Tuesday, January 25, 2011

DuPont Co. (NYSE: DD): Q4 Earnings Preview 2010

DuPont Co. (NYSE: DD), the world’s second- largest seed maker, is scheduled to release fourth-quarter earnings before the market open on Tuesday, January 25, 2011. Analysts, on average, expect the company to report earnings of 32 cents per share on revenue of $6.95 billion. In the year-ago period, the company reported earnings of 44 cents per share on revenue of $6.42 billion.

E. I. du Pont de Nemours and Company operates as a science and technology company worldwide. The Company’s segments include Agriculture & Nutrition, Electronics & Communications, Performance Chemicals, Performance Coatings, Performance Materials, Safety & Protection, and Pharmaceuticals. DuPont is currently the world's second largest chemical company in terms of market capitalization and the fourth in terms of revenues. With over 21,000 patents and 15,000 patent applications worldwide, DuPont sells its products in diverse markets.

In the preceding third quarter, the  Wilmington, Delaware-based company's net income was $367 million or 40 cents per share, compared to $409 million, or 45 cents per share, in the year-earlier quarter. Total revenue increased 17% to $7.07 billion from $6.16 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 34 cents per share on revenue of $6.76 billion.

At its last earnings call in October, the company boosted its full-year 2010 earnings outlook, citing sustained demand in key global markets, continued pricing momentum and benefits from ongoing productivity. The company said that it now expects full-year earnings to be about $3.10 per share, excluding significant items which will include a fourth quarter $.13 per share loss on the early extinguishment of debt. The previous guidance range was $2.90 to $3.05 per share.  

In December, the company indicated that sales growth for the year will be about 20%, double the 10% target set by the company one year ago. The company also said that for the period from 2010 through 2015, it expects earnings per share growth of about 12% compounded annually, excluding significant items, with annual revenue growth of about 7%.

Last month, DuPont said that it generated more than $400 million in fixed-cost productivity gains in 2010, well ahead of plan, while meeting its commitment of maintaining 75% of its $1 billion of fixed-cost savings from 2009. The company also said it is ending the year with a strengthened balance sheet and free cash flow that is expected to be greater than $1.7 billion, despite a $500 million voluntary contribution to the principal U.S. pension plan in September. Ellen Kullman, chairman and CEO of DuPont said, "We met or exceeded our 2010 targets and are finishing the year as a stronger company with a solid growth outlook through 2015.

For fiscal year 2011, DuPont forecasts earnings per share in a range of $3.30-$3.60, despite an anticipated decline in pharmaceutical royalties of about $280 million due to patent expirations. The company projects sales for the year in a range of $33 billion-$34 billion.DuPont also said it expects fixed-cost productivity gains of about $300 million and additional working capital productivity of about $300 million in 2011. 

For the period from 2010 through 2015, DuPont expects earnings per share growth of about 12% compounded annually, excluding significant items, with compound annual top-line growth of about 7%. Segment wise, DuPont projects top-line growth through 2015 at its agriculture and nutrition segment to continue in a range of 8%-10%, while top-line growth at its electronics and communications segment is forecast in a range of 10%-12% during the period. Top-line growth at the company's performance chemicals segment during the period through 2015 is projected in a range of 5%-7%, while revenue growth at its performance materials segment is forecast in a range of 4%-6%. The company expects top-line growth of 8%-10% at its safety and protection segment during the period.

DuPont is focused on capturing $1 billion in working capital productivity gains during 2011-2013. The company is also on track to achieve a combined $600 million in benefits from fixed cost productivity and restructuring actions. It is executing strategies for further development and growth of new products, particularly for agriculture, photovoltaics, alternative energy and materials. Furthermore, the company’s focus on the emerging markets, along with a strong performance in the Agriculture & Nutrition segment, is expected to generate top line growth in the future.

However, DuPont’s drug patent expirations of Cozaar/Hyzaar and planned maintenance shutdowns across all of its businesses in the Electronics and Coatings and Performance Materials segments will affect earnings in the fourth quarter. Other major risks for DuPont include higher energy and raw material costs and its high debt levels. We thus currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

The company has adopted agressive acquisition stratgety to facilitate its transformation from an industrial chemical maker to one that has diversified businesses ranging from bulletproof vests to solar panel films. In December, the company's Pioneer Hi-Bred seed unit agreed to buy acquired Washington Court House, Ohio-based Seed Consultants Inc. and Lake Providence, Louisiana-based Terral Seed. The company recently agreed to acquire Danish food ingredients company Danisco for $6.3 billion. The acquisition strengthens the company’s presence in the food ingredient and enzyme markets and will expand its presence in industrial biotechnology and biofuels, boosting the chemical company’s move toward developing biotech-based approaches to address global challenges in food production and reduced fossil fuel consumption.The transaction is expected to close early in the second quarter and be cash and earnings accretive in 2012, the first full year of the combined entity. DuPont will realize $130 million in annual cost savings from the combination by 2013. The newest deal is in line with DuPont's strategy to expand beyond its chemical and manufacturing focus into the "megatrend" sectors of agribusiness and alternative energy. Both industries are expected to grow rapidly in coming years as food demand and prices increase and clean energy policies gain more ground. 

In terms of stock performance, DuPont shares have gained nearly 40 percent over the past year.

Full Disclosure: None.
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