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.

Monsanto Company Inc. (NYSE: MON): First Quarter Earnings Preview 2010

Monsanto Company Inc. (NYSE: MON), the world's biggest seed company, is scheduled to release financial results for the fiscal first quarter on Wednesday, January 6, 2010. Analysts, on average, expect the company to report breakeven per share on revenue of $1.98 billion. In the year ago quarter, the company reported earnings of 98 cents per share on revenue of $1.98 billion.

Monsanto Company provides agricultural products for farmers in the United States and internationally. It operates in two segments, Seeds and Genomics, and Agricultural Productivity. Monsanto has been named "2009 Company of the Year" by Forbes Magazine. In its fiscal 2009 Monsanto sold $7.3 billion of seeds and seed genes, versus $4 billion for second-place DuPont ( NYSE: DD) and its Pioneer Hi-Bred unit. Monsanto netted $2.1 billion on revenue of $11.7 billion for fiscal 2009 (ended Aug. 31). Its sales have increased at an annualized 18% clip over five years; its annualized return on capital in the period has been 12%.

Early in October, the company reported that its fourth quarter net loss widened to $233 million, or $0.43 per share, from $172 million, or $0.31 per share, in the prior year quarter. Revenue dropped to $1.88 billion from $2.05 billion in the previous-year quarter. Analysts, on average, expected the company to report earnings of $0.01 per share on revenue of $1.97 billion.

In December, agricultural products giant reaffirmed its forecast of a "small ongoing loss" in the first quarter and reaffirmed its fiscal year 2010 ongoing earnings per share outlook range. The company said it continues to expect ongoing earnings per share for the first quarter in a range of a loss of $0.05 or less, and reported earnings in a range of loss of $0.07 per share or less. The St. Louis, Missouri-based company projects free cash flow for the first quarter of $1.8 billion, primarily reflecting the year-over-year decrease in the glyphosate business.

For fiscal year 2010, Monsanto reaffirmed its outlook for ongoing earnings per share range of $3.10-$3.30, and reported earnings outlook range of $2.85-$3.11 per share. Analysts expect the company to report earnings of $3.29 per share for the year. The company also reiterated its outlook for free cash flow for the full year in a range of $900 million-$1 billion, including the after-tax cash effect from a restructuring of about $250 million. The company continues to expect net cash provided by operating activities for the year between $2 billion and $2.2 billion, and net cash required by investing activities to be about $1.1 billion to $1.2 billion.

The company is quite confident about its ability to attain its financial targets in 2012. Monsanto is focusing on three key elements that it expects will enable it to double its 2007 gross profit in 2012. The key elements are the launches and rapid penetration of Genuity SmartStax corn and Genuity Roundup Ready 2 Yield soybean products as well as rapid trait penetration in Brazil and Argentina. It plans to lower costs by as much as $250 million annually, with about one-third of that range realized in 2010. The full benefit of the savings is expected to be realized beginning in fiscal year 2011.

According to Monsanto, seeds and traits, targeted to account for 85% of the company's business in 2012, is expected to cross the $5 billion gross profit mark for the first time in 2010 by creating new value for growers and increasing their profitability on farm. Gross profit for corn is projected to be in the range of $3.1 billion to $3.2 billion. For soybeans, gross profit is expected to increase to about $950 million, driven in part by the full commercial launch of Genuity Roundup Ready 2 Yield and greater penetration of first-generation Roundup Ready in Brazil. Cotton, which experienced a better than expected gross profit result in 2009, is forecast to increase to about $375 million gross profit in 2010 with the launch of new varieties and penetration of second-generation Bollgard in India. Vegetable gross profit is estimated to increase to about $525 million.

In November, Monsanto said that it intends to accelerate the launches of its Genuity SmartStax corn and Genuity Roundup Ready 2 Yield soybean products. The company expects to launch Genuity SmartStax with initial commercial opportunity of more than 4 million acres in 2010. Monsanto expects an unconstrained supply by 2012, so as to enable the company to meet market demand a year earlier than originally anticipated. Monsanto also expects a more rapid conversion to the Genuity Roundup Ready 2 Yield soybean platform. The company had recently increased the launch-year expectation of the soybean platform for 2010 to 8 million to 10 million acres.

Looking beyond 2012, Monsanto estimates that its R&D pipeline can deliver more than $8 billion in gross sales at the farmgate through biotechnology and breeding in 2020, with upside opportunity through product and geographic expansions.

The company is creating a separate division for its struggling herbicide business to help stabilize and "better align spending and working capital needs" around the unit, which has been hurt by increased competition and price pressure. Monsanto officials said future gross profits from the Roundup herbicide business would drop by half to about $1 billion annually by 2012 from $2 billion in 2009 as the company grapples with increased competition in the sector. Roundup, once flagship of Monsanto's agricultural chemicals business, in the future should amount to less than 15 percent of the company's total gross profit.

The agribusiness company declared a dividend of 26.5 cents per share during fiscal first quarter.

In terms of stock performance, Monsanto shares have gained nearly 11% over the past one year.

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