DuPont Profits, Outlook Bright

By: Zacks Equity Research July 28, 2011

EI DuPont de Nemours & Co. (DDAnalyst Report) reported an increase in profit of $1.22 billion or $1.37 per share in the second quarter of 2011 from $1.16 billion or $1.17 per share in the same quarter of 2010. The profit exceeded the Zacks Consensus Estimate by 4 cents per share.

The improvement in profit was attributable to higher selling prices, increased sales volume and currency benefit, partly offset by higher raw material, energy, and freight costs.

Sales in the quarter grew 19% to $10.3 billion, up from the Zacks Consensus Estimate of $9.95 billion. The increase in sales reflected a rise of 2% in sales volume, an increase of 11% in local price, 3% currency benefit and 3% net increase from portfolio changes. Sales in the developing markets rose 29%.

Segment Details

In view of the company’s expanded business portfolio following the Danisco acquisition, two new reportable segments have been added: Industrial Biosciences and Nutrition & Health.  The Industrial Biosciences segment includes Danisco’s enzyme business and DuPont Sorona and Bio-PDO businesses, previously reported in Other.  The new Nutrition & Health segment contains Danisco’s food ingredients business and DuPont’s Nutrition & Health business previously reported as part of the Agriculture & Nutrition segment.  The former Agriculture & Nutrition segment, now renamed Agriculture, includes the seed and crop protection businesses.

Agriculture & Nutrition: Sales rose 10% to $3.0 billion with a 4% growth in volumes and 6% rise in selling prices. Pioneer seed growth was driven by strong market performance in North America, spanning volume, price and portfolio gains.   Crop Protection sales increased across all product lines, more than offsetting the impact of divested businesses.  Pre-tax operating income (PTOI) for the quarter went up 11% to $826 million on higher sales, partly offset by the impact of portfolio changes.

Electronics & Communications: Sales swelled 36% to $891 million, with an increase of 27% in selling prices, primarily pass-through of metals prices, and 9% higher volume. The strong volume was driven by strong demand for photovoltaics and consumer electronics in Asia Pacific. PTOI decreased by 5 million to $103 million, reflecting increased spending of photovoltaics growth initiatives and extreme volatility of metals pricing, which reduced PTOI by about $20 million.

Industrial Biosciences: Sales of $123 million and PTOI of $10 million primarily reflect the acquisition of Danisco’s enzyme business.  PTOI included approximately $2 million of amortization expense associated with the fair value step-up of intangible assets acquired as part of the acquisition.

Nutrition & Health: Sales of $486 million were up 64%, with an increase of 58% from the acquisition of Danisco’s food ingredients business, 4% higher selling prices and 2% volume growth.  PTOI of $38 million increased $22 million, primarily due to the acquisition.  PTOI included approximately $7 million of amortization expense associated with the fair value step-up of intangible assets acquired as part of the acquisition.

Performance Chemicals: Sales escalated 27% to $2.0 billion, with a rise of 28% in selling prices and a decrease of 1% in volumes. Sales increased in all major regions. Higher selling prices stemmed from strong global demand for titanium dioxide, refrigerants, fluoro products and industrial chemicals, more than offsetting raw material increases.  Lower volume reflects weather-related supply disruptions in industrial chemicals.  PTOI was $503 million, increasing $229 million on strong sales performance.

Performance Coatings: Sales rose 15% to $1.1 billion, reflecting a rise of 14% in selling prices, partially offset by a decrease of 2% in volume. Higher selling prices reflect pricing actions across all market segments to offset higher raw material costs coupled with a favorable currency impact. Strong demand continued in industrial coatings, particularly in North American heavy-duty truck markets.  PTOI of $73 million decreased slightly as higher sales were offset by higher raw material, energy and freight costs.

Performance Materials: Sales went up 11% to $1.7 billion, with a rise of 14% in higher selling prices, partially offset by 2% lower volume and a 1% reduction from a portfolio change.  Ongoing demand in electronic, packaging and automotive markets led to favorable pricing in all regions.  Lower volume reflects supply constraints due to production outages, as well as supply chain disruptions as a result of the Japan earthquake.  PTOI of $254 million decreased slightly due to the absence of a $27 million benefit from the sale of a business and an insurance recovery in the prior year and lower volume, partially offset by higher selling prices.

Safety & Protection: Sales grew 21% to $1.0 billion, with a rise of 8% from a portfolio change as a result of the MECS acquisition, 7% higher volume and 6% higher selling prices.  Higher volume reflects continued growth from increased demand for aramid and nonwoven products in industrial and public sector markets across all major regions.  Higher selling prices primarily reflect pricing actions taken to offset increases in raw material costs.  PTOI of $143 million increased significantly, primarily driven by the portfolio change and a favorable currency impact, partially offset by higher spending for the Kevlar expansion at Cooper River.

Financial Position

DuPont had cash and cash equivalents of $2.3 billion as of June 30, 2011 compared with $4.3 billion as of December 31, 2010. Long-term borrowings and capital lease obligations amounted to $12.5 billion as of June 30, 2011 versus $10.1 billion as of December 31, 2010.

As of June 30, 2011, DuPont had a net cash flow of $644 million from operating activities versus $424 million as of June 30, 2010. Meanwhile, capital expenditures increased to $741 million from $500 million in the year-ago period.


DuPont upgraded its full-year 2011 earnings outlook to $3.90–$4.05 per share from its previous forecast of $3.65–$3.85 per share. This revision was attributable to the company’s strong earnings results, the expectation for continued global economic growth and about $.05 per share full-year operating earnings from Danisco on an underlying basis.

The company’s estimate for the impact of the Danisco acquisition on full-year reported earnings is at present a reduction of $.18 to $.29 per share, versus the previous estimate of $.30 to $.45 per share. The current view is based on anticipated full-year Danisco operating earnings of about $.05 per share and significant item charges related to the acquisition estimated to be $.23 to $.34 per share. In addition to these Danisco charges, the company expects a $.03 per share significant item charge in the third quarter associated with a licensing agreement.

DuPont is a global chemical and life sciences company, employing more than 60,000 people worldwide with a diverse array of product offerings. With over 21,000 patents and 15,000 patent applications worldwide, DuPont sells its products in diverse markets, such as transportation, construction, apparel, agriculture, nutrition and health, packaging and electronics markets.

DuPont faces stiff competition from BASF SE (BASFY.PK) and The Dow Chemical Company (DOWAnalyst Report).

The company currently retains a Zacks #2 Rank on its stock, which translates into short-term “Buy”. In addition, we reiterate our “Outperform” recommendation on the stock for the long term.

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