DuPont's (DD) Q2 Earnings Meet Estimates, Raises Dividend

DuPont DD saw a rise in its reported profit for the second quarter of 2014. But its adjusted earnings fell year over year on weak results in its core agriculture business. 

 

The Delaware-based chemical giant posted adjusted earnings of $1.17 per share in the reported quarter that were below $1.28 per share posted a year ago. It was in line with the Zacks Consensus Estimate. Adjusted earnings exclude one-time items including charges associated with the separation of the company's performance chemicals business, restructuring expenses and pension costs. 

 

In the agriculture unit, sales of corn seeds were below DuPont's expectations while seed inventory write-downs were higher-than-expected. Moreover, herbicide sales were lower than the company's expectations, affected by extreme winter weather.   

 

Including one-time items, DuPont registered earnings from continuing operations of $1.15 per share in the quarter versus $1.10 per share a year ago. Consolidated net income, as reported, was up 3.9% year over year to $1,070 million or $1.15 per share.

 

Operating earnings from the agriculture business fell 11% in the reported quarter. The electronics franchise, which supplies materials for solar panels in the photovoltaic industry, saw a 6% fall in the quarter. The industrial biosciences unit recorded a 37% rise while safety and protection posted a 22% gain. Nutrition and health raked in a 72% gain while the performance materials unit registered a 9% decline.

 

DuPont's performance chemicals division (includes the paint pigment business) remained a weak link. The division's operating profit clipped 6% in the quarter. The company is spinning off the unit as it is gradually shifting its focus to high growth, less cyclical businesses. Separation of the business is expected to complete by mid-2015.

 

DuPont's net sales for the reported quarter slipped 1.4% year over year to $9,706 million as higher volumes for crop protection, nutrition and health and most industrial businesses was masked by portfolio changes, a maintenance shutdown and lower corn seed volumes. Sales missed the Zacks Consensus Estimate of $10,022 million.

 

DuPont backed its earnings expectations for 2014 and bumped up its dividend by 4%. Its shares, which are up roughly 18% over a year, rose 0.4% in pre-market trading.

 

 

Segment Highlights

 

Agriculture: Revenues were flat year over year at $3.6 billion in the reported quarter. Lower corn seed and North America herbicide volumes were partly offset by higher seed prices and increased insecticide and soybean volumes.

 

Electronics & Communications: Sales fell 6% to $617 million in the quarter. Sales volumes went up in consumer electronics.

 

Industrial Biosciences: Sales were up 4% to $317 million on higher demand for enzymes for animal nutrition, food and ethanol production.

 

Nutrition & Health: Sales rose 7% to $926 million. Productivity improvement, higher volumes, better product mix and lower input costs led to a healthy rise in the division's operating earnings.

 

Performance Chemicals: Sales were down 8% to around $1.7 billion. Operating earnings fell on lower pricing for refrigerants and fluoropolymers.

 

Performance Materials: Sales fell 2% to roughly $1.6 billion. Operating earnings fell as gains from higher performance polymers volumes in automotive markets were offset by a maintenance shutdown at the company's Texas ethylene unit.

 

Safety & Protection: Sales edged up 1% to roughly $1 billion, aided by higher volumes in protection technologies.

 

Financials

 

DuPont ended the quarter with cash and cash equivalents of roughly $4.2 billion, down 38% year over year. Total borrowings and capital lease obligations fell roughly 16% year over year to around $11.8 billion.

 

DuPont's board has approved a 4% rise in its quarterly dividend to 47 cents per share from the earlier payout of 45 cents per share. This represents the third hike in the past 27 months.

 

Outlook

 

DuPont, a Zacks Rank #4 (Sell) stock, reaffirmed its earnings guidance for 2014 which it updated last month. It continues to see adjusted earnings per share for the year in the band of $4.00 to $4.10, a 3%-6% year-over-year rise. The current corresponding Zacks Consensus Estimate is $4.02.

 

Moreover, DuPont expects a strong second half and foresees adjusted earnings of $1.25 to $1.35 per share, roughly 40% of which is expected in the third quarter. The guidance takes into account the expected improvement in global industrial market demand.  

 

DuPont, last month, provided some color on its earlier communicated actions to support its more focused portfolio of businesses following the spinoff of the performance chemicals unit. These initiatives are expected to deliver cost savings in the near term through reduction of costs associated with the separation of the unit and productivity improvements across the board. DuPont envisions these actions to generate at least $1 billion in savings by end-2019, two-thirds of which are expected to be realized by 2015.

 

DuPont's results put a spotlight on demand trends for chemical products across a bevy of industries. Its compatriot Dow Chemical DOW will report ahead of the opening bell tomorrow.

 

Among other major chemical names, Celanese CE posted better-than-expected second-quarter results on Jul 17. Eastman Chemical EMN will report after the close on Jul 28.