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DuPont Dips, but a Bounce Is Likely

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Delaware's venerable DuPont (NYSE: DD  ) took center stage Tuesday, describing circumstances that resulted in a dip in its fourth-quarter adjusted earnings. But it managed a full-year earnings improvement and stuck with its prediction of further growth in the current year.

For the quarter, the nation's third-largest chemicals company earned $373 million, or $0.40 per share, versus $376 million, or $0.40 per share, for the comparable quarter in 2010. Revenue for the quarter was up 14% at $8.4 billion. If you back out special items for the most recent quarter, primarily a $0.23-per-share impact from an increased tax rate, per-share earnings came to $0.35, compared to $0.50 as the prior year came to an end.

Nevertheless, DuPont outdid the analysts' consensus by $0.02 per share. And despite the year-over-year slide in adjusted earnings, DuPont's management continues to anticipate 2012 earnings of $4.20 to $4.40 per share, 12% higher than 2011. Amid attention to full-year earnings, it bears noting that DuPont's full-year profits, minus special items, improved a solid 31% over those of 2010.

Fourth-quarter results were affected by slowing demand for the company's products across the globe, especially in the Asia-Pacific region, where it saw volumes decline by fully 23%. From a segment standpoint, the agricultural unit managed to generate an 8% year-over-year improvement, based upon a 5% bump in selling prices and a 3% increase in volumes. Beyond that, nutrition and health benefited significantly from the acquisition of Danisco's enzyme operation.

As DuPont CEO Ellen Kullman was careful to note, the volume declines that affected the company in the most recent quarter were in large part a result of customer destocking, rather than a reflection of softening economic conditions. "As the channel corrects for significant overproduction in the first half of 2011, we expect destocking to be completed by midyear, perhaps sooner, with PV installations to be up about 10%," she said.

You've almost certainly seen the news that Chesapeake Energy (NYSE: CHK  ) will deal with continuously sliding natural gas prices -- which are now in the vicinity of $2.30 -- by cutting its gas production by about 8% for the year. As we look at chemicals companies, it's worth interjecting that the plastics operations at companies like DuPont, Dow Chemical (NYSE: DOW  ) , and Eastman Chemical (NYSE: EMN  ) will benefit significantly from the decline in that important plastics raw material.

For my money, it's important to adopt a full-year reference point relative to DuPont's results and to note that management continues to believe that 2012 will result in solid growth at the company. On those bases, I urge Foolish investors to keep close tabs on this solid company by adding its name to your individual version of My Watchlist.

Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith doesn't own shares in any of the companies named in the above article. The Motley Fool has a disclosure policy.  

Read/Post Comments (2) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 26, 2012, at 8:46 AM, funfundvierzig wrote:

    Is this the most optimistic Ellen Kullman's DuPont Leadership TEAM can offer? "May not bounce back until Q2 2012"? If then?

    Folks, you'll notice how DuPont's customarily evasive Management is quick to blame this impressive weakness entirely on external causes, primarily the "destocking" by customers. It's never the inability of DuPont executives to market or provide services or products demanded by the market at reasonable prices and the right level of quality. Imprelis, Tell Us!

    Volumes were down a staggering 10% company-wide at DuPont in Q4 2011. In coming days, we will soon know how DuPont compares to its major rivals in the chemical business. Was this severe and prolonged "destocking" industry-wide? Stay tuned.


  • Report this Comment On February 01, 2012, at 12:11 AM, MHedgeFundTrader wrote:

    Natural gas finally got some good news last week. First, major producer, Chesapeake Energy (CHK) announced that it was cutting its natural gas production by 50%, taking some immediate pressure off the market. Sure, (CHK) is just one company, but others may follow suit.

    Second, at the urging of my friend, Boone Pickens, Present Obama announced funding of some natural gas corridors in his State of the Union address. These are chains of natural gas stations placed every 100 miles stretching from east to west and north to south that would allow heavy trucks on transcontinental routes to refuel. This would provide the extra incentive for these 18 wheelers to convert from diesel fuel to CH4 at a nominal cost and put a major dent in our oil imports.

    The news was enough to trigger a massive short covering rally in this most unloved of molecules. The spot market soared 25%, from $2.25 to $2.82 per MBTU’s, while the ETF (UNG) leapt from $5 to $6.

    I am going to call the bluff of the market here and buy the United States Natural Gas Fund April, 2012 $6 puts at $0.65 or best. That way I can take advantage of the huge contango that exists between the spot and forward markets for natural gas futures contracts. To avoid actually drilling its own wells, the (UNG) buys forward contracts at huge premiums and holds them until they expire at spot. They then roll the cash forward into new contracts and repeat the process. It is one of the best wealth destruction machines I have ever seen and explains why (UNG) has, by far, outperformed natural gas on the downside. It is a great thing to be short.

    The Mad Hedge Fund Trader

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