DuPont's Strengthening Down on the Farm

DuPont (NYSE: DD  ) , the big Delaware-based chemicals company, which is rapidly following in the footsteps of Monsanto (NYSE: MON  ) in transforming itself by its domination in agriculture and food products businesses, stepped forward with a reasonably sound quarter Tuesday. At the same time, however, amid softening global economics, the company's management is clearly somewhat less sanguine about future conditions than was the case just a quarter ago.

For the June quarter, the company reported net income of $1.18 billion, or $1.25 per share, compared with $1.22 billion, or $1.29 a share for the second quarter of 2011. However, if you back out special charges for the most recent quarter, DuPont's per-share earnings reached $1.48, or $0.02 higher than the consensus forecast by the analysts who follow the company. Revenue for the quarter was $11 billion, an increase from the $10.26 billion for the comparable quarter a year ago.

Making hay in agriculture
Looking at the entirety of 2012, however, both CFO Nick Fanandakis and CEO Ellen Kullman noted during their post-release conference call that, while their per-share earnings expectation for the year remains in the previously expected range of $4.20-$4.40, they now anticipate results to be closer to the lower end of that range. Kullman said that expectation is based on a combination of "global macro conditions, currency, and an anticipated higher tax rate due to [the] earnings mix."

The earnings mix for the past quarter was precisely that: a mixed bag. Looking at the company's segments, agriculture -- easily the largest of DuPont's units -- produced sales of $3.4 billion, up 13% year over year, of which 7% was attributable to higher prices and the remainder to increased volumes. Seed sales were up 12%, largely reflecting higher corn and soybean acreage and solid price performance in North America. Crop protection sales grew by 15%, with especially sound results in North America and Latin America.

The company's industrial biosciences business and its nutrition and health unit increased their revenues by 340% and 195%, respectively. Both benefited materially from the $6.3 billion acquisition of Danisco, a Copenhagen-based global manufacturer of enzyme and specialty food ingredients, slightly more than a year ago.

A tough industrial slog
DuPont's five other segments experienced reduced sales. The steepest decline was in the electronics and communications area, where, despite some sequential improvement from the first quarter, demand for photovoltaic materials remained soft.

Unlike numerous other companies in a variety of industries, DuPont realized a pickup in Asia as the quarter progressed. For instance, Karen Fletcher, the company's vice president for investor relations, said that sales of titanium dioxide (TiO2), a widely used whitening agent of which DuPont is the world's largest producer, were strongest in China year to date in June. TiO2 is produced by the performance chemicals segment, DuPont's second-largest unit, which saw a 10% decline in volumes nearly offset by a 9% increase in prices.

CEO's assessment
Kullman effectively summarized the company's quarter and its direction by concluding her remarks during the call with:

... the second quarter came in about as expected against the backdrop of very dynamic market conditions. The company demonstrated strong execution and resiliency. The comments we've made about our performance and our outlook are very consistent with what we've been saying for the past couple of years: Innovation is the backbone of the company, and we differentiate ourselves through our offerings. We are prioritizing resources and aligning the secular growth opportunities in food, energy, and protection, and productivity. It remains a way of life for each and every [one] of our businesses.

The Foolish bottom line
Nearly a month ago, Monsanto, which previously operated under the slogan "Better living through chemistry" but has led DuPont into a food and agriculture concentration, reported extremely strong earnings. For its part, DuPont continues to move in a similar direction, having recently received approval for the acquisition of Africa's Pannar Seed Company.

Beyond that, however, for a sense of the volatile atmosphere in which the remainder of the company is operating, my intention is to closely monitor the results and comments by such significant industrial companies as 3M (NYSE: MMM  ) and Dow Chemical (NYSE: DOW  ) , both of which will report on Thursday. After that, I'll be anticipating the results at Deere & Co. (NYSE: DE  ) , which is affected by fluctuations in agriculture and which will announce its results in mid-August.

If you're interested in DuPont and, like me, would like to assess the broad economic circumstances in which the company is operating, I'd suggest you access the absolutely free Motley Fool report, "These Stocks Could Skyrocket After the 2012 Presidential Election." It will be made available to you when you simply click here.

Fool contributor David Lee Smith doesn't own shares in any of the companies named in this article. Motley Fool newsletter services have recommended buying shares of 3M. Motley Fool newsletter services have recommended creating a diagonal call position in 3M and creating a modified stock repair against synthetic long position in Monsanto. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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  • Report this Comment On July 25, 2012, at 8:16 PM, funfundvierzig wrote:

    Ms. Kullman, DuPont Chieftess brags,

    "Innovation is the backbone of the company and we differentiate ourselves through our offerings."

    But DuPont's biggest, most touted "innovation" of the past 12 months turned out to be counterfeit, if not fraudulent. The Company's extraordinarily toxic lawn herbicide, Imprelis, now banned by the U. S. EPA, has killed or damaged hundreds of thousands of mature trees nationwide.

    Charges for Imprelis have been taken against DuPont earnings as follows:

    Q3 2011...$75 million

    Q4 2011..$100 million

    Q1 2012...$50 million

    Q2 2012..$265 million

    Bottom-line, the Imprelis Scandal has already cost DuPont one-half $billion, or $490 million to be exact. AND THESE IMPRELIS CHARGES RELATE ONLY, REPEAT ONLY TO IMPRELIS CLAIMS SUBMITTED TO DUPONT'S OWN CONFLICTED IN-HOUSE CLAIMS RESOLUTION PROCESS! Nothing charged or set aside as contingency reserves for thousands of Imprelis claims flooding the state and federal courts in hundreds of lawsuits.

    DuPont bosses have been excluding these Imprelis charges from their calculations of PTOI, reporting PTOI, "ex-items" for PR purposes.

    In our opinion, this is grossly misleading, if not dishonest, because if Ms. Kullman is going to talk about DuPont AG profits from "innovations", she should also talk about losses from "innovations."


  • Report this Comment On July 25, 2012, at 8:23 PM, funfundvierzig wrote:

    "Better Things for Better Living Through Chemistry" was the legendary slogan of E. I. du Pont de Nemours and Company for most of the last century, when it reigned as the largest and most prestigious chemical enterprise in the world. Unfortunately it was replaced by the rather meaningless hype,

    "DuPont Miracles of Science™"

    DuPont's PR-driven Management has tried to re-stage this chemical conglomerate with seeds as a "high science" and tech company and bio-boutique, notwithstanding the fact that over half of the Company's offerings come from industrial chemicals and commodity materials, such as TIO2, sulphuric acid, ag chemicals, paints, solvents, Corian, Teflon, Kevlar, Tyvek, films, plastics, undsoweiter.



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