DuPont (NYSE:DD) gets plenty of well-deserved credit for continually remaking itself over the years, and maintaining a focus on markets where it can reap meaningful economic returns. Just because DuPont is well run, however, doesn't immunize it from the markets it serves, and the third quarter saw a big shortfall in volume, revenue and earnings. While I think DuPont remains a high-quality specialty chemicals company with a strong dividend, the value case is a little more challenging to make.

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A Bad Third Quarter
The third quarter of 2012 is going to go down as a quarter to forget for investors, fund managers and bullish analysts. In that respect, DuPont's disappointing performance is not really all that startling or exceptional.

Revenue fell about 9% on an operating/pro forma basis, with a 5% decline in volumes weighing on performance. Digging into volume a little further, DuPont saw a 10% decline in Asia, a 6% decline in Europe and a 2% decline in North America. Looking at product categories, performance chemicals (-19%) and electronics (-28%) led the declines, as the company took a one-two punch from weaker titanium dioxide and photovoltaic markets.

Profitability was also challenged this quarter, as pre-tax operating income (PTOI) dropped almost one-quarter. As was the case with sales volume, performance chemicals and electronics led the decline and the company saw almost two points of PTOI margin erosion.

SEE: Profitability Indicator Ratios: Profit Margin Analysis

Even the Strong Areas Weren't That Strong
Depending on how you choose to look at it, more than half of DuPont's units had relatively decent quarters. Agriculture saw 4% revenue growth (but a 23% decline in PTOI) in what is generally a seasonally weak quarter. Even here, DuPont continues to lose share to Monsanto (NYSE:MON) and it may be difficult for DuPont to reverse that process in the near term without resorting to price competition.

Industrial biosciences and nutrition/health were also relatively solid - neither posted especially strong revenue growth, but both saw good improvement in operating profitability. DuPont saw good sales into the carpeting industry (and floor covering companies such as Mohawk (NYSE:MHK) and Interface (Nasdaq:IFSIA) have been strong lately), while demand for its Solae soy products continues to be strong. Performance materials are also performing relatively well - while the 8% sales decline doesn't look great, volume was up 2%, profits were up 33% and demand in packaging and autos has been solid. This should be good news for Dow (NYSE:DOW) as well.

SEE: Analyzing Operating Margins

How Long Will Weakness in Solar and TiO2 Persist?
The two biggest problems for DuPont this quarter were weak sales of titanium dioxide and photovoltaic products. While declining TiO2 prices will be good for paint manufacturers such as PPG (NYSE:PPG) and Akzo Nobel, it will probably take time for this market to rebound (though it's worth noting that this quarter was a difficult comp). As for photovoltaics, it's anybody's guess - the solar industry continues to go through a very painful adjustment, led in part by the collapse of industry subsidies as well as lower building/construction activity.

The Bottom Line
DuPont is going to launch another restructuring effort, and this could drop more than 30 cents per share to the bottom line on an incremental basis. Nevertheless, for all of DuPont's innovation and focus on positioning its portfolio for growth markets, the fact remains that the company's performance is tied fairly closely to global GDP - and the outlook for 2013 hasn't been getting better of late.

DuPont offers an attractive 3.8% dividend and I think this is a well-run company. That said, it's harder to make a value case for the stock. The stock looks more or less fairly valued on a forward EV/EBITDA basis, and a free cash flow analysis likewise does not point to any particular undervaluation. On the other hand, DuPont likely won't get especially cheap unless there's a large amount of pessimism about global growth (and/or a big pullback in the market), so this may be one of those "be careful what you wish for" situations for investors.

At the time of writing, Stephen D. Simpson owned shares of Monsanto since 2010.

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