Can E I DuPont Be a Solid Port in a Stormy Market?

While DuPont is still very much in the restructuring stage, its outlook as a primarily agriculture entity makes for a far brighter picture for the longtime chemicals company.

Feb 5, 2014 at 2:06PM

With the market averages frequently bouncing about in triple-digit daily increments thus far in 2014, it's clearly wise to search for companies with stability and, ideally, solid prospects for sustained growth.

It therefore seems, with the lion's share of the major companies having reported results for last year's fourth quarter and prospects for 2014, that DuPont (NYSE:DD), the venerable chemicals company that's being steadily transformed into an agricultural entity, is especially deserving of Foolish attention. The company that once was comparable to the likes of Dow Chemical, with the inherent inconsistency of the chemicals sector, is more and more going up against Monsanto (NYSE:MON), another former chemicals producer that now generates virtually all its revenues from agriculture-related products.

A solid conclusion to a busy year
Much of my confidence in DuPont results from a combination of the company's increasingly solid performance as 2013 progressed and the unstinting restructuring that it's undergoing. The particulars of last year's fourth quarter were reported last week, and so I'll limit my comments on that score to reminding you that the company's per-share operating earnings catapulted to $0.59 per share for the period, compared with $0.20 per share for the comparable quarter a year earlier.

The salient positive in the quarter involved the agriculture unit, where sales of $1.8 billion were 18% higher than those of the final quarter of 2012. That performance boosted DuPont's overall results. It was largely a reflection of Safrinha corn seed sales in Brazil, along with the North American planting season, and strong demand for Rynaxypyr -- there will be a spelling test -- a successful insecticide now in the company's repertoire.

That overall improvement occurred despite yet another dip in the year-over-year contribution from the performance chemicals segment. The unit, which is primarily tied to the manufacture of titanium dioxide -- a whitening agent for which pricing has been sluggish -- and fluorochemicals, is currently destined to be spun off as a separate entity to DuPont shareholders, most likely in 2015.

Accelerating the change
The company's ongoing (and now intensifying) restructuring actually got its start in the late 1990s when, under the direction of its then-CEO Charles "Chad" Holliday, it bought Pioneer Hi-Bred, then the world's biggest seed producer. More recently, in 2011, DuPont acquired Danisco, a Danish producer of enzymes and specialty foods.

Last July, it completed the purchase of South Africa's Pannar Seed, the largest seed producer on its continent. Earlier in the year, it had sold its automotive paint unit for $5 billion. And in the midst of the fourth quarter, it announced an agreement to sell GLS/Vinyls, a portion of its performance materials segment that generates annual revenues somewhat in excess of $500 million.

Steadier growth and higher valuations down on the farm
If you now back out the parts of the company destined for sale or separation, you'll find that the ag-and-food-related segments (agriculture, industrial biosciences, and nutrition and health) accounted for a pro forma 57% of total revenues in 2013. As I've noted in the past, it seems likely that, depending upon whatever acquisitions or sales the company undertakes going forward, that same threesome could constitute 70%, or perhaps more, of DuPont's total revenues by 2016.

The results would almost certainly include a higher valuation and a lower beta for DuPont. Today, the company's trailing P/E sits at about 11.7 times, or close to half of Monsanto's and about 35% below Syngenta (NYSE:SYT), a seed, herbicide, and pesticide producer based in Switzerland. Further, given the greater demand stability inherent in agriculture, both Monsanto and Syngenta sport lower betas than does DuPont.

For the current year, and despite U.S. and global economies that I deem to be more questionable than do many of my peers, management's guidance at DuPont is for EPS $4.20 to $4.25. Any figure in that range would easily top the $3.88 for 2013.

Foolish takeaway
So the dust is a ways away from settling at DuPont, which dates its history back to the 1800s. However, especially with the pickup in its restructuring pace -- and especially given the market's current instability -- it's clear that the Delaware-based company merits monitoring by investors of all stripes.

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