Chemicals group DowDuPont that was formed in last year’s merger of $130 billion announced a non-cash $4.6 billion writedown while also warning it was forced to lower it forecasts for the long-term for revenue and profitability in its division of agriculture, which it is planning to spin off next year as a separate entity.
In its regulatory filings following the close of the market on Thursday, the chemical giant said it was planning to write of up to $4.5 billion of goodwill and $100 million in other assets on its balance sheet, which reflects its recognition that it had been over optimistic related to outlook when the merger closed between DuPont and Dow Chemical in August of 2017.
It placed part of the blame on the pressures weighing on farmers’ incomes due to dropping prices in commodities and a large inventory of grain, which DowDuPont said would cause shifts to lower technologies as well pricing pressure.
The agricultural division includes its seeds business that supplies crops such as soy beans and corn, and a business of crop protection that makes chemicals such as insecticides and herbicides.
Shares of DowDuPont, which fell 1.76% during Thursday trading, were off another 2.1% in afterhours trading.
One analyst, who holds a buy rating on the shares, called the writedown for the most part a market-to-market of conditions that are already known in the seed and chemical crop-protection markets.
DowDuPont announced that goodwill it has on its balance sheet was built up through the accounting treatment in the deal creating the company during the merger which meant its reporting units were more susceptible to any impairment in case of any decline in the fair value since its merger.
Projections in cash flow drawn up during reviews of strategic business during the third quarter of 2018 concluded events and circumstances have developed in 2018 that would mean long-term profits and revenues would be less than was believed during the time of its merger, said the company.
It blamed in particular the lower growth experienced in sales and margins across both North America as well as Latin America that was linked to less area being planted, an expected shift unfavorably from corn to soy beans in Latin America, as well as delays in product registrations and negative currency impacts involving the Brazilian real.