DuPont (DD) beat expectations in the first quarter of 2013 riding on strength in its agriculture business, reflected by strong corn seeds and crop protection products sales. Gains in agriculture helped it to offset the lingering weakness across titanium dioxide and photovoltaic markets.
The Delaware-based chemical titan posted adjusted earnings from continuing operations of $1.56 per share for the quarter, topping the Zacks Consensus Estimate of $1.54. The adjusted earnings exclude one-time items including charges of $35 million associated with customer claims related to the use of an herbicide and a tax-related gain.
Including one-time items, DuPont clocked earnings from continuing operation of $1.47 per share in the quarter compared with $1.48 per share earned in the prior-year quarter. Consolidated net income, as reported, more than doubled year over year to $3.35 billion or $3.58 per share from $1.49 billion or $1.58 per share a year ago.
Net sales rose 2% year over year to $10,408 million, as higher sales volumes and pricing was offset by negative currency impact. Sales beat the Zacks Consensus Estimate of $10,378 million.
DuPont’s Agriculture segment delivered double-digit gain in the quarter. Volume improvement was driven by gains in agriculture across North and Latin America.
Separately, DuPont’s Board approved a 5% increase in its quarterly dividend.
DuPont’s shares, which are up roughly 12% so far this year, rose roughly 1% in pre-market trading.
Agriculture: Sales climbed 14% year over year to $4.7 billion in the reported quarter. An 8% gain in volumes coupled with a 6% rise in pricing more than offset the impact of higher input costs. DuPont saw strong sales of corn seeds across North America and Brazil in the quarter. Severe drought in the U.S boosted seeds sales in the quarter.
Electronics & Communications: Sales fell 9% to $616 million on lower volume and pricing. Sales were affected by weakness in photovoltaic markets.
Industrial Biosciences: Sales were flat year over year at $289 million. Strong demand of Sorona polymer and gains in food enzymes was offset by weak enzyme demand for ethanol.
Nutrition & Health: Sales rose 7% to $868 million on healthy demand for probiotics and specialty protein solution and better pricing, partly marred by higher raw material costs.
Performance Chemicals: Sales slipped 17% to $1.6 billion on account of a 6% decline in volumes and 11% lower selling prices. Lower fluoropolymers demand across North America and Asia Pacific coupled with declining prices in the titanium dioxide market contributed to the decline.
Performance Materials: Sales went down 3% to roughly $1.6 billion as a 1% gain in volumes was more than offset by a 3% decline in selling prices. Industrial and electronics markets continued to show weakness while weak demand was seen in the European automotive market.
Safety & Protection: Sales fell 4% to $907 million on weaker mix and declined plant utilization. Lower demand for military protection products and sustained weakness in specific industrial markets hurt sales in the quarter.
DuPont, during the quarter, closed the sale of its performance coatings business to private equity firm Carlyle Group for $4.9 billion in cash. The move is intended to better focus on accretive businesses like agriculture and nutrition, bio-based industrials and advanced materials.
The Performance Coatings segment has been classified as discontinued operations and is excluded from the company's continuing operations results, on a retroactive basis.
Financial Health and Shareholder Returns
DuPont ended the quarter with cash and cash equivalents of roughly $6.6 billion, a nearly two-fold year over year rise. Long-term borrowings and capital lease obligations was stable year over year at $11.3 billion.
DuPont has raised its quarterly dividend from 43 cents to 45 cents per share ($1.80 per share annualized). The dividend is payable on Jun 12, 2013, to stockholders of record as of May 15, 2013.
DuPont has backed its full-year guidance and continues to expect adjusted earnings to rise 2%-7% year over year to a band of $3.85 to $4.05 per share. The guidance assumes continued in strength in the agricultural market and improved global industrial market demand. The current corresponding Zacks Consensus Estimate is $3.90.
DuPont also anticipated operating earnings per share for first-half 2013 to decline 7%-9% year over year, reflecting lower earnings from the Performance Chemicals unit.
In a major move, DuPont and Monsanto (MON) recently settled their lawsuits against each other, involving the unauthorized use of Monsanto’s Roundup Ready technology in corn and soybeans by the former. The parties entered into a new pact, under which, DuPont will pay Monsanto royalties in excess of $1.75 billion over a decade for rights to Monsanto's next-generation soybean technologies.
DuPont’s first quarter results reflect the underlying condition of the chemical industry. Its compatriot Dow Chemical (DOW), which is slated to report on Apr 25, will shed more light on the end market scenario and demand trend for chemical products.
DuPont currently carries a short-term Zacks Rank #3 (Hold).
Another chemical major, Eastman Chemical (EMN), which is slated to report its first quarter earnings after the closing bell on Apr 25, carries a Zacks Rank #2 (Buy).
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