DowDuPont's Q4 Results Drag Material ETFs Down

DowDuPont Inc. (DWDP  - Free Report), created from the merger of Dow Chemical and DuPont on Aug 31, reported strong fourth-quarter results with both earnings and revenue beat. Earnings per share of 83 cents and revenues of $20.07 billion outpaced the Zacks Consensus Estimate of 67 cents and $19.37 billion, respectively.

The U.S. chemicals producer realized more than $800 million in annual cost synergy during the quarter. It now expects $3.3 billion in total cost synergy from the merger, slightly more than the previous projection of $3 billion.

The company is moving ahead with its plans to split the new company into three independent companies — Materials Science, Agriculture, and Specialty Products. The breakup is expected to take place in 14 to 18 months from now. The Materials Science business will likely be spun off by the end of the first quarter of 2019, while Agriculture and Specialty Products will get their own identity by June 1, 2019.

Market Impact

Shares of DWDP dropped 2.7% on the day following the earnings announcement. The stock has a Zacks Rank #3 (Hold) and a VGM Style Score of F. It belongs to a solid industry, which is placed at the top 19% in terms of ranking among more than 250 Zacks industries.

Given this, ETFs having a large allocation to this chemical giant will be in focus in the days ahead. The drop in DWDP shares has led to sluggish trading in these ETFs as well. Below, we have highlighted them in detail:

iShares U.S. Basic Materials ETF (IYM  - Free Report)

This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 50 stocks in its basket. The fund has AUM of $1.1 billion and charges 44 bps in fees and expenses. Volume is good as it exchanges around 159,000 shares a day. DowDuPont occupies the top position in the basket making up for one-fourth of the portfolio. The product is heavily skewed toward the chemical segment with three-fourth of the portfolio, while industrial gases, steel, and metals & mining receive minor allocation each. It lost 1.2% on the day and has a Zacks ETF Rank #2 (Buy) with a High-risk outlook.

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