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DuPont (DD - Analyst Report) wrapped up 2013 on a high note having beaten earnings expectations every quarter during the year, thanks to its fast-growing agriculture business. It topped earnings expectations in the fourth quarter of 2013 as strength in agriculture more than offset continued weakness in its beleaguered performance chemicals business.
The Delaware-based chemical giant racked up adjusted earnings of 59 cents per share in the reported quarter that beat the Zacks Consensus Estimate by 4 cents. The adjusted earnings exclude one-time items including charges associated with customer claims related to the use of an herbicide as well as impairment and restructuring expenses.
Including one-time items, DuPont recorded earnings from continuing operations of $183 million (or 19 cents per share) in the quarter compared with $4 million (or break even per share) in the prior-year quarter. Consolidated net income, as reported, nearly doubled year over year to $185 million or 20 cents a share from $92 million or 9 cents per share a year ago.
Net sales for the reported quarter rose roughly 6% year over year to $7,747 million on the back of higher sales volume as demand rose across all businesses and regions. It, however, trailed the Zacks Consensus Estimate of $7,841 million.
Operating earnings from the electronics business that supplies materials for solar panels in the photovoltaic industry, shot up 116% in the quarter. The safety and protection unit recorded a 57% rise while nutrition and health business raked in a 40% gain.
DuPont’s Performance Chemicals division (includes paint pigment business) remains a weak link. Lower pricing for titanium dioxide (TiO2), which is used to give paint and other coatings a white hue, continues to hurt the division.
DuPont’s Board, in Oct 2013, approved the spin off of the performance chemicals unit. The company is gradually shifting its focus to high growth businesses, including agriculture, to cut its exposure to the struggling paint pigment business.
For full-year 2013, adjusted earnings of $3.88 per share came ahead of the Zacks Consensus Estimate of $3.84. Consolidated profit jumped around 76% year over year to $4,848 million or $5.18 per share.
Net sales for the year rose 2.6% year over year to $35,734 million, falling short of the Zacks Consensus Estimate of $35,977 million.
Separately, DuPont divulged a new $5 billion share repurchase program. Its shares were up 2% in pre-market trading.
Segment Review - Agriculture Leads the Scorecard
Agriculture: Healthy insecticide sales in Latin America and earlier seed shipments led to an 18% year over year rise in revenues to $1.8 billion in the reported quarter. The division’s results also benefited from the company’s acquisition of a majority stake in South Africa-based seed company Pannar Seed (Pty) Limited. These gains offset the impact of unfavorable currency swings.
Electronics & Communications: Sales went up 3% to $642 million as the company saw volume gains in photovoltaic markets, reflecting improved demand conditions. This was partly offset by lower selling prices.
Industrial Biosciences: Sales rose 9% to $326 million. Higher demand of Sorona polymer offset higher input costs.
Nutrition & Health: Sales moved up 2% to $872 million on better pricing and higher demand for demand in protein solutions, probiotics and cultures. Productivity improvement and increased pricing fuelled a rise in the division’s operating margin.
Performance Chemicals: Sales crept up 2% to around $1.6 billion. Operating earnings fell as lower TiO2 prices coupled with higher raw material costs offset higher volume. TiO2 volumes increased 18% year over year.
Performance Materials: Sales moved up 3% to roughly $1.6 billion as volume gains more than offset a decline in selling prices and increased raw material costs. Volume gains were driven by higher demand across automotive, industrial and packaging markets.
Safety & Protection: Sales inched up 1% to roughly $975 million on higher volume. Operating earnings rose on productivity improvements and better plant utilization.
DuPont exited 2013 with a strong liquidity position with cash and cash equivalents more than doubling year over year to roughly $8.9 billion. Total borrowings and capital lease obligations rose roughly 6% year over year to around $12.5 billion.
DuPont’s Board has approved a new share repurchase program, authorizing it to repurchase shares worth $5 billion. The company plans to buyback $2 billion this year with the balance to be repurchased over time.
DuPont, a Zacks Rank #3 (Hold) stock, sees adjusted earnings per share of $4.20 to $4.45 for 2014, a 8%-15% year over year rise. The current corresponding Zacks Consensus Estimate is $4.31.
Moreover, DuPont expects sales for the year to rise 4% to around $37 billion. The guidance takes into account the expected improvement in global industrial production, lower agricultural input costs and a modestly stronger U.S. dollar.
DuPont is witnessing strength in its agriculture business, reflected by higher corn seeds and crop protection sales. A strong start in the North American growing season is boosting the agriculture business. DuPont is seeing healthy demand for its corn hybrids and expects continued strong growth in crop protection driven by new products.
Moreover, DuPont is focused on an aggressive cost-cutting strategy by reducing fixed costs, restructuring work schedules and improving working capital productivity. The company also has a healthy balance sheet and remains committed to boost shareholder returns.
However, DuPont is exposed to currency headwinds and higher energy and raw material costs. Its TiO2 business also remains affected by lower pricing.
DuPont’s results put a spotlight on the underlying condition of the chemical industry. Its peer Dow Chemical (DOW - Analyst Report), which will report tomorrow, will offer more color on the end market scenario and demand trend for chemical products.
Among other major chemical names, Celanese (CE - Analyst Report), which reported on Jan 23, beat revenues and earnings expectations in the fourth quarter. Eastman Chemical (EMN - Analyst Report) will report its fourth quarter results after the close on Jan 30.