DuPont DD topped earnings expectations in second-quarter 2016, aided by its aggressive cost-reduction actions. The company saw higher profits across its operating segments in the quarter.
On a reported basis, the Delaware-based company posted earnings from continuing operations of $1.16 per share for the quarter, up from $1.06 per share a year ago. Operating costs (as adjusted) fell 12% year over year in the quarter while adjusted corporate expenses went down 44%.
Barring one-time items, DuPont recorded adjusted earnings of $1.24 per share in the reported quarter, topping the Zacks Consensus Estimate of $1.10. The company saw unfavorable currency translation impact of 5 cents per share in the reported quarter.
DuPont raked in net sales of $7,061 million in the quarter, down roughly 0.8% year over year. That beat the Zacks Consensus Estimate of $7,048 million. Sales were affected by pricing pressure, currency headwinds (stemming from a stronger greenback) and impact of portfolio changes.
Segment Review
Agriculture: Revenues were flat year over year at around $3.2 billion in the reported quarter. Segment operating earnings was $865 million, up 12% year over year as reduced product costs, higher volumes and cost savings more than offset unfavorable currency impact.
Electronics & Communications: Sales went down 6% to $494 million in the quarter. Operating earnings for the segment rose 4% year over year to $93 million as cost savings and reduced product costs more than offset reduced demand in consumer electronics and currency impact.
Industrial Biosciences: Sales edged down 0.6% to $355 million. Earnings jumped 24% to $62 million as benefits from cost-saving actions more than offset unfavorable currency impact.
Nutrition & Health: Sales inched up 1% to $835 million. Operating earnings shot up 30% to $130 million on volumes gains and cost reduction actions.
Performance Materials: Sales were essentially flat at around $1.3 billion. Operating earnings rose 8% to $325 million as cost savings, higher demand in automotive markets and increased ethylene volumes more than offset unfavorable currency impact.
Protection Solutions: Sales fell around 3% to $786 million. Operating earnings rose 4% to $188 million as lower volumes and currency impact were more than offset by benefits from cost reductions and lower product costs.
Financials
DuPont ended the quarter with cash and cash equivalents of $4.4 billion, down around 6% year over year. Total borrowings and capital lease obligations fell around 18% year over year to roughly $10.4 billion.
Outlook
DuPont raised the bottom-end of its earlier-announced adjusted earnings guidance range for 2016 by 10 cents per share to $3.15-$3.20 per share. The current Zacks Consensus Estimate for the year is $3.13.
The company now expects full-year earnings (on a reported basis) to be in the range of $2.70-$2.75 per share. For the third quarter, DuPont expects adjusted earnings per share to be 50% higher than the previous year. The company continues to expect benefit of 64 cents per share from its 2016 global cost savings and restructuring plan
Unfavorable currency impact on full-year operating earnings is now expected to be 15 cents per share (down from prior view of 20 cents). Headwinds from a higher base tax rate are expected to be roughly 10 cents per share.
DuPont is taking aggressive cost-cutting actions amid a still challenging backdrop. The company, in Dec 2015, divulged its plans to cut 10% of its global workforce as part of its 2016 cost savings and restructuring program. The company said that it remains on track to attain $1 billion in cost savings on a run-rate basis by end-2016.
DuPont is moving ahead with its planned mega-merger with Dow Chemical DOW. The companies agreed to combine their businesses in Dec 2015 in an all-stock deal to create a chemical titan dubbed “DowDuPont”, before eventually breaking up into three independent companies through tax-free spin-offs.
The deal recently secured approvals from shareholders of both companies and is now subject to customary closing conditions including receipt of regulatory clearances. The planned merger is projected to deliver cost synergies of around $3 billion, expected to be achieved with the first two years after the deal closure (expected to complete in second-half 2016).
DU PONT (EI) DE Price, Consensus and EPS Surprise
DU PONT (EI) DE Price, Consensus and EPS Surprise | DU PONT (EI) DE Quote
Zacks Rank
DuPont carries a Zacks Rank #2 (Buy).
Other well-placed companies in the diversified chemical space include Huntsman Corp. HUN and Axiall Corp. AXLL, both sporting a Zacks Rank #1 (Strong Buy).
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