EI DuPont de Nemours & Co. Earnings: Will Its Transformation Bring Growth?

DuPont has returned to its roots, but will they still produce the growth investors want?

Apr 15, 2014 at 1:30PM

On Thursday, DuPont (NYSE:DD) will release its quarterly report, and shareholders have been pleased about the transformation that the chemical giant has made in its business model. Following the lead of Monsanto (NYSE:MON) in shifting its focus toward agriculture, DuPont hopes to get the same benefits that Monsanto and Dow Chemical (NYSE:DOW) have reaped from divesting slower-growth businesses in favor of the higher growth available from the ag industry.

DuPont has a long history as an industrial chemical giant, having produced plastics, photovoltaic materials, and a wide range of performance chemicals for a vast array of customers. But more recently DuPont has chosen to cast itself more heavily in the agricultural vein, producing seeds, pesticides, and other useful products for farmers to use to boost their crop yields. Investors are excited about the potential of this business, but will it pay off for DuPont as well as it has for Monsanto? Let's take an early look at what's been happening with DuPont over the past quarter and what we're likely to see in its report.

Farm
Source: USDA, Natural Resources Conservation Service.

Stats on DuPont

Analyst EPS Estimate

$1.59

Change From Year-Ago EPS

1.9%

Revenue Estimate

$10.45 billion

Change From Year-Ago Revenue

0.4%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can DuPont earnings keep growing?
Analysts have had deeply mixed views in recent months on DuPont earnings, slashing their first-quarter estimates by 10% but boosting their projections for 2015 full-year earnings by $0.34 per share. The stock has held up well, rising 5% since early January.

DuPont's fourth-quarter earnings report shows some of the pressure that the chemical giant is under to produce stronger growth. Even though the company's earnings per share almost tripled from the year-ago quarter, investors focused instead on tepid growth forecasts for 2014 that suggested revenue could rise by just 4%. Still, DuPont has already correctly identified the problem, with 14% growth from DuPont's ag business showing the greater potential it has compared to slower-growth areas like its performance chemicals segment.

DuPont has made efforts to enhance its value to the farming community. In early February, DuPont announced a deal with DTN/The Progressive Farmer, an information-provider that will let DuPont send precise weather and crop-market data to its customers in order to help them tailor their growing strategies for maximum results. Given that Monsanto did a similar deal late last year, DuPont clearly sees the need to woo customers by providing value-added services.

Yet DuPont and its peers face the ongoing challenge of negative sentiment toward genetically modified organisms. Risk expert Nassim Taleb has recently taken up the mantle of anti-GMO protest, arguing that the threat to the world's ecosystem that GMOs pose outweighs the potential benefits from their use. Taleb is well-known for his emphasis on low probability, high significance events, and given the tendency for GMO traits to spread, the lack of control that DuPont and its peers have over their products introduces risk levels that Taleb and many others are unwilling to take. If enough people get behind anti-GMO moves, it could crush DuPont's new strategy in its infancy.

Moreover, competitive pressures will loom large on DuPont's growth. Monsanto has had a huge head-start in the space and has managed to sign cross-licensing agreements with DuPont and many of their rivals. Like DuPont, Dow Chemical is trying to shift its focus more toward agriculture, but Monsanto's market share is holding both companies back.

In the DuPont earnings report, watch to see how the company's agricultural transition progresses. With all eyes on DuPont's plan to spin off its performance chemicals business to its shareholders, DuPont will become even more dependent on agriculture in the near future -- for good or ill.

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