1 Battle that Monsanto is Likely to Win

Despite wider-than-expected quarterly losses from Monsanto (NYSE: MON  ) earlier this month, analysts' hopes from DuPont (NYSE: DD  ) remain high as the company gets ready to report its third-quarter numbers next week.

Image source: DuPont

Analysts expect DuPont to earn $0.41 per share on 5% higher revenue in the third quarter. That's a remarkable 28% improvement on the bottom line year over year. But with DuPont expecting large seasonal losses from its agriculture division, what is the Street betting on? More importantly, what are the critical things that investors should watch for in DuPont's upcoming earnings release that will help them assess where the company's headed to? Let's figure out.

DuPont needs to act fast
DuPont's third-quarter agricultural sales depend largely on the Latin American market as farmers prepare for the peak planting season. But there has been a marked shift in the farmers' preference of crops -- soybeans are rapidly edging corn out in the wake of high prices. According to industry forecasts, corn production in Brazil may drop 27% this year even as soybeans acreage hits a recordhigh. Monsanto confirmed this trend in its recently held earnings call.

This shift toward soybeans isn't as big a worry for Monsanto as it is for DuPont. Monsanto already dominates the Brazilian soybeans market with nearly 85% market share. Comparatively, DuPont has just about 10% of the market under its belt. Monsanto's recently launched next-generation Intacta RR2 PRO soybeans trait in Brazil could make DuPont's growth in the market even tougher.

In its upcoming earnings call, investors should thus pay close attention to how DuPont plans to tackle the situation, and whether it has any new soybeans products lined up for the Brazilian market. DuPont projects a "substantially larger seasonal loss" for its agriculture division in the third quarter on lower corn seed sales from Latin America. So if the company doesn't have any concrete plans for the market, investors may consider it a potential yellow flag.

Will DuPont follow Huntsman's footsteps?
Investors should also look for signs of a turnaround in DuPont's chemicals business in its upcoming earnings report. After a long lull period, the titanium dioxide, or TiO2 pigment, industry is finally picking up. DuPont had reported an 18% sequential increase and 12% improvement year over year in TiO2 volumes in the second quarter. If the upward trend persists in the third quarter, it will confirm the recovery of the TiO2 industry.

But what investors and analysts are really waiting for is an update on DuPont's plans for its TiO2 business. DuPont is considering options like a spin-off or sale of its TiO2 business in the wake of volatility and uncertainty, but nothing has been announced yet. The market has gotten even more excited after peer Huntsman (NYSE: HUN  ) made a bold move last month by agreeing to acquire Rockwood Holdings' TiO2 business with the motive of spinning it off through a public issue in two years' time.

Though the deal will make Huntsman the second biggest TiO2 producer in the world after DuPont, several factors suggest that Huntsman may not have made the wisest move. It remains to be seen whether DuPont has a similar plan up its sleeves, or whether it chooses to entirely exit the TiO2 business. Since any form of portfolio reshuffling can have major implications on DuPont's future, investors must remain alert.

The much-awaited recovery
While its agriculture and chemicals businesses are more important, investors should also track the progress of DuPont's electronics and communications business. Like TiO2, the market for photovoltaic materials remained sluggish for several quarters. The division's numbers in DuPont's second quarter showed promise, so whether the industry is on its way to recovery will be clear from DuPont's third-quarter numbers.

The Foolish bottom line
After Monsanto's outlook of a 9% to 13% improvement in EPS for financial year 2014, DuPont investors will look forward to a bright guidance from their company. DuPont also needs to convince investors that it has its strategy in place to overcome challenges in key markets like Brazil; and that any decision regarding its TiO2 business will be in the best interest of its shareholders. Stay tuned as I take you through the key takeaways from DuPont's earnings report next week.

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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 October 19, 2013, at 7:38 PM, TheBeachBum101 wrote:

    Hello I just wanted to add, Monsanto is one of the most disgusting companies on the PLANET! I love what you guys do here at the fool, But when i received an email discussing Monsanto shares, I was extremely disheartened. What would be even better that what you guys already do when it comes to generating income through trading, (which is simply amazing) Would be if you help to change the world by NOT encouraging investing in corporations that have NO benefit to the world other than GREED and POWER. Particularly like a company like Monsanto. The world will not change for the better if we continue to invest in these disgusting companies. If only people started learning to make money with more integrity behind it, and supported companies that help our planet and create a better existence for mankind. Monsanto is definitely not one..

  • Report this Comment On October 19, 2013, at 11:49 PM, funfundvierzig wrote:

    After failing to develop and commercialise its own genetically-engineered seed trait to compete with Monsanto (DuPont OptimumGAP much touted for years by DuPont's PR-driven Management), DuPont has been pretty much reduced to being a Monsanto copycat. Most of DuPont Pioneer's better seeds are embedded with Monsanto's superior GM traits, for which DuPont pays Monsanto hundreds of $millions in license fees.

    Pioneer Hi-Bred International was the world's leading and largest seed enterprise before being acquired and subsumed into the unwieldy DuPont conglomerate bureaucracy. There is talk of spitting Pioneer off from DuPont via an I.P.O., which would unlock value for DuPont's long-suffering shareholders. The creativity and innovation of Pioneer's talented people would also likely be unlocked ...funfun..

  • Report this Comment On October 21, 2013, at 8:36 AM, reginabee wrote:

    We have made sure we own no stock that is connected to Monsantoxic in any way. Why would I want to leave the world to my children with food insecurity, high cancer rates and infertility? We are putting our money where our mouth is and investing in regenerative agriculture that is safe and does not rely on genetic engineering. Just because you can put a pig gene in an apple doesn't mean you should. Monsanto is a loser in so many ways. I look forward to seeing the demise of this company, if ever so slowly, as the people wake up and smell the gmo. (thank goodness they have not genetically modified coffee....YET)

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