Q1(March Quarter)2017Earnings Preview

类别:行业研究 机构:德意志银行 研究员:David Begleiter 日期:2017-04-20

Expect strong Q1 results on healthy global demand. Top Pick: DD/DOWWe expect US chemicals to report strong March quarter results as healthydemand in the US and Europe, improving trends in China and Latin America,selling price increases and restructuring savings more than offset higherfeedstock costs. On Q2 and ’17 guidance, we expect US chemical companiesto be cautiously optimistic as expectations of improving global demand andprice increases more than offset higher raw material costs and macro andgeopolitical uncertainties. Our top picks are Dow and DuPont (with mergerclose expected by August 31) and Ashland.

    Global GDP growth is expected to accelerate from 3.1% in ’16 to 3.5% in ‘17DB’s economics team forecasts US GDP growth accelerated to 2.0% in Q1 from1.9% in Q4’16. For Q2’17, US GDP is forecasted to grow 2.5% as solidhousing/construction activity (housing starts up 12% YoY in ‘17E) is partially offsetby sluggish industrial and manufacturing activity. In Europe, while growthaccelerated to 1.6% in Q4’16, DB’s economics team forecasts GDP growth of 1.1%in Q1 and Q2. DB’s economics team forecasts China’s GDP grew 6.8% in Q1 vs6.5% in Q4’16. For ’17 DB’s economics team forecasts US GDP growth of 2.6% (vs1.6% in ’16), Europe GDP growth of 1.3% (vs 1.7% in ’16), China GDP growth of6.5% (vs 6.7% in ’16) and global GDP growth of 3.5% (vs 3.1% in ’16).

    Ethylene chain margins expand in Q1US contract ethylene margins rose 1 c/lb in Q1 to 19.5 c/lb on higher contractprices and lower ethane and propane feedstock costs (down 1.5 c/lb QoQ in Q1 to11.8 c/lb, up 2 c/lb YoY). Meanwhile, polyethylene prices rose $0.08/lb in Q1 due toa combination of steady demand, low inventories, outages and higherethyleneprices. Starting Q2‘17, we expect US ethylene chain margins to weakendue to a limited number of ethylene outages (from April through August, just 2.7%of US ethylene capacity is scheduled to be offline vs. 7.3% a year ago) and newpolyethylene capacity.

    Differentiated / specialty chemical companies forecasted to post 7% EPS growthIn Q1, we expect Specialty and Differentiated Chemical companies to post 7% YoYEPS growth driven by solid demand, flat-to-slightly higher feedstock costs, costreductions and share buybacks. We expect ethylene producers to post YoY lowergrowth due to lower oil prices partially offset by buybacks and growth projects.

    Top Picks: Dow/DuPont and Ashland GlobalDow/DuPont: We expect both Dow and DuPont to post solid Q1 results driven bystrong ethylene chain fundamentals at Dow Corning synergies at Dow andaggressive cost reductions and solid demand at DuPont. DuPont’s transactionwith FMC has brought it one step closer to its historic $145B merger with Dow.

    In order to accommodate approval for the FMC transaction, DuPont nowexpects the Dow / DuPont merger to close between August 1 and August 31.

    With merger close in sight, albeit delayed by another 2 months, reiterate Buy.

    Ashland: We expect FQ2 results to be positive on improving volumes in ASI (6%volume growth in FQ1 following 6 quarters of flat to down volumes) coupled with arenewed focus on pricing. In Ashland’s FQ1 release, management reiterated its planto distribute the remaining 83% of Valvoline (VVV, Hold, $23.48). Eastman: Weexpect in-line Q1 results and a reiteration of full year guidance on solid demand,costs savings and benefits from the rolling of propane hedges.

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