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DuPont Shaves View as Wet Spring Hurts

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Shares of DuPont trudged lower as it pared its earnings guidance for the first half and full-year 2013. The Delaware-based chemical titan attributed the tweak to unfavorable weather conditions across North America and Europe which drubbed its agriculture and nutrition businesses in the second quarter.

DuPont’s Vice President and Chief Financial Officer Nicholas C. Fanandakis said at the Deutsche Bank Global Industrial and Basic Materials conference that cool weather across the twin continents hurt revenues and drove up costs in both businesses in the current quarter. Fanandakis further added that farm belt states of Iowa, Illinois and Indiana saw the wettest spring, during March to May, in nearly a dozen decades.  

DuPont saw a 14% rise in agriculture sales in the last reported quarter, buoyed by healthy demand for its corn hybrids and strong planting activity by growers. An early and strong start in the North American growing season bolstered the agriculture business (roughly 45% of total sales) in the quarter.

However, growers’ harvests are expected to be stymied by cool and wet spring weather in the second quarter, which hindered planting activity across a number of states.

The U.S. Department of Agriculture (USDA), in its recent monthly report, cut feed gain supply forecast for this year as delayed planting due to cool weather is expected to hurt corn yield. The USDA now expects corn production of 14 billion bushels this year, 135 million bushels lower than its last month’s forecast.

Factoring in the impact of the inclement weather, DuPont now expects its operating earnings for the first half to be roughly 10% lower than a year ago. Earlier, it expected operating earnings to be 7%-9% below last year. In addition, operating earnings for the full year is now expected to be at the bottom end of DuPont's guidance range of $3.85 to $4.05 per share issued in April.

Shares of DuPont, which are up around 22% so far this year, fell roughly 1.8% in pre-market trading yesterday following the announcement. The stock fell 0.6% in regular trading to close at $53.88.

Separately, DuPont, at the conference, reaffirmed its priorities of expanding  its leading footprint across the food value chain, reinforcing its leadership position as a provider of differentiated, high-value advanced materials, and developing leading industrial biotechnology capabilities.

DuPont remains optimistic in achieving its long-term goals given its portfolio strength, scientific capabilities, global reach and strong execution. Prudent cost saving measures and new products will also help it in achieving these targets. DuPont has a bevy of new products in its pipeline that are expected to create value for its customers.  

However, DuPont is bogged down by weakness across a number of end markets including titanium dioxide and photovoltaic. As such, it is banking heavily on its agriculture chemical and nutrition businesses to reduce its exposure on these weak markets.
DuPont, which carries a Zacks Rank #3 (Hold), will release its second quarter results on July 23.

Other companies in the chemical space that are worth considering include Shin-Etsu Chemical Co., Ltd. (SHECY - Free Report) , Celanese Corporation (CE - Free Report) and Methanex Corporation (MEOH - Free Report) . While Shin-Etsu Chemical and Methanex retain a Zacks Rank #1 (Strong Buy), Celanese is a Zacks Rank #2 (Buy) stock.

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