DuPont (DD) Gears Up for Q3: Will it Beat on Earnings?

DuPont (DD) is set to release its third-quarter 2014 results ahead of the bell on Oct 28.

The chemical and industrial products giant’s adjusted earnings for the last quarter matched the Zacks Consensus Estimate but fell year over year on weak results in its agriculture business. In the agriculture unit, sales of corn seeds were below DuPont’s expectations while herbicide sales were lower than what was expected, hurt by extreme winter weather. Costs associated with the separation of the company’s performance chemicals business also weighed on its bottom line.

Let’s see how things are shaping up for this announcement.

Factors to Watch For

DuPont, in its second-quarter call, said that it expects a strong second half and foresees adjusted earnings of $1.25 to $1.35 per share for the period, roughly 40% of which is expected in the third quarter. The guidance is based on the expected improvement in global industrial market demand.

DuPont sees modest sales gains and strong operating earnings across its agriculture, nutrition and health and industrial biosciences franchises in the September quarter. Revenues are expected to be slightly higher in the electronics and communications unit while remaining flat in the performance materials business due to portfolio changes.

DuPont’s performance chemicals business remains a weak link. Demand of titanium dioxide (TiO2), which is used to give paint and other coatings a white hue, remains soft. While DuPont is spinning off the performance chemicals unit (expected to close by first-half 2015), weak pricing for refrigerants and TiO2 may weigh on earnings for the division in the third quarter.

Nevertheless, DuPont should benefit from its aggressive cost-cutting initiatives. Meaningful cost savings from its restructuring and productivity improvement actions are expected to support its margins in the third quarter.

We also expect DuPont to provide an update on the market traction of its new Encirca services platform for growers in the U.S. as well as its redesign actions to support its more focused portfolio of businesses following the spinoff of the performance chemicals unit.

Earnings Whispers?

Our proven model does not conclusively show that DuPont is likely to beat the Zacks Consensus Estimate in the third quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Positive Zacks ESP: ESP for DuPont is 1.89%. This is because the Most Accurate estimate stands at 54 cents while the Zacks Consensus Estimate is pegged lower at 53 cents.

Zacks Rank #4 (Sell): DuPont’s Zacks Rank #4 when combined with a positive ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other chemical stocks you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Methanex Corporation (MEOH) has earnings ESP of +9.23% and retains a Zacks Rank #3 (Hold).

Westlake Chemical Corp. (WLK) has earnings ESP of +2.58% and sports a Zacks Rank #3 (Hold).

Ashland Inc. (ASH) has earnings ESP of +2.21% and holds a Zacks Rank #3 (Hold).