DuPont Buys Two Seed Makers - Analyst Blog

EI DuPont de Nemours & Co. (DD), the world's second- largest seed maker, announced that its Pioneer Hi-Bred seed unit has acquired Washington Court House, Ohio-based Seed Consultants Inc. and Lake Providence, Louisiana-based Terral Seed. These companies had been distributing seeds under the Pioneer trademark.

DuPont's wholly-owned subsidiary, Pioneer Hi-Bred International Inc., operates in the seed industry and has seed production facilities located throughout the world. Seed production is performed directly by the company or contracted with independent growers and conditioners. The acquisitions are in sync with Pioneer's PROaccess business strategy, which was introduced in December 2008. Through the strategy, Pioneer aims to make available its seed genetics to more growers around the world through a network of partnerships and new brands.

Earlier this month, Pioneer completed acquisitions of other ProAccess partners, including Hoegemeyer Hybrids of Hooper, Nebraska; NuTech Seed of Ames, Iowa; and AgVenture Inc. of Kentland, Indiana.

Sales for DuPont's Agriculture and Nutrition segment inched up 2% to $1.3 billion on a 5% rise in volumes in its recently reported third quarter. DuPont has divested many businesses in the segment, which led to lower top-line growth. Yet the segment is experiencing higher sales in the North American seed business.

With the introduction of new hybrids in 2010, the seed business grew significantly in North America during the third quarter of 2010 with the corn share being 35%, a year-over-year increase of 3%. The soybean share was 31%, a 5% increase from the year-ago level. DuPont ranks sixth in crop protection chemicals and second in seeds.

This makes DuPont confident that its 1 million unit product AcreMax 1, which saves time for farmers and makes it easier for them to use hybrid seeds, will be successfully launched in 2011 and enable higher yields. The company expects to achieve high single digit sales growth and low to mid-teens earnings growth in fiscal 2010 in the Agriculture and Nutrition segment.

DuPont is focused on capturing $1 billion in working capital productivity gains during 2011−2013. The company is also on track to achieve a combined $600 million in benefits from fixed cost productivity and restructuring actions. It is executing strategies for further development and growth of new products, particularly for agriculture, photovoltaics, alternative energy and materials. Furthermore, the company's focus on the emerging markets, along with a strong performance in the Agriculture & Nutrition segment, is expected to generate top line growth in the future.

However, DuPont's drug patent expirations of Cozaar/Hyzaar and planned maintenance shutdowns across all of its businesses in the Electronics and Coatings and Performance Materials segments will affect earnings in the fourth quarter. Other major risks for DuPont include higher energy and raw material costs and its high debt levels. We thus currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

DuPont is currently the world's second largest chemical company in terms of market capitalization and the fourth in terms of revenues. DuPont is a global chemical and life sciences company, employing more than 60,000 people worldwide with a diverse array of product offerings. With over 21,000 patents and 15,000 patent applications worldwide, DuPont sells its products in diverse markets such as transportation, construction, apparel, agriculture, nutrition and health, packaging and electronics markets.

DuPont's business is segregated into seven major heads, including Agriculture & Nutrition, Electronics & Communications, Performance Chemicals, Performance Coatings, Performance Materials, Safety & Protection, and Pharmaceuticals. Dupont competes with the likes of Ashland Inc. (ASH), BASF SE (BASFY) and The Dow Chemical Company (DOW).