DuPont (NYSE:DD) is scheduled to announce its earnings for the third quarter of 2012 on October 23. The company had a mixed second quarter – overall revenues grew 7%, primarily driven by robust growth in the Agricultural & Nutrition Products division, although this was partly offset by declining revenues and volumes in the Performance & Safety Materials and the Electronics & Communications divisions.
Here we look at three drivers which could have an impact on the company’s earnings this quarter, namely the sale of the Automotive & Industrial Coatings division, the current global economic situation, and the continuing growth of the agricultural products division.
- Dupont Q4 Earnings: Company Positive On Dow Merger & Cost Saving Plan, But Weak Agro Sales And Currency Headwinds Continue To Hurt Operations
- Dupont Q3 Earnings: Weak Agro Products Sales and Currency Headwinds Hurt Operations, And Will Continue To Do So In Near Term
- DuPont 2Q: Soft Agricultural Markets and Currency Headwinds Weigh On Earnings
- DuPont: Soft Agricultural Products Market and Currency Headwinds To Weigh On 2Q Earnings
- DuPont Close To Another Transformational Milestone With Chemours Spin Off
- DuPont’s Earnings Decline On Lower Corn-Seed Sales, Stronger U.S. Dollar
Sale of Performance Coatings Business Will Impact Revenues
DuPont recently agreed to sell its Automotive & Industrial Coatings division to the Carlyle Group in a deal which includes $4.9 billion in cash. We believe that this divestiture has the potential to unlock substantial value in the long term, primarily because it gives the company the opportunity to direct the cash it received in ventures which could create synergies with its existing divisions.
In the short term however, the divestiture will have a negative impact on revenues, considering that the company will miss out on the sales the business will generate going forward. On the other hand, the division had the lowest margins among all of DuPont’s businesses, and the deal could positively impact overall margins in the short term.
Deteriorating Macroeconomic Situation Could Hamper Growth
Another important determinant of the company’s performance is the global macroeconomic environment. The performance of chemical companies such as DuPont and Dow Chemical (NYSE:DOW) are heavily linked to macro factors, and considering the deteriorating situation in Europe and the ongoing slowdown in China, we believe that revenues and margins may be impacted negatively. However, DuPont has managed to handle the situation well until this point, and has been one of the best performers among its peers.
We believe that the Performance & Safety Materials division will continue to see declining volumes until there is an upturn, which does not seem imminent at this point. Last quarter, the Performance Chemicals business, which is included under this division, saw a 10% y-o-y decline in volumes, primarily due to the impact of macroeconomic headwinds.
Agricultural Products Division Continues Robust Growth
On the other hand, the agricultural division is still performing well and could play an important part in sustaining revenue growth this quarter. The division reported an impressive 15% y-o-y revenue growth last quarter, and we believe that it will see similar growth this quarter as well.
The company is pumping resources into its agricultural arm, DuPont Pioneer, to promote development of new products. It recently announced the construction of a new research center, which is expected to be completed by spring 2013, and has developed 34 new varieties of soybean seeds, which will be commercially available to producers in spring 2013. 
We will be updating our $50 price estimate for DuPont based on recent developments after the earnings release.Notes:
- DuPont Pioneer Advances 34 New Soybean Varieties for 2013 Planting, Pioneer Hi-Bred News Releases, September 2012 [↩]