Should DowDuPont Inc's (NYSE:DWDP) Recent Earnings Worry You?

For long-term investors, assessing earnings trend over time and against industry benchmarks is more beneficial than examining a single earnings announcement at a point in time. Investors may find my commentary, albeit very high-level and brief, on DowDuPont Inc (NYSE:DWDP) useful as an attempt to give more color around how DowDuPont is currently performing.

See our latest analysis for DowDuPont

Did DWDP perform worse than its track record and industry?

DWDP's trailing twelve-month earnings (from 31 March 2018) of US$1.74b has more than halved from US$3.96b in the prior year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 10.44%, indicating the rate at which DWDP is growing has slowed down. Why could this be happening? Let's examine what's transpiring with margins and whether the entire industry is facing the same headwind.

In the last couple of years, revenue growth has fallen behind earnings, which implies that DowDuPont’s bottom line has been driven by unsustainable cost-reductions. Viewing growth from a sector-level, the US chemicals industry has been growing its average earnings by double-digit 14.28% over the previous year, and a more muted 7.16% over the past five years. This growth is a median of profitable companies of 24 Chemicals companies in US including W. R. Grace, Nutrien and Advanced Emissions Solutions. This means that whatever tailwind the industry is benefiting from, DowDuPont has not been able to reap as much as its average peer.

In terms of returns from investment, DowDuPont has not invested its equity funds well, leading to a 1.85% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 1.44% is below the US Chemicals industry of 6.89%, indicating DowDuPont's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for DowDuPont’s debt level, has declined over the past 3 years from 9.86% to 5.23%.

What does this mean?

DowDuPont's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Generally companies that experience an extended period of reduction in earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry disruption and growth. I recommend you continue to research DowDuPont to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for DWDP’s future growth? Take a look at our free research report of analyst consensus for DWDP’s outlook.
2. Financial Health: Is DWDP’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2018. This may not be consistent with full year annual report figures.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.