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DuPont's Planted the Seeds for Growth

By David Smith - Apr 24, 2013 at 4:10PM

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DuPont has moved from a largely chemicals-based company to one that tilts toward agriculture. It's quarterly results showed definite signs of positive results.

DuPont (DD), which was founded during the Jefferson administration as a manufacturer and purveyor of explosives, may not have blown our proverbial socks off with its quarterly results on Tuesday.

But its overall performance was nevertheless solid in the face of a global economy that continues to buffet chemicals operations. More importantly, the increasingly agriculture-driven company appears to have planted the seeds for increasing growth as the year progresses.

The specifics
On a reported basis, the company turned in net income of $3.35 billion, or $3.58 per share, for the quarter, essentially a doubling of the $1.49 billion, or $1.58 a share, for the comparable period in 2012. Much of this jump was, however, related to the sale of the company's performance coatings unit. Excluding one-time items, the numbers for the most recent quarter came to $1.46 billion in earnings, or $1.56 per share, versus $1.5 billion, or $1.64 a share, a year ago.

The per-share figure for the first quarter of the current year comfortably topped the $1.52 consensus forecast of the analysts who follow the company. The company's net sales were up 2.2% to $10.4 billion. Most of the year-over-year increase was tied to volume growth.

Of DuPont's individual segments, agriculture, which now accounts for fully 44% of total segment sales, expanded by 14% on the top line and saw its operating income increase by 13%. Conversely, performance chemicals, the second-largest unit, suffered a 17% decline in revenue, and a whopping 56% slide in operating income. Overall, with electronics and communications, along with safety and protection also contributing lower amounts than a year ago, total operating earnings were down 8% year over year.

In looking at regional results, CFO Nick Fanandakis noted on the company's conference call that "... the largest local selling price increases and volume growth were seen in the U.S. and Canada and Latin America, where the ag business is flourishing." Europe was hit by inclement weather, which delayed agriculture sales. And Asia Pacific was something of a mixed bag, with higher volumes in titanium dioxide (a pigment agent), packaging, and industrial polymers offset by volume declines in electronics and communications, along with certain other chemicals businesses.

Focusing on the farm
But clearly, agriculture is the future of DuPont. Like Monsanto (MON), which similarly progressed from being a broadly based chemicals company into largely a seed and crop protection entity, DuPont shares have performed well this year, increasing in value by about 18%. That compares to a 10% rise for Monsanto. Conversely, Dow Chemical (DOW), which has generally remained true to its last name and continued on as a more thoroughgoing chemical company, has seen its shares lie relatively moribund year to date.

As DuPont CEO Elllen Kullman noted during her company's call, "In agriculture, we had record-setting sales and earnings that reflect stronger, firmer demand for our products, especially our latest corn seed hybrids and our blockbuster crop protections product, Rynaxypyr." Looking at geographic strengths for the group, she said, "We had a strong finish to the growing season in Brazil, and took advantage of an early and robust start to the North American growing season to deliver exceptional results."

James Borel, DuPont's executive vice president, with responsibility for the agriculture unit, alluded on the call to the company's having reached an agreement with the U.S. Department of Agriculture for a federal-private collaborative program to safeguard natural resources on private lands. The initiative is also intended to provide feedstocks for cellulosic ethanol production.

So many mouths to feed
As Syngenta (NYSE: SYT), a seed bioengineering company in Switzerland – which together with Monsanto and DuPont constitute the big three of seed engineering – has noted, our world's population is anticipated to expand from about 7 billion today to more than 9 billion by 2050. Beyond that, cereal demand is expected to grow by 40% globally by 2025, the same time period in which worldwide demand for meat is anticipated to jump by 50%. The latter will, of course, require a commensurate increase in grain crop production and will serve as a growth enhancer for DuPont in the years to come.

Along with announcing a 5% hike in the company's quarterly dividend, Kullman concluded the company's call by stating:

On our bottom line, we expect strong growth again in our agriculture segment and tough comparisons to prior year peak levels in performance chemicals ... We expect that first half operating earnings per share will be about 7% to 9% lower than last year. Going to the full year, we are reaffirming our full guidance of $3.85 a share to $4.05 a share, which is a 2% to 7% growth from last year.

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