The good news/bad news quarter from DuPont (NYSE:DD) is looking incredibly typical for large multinationals this quarter. DuPont saw positive volumes for the first time in more than a year, but severe price erosion and sluggish guidance are going to keep the celebrations muted. It's not hard to like the company's balanced end-market exposures, but the vulnerable global economy and DuPont's valuation keep the stock looking a little less than perfect.

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Closing on a Decent Note
DuPont had a good enough end to 2012. Reported revenue rose by 2%, with organic growth not much better - about 1%. Volume was up (+3%) for the first time in a while, but the company saw the first erosion in pricing in three years. This revenue number was basically in line with expectations, though agriculture was particularly strong.

Profits were mixed as well. Gross margins fell by one point as reported, and operating income declined 25%. Segment pre-tax operating income was likewise weak, falling about 26%, and the company missed most analyst expectations on margins. Agriculture, industrial bio and performance materials saw good year-over-year margin performance, while electro-comm, nutrition, performance chemicals and safety saw erosion.

Agriculture Came on Strong
Although DuPont isn't generally as reviled as Monsanto (NYSE:MON), it too has a large genetically modified seed and agriculture chemicals business. Like Monsanto, DuPont also had a strong result this quarter, with revenue up 18% on 11% higher volume. While DuPont's seed sales likely outpaced Monsanto's, both companies continue to take share in the seed market. Unlike Monsanto, though, DuPont struggles to make consistent profits from this business, though this quarter's loss was smaller.

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Electro-Comm Gets Less-Bad
Like 3M (NYSE:MMM), DuPont has struggled with weak end markets in areas such as displays, solar, and chemicals and inputs used in telecommunications. Business is getting less-bad, however, with sales essentially flat this quarter on higher volume. Like Corning (NYSE:GLW), DuPont is getting a boost from upgraded products for the mobile market.

Less Commoditized, but Titanium Dioxide Wags the Dog
DuPont has done a lot to become a less cyclical commodity-oriented chemical company and tries to avoid product categories such as chlorine and caustic soda, where Dow Chemicals (NYSE:DOW) is still involved. That said, it still has a performance chemicals segment that revolves around categories such as titanium dioxide and fluorochemicals.

Revenue fell 15% this quarter, largely on titanium dioxide price declines and fluorochemical volume declines. This could well be the dominant story in 2013; if prices continue to fall, it'll be hard for DuPont to fully offset the weakness. Performance materials were marginally better, however, and packaging and automotive markets could help improve results into 2013.

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The Bottom Line
Where DuPont really went astray was in its relatively sluggish guidance for the first half of the year. To be fair, this is not really a surprise in the larger context of the earnings reports that have been coming in recently - more and more companies have been pointing to weak/sluggish performance in the first half of 2013, with stronger results coming later in the year. Moreover, companies have been talking about this dynamic since roughly the middle of 2012, so it's not as though Wall Street hasn't had time to adjust.

All of that said, I'm lukewarm on these shares. DuPont is fond of shuffling the deck with acquisitions and divestitures, but it seems to me that the pace of growing real shareholder value has slowed in recent years. DuPont is a decent enough hold, and its leverage to global gross domestic product makes it a good recovery play, but it's hard to get really excited about the stock today.

At the time of writing, Stephen D. Simpson owned shares of Monsanto since 2010 and shares of 3M for more than five years.

Tickers in this Article: DD, MON, DOW, MMM

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