Shares of Dow (DOW) dropped over 17% last month, according to data provided by S&P Global Market Intelligence. After completing its separation from DowDuPont on the first day of April, the materials science business reported first-quarter 2019 operating results in early May. It seems investors are still sorting through all of the moving parts.
Both net sales and operating EBITDA declined compared to the year-ago period, although the trend was in line with guidance. Still, currency headwinds and significantly lower selling prices gave investors cause for concern.
Dow includes the materials science assets from the former Dow Chemical and former DuPont. It organizes operations into three business segments: performance materials and coatings, industrial intermediates and infrastructure, and packaging and specialty plastics. Each segment saw net revenue decline compared to the year-ago period. Currency impacts ranged from 2% to 3%. Meanwhile, selling prices were flat in performance materials, but declined 11% for both the industrial and packaging segments.
The silver lining for investors is that restructuring, integration, and separation costs totaled $640 million during the first three months of 2019. By comparison, income before income taxes settled at $858 million. Therefore, as more distance is put between Dow and its separation, there figures to be significant potential to increase profitability.
Investors have been waiting for the separation of DowDuPont for quite some time. Now that the spin-offs are complete (DowDuPont became DuPont after Corteva Agriscience separated on June 3), it might take just a little longer for the dust to settle. The three companies are eyeing up to $3.3 billion in combined cost synergies, including $1.7 billion for Dow, of which $400 million remains. Investors will want to make sure the cost savings live up to expectations, especially for the commodity-linked materials science business.