DuPont Beats 4Q Consensus - Analyst Blog

Net earnings of chemical giant EI DuPont de Nemours & Company (DD) plunged 14.7% to $376 million or 40 cents per share in the fourth quarter of 2010 compared with $441 million or 48 cents in the prior-year period.

The decline in earnings is attributable to the patent expiration in the Pharmaceutical business which affected profits by 14 cents. Reported earnings, however, were ahead of the Zacks Consensus Estimate of 32 cents.

For the year 2010 the company's earnings stood at $3.28 per share compared with $1.92 per share in the prior year and beat Zacks estimates of $3.11 per share.

Quarterly revenues grew 15% to $7.4 billion on a 12% volume gain, driven by higher international sales and a 6% rise in selling prices. Sales exceeded the Zacks Consensus Estimate of $6.9 billion. For full year 2010, revenues grew 21% year over year to $31.5 billion at par with the Zacks Consensus Estimates.

DuPont saw sales volumes rise in all the business segments, with the Elec

Quarterly revenues grew 15% to $7.4 billion on a 12% volume gain, driven by higher international sales and a 6% rise in selling prices. Sales exceeded the Zacks Consensus Estimate of $6.9 billion. For full year 2010, revenues grew 21% year over year to $31.5 billion at par with the Zacks Consensus Estimates.

DuPont saw sales volumes rise in all the business segments, with the Electronics & Communications and Performance Chemicals reporting a pronounced 37% and 18% year-over-year volume expansion. DuPont recorded a 19.5% year-over-year rise in costs to $5.9 billion.

Regional Sales

Emerging markets sales spiked 24% in the fourth quarter of 2010. Revenues in Asia-Pacific accelerated 26% to $2.0 billion on a 17% increase in volumes, while earnings in Europe, Middle East and Africa shot up 6% to $1.9 billion driven by an 8% increase in volumes.

Sales in Latin America grew 18% to $120 million with volumes rising 14%. Sales in the North American markets were up 15% to $2.2 billion reflecting a 9% increase in volumes. Sales in Canada were flat at $100 million.

Segment Review

Agriculture and Nutrition: Sales jumped 13% to $1.3 billion reflecting higher volumes. Strong start to the North American season, an increase in Latin Americacorn sales, an increase in Brazilsoybean volume, and higher sales for crop protection products across all regions, led by continued expansion of Rynaxypyr insecticide accounted for the increase in sales.

The segment reported operating losses of $117 million versus $97 million in the same quarter of 2009.

Electronics & Communications: Higher demand for photovoltaics drove revenues in the segment. Revenues soared 33% to $0.8 billion driven by a 24% and 9% rise in volumes and prices respectively. Operating income was up 60.7% to $98 million.

Performance Chemicals: Revenues in the segment climbed 26% to $1.7 billion on a 13% increase in volumes and a 14% rise in prices. The segment saw higher pricing for titanium dioxide. Operating income grew 51.4% to $315 million.

Performance Coatings: Revenues in the segment increased 3% to $1.0 billion based on 4% higher volumes and offset by a 1% decline in selling prices due to unfavorable foreign exchange translation. Volumes were driven by improving demand in the automotive OEM markets, particularly in the heavy duty trucks markets, globally and increased demand in the industrial coatings market. Operating income remained almost flat year over year at $71 million.

Performance Materials: A robust 11% jump in revenues to $1.6 billion was on account of a 9% and 5% rise in volumes and prices. However, higher volumes were offset by increased raw material costs and a weak sales mix. Operating income increased by 18.4% to $206 million in the reported quarter.

Safety and Protection: Sales increase of 13% to $0.9 billion was primarily driven by volume rise. Volumes were driven by increased demand for aramid and nonwoven products in the consumer markets across all regions. Operating profits declined 31.9% to $92 million due to higher raw material costs, higher spending for aramids growth initiatives and a net $11 million charge related to an asset impairment and a separate gain on an asset sale.

Guidance

DuPont raised its earnings guidance for full year 2011 to a range of $3.45 to $3.75 per share versus its previous guidance of $3.30 to $3.60 per share.  The earnings outlook reflects the expectation for continued steady global economic growth with increasing industrial production, favorable North American agricultural conditions, and the company's further penetration of developing markets. The company assumes earnings from Pharmaceuticals to decline by about $280 million pre-tax versus 2010.

DuPont entered into a definitive agreement for the acquisition of Danisco, expected to be completed early in the second quarter of 2011.  The impact of this acquisition could reduce 2011 earnings by 30 cents to 45 cents per share on a reported basis.

Zacks Recommendation

DuPont has focused on aggressive cost-cutting, and plans to capture $1 billion each by way of fixed costs and working capital productivity gains during 2011-2013. 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, Pharmaceutical royalties declined after the expiration of patents and negatively affected profits in the reported quarter.

Its competitors include The Dow Chemical Company (DOW) and BASF SE (BASFY).

Currently, DuPont has a short-term (1 to 3 months) Zacks #3 Rank and a long-term (6 months and longer) Neutral recommendation.

 
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