DuPont Beats, Reaffirms View - Analyst Blog


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EI DuPont de Nemours & Co. ( DD ) reported adjusted earnings of $1.61 per share in the first quarter of 2012 which exceeded the Zacks Consensus Estimate of $1.55. The earnings growth was primarily driven by strong performance in Agriculture and Performance Chemicals and the benefit of prior-year acquisitions in Nutrition & Health and Industrial Biosciences.

Including one-time items (customer claim charges of $50 million), earnings came in at $1.57 per share versus $1.52 in the prior-year quarter. 

Quarterly sales grew 12% to $11,230 million, driven by price hikes and strong sales in the Agriculture segment. However, sales missed the Zacks Consensus Estimate of $11,239 million. The sales volumes for Agriculture segment increased across all regions. However, sales volumes for other segments remained flat in Asia.

Segment Details

Agriculture: Sales in the quarter rose 16% to $4.1 billion with an 8% growth in volumes and a rise of 8% in selling prices. Strong North American corn sales and favorable weather conditions in Europe and Brazil contributed to the jump in seeds sales.

Insect control product volumes and price hikes led to Crop Protection product sales growth. Higher volumes and prices drove Pre tax operating income (PTOI) to $1.3 billion, a jump of 18% year over year, partly offset by input cost increases and unfavorable currency.

Electronics & Communications: Sales plunged 17% to $677 million, due to a decrease of 18% in sales volumes, reflecting destocking in photovoltaics, partly offset by increased demand for smart phones and tablets. PTOI decreased by 70.3% to $33 million due to lower volumes and plant utilization.

Industrial Biosciences: For the quarter, sales and PTOI were $288 million and $41 million, respectively, primarily reflecting the acquisition of Danisco's enzyme business. PTOI included approximately $5 million of amortization expense associated with the fair value step-up of intangible assets obtained as part of the acquisition.

Nutrition & Health: Sales of $808 million more than doubled year over year, principally due to the acquisition of Danisco's enzyme business. PTOI of $83 million in the quarter increased significantly by 232% over comparable year-agoperiod, reflecting the positive impact from the Danisco acquisition. PTOI included approximately $21 million of amortization expense associated with the fair value step-up of intangible assets obtained as part of the acquisition.

Performance Chemicals: Sales escalated 6% to $1.9 billion, with a rise of 16% in selling prices and a decrease of 10% in volumes. Volumes declined, particularly in Asia-Pacific, due to weak demand for titanium dioxide. However, global demand for titanium dioxide increased sequentially. PTOI increased by $118 million to $512 million due to higher selling prices.

Performance Coatings: Sales rose 6% to $1.1 billion, reflecting rise in selling prices. Higher selling prices helped in offsetting higher raw material costs. Demand remained strong for OEM motor vehicle coatings and industrial coatings, particularly in the North American heavy-duty truck market.

However, the demand was offset by weakness in refinish, primarily in southern Europe. PTOI of $87 million increased by 33.8% due to higher selling prices, mix enrichment and continued productivity actions.

Performance Materials: Sales went down 6% to $1.6 billion, with a 10% decrease in volumes and a 2% reduction from a portfolio change, partially offset by 6% higher selling prices.Industrial and electronics markets continued to experience weak demand, offsetting the strong demand in the automotive markets, especially in North America. PTOI of $240 million decreased $48 million on lower volumes.

Safety & Protection: Sales decreased by 2% to $941million, with a 5% lower volume due to continued weakness in the industrial markets. Lower volumes were partly offset by a 3% hike in selling prices. PTOI decreased to $100 million from $145 million in the prior-year quarter.

Financial Position

DuPont had cash and cash equivalents of $3.4 billion as of March 31, 2012, compared with $3.6 billion as of December 31, 2011. Long-term borrowings and capital lease obligations amounted to $11.2 billion as of March 31, 2012, versus $11.7 billion as of December 31, 2011.

The company's productivity initiatives continued on track with improvements of approximately $100 million each for fixed costs and working capital.


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, DuPont delivered strong results in the first quarter. The company also faced some economic headwinds in the quarter. However, markets for DuPont's agriculture and food businesses continue to be strong.

We currently have a long-term Neutral recommendation on DuPont. The company, which competes with The Dow Chemical Company ( DOW ) and BASF SE ( BASFY ), maintains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.

BASF SE ( BASFY ): Free Stock Analysis Report
DU PONT ( EI ) DE ( DD ): Free Stock Analysis Report
DOW CHEMICAL ( DOW ): 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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