DuPont EPS Beats, Outlook Cautious - Analyst Blog

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Chemical and industrial products behemoth E. I. du Pont de Nemours and Company ( DD ) reported adjusted earnings of $1.48 per share in the second quarter of 2012, exceeding the Zacks Consensus Estimate of $1.46 and the year ago earnings of $1.37 per share.

Growth was primarily driven by strong performance in agriculture, food and bioscience businesses, along with the company's advanced materials business which witnessed healthy results despite weak European markets.

Including one-time items earnings came in at $1.25 per share versus $1.29 in the prior-year quarter. The drop reflects lower sales volumes across several segments and weak demand for titanium dioxide, especially in Europe and Asia.

Net sales grew 7% year over year to $11,006 million, driven by price hikes and portfolio changes, partially offset by unfavorable currency impact and lower sales volumes. However, sales missed the Zacks Consensus Estimate of $11,252 million.

Segment Details

Agriculture: Sales in the quarter rose 13% year over year to $3.4 billion with a 6% growth in volumes and a 7% rise in selling prices. The agriculture business Pioneer seed contributed to a 12% growth in sales. North America corn and soybeans also delivered strong results. Strong demand across all the products led to a 15% increase in Crop Protection sales.

Increased sales led to pre-tax operating income (PTOI) of $926 million, a year over year jump of 12%, partly offset by input cost increases and unfavorable currency and higher investments in Right Product Right Acre commercial and R&D activities.

Electronics & Communications: Sales plunged 11% to $795 million, due to a decrease of 6% in sales volumes and 5% decline in selling prices. Sales were affected by weak demand for photovoltaic materials though it was partially offset by increased demand for smart phones and tablets. PTOI decreased 27.2% to $75 million due to lower volumes and plant utilization.

Industrial Biosciences: Sales were up by a whopping 143.9% to $300 million primarily reflecting the acquisition of Danisco's enzyme business. The Danisco acquisition also led to a 340% year over year increase in PTOI to $44 million. 

Nutrition & Health: Sales jumped 82% to $885 million, principally due to the acquisition of Danisco specialty food ingredients business. Increased demand for Solae specialty soy products led to increased sales volumes.PTOI shot up 194.7% to $112 million, reflecting the positive impact from the Danisco acquisition, realization of cost synergies and favorable product mix in Solae. 

Performance Chemicals: Sales declined 1% to $2 billion, with a decline of 10% in volumes partially offset by 9% higher selling prices. Volumes declined, particularly in Asia-Pacific and Europe, due to weak demand for titanium dioxide and fluoropolymers. PTOI increased 7% to $538 million due to higher selling prices and increasedproductivity actions.

Performance Coatings: Sales decreased 1% to $1.1 billion, reflecting a 2% decline in volumes. Selling prices increased 1% across all regions,  partially offset by the unfavorable currency impact. PTOI increased 26% to $92 million due to higher selling prices, mix enrichment and continued productivity actions, partially offset by unfavorable currency. 

Performance Materials: Sales went down 3% to $1.7 billion, with a 1% decrease in selling prices and a 3% reduction from a portfolio change, partially offset by 1% higher selling volumes. Industrial and electronics markets continued to experience weak demand, offsetting the strong demand in the automotive markets, especially in North America. PTOI increased 24.8% to $317 million due to lower feedstock costs and higher volume, partially offset by unfavorable currency. 

Safety & Protection: Sales decreased 4% to $986 million, with a 5% lower volume due to continued weakness in the industrial markets and lesser demand in public sector. Lower volumes were partly offset by a 1% hike in selling prices. PTOI decreased 11% to $127 million.

Financial Position

DuPont had cash and cash equivalents of $3.50 billion as of June 30, 2012, compared with $3.59 billion as of December 31, 2011. Long-term borrowings and capital lease obligations amounted to $11.25 billion as of June 30, 2012, versus $11.73 billion as of December 31, 2011.

Outlook

DuPont expects full-year 2012 adjusted earnings to come in at the lower end of its previous outlook of $4.20 to $4.40 per share (excluding one-time items) citing macroeconomic and currency-related uncertainties and a higher tax rate.

Our Take

Despite slow growth in some markets and weak European markets, DuPont's Agriculture segment delivered strong results in the second quarter. The Danisco acquisition contributed to the growth across the company's Industrial Biosciences and Nutrition & Health divisions. Also continued productivity actions led to increased output.

However, increased raw material costs and decline in sales volumes across many segments offset the increase. Moreover, sluggish economic conditions might prove to be headwinds for the company going forward.

Currently, we have a long-term (more than 6 months) Neutral recommendation on DuPont. The company, which competes with The Dow Chemical Company (DOW ) and BASF SE ( BASFY ), currently holds a short-term Zacks #4 Rank (Sell).


 
BASF SE (BASFY): 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 The NASDAQ OMX Group, Inc.



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