DuPont Beats, Charges Crimp Net (APD) (DD) (DOW) (EMN)

The Delaware-based company posted adjusted earnings from continuing operations (excluding the divestiture of performance coatings business) of 11 cents per share for the fourth quarter, down from the year-ago earnings of 26 cents. That, however, beat the Zacks Consensus Estimate by a couple of cents.

The adjusted earnings exclude one-time items including charges of $66 million associated with the company’s restructuring measures. DuPont is laying off 1,500 workers across the globe as part of a restructuring plan which is expected to fetch roughly $450 million in savings. Charges (totaling $168 million) associated with asset impairment and legal claims by customers related to the use of an herbicide also hurt the bottom line.

Including one-time items, the company recorded earnings from continuing operation of 2 cents per share in the quarter, a sharp decline of roughly 94% from 31 cents registered in the prior-year quarter. Consolidated net income, as reported, tumbled 70% year over year to $111 million or 12 cents a share. Weak results from the company’s performance chemicals business contributed to the decline.

Net sales for the quarter were essentially flat year over year at $7,325 million as negative currency impact and reduction from portfolio changes neutralized higher sales volumes. Sales beat the Zacks Consensus Estimate of $7,253 million. Volume rose 3% driven by gains across Asia Pacific and Latin America.

Despite currency headwinds, DuPont’s Agriculture segment delivered healthy sales in the quarter. Moreover, the Danisco acquisition contributed to the growth across the company’s Industrial Biosciences and Nutrition & Health divisions.

For full-year 2012, adjusted earnings from continuing operation was $3.33 per share compared with $3.55 recorded a year ago, missing the Zacks Consensus Estimate by a nickel. Reported earnings per share from continuing operation fell to $2.61 per share from $3.30 a year ago.

Net sales, for the year, rose roughly 3% year over year to $34,812 million, but fell behind the Zacks Consensus Estimate of $35,852 million.

DuPont’s shares rose 1.9% in pre-market trading, reflecting the better-than-expected fourth quarter results.

Segment Analysis

Agriculture: Sales climbed 18% year over year to $1.5 billion in the fourth quarter. An 11% growth in volumes coupled with a 7% rise in pricing more than offset the unfavorable currency exchange impact.

Electronics & Communications: Sales edged down 1% to $622 million as a 2% gain in volume was offset by a 3% fall in pricing. Sales were affected by weak demand for photovoltaic materials, partly masked by higher demand for materials used in smartphones and tablets.

Industrial Biosciences: Sales rose 4% to $300 million on the back of higher volumes and pricing. Strong sales of Sorona polymer and gains in food enzymes in Europe led to higher volume.

Nutrition & Health: Sales rose 6% to $853 million on higher volumes and better local pricing across the board. Healthy demand for probiotics, cultures and enablers led to higher sales volumes.

Performance Chemicals: Sales slipped 15% to $1.6 billion on account of an 8% decline in volumes and 7% lower selling prices. Lower fluoropolymers demand across the U.S. and Europe contributed to the decline in volumes while a weak titanium dioxide market hurt pricing.

Performance Materials: Sales went down 5% to $1.5 billion as a 3% gain in volumes was more than offset by a 5% decline in selling prices and a 3% reduction from a portfolio change. Industrial and electronics markets continued to show weakness, offsetting strong demand in the North American automotive market.

Safety & Protection: Sales crept up 2% to $964 million. Increased demand for sustainable solutions offerings and U.S. residential and commercial construction products led to a 3% increase in volume. This was, in part, offset by a 1% decline in pricing due to unfavorable currency.

Divestiture

DuPont, in August 2012, struck a deal with private equity firm Carlyle Group to divest its performance coatings business for $4.9 billion in cash. The transaction is expected close in the first quarter of 2013, subject to necessary approvals. The move is intended to better focus on accretive businesses like agriculture and nutrition, bio-based industrials, and advanced materials.

Beginning with third-quarter 2012 results, 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 exited 2012 with cash and cash equivalents of $4.3 billion, up 19% year over year. Long-term borrowings and capital lease obligations was $10.5 billion as at the end of the year, an 11% year over year decline.

The company, in late 2012, announced a $1 billion share repurchase program. The new buyback program will be backed by the proceeds from the divestiture of the performance coating business and will complete this year.

Outlook

For 2013, the company expects adjusted earnings to rise 2%-7% year over year to a band of $3.85 to $4.05 per share. Revenues for the full year are expected to be roughly $36 billion. The corresponding Zacks Consensus Estimates for revenues and earnings per share are $36.2 billion and $3.78.

DuPont’s results shed light on the underlying condition of the chemical industry. The other big Kahuna of the U.S. chemical domain, The Dow Chemical Company (DOW), which is slated to report on January 31, will offer more color on the end market scenario and demand trend for chemical products.

DuPont currently holds a short-term Zacks Rank #3 (Hold). Eastman Chemical (EMN) and Air Products (APD) are among the other big chemical names to report this earnings season with both holding a Zacks Rank #2 (Buy).