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Electronics, Agriculture Drive DuPont Earnings

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DuPont topped earnings expectations in the third quarter of 2013 riding on healthy gains across its electronics and performance materials businesses and lower tax that offset weakness in its performance chemicals unit. The results were also backed by strength in the agricultural business that saw a double-digit rise in sales.

The Delaware-based chemical titan logged adjusted earnings of 45 cents per share in the quarter that beat the Zacks Consensus Estimate by four cents. The adjusted earnings exclude one-time items including charges associated with customer claims related to the use of an herbicide and pension-related expenses.

Including one-time items, DuPont registered earnings from continuing operations of 28 cents per share in the quarter compared with a loss of 5 cents per share in the prior-year quarter. Consolidated net income, as reported, rocketed to $285 million (or 30 cents a share) from $5 million (break even per share) a year ago.

DuPont, earlier this year, sold its performance coatings business to private equity firm Carlyle Group for $4.9 billion in cash. The business has been classified as discontinued operations and is excluded from the company's continuing operations results, on a retroactive basis.

Net sales for the reported quarter rose roughly 5% year over year to $7,735 million as higher sales volumes more than offset lower selling prices and unfavorable currency impact. That, however, missed the Zacks Consensus Estimate of $7,774 million.

Operating earnings from the electronics business that supplies materials for solar panels in the photovoltaic industry, shot up 67% in the quarter. The performance materials business that offers polymers and films for a host of industries raked in a 13% rise in earnings while the safety and protection unit posted a 16% gain.  

DuPont’s Performance Chemicals division (includes paint pigment business) remained a weak spot. Lower pricing for titanium dioxide (TiO2), which is used to give paint and other coatings a white hue, hurt the division’s results in the reported quarter.
DuPont, in July, said it is exploring strategic options for the struggling performance chemicals business, including a potential sale. The company is gradually shifting its focus to high growth businesses, including agriculture, to cut its exposure to the beleaguered paint pigment business.

Segment Review

Agriculture: Revenues rose 15% year over year to $1.6 billion in the reported quarter, aided by higher seed prices in Latin America and volume gains in the insecticide business. The division’s results also benefited from the company’s acquisition of majority stake in South Africa-based seed company Pannar Seed (Pty) Limited. These gains offset the impact of higher input costs and unfavorable currency swings.

Electronics & Communications: Sales went up 5% to $638 million on higher volumes. The company saw volume gains in photovoltaic markets, reflecting improved demand conditions.

Industrial Biosciences: Sales rose 4% to $305 million. Increased sales of Sorona polymer offset higher input costs.

Nutrition & Health: Sales edged down 1% to $868 million. Productivity improvement fuelled a rise in the division’s operating earnings.

Performance Chemicals: Sales inched down 1% to around $1.7 billion on account of lower TiO2 prices which offset higher volume. TiO2 volumes increased 25% year over year.

Performance Materials: Sales moved up 3% to roughly $1.7 billion as volume gains more than offset a decline in selling prices. Volume gains were witnessed across automotive, electronics and packaging markets.  

Safety & Protection: Sales rose 5% to roughly $985 million on higher volume that offset weaker mix. Volume gains were driven by higher demand for U.S. ballistics military protection, protective garments and construction products.

Financial Health

DuPont exited the quarter with a strong balance sheet with cash and cash equivalents more than doubling year over year to roughly $7 billion. Total borrowings and capital lease obligations was flat year over year at around $15 billion.


DuPont backed its full-year 2013 earnings outlook and continues to expect adjusted earnings per share of roughly $3.85. The current corresponding Zacks Consensus Estimate is $3.81.

While DuPont sees overall growth in industrial market demand to remain subdued sequentially in the fourth quarter, it expects operating earnings to be considerably higher from the last year. Despite the weakness in its Performance Chemicals segment, the company is optimistic to deliver modest earnings growth for the full year.

DuPont’s third quarter results shed light on the underlying condition of the chemical industry. Its peer Dow Chemical , which is set to report on Oct 24, will offer more visibility on the end market scenario and demand trend for chemical products. Another chemical major, Eastman Chemical (EMN - Free Report) , will report its third quarter results after the closing bell on Oct 24.

DuPont currently carries a short-term Zacks Rank #3 (Hold).

FMC Corp. (FMC - Free Report) , which also belongs to the chemical industry, holds a Zacks Rank #2 (Buy).

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