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DowDuPont, unveiling maiden results, names Brazil agriculture 'most notable headwind'

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DowDuPont highlighted the Brazilian farm market as it “most notable headwind”, as the industrial giant revealed that agriculture had blotted its record of sales growth seen in all other divisions.


The plastics-to-electronics group, formed on August 31 from the merger of Dow Chemical and DuPont, said that its demand outlook was “positive for the majority of our key end-markets”.


“Consumer-led demand continue to drive global economic activity, which remains robust across most major economies,” said Andrew Liveris, the DowDuPont executive chairman.


However, he added that “we still see some market headwinds, the most notable being in agriculture, where we continue to closely monitor the situation in Brazil due to the slow start to the summer season”.


‘Weakness in Latin America’


Indeed, the group, reporting a 4.4% drop to $1.91bn in agriculture sales on a pro-forma basis for the July-to-September period, said that the decline reflected a falls in sales volumes and prices which “were driven by weakness in Latin America”.


In part, this reflected the glut of agrichemical products in the region, built up the knock on effects of weakness in crop prices and local currencies, which have wrought well-publicised setbacks to many operators, including German rival Bayer.


“Sales channels continue to hold high inventory levels of crop protection products,” DowDuPont said.


Brazil, South Africa setbacks


However, the group also flagged a dent to sales from a “delayed start” to Brazil’s summer season, with dryness hampering sowings of corn and, in particular, soybean crops.


In South Africa, DowDuPont took a knock from delayed sowings too.


Furthermore, the group noted an “expected reduction in corn area in Brazil”, where Conab, the official Brazilian crop bureau, has forecast first-crop sowings falling by 6.1-10.1% to their weakest in at least 13 years, as low returns from the crop drive growers to plant soybeans instead.


Corn is a particularly important earner for many ag groups, given the relatively high price of cutting edge GM seed, and significant crop input needs.


‘Ag fundamentals remain soft’


For the July-to-September period, the group reported an operating ebitda loss in agriculture of $239m, up 39% year on year.


And it said that “ag fundamentals remain soft”.


Nonetheless, Mr Liveris said that DowDuPont remained “confident that we will have a solid year across our newly-combined ag division”, for which there is a target of $1.0bn in cost synergies through merging Dow and DuPont’s operations, besides expected sales benefits on top.


The division was forecast reporting sales up 10% for the October-to-December period, and operating ebitda of $225m, helped by “increased fungicide volumes and the continued penetration” of its Leptra genetically modified corn seed.


Group forecats


For DowDuPont as whole, the group forecast sales in the current quarter of $19.19.5bn, a rise of more than 7% year on year, and operating ebitda up 11-13% year on year.


In the latest quarter, pro-forma sales rose 7.6% to $18.29bn, with growth in all seven other operating divisions, besides agriculture.


Underlying earnings per share rose by 10% to $0.55, ahead of market expectations of a $0.42-per-share result.


DowDuPont shares stood 1.7% lower at $72.09 in lunchtime deals in New York.

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