe, triggering the biggest stock rout since the 2017 merger that created the US chemical colossus.
The weakening global outlook comes just as the company prepares to split itself into three.
Operating earnings for the combined businesses this year would be “slightly down” and sales would be “about flat,” DowDuPont said on Thursday as it released results for the fourth quarter last year.
The company also forecast that sales and profit would decrease in the first quarter, while analysts had expected significant gains.
China is the main source of the weakness, amid falling demand for materials used in autos and smart phones, DowDuPont chief executive Ed Breen said on a conference call.
European demand is also soft and there is some weakness in the US housing market, he said, adding that markets should normalize in the second quarter as customers use up inventories and homebuilding rates improve.
“We expect global economic expansion to continue in 2019 at a moderately slower pace than 2018,” chief financial officer Howard Ungerleider said in an earnings statement.
“We continue to closely monitor macroeconomic and geopolitical developments, including ongoing trade negotiations and the pace of economic activity in China,” he said.
In only two months, DowDuPont plans to spin off its materials science operation as the new Dow, a global leader in plastics for packaging. That is to be followed on June 1 by the separation of the firm’s Corteva agriculture business, leaving behind a standalone DuPont focused on specialty products, such as Kevlar and automotive plastics.
The shares fell 8.2 percent to US$54.01 at 1:37pm in New York after sliding as much as 9.5 percent, the biggest decline since Dow and DuPont combined to create the world’s largest chemical company.
The stock was the worst performer on the Dow Jones Industrial Average, dragging the index to a slight loss.
By creating more focused companies, Breen intends to increase shareholder value, but the shares have not responded to the plan.
DowDuPont fell 22 percent in the 12 months through Wednesday, compared with a 5.1 percent decline in the Standard & Poor’s 500 index.
The anticipated decline in full-year earnings is due in part to lower prices for materials used in electronics, rising raw material costs, a strengthening US dollar and lower joint venture earnings, the company said.
Currency pressures, particularly a weaker Brazilian real and euro, are expected to wipe out the benefit of slightly higher prices and sales volumes.
“We remain focused on the actions in our control, including capitalizing on our growth investments, capturing cost synergy savings, delivering productivity actions and advancing our spin milestones,” Ungerleider said.
First-quarter sales will drop by a percentage in the mid-single digits, with a larger decline expected in the Dow materials science unit, a company slide presentation said.
Operating earnings before interest, taxes, depreciation and amortization (EBITDA) are expected to drop by a percentage in the low tens, led by a larger decline in materials science.
The company said that it expects first-quarter operating EBITDA of US$4.2 billion to US$4.4 billion, while analysts on average estimated US$5.31 billion.
Sales will be US$20 billion to US$20.5 billion, DowDuPont said, trailing analysts’ US$22.6 billion average estimate.
Amid the disappointing guidance, DowDuPont posted adjusted earnings of US$0.88 per share last quarter, beating expectations by US$0.01.
Earnings rose in each of the four DuPont specialty products divisions, while they declined in the two largest Dow materials science units. Sales were flat, missing expectations, as currency changes offset the 1 percent gains seen in volumes and average prices.
Profit margins for making polyethylene plastic, the biggest division at the pending Dow spinoff, tumbled in the fourth quarter and should stabilize in the first half of the year, said Jim Fitterling, who is to become CEO of the new company.
Low profit margins at the DuPont specialty products division would improve as the year progresses, Breen said.
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