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EI DuPont de Nemours & Company (DD): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Summary:

We are retaining our Neutral recommendation on DuPont. Adjusted earnings for the fourth-quarter 2014 matched the Zacks Consensus Estimate. Profit jumped on the company's strategic actions, including cost-savings from redesign initiatives and productivity improvements. However, sales fell and missed expectations. The company expects earnings for 2015 to be affected by an unfavorable currency impact stemming from a stronger dollar. DuPont is still seeing weakness in its performance chemicals business due to lower pricing. The company is also exposed to currency headwinds. Nevertheless, DuPont is expected to gain from incremental opportunities in its agriculture business, backed by healthy demand for its crop protection products and new product launches. Moreover, it remains committed to maximize shareholder value and drive earnings through productivity actions.

Overview:

Wilmington, Delaware-based DuPont is a global chemical and life sciences company, employing about 70,000 people worldwide with a diverse array of product offerings. With around 19,000 patents and 18,000 patent applications worldwide, DuPont sells its products in diverse markets such as transportation, construction, apparel, agriculture, nutrition and health, packaging and electronics markets.

In 2011, DuPont acquired Danisco A/S (Danisco), a global enzyme and specialty food ingredients company. This acquisition was valued at $6.4 billion, plus net debt assumed of $0.6 billion.

DuPont's business is segregated into the following major heads: Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Chemicals, Performance Materials and Safety & Protection. The company includes certain embryonic businesses not included in the reportable segments, such as pre-commercial programs, and nonaligned businesses in "Other".

Agriculture: Agriculture businesses, Pioneer Hi-Bred International, Inc. (Pioneer) and DuPont Crop Protection, leverage the company's technology, customer relationships and industry knowledge to improve the quantity, quality and safety of the global food supply and the global production agriculture industry. Pioneer is a world leader in developing, producing and marketing corn hybrid and soybean varieties which improve the productivity and profitability of its customers. Additionally, Pioneer sells canola, sunflower, sorghum, inoculants, wheat and rice.

DuPont Crop Protection serves the global production agriculture industry with crop protection products for field crops such as wheat, corn, soybean and rice specialty crops such as fruit, nut, vine and vegetables and non-crop segments, including forestry and land management.

Electronics & Communications: This is a leading supplier of differentiated materials and systems for photovoltaics, consumer electronics, displays and advanced printing that enable superior performance and lower total cost of ownership for customers.

Industrial Biosciences: This segment is comprised of Danisco's enzyme business acquired in 2011, as well as the DuPont Sorona renewably sourced polymer and BioPDO 1,3 propanediol businesses, previously reported in Other.

Nutrition & Health: This segment comprises of Danisco's world leading specialty food ingredients business and Solae, a majority-owned venture with Bunge Limited, which is a world leader in developing soy based technologies. The segment is the premier provider of innovative solutions for specialty food ingredients, health and safety.

Performance Chemicals: Performance Chemicals businesses, DuPont Titanium Technologies and DuPont Chemicals and Fluoroproducts, deliver customized solutions with a wide range of industrial and specialty chemical products for markets including plastics and coatings, textiles, mining, pulp and paper, water treatment and healthcare.

Performance Materials: Performance Materials businesses, Performance Polymers and Packaging & Industrial Polymers, provide productive, higher performance polymers, elastomers, films, parts, and systems and solutions which improve the uniqueness, functionality and profitability of its customers' offerings.

Safety & Protection: Safety & Protection businesses, Protection Technologies, Sustainable Solutions and Building Innovations, satisfy the growing global needs of businesses, governments and consumers for solutions that make life safer, healthier and more secure.

In 2014, Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Chemicals, Performance Materials and Safety & Protection divisions accounted for 32%, 7%, 4%, 10%, 19%, 17% and 11% of the company's total sales, respectively.

In a major move, DuPont and Monsanto (MON), in March 2013, settled their lawsuits against each other, involving the unauthorized use of Monsanto's Roundup Ready technology in corn and soybeans by the former. The parties entered into a new pact, under which, DuPont will pay Monsanto royalties in excess of $1.75 billion over a decade for rights to Monsanto's next-generation soybean technologies.

DuPont is facing increased pressure from Nelson Peltz's Trian Fund Management after the latter recently announced its plans to nominate four directors to the company's board, launching one of the biggest activist-investor led proxy battles in recent times. The move to secure board seats represents a fresh attempt by the renowned activist investor to break up the 200-plus year old company.

Trian, which is one of DuPont's biggest shareholders, earlier pressed the company for breaking itself up into two distinct companies citing that its current conglomerate structure and flawed business plans are destroying shareholder value. However, DuPont have been actively shielding itself against such breakup calls while remaining focused on executing strategic actions including portfolio optimization, disciplined capital allocation and cost control.

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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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