DowDuPont Announces Plan for $3 Billion in Cost-Cutting Post Mega MergerBy
DowDuPont, the combined company of The Dow Chemical Company and DuPont, following the completion of the companies’ merger in August 2017, announced actions to achieve a $3-billion cost synergy target as part of its post-merger integration plans. The company made the announcement as part of its third-quarter earnings results, its first earnings report as a combined company.
Dow Chemical and DuPont announced the merger in December 2015 and closed on the mega merger in August 2017. The company reported GAAP (generally accounting principles) net sales for the third quarter of 2017 of $15.354 billion and pro forma net sales of $18.285 billion. For the first nine months of 2017, it reported GAAP net sales of $42.418 billion and pro forma net sales of $59.469 billion. For the third quarter, it reported GAAP net income of $514 million and pro forma net income of $232 million and net GAAP income of $2.723 billion for the first nine months of 2017 and pro forma net income of $3.959 billion.
In its third-quarter results, the company said it continues to make progress integrating its three divisions (Agriculture, Materials Science, and Specialty Products) and has initiated work to prepare for the intended separation of these divisions into three independent companies.
“We delivered top- and bottom-line growth in the third quarter – a solid start for our newly formed company,” said Ed Breen, chief executive officer of DowDuPont, in a company statement in commenting on the company’s results. “Our operating earnings increase was the result of broad-based demand growth in most of our core end-markets and disciplined margin management, which more than offset several headwinds, from multiple hurricanes to higher feedstock costs and a delayed start to the summer agriculture season in Brazil,” he said “Moreover, we delivered these results while advancing several value-creating initiatives, including: closing the merger, completing our comprehensive portfolio review, and defining the new synergy targets for each division. Going forward, you should expect us to remain focused on executing on our $3 billion cost-synergy commitment and advancing preparations to create three focused growth companies in Agriculture, Materials Science, and Specialty Products.”
For its $3 billion in cost-savings, the company said that a majority will come from procurement synergies, global workforce reductions, buildings and facilities consolidation, and select asset shutdowns, among other activities. The company updated its expectations by division: Agriculture ($1.0 billion); Materials Science ($1.2 billion), and Specialty Products ($800 million).
An additional $1 billion is expected from growth synergies, which the company has begun advancing. For example, DowDuPont says its agriculture division will use a multi-brand, multi-channel approach for broader choices and whole-farm solutions. Dow’s Packaging & Specialty Plastics business has begun the process of integrating DuPont’s resins and ethylene copolymers portfolio. In addition, DowDuPont’s Electronics & Imaging business, combined from Dow Electronic Materials and DuPont Electronics & Communications, plans to use its channel access and broadened suite of materials (OLED films, laminates, semiconductor materials).
In connection with the actions approved to date, DowDuPont recognized pre-tax charges of $180 million in the third quarter. The company expects to recognize total pre-tax charges of approximately $2 billion with approximately $1 billion expected in the fourth quarter of 2017.