DuPont Beats, Reaffirms Guidance - Analyst Blog


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EI DuPont de Nemours & Co. ( DD ) reported earnings of 35 cents per share in the fourth quarter of 2011 compared with 50 cents in the year-ago quarter. The profit exceeded the Zacks Consensus Estimate of 33 cents per share.

A higher tax rate in the quarter led to the year-over-year decline in profit. Further, higher selling prices during the quarter was offset by increased spending on selling, marketing and research and development, higher costs for raw materials, energy and freight as well as lower sales volumes.

For full-year 2011, the company reported earnings of $3.93 per share, up 20% from $3.28 per share in 2010 and exceeded the Zacks Consensus Estimate by a penny.

Sales in the quarter grew 14% to $8.4 billion due to 14% increase in prices and the agriculture segment also contributed to the increase in sales. The quarter witnessed declining sales volumes due to destocking in photovoltaics, polymer and industrial supply chains. The consumer electronics and construction division also faced soft demand.

For the fiscal year 2011, sales jumped by 20% to $38.0 billion.

Segment Details

In view of the company's expanded business portfolio following the Danisco acquisition, two new reportable segments have been added: Industrial Biosciences and Nutrition & Health.

The Industrial Biosciences segment includes Danisco's enzyme business and DuPont Sorona and Bio-PDO businesses, previously reported in Other. The Nutrition & Health segment consists of Danisco's food ingredients business and DuPont's Nutrition & Health business, previously reported as part of the company's Agriculture & Nutrition segment. The former Agriculture & Nutrition segment, which was renamed Agriculture, includes the seed and crop protection businesses.

Agriculture: Sales in the quarter rose 8% to $1.3 billion with a 3% growth in volumes and a 5% rise in selling prices. This reflected a strong and early start to the Latin American season. Higher sales led to a decrease in pre-tax operating loss to $116 million compared with the year ago quarter.

For the full year, sales grew 17% to $9.2 billion, with a 10% gain in volumes, 6% rise in prices and 1% impact from portfolio changes.

Electronics & Communications: Sales plunged 18% to $630 million, due to a 33% decrease in sales volumes, reflecting destocking in photovoltaics, and soft demand for  consumer electronics. The lower volumes were partially offset by increased selling prices of 15%.

Pre-tax operating income (PTOI) decreased by 57.1% to $42 million due to lower volumes and was partially offset by OLED technology licensing income of $20 million. For the full year, sales increased by 15% to $3.2 billion.

Industrial Biosciences: For the quarter, sales and PTOI were $289 million and $34 million, respectively, primarily reflecting the acquisition of Danisco's enzyme business. PTOI included approximately $6 million of amortization expense associated with the fair value step-up of intangible assets obtained as part of the acquisition.

Sales amounted to $0.7 billion for fiscal 2011.

Nutrition & Health: Sales of $806 million were up $468 million from the prior year, principally due to the acquisition of Danisco's enzyme business. PTOI was $52 million in the quarter compared with $18 million in the prior-year quarter, reflecting the positive impact from the Danisco acquisition and favorable product mix in Solae. 

For full-year, sales amounted to $2.5 billion, up 98% from 2010, driven by 1% increase in volumes and 92% impact from portfolio changes.

Performance Chemicals: Sales escalated 12% to $1.9 billion, with a rise of 29% in selling prices and a decrease of 17% in volumes. Volumes declined specially in Asia-Pacific due to stagnant demand for titanium dioxide. PTOI increased by $118 million to $433 million due to higher selling prices. Sales in the full-year 2011 were $7.8 billion an increase of 23% compared with 2010.

Performance Coatings: Sales rose 8% to $1.1 billion, reflecting a 10% rise in selling prices and a 2% decline in volumes. Higher selling prices reflect pricing actions across all the market segments in order to offset higher raw material costs. Lower volumes was driven by destocking and flat/lower builds in all regions, except North America.

Demand remained strong for OEM motor vehicle coatings and industrial coatings, particularly in the North American heavy-duty truck market. PTOI of $58 million decreased by 18.3% due to weaker mix and a $7 million settlement charges. Sales in the year 2011 increased 12% to $4.3 billion driven by a 2% increase in volumes.

Performance Materials: Sales went up 1% to $1.6 billion, with a rise of 14% in higher selling prices, partially offset by a 13% decrease in volumes and higher raw material costs. Destocking coupled with weak demand in consumer and industrial markets, led to lower volumes in the quarter.

PTOI of $151 million decreased $55 million on lower volumes, absence of a combined benefit of $31 million from an acquisition in 2010 and an early termination of a supply agreement. Sales in the year were $6.8 billion, an increase of 8% over 2010.

Safety & Protection: Sales grew 10% to $943 million, with a 5% rise in selling prices and the MECS acquisition also contributed to 7% increase in sales. The sales growth was also offset by a 2% decline in volumes due to industrial destocking in the quarter.

Higher selling prices more than offset raw material cost increases. PTOI was flat at $94 million versus the prior-year quarter. Sales in the segment were $3.9 billion in 2011, an increase of 17% over the prior year.

Financial Position

DuPont had cash and cash equivalents of $3.6 billion as of December 31, 2011 compared with $4.3 billion as of December 31, 2010. Long-term borrowings and capital lease obligations amounted to $11.7 billion as of December 31, 2011 versus $10.1 billion as of December 31, 2010.

The company generated $3.3 billion of free cash flow in 2011 versus $3.1 billion in 2010, driven by increased segment operating income and productivity initiatives.

DuPont exceeded its fixed cost productivity and working capital productivity target of $300 million. Fixed cost productivity amounted to $400 million and working capital productivity came in at $500 million in 2011.


DuPont reiterated its full year 2012 earnings outlook of $4.20 to $4.40 per share, an increase of 7% to 12% compared with 2011, excluding significant items. 

Our Take

Despite soft demand for consumer electronics segment and weak markets for housing and construction, DuPont delivered exceptional results for the full-year 2011. We believe that the slowdown in global economic growth could reduce the company's capital spending, thereby adversely affecting its operating performance. Further, the company faces stiff competition from The Dow Chemical Company ( DOW ) and BASF SE ( BASFY ).

However, markets for DuPont's agriculture and food businesses continue to be strong, especially with a strong planting season in Latin America.

In view of the above stated reasons, the company retains a Zacks #3 Rank, which implies a short-term (1 to 3 months) Hold rating and we have recommended the shares of the company as Neutral for the a long-term (more than 6 months).

BASF SE ( BASFY ): Free Stock Analysis Report
DU PONT ( EI ) DE ( DD ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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