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Why DowDuPont Stock Fell Almost 25% in 2018

By John Bromels – Updated Apr 16, 2019 at 11:40PM

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Concerns about agricultural markets plagued the top U.S. chemical company, but there may be a way out.

What happened

Shares of chemical industry giant DowDuPont (DD 0.54%) fell 24.9% in 2018, according to data provided by S&P Global Market Intelligence. That was much worse than the S&P 500's 6.2% drop, and even worse than rival 3M's (MMM 3.82%) 19% sell-off.

Like 3M, DowDuPont got rough treatment from the stock market in April and October, after its Q1 and Q3 earnings reports came out. Unlike 3M, DowDuPont's issues were primarily agriculture-related. 

A man watches a large red arrow crash through the ground in front of him.

DowDuPont had one of the worst performances in the Dow Jones Industrial Average in 2018. Image source: Getty Images.

So what

DowDuPont was formed through a megamerger of chemical giants Dow Chemical and E.I. du Pont de Nemours (commonly known as DuPont) back in 2017. This created the largest chemical company in the U.S. by market cap, surpassing 3M. But it won't be that way for long. To obtain regulatory approval for the merger, the combined company plans to split into three separate companies: Dow, which will retain the materials science business; Corteva Agriscience, the company's agricultural arm; and DuPont, which gets everything else. 

But for now, those businesses are all under one umbrella, and the agricultural business is weighing down the rest. In Q1, for example, DowDuPont's agricultural business recorded a stunning 25% year-over-year drop in pro forma revenue. Then in October, the company announced that it would take a $4.6 billion impairment charge in Q3, again due to trouble in its ag unit.

Throughout the year, the agricultural sector encountered problems. In Q1, for example, DowDuPont's volumes declined due to bad weather. Then in June, the U.S. Department of Agriculture announced that corn and soybean acreage was expected to decline by 1% year over year. Plus, fears of how the ongoing trade war between the U.S. and China might affect global agricultural systems -- particularly for domestic soybeans -- hung over everything. Small wonder that DowDuPont's ag business hit the skids. 

Now what

For current investors, the best strategy is probably to wait it out. DowDuPont expects to separate its materials science business as the new Dow by April 1. The spinoff of Corteva Agriscience is projected to take place shortly thereafter, on June 1. At that point, investors can assess the agriculture business as a stand-alone entity and decide whether it's worth hanging on to.

For investors looking at the company now, there might be some advantage to buying in before the big separation, while the two outperforming businesses are still being weighed down by the underperforming ag business. The trouble is that with so many things in flux for the company right now, it's tough to evaluate exactly how things are likely to shake out. Be aware of the risks before buying in.

Check out the latest DowDuPont earnings call transcript. 

John Bromels owns shares of DowDuPont Inc. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.

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