Earnings Scorecard: DuPont - Analyst Blog

By Zacks | November 07, 2012 AAA

Earnings estimates for E. I. du Pont de Nemours and Company (DD) are on the downswing following its lackluster third-quarter 2012 results. The Delaware-based chemical and industrial products behemoth missed estimates in the quarter and its profit tumbled due to lower demand across titanium dioxide and photovoltaic markets. DuPont reduced its earnings forecast for 2012 and announced a restructuring plan that includes headcount haircuts.

Third Quarter Revisited

DuPont logged consolidated adjusted earnings of 44 cents a share in the third quarter, a roughly 36% decline from the year-ago earnings of 69 cents. Including one-time items, earnings came in at a penny per share, a roughly 98% plunge from 48 cents registered in the prior year quarter.

Adjusted earnings from continuing operations (excluding the divestiture of Performance Coatings business) were 32 cents per share. The results missed the Zacks Consensus Estimate of 46 cents.

Revenues from continuing operations declined 9% year over year to $7.4 billion, due to lower sales volumes, negative currency impact and reduction from portfolio changes, partly offset by higher pricing. Sales missed the Zacks Consensus Estimate of $8.08 billion. The company saw lower sales volumes from its Electronics and Communications and Performance Chemicals businesses, especially in Asia Pacific.

DuPont slashed its earnings forecast for 2012 and now expects earnings from continuing operations (excluding significant items) to be in the band of $3.25 to $3.30 per share. Earlier, it expected earnings to be at the lower end of its guidance range of $4.20 to $4.40 a share.

We have discussed the quarterly results at length here: DuPont Profit Skids, Slashing Jobs. Agreement - Estimate Revisions

Estimates for DuPont manifest an absolute downward drift, reflecting its dismal third quarter results and reduced outlook. Out of 14 analysts covering the stock, 12 have chopped their estimates for the fourth quarter over the past 30 days while none moving in the opposite direction. No movement was witnessed over the past 7 days.

Estimates for 2012 also elicit bearish sentiment with 6 analysts (out of 11) lowering their forecasts over the past month with no reverse movements. No activity was witnessed over the last week.

Magnitude - Consensus Estimate Trend

Given the strong directional pressure from a string of downward revisions, estimate for the fourth quarter dropped by 33 cents over the past month (to 9 cents a share) while remaining static over the past week. On a similar note, estimate for 2012 slipped by 67 cents (to $3.34 a share) over the past 30 days and remained stationary over the past 7 days.

Our View

DuPont is a global chemical and life sciences company with a diverse array of product offerings. The company has adopted aggressive acquisition and joint venture strategies to facilitate its transformation from an industrial chemical maker to one that has diversified businesses ranging from bulletproof vests to solar panel films.

DuPont is witnessing significant momentum in the agriculture business, boosted by higher volume and market share gains in seed genetics and crop protection. Moreover, the acquisition of Danisco has strengthened its presence in the food ingredient and enzyme markets while expanding its foothold in industrial biotechnology and biofuels.

The company is focused on an aggressive cost-cutting strategy which involves headcount reductions, restructuring of work schedules and improvement of working capital productivity. As part of its newly announced restructuring program, it plans to lay off 1,500 workers across the globe over the next 12 to 18 months and expects to save about $450 million from the move.

However, barring agriculture and nutrition, DuPont witnessed weakness across a number of businesses in the third quarter. Lower demand for photovoltaic materials led to a sharp decline in sales in its Electronics and Communications segment.

Moreover, the demand of titanium dioxide, which is used to give paint and other coatings a white hue, remained weak due to the challenging economic conditions in Europe and softness in some parts of Asia, leading to lower volumes in the Performance Chemicals segment. The company's downward guidance revision for the full year reflects the sustained weakness across these two businesses and expected sequential lower profits from these units in the fourth quarter.

DuPont also remains exposed to raw material cost inflation, which is expected to constrict its margins in the fourth quarter. Moreover, currency headwinds weighed on the performance of a number of segments in the third quarter and are expected to reduce its earnings for 2012 by 27 cents a share.

DuPont, which competes with The Dow Chemical Company (DOW) and BASF SE (BASFY), holds a short-term Zacks #4 Rank (Sell). We currently have a long-term (more than 6 months) Underpeform recommendation on its shares.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These "Earnings Estimate Scorecard" articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
 

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