DuPont Earnings: Will the Stock Bounce Back?


Source: DuPont.

On Tuesday, DuPont (NYSE: DD  ) will release its quarterly report, and investors aren't entirely sure what to expect from the company. After following in the footsteps of Monsanto (NYSE: MON  ) to focus more on the agricultural side of its business, DuPont recently warned that its second-quarter performance wouldn't be as good as most had hoped, and it's uncertain whether final results will help the stock recover somewhat or whether DuPont will wish that it had planned to hang onto its chemical operations in the same way that Dow Chemical (NYSE: DOW  ) has done until now.

DuPont's roots lie in the chemical industry, but the stronger growth in the agricultural sector led the company to shift its business more toward seeds, pesticides, and other products serving the farming community. With the boom in agriculture in recent years, DuPont has benefited greatly from the move, and it now expects to divest other divisions of its business to increase its ag focus even more. But will DuPont's recent warning signal a reversal of that trend? 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.

Stats on DuPont

Analyst EPS Estimate

$1.17

Change From Year-Ago EPS

(8.6%)

Revenue Estimate

$9.79 billion

Change From Year-Ago Revenue

(0.6%)

Earnings Beats in Past Four Quarters

3

Source: Yahoo! Finance.

Will DuPont earnings rebound?
Investors had to revise their initial views on DuPont earnings downward sharply in recent months, cutting their second-quarter estimates by more than 20% and their full-year projections by about 7%. The stock has fallen 2% since mid-April.

We've already heard how bad DuPont's quarterly results might be this time around. DuPont struggled with bad decision-making with respect to its inventory, failing to anticipate farmers shifting from corn production to soybeans this year and therefore finding itself with too much corn-seed inventory. With additional negative factors from a late planting season that has delayed early and mid-season pesticide use, DuPont expects earnings to decline from year-ago levels and pushed its full-year operating earnings guidance down by $0.20 to $0.35 per share.

Source: DuPont.

But the seeds of DuPont's underperformance were arguably planted earlier this year. In its first-quarter results, DuPont saw declines in revenue and net income in its agricultural segment, with harsh winter weather delaying planting in North America. Still, DuPont was able to salvage the season by serving its customers in Europe, Africa, and the Middle East, sending adjusted earnings per share up 5% year-over-year with improvements in five of DuPont's seven businesses.

Longer-term, DuPont faces the same challenges as Monsanto and Dow Chemical in dealing with negative perceptions of genetically modified products. Russian President Vladimir Putin went so far as to compare Monsanto, Dow Chemical, and other GMO producers to criminal organizations, with a bill in Russia's Parliament imposing prison sentences on those producing crops using GMO traits. Elsewhere, less extreme views still include wariness about the health and safety of GMO products, and as long as certain parts of the world ban imports of GMO-grown crops, then DuPont and its peers won't be able to reach their full potential.

The key question for DuPont is whether its reorganization will continue to pick up steam. DuPont is looking to spin off its performance chemicals business, becoming an even purer play on agriculture. With strategic moves to become a worldwide powerhouse in the ag industry, DuPont hopes that taking on Monsanto head-on will prove to be the best move it can make.

In the DuPont earnings report, watch to see whether its results are as bad as its warning suggested they would be. If signs of better performance ahead emerge from the report, then DuPont stock could easily bounce back and participate in the general move higher for the stock market.

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  • Report this Comment On July 21, 2014, at 1:17 PM, funfundvierzig wrote:

    For practically all of the last century, E. I. du Pont de Nemours and Company was the largest and leading chemical enterprise on the globe, without question. The simple-minded strategy of Ellen J. Kullman, DuPont Chieftess, in ditching 200 years of core competency in chemicals carries enormous risk for investors.

    Ms. Kullman is literally betting the farm on the farm. But the commercial reality is DuPont is definitively inferior in seeds and ag chemicals to its superior-managed rivals. Ms. Kullman is ten years behind the time to give DuPont a successful Monsanto-Makeover.

    DuPont is in a lowly sixth place in crop protection/ag chemicals behind world-leading Syngenta, followed by Bayer, BASF, Dow Chemical, and Monsanto.

    Finally, in dumping her chemicals via a spin-off, Ms. Kullman will be chopping off $7 billion of yearly revenues or circa 20% of DuPont's total revenues of $36 billion. This substantial shrinkage in revenues and cash flow may imperil the 45 cents quarterly dividend.

    Stay tuned for more developments in the diminished and degraded DuPont...funfun..

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