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DuPont's (DD) Q4 Earnings Trounce Estimates, Sales Fall Shy

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.

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Segment Review

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.

Financials

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.

Outlook

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

E.I. du Pont de Nemours and Company Price, Consensus and EPS Surprise | E.I. du Pont de Nemours and Company Quote

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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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