DuPont DD is set to release its first-quarter 2015 results ahead of the opening gong on Apr 21.
The chemical giant's adjusted earnings for the last quarter matched the Zacks Consensus Estimate. Its profits jumped in the quarter, aided by its strategic measures including portfolio optimization, productivity improvements and cost-savings from operational redesign initiatives. The company saw higher volumes and margins across most of its reporting segments amid continued weakness in agriculture economy and headwinds from a stronger dollar.
DuPont remains engaged in a fierce ‘Board Seat’ battle with activist investor Nelson Peltz’s Trian Fund Management. Trian, last month, proposed DuPont to add two nominees (including Peltz) to the company's board and another two to the board of Chemours – the unit which DuPont plans to spin off by mid-2015.
While DuPont subsequently rebuffed the proposal, Trian said that it has received positive feedback from DuPont’s shareholders regarding all of its nominees. DuPont's shareholders will vote in its annual meeting next month to decide whether the four Trian nominees will join the company’s board.
DuPont recently urged its shareholders to vote for its experienced and highly qualified director nominees. The company feels that direct representation by a Trian principal is not a mutually acceptable resolution that serves the best interests of its shareholders.
Trian, which is one of DuPont's biggest shareholders, is looking to break up the iconic 200-year-old company into two distinct entities. The hedge fund has argued that DuPont’s current conglomerate structure and flawed business plans are destroying its shareholder value. However, DuPont have been actively shielding itself against such breakup calls while remaining focused on executing strategic actions.
DuPont’s first-quarter results will thus be closely watched by analysts and investors amid such intense proxy contest. Let’s see how things are shaping up for this announcement.
Factors to Watch For
DuPont, in its fourth-quarter 2014 call, said that it sees currency headwind to dent its earnings this year. The company expects an earnings headwind of 60 cents per share in 2015 stemming from a stronger dollar. The currency impact is expected to be mostly felt in the first half of this year.
Additional headwinds, in the first quarter, are expected in the form of reduced corn planted area and weak pricing in the performance chemicals business.
For the company's agriculture business, operative environment is expected to remain challenging in the first quarter as farmer net income and corn planted area will continue to be under pressure in North America. Sales and operating earnings from this business are expected to fall in first-half 2015 on lower volumes. The company also sees significant currency impact in the March quarter, given a weak euro.
DuPont envisions sales in its nutrition and health business to be flat in the first quarter as volume gains are expected to be offset by currency headwind. It also expects lower sales across its safety & protection and performance chemicals franchises in the quarter. Revenues are expected to fall in the electronics and communications unit on pricing pressure and the performance materials business due to portfolio changes and currency impact. Sales in the industrial biosciences business are expected to remain flat.
Nevertheless, DuPont should gain from its aggressive cost-cutting initiatives. Meaningful cost savings from its restructuring and productivity improvement actions are expected to support its margins in the March quarter.
We also expect DuPont to provide an update on its company-wide redesign actions to support its more focused portfolio of businesses following the spinoff of its performance chemicals unit.
DuPont has raised its cost reduction commitment from its operational redesign actions by around $300 million to at least $1.3 billion of cumulative expected savings by 2017. Its redesign initiatives are also expected to deliver savings of around 35 cents per share in 2015. DuPont also sees annual savings of around $1 billion by end-2015.
Earnings Whispers
Our proven model shows that DuPont is likely to miss earnings estimates this quarter. This is because the stock has a negative Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #4 (Sell).
Negative Zacks ESP: The earnings ESP for DuPont is -0.75% – the difference between the Most Accurate estimate of $1.32 and the Zacks Consensus Estimate of $1.33. This indicates a likely negative earnings surprise.
Zacks Rank #4 (Sell): DuPont’s Zacks Rank #4, when combined with a negative ESP, indicates an earnings miss. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some other companies in the chemical space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Trinseo SA TSE has an earnings ESP of +39.62% and carries a Zacks Rank #3 (Hold).
The Dow Chemical Company DOW has an earnings ESP of +5.13% and sports a Zacks Rank #3 (Hold).
International Flavors & Fragrances Inc. IFF has an earnings ESP of +2.82% and carries a Zacks Rank #3 (Hold).
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