DuPontDD continued its positive earnings surprise streak with a solid beat in fourth-quarter 2016, helped by its aggressive cost-reduction actions. The Delaware-based company recorded adjusted earnings of 51 cents per share in the reported quarter, up 89% from 27 cents per share a year ago. The results topped the Zacks Consensus Estimate of 42 cents.
On a reported basis, DuPont posted earnings from continuing operations of 29 cents per share for the quarter, versus a loss of 26 cents per share a year ago. The bottom line in the year-ago quarter was hit by sizable restructuring charges.
Operating costs (on a reported basis) fell 5% year over year in the quarter. Moreover, operating costs, as adjusted, declined 9% year over year.
DuPont raked in net sales of $5,211 million for the quarter, down roughly 2% year over year. That missed the Zacks Consensus Estimate of $5,246 million. Volumes fell 1% as gains across Performance Materials, Electronics & Communications and Industrial Biosciences divisions were more than offset by declines in the Agriculture unit.
For full-year 2016, the company logged earnings (as reported) of $2.85 per share versus $2.09 per share it earned a year ago. Adjusted earnings were $3.35 per share, up from $2.77 per share registered in 2015.
Sales for the full year were $24.6 billion, down 2% year over year, affected by unfavorable currency impact and lower local prices.
Agriculture: Revenues fell 10% year over year to around $1.4 billion in the reported quarter, partly due to timing of seed deliveries. Segment operating loss was $19 million, a 65% year over year improvement, aided by favorable currency impact and benefits of cost saving actions.
Electronics & Communications: Sales went up 6% to $521 million in the quarter. Operating earnings for the segment rose 13% year over year to $98 million on cost savings and volume gains in Solamet paste.
Industrial Biosciences: Sales edged up 1% to $401 million. Earnings fell 14% to $67 million due to decline in CleanTech.
Nutrition & Health: Sales were flat year over year at $809 million. Operating earnings shot up 59% to $135 million on cost reduction actions and gains from asset sale.
Performance Materials: Sales moved up 4% to around $1.3 billion. Operating earnings rose 17% to $328 million on the back of cost savings, higher demand in automotive markets and lower product costs.
Protection Solutions: Sales were flat year over year at $717 million. Operating earnings fell 3% to $142 million as higher costs due to lower plant utilization and unfavorable currency impact more than offset cost savings.
DuPont ended 2016 with cash and cash equivalents of roughly $4.6 billion, down around 13% year over year. Total borrowings and capital lease obligations fell around 3% year over year to roughly $8.5 billion.
DuPont expects earnings (on a reported basis) for first-quarter 2017 to decline roughly 18% year over year. The guidance includes an expected charge of about 15 cents per share for transaction costs related to the planned merger with Dow Chemical DOW .
The company expects adjusted earnings for the first quarter to increase around 8% year over year factoring in the benefits of cost saving actions and the impact of the change in timing for seed deliveries, mostly related to the southern U.S. route-to-market change in Agriculture, partly masked by an expected reduction in planted corn acres in the U.S.
DuPont has outperformed the Zacks categorized Chemicals-Diversified industry over a year, helped by its forecast-topping earnings performance and aggressive cost-cutting initiatives. The company's shares have gained 37.4% over this period, compared with the industry's gain of around 35.1% over the same period.
DuPont and Dow Chemical agreed to combine their businesses in late 2015 in an all-stock deal to create a chemical powerhouse dubbed "DowDuPont," before eventually breaking up into three independent companies through tax-free spin-offs. The planned mega-merger is currently under investigation by the European Commission (EC) with a decision is expected by Feb 2017.
DuPont now expects the merger to complete in first-half 2017, pending regulatory approvals. Earlier, the companies expected to close the deal in first-quarter 2017. The merger is projected to deliver cost synergies of around $3 billion, expected to be achieved with the first two years after the deal closure.
DuPont is a Zacks Rank #3 (Hold).
E.I. du Pont de Nemours and Company Price, Consensus and EPS Surprise
Stocks to Consider
Better-ranked companies in the basic materials space include BASF SE BASFY and Methanex Corporation MEOH , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
BASF has an expected long-term growth of 7.7%.
Methanex has an expected long-term growth of 15%.
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