DuPont (DD) beat earnings expectations by a whisker in the second quarter of 2013 but missed on sales as lower titanium dioxide (TiO2) pricing hurt its top line. The results reflect continued strength in its agriculture business riding on strong corn seeds and crop protection products sales, offset by weakness across performance chemicals and electronics franchises.
The Delaware-based chemical titan, in another press release, said that it is exploring strategic options for its struggling performance chemicals business, including a potential sale. The company is also realigning its management team. These moves are part of DuPont's transition to a higher growth, less cyclical company.
DuPont’s Performance Chemicals division (includes paint pigment business) remains challenged by weak TiO2 market fundamentals. Lower pricing for TiO2, which is used to give paint and other coatings a white hue, hurt the division’s results in the reported quarter and the company’s bottom line in the process.
DuPont posted adjusted earnings from continuing operations of $1.28 per share for the quarter, beating the Zacks Consensus Estimate by a penny. The adjusted earnings exclude one-time items including charges associated with customer claims related to the use of an herbicide.
Including one-time items, DuPont logged earnings from continuing operation of $1.10 per share in the quarter compared with $1.15 per share earned in the prior-year quarter. Consolidated net income, as reported, fell 12% year over year to $1.03 billion or $1.11 a share.
DuPont, in Feb 2013, closed the sale of its performance coatings business to private equity firm Carlyle Group for $4.9 billion in cash. The business has been classified as discontinued operations and is excluded from the company's continuing operations results, on a retroactive basis.
Net sales for the second quarter edged down 1% year over year to $9,844 million, as higher sales volumes was more than offset by lower selling prices and unfavorable currency impact. Sales missed the Zacks Consensus Estimate of $10,011 million.
DuPont’s shares rose nearly 5% in pre-market trading, triggered by the news of a potential disposal of the performance chemicals unit.
Segment Analysis
Agriculture: Sales rose 7% year over year to $3.6 billion in the reported quarter, aided by higher seed prices. A 1% gain in volumes coupled with a 6% rise in pricing more than offset the impact of higher input costs.
Electronics & Communications: Sales tumbled 18% to $653 million on lower volume and pricing. Sales were affected by lower volume in photovoltaic markets.
Industrial Biosciences: Sales inched up 1% to $304 million. Strong demand of Sorona polymer was offset by weak enzyme demand for ethanol.
Nutrition & Health: Sales edged down 2% to $865 million as volume declined on weakness across Europe and Asia and cool weather conditions in North America and Europe.
Performance Chemicals: Sales dipped 9% to around $1.8 billion on account of 15% lower TiO2 prices which offset higher volume. TiO2 volumes increased 12% year over year.
Performance Materials: Sales went down 2% to roughly $1.7 billion as a 2% gain in volumes was more than offset by a 3% decline in selling prices. Volume gains across automotive and packaging markets were partly masked by softness in electronics and industrial markets.
Safety & Protection: Sales rose 3% to roughly $1 billion on higher volume which offset weaker mix and unfavorable currency swings. Volume was driven by higher demand for U.S. ballistics military protection, protective garments and construction products.
Financial Health
DuPont exited the quarter with cash and cash equivalents of roughly $6.7 billion, a roughly 91% year over year jump. Long-term borrowings and capital lease obligations declined roughly 4% year over year to $10.8 billion.
Outlook
As communicated earlier, DuPont continues to expect full-year 2013 adjusted earnings per share to be roughly $3.85. The current corresponding Zacks Consensus Estimate is $3.80.
Moreover, DuPont expects that around 60% of its projected operating earnings of $1.00 per share for second-half 2013 will be earned in the fourth quarter. The company sees sustained gain in its Latin American agricultural operation and a strong start to the North American season coupled with a steady increase in demand for its industrial products.
DuPont’s second quarter results put a spotlight on the underlying condition of the chemical industry. Its compatriot Dow Chemical (DOW), which is scheduled to report on Jul 25, will offer more visibility on the end market scenario and demand trend for chemical products. Another chemical major, Eastman Chemical (EMN), will report its second quarter results after the closing bell on Jul 29.
DuPont currently carries a short-term Zacks Rank #4 (Sell).
Cytec Industries Inc. (CYT), which also belongs to the chemical industry, holds a Zacks Rank #1 (Strong Buy).
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