DuPont (NYSE:DD) is set to announce its earning results for the first quarter of 2013 on April 23. We expect the company’s earnings to be impacted negatively by the slowdown in its chemicals business, specifically the cyclic Titanium Dioxide business that is witnessing a protracted turnaround. However, DuPont’s Agricultural products business is expected to provide some relief in a global economy hit by slowdown, primarily driven by strong growth fundamentals in the genetically modified (GM) seeds market.
Performance Chemicals Division To Post Lower Revenues, Slimmer Margins
DuPont’s performance chemicals division which deals in titanium dioxide (TiO2) and fluorochemicals represents almost 30% of our $47.50 price estimate for DuPont. The division has been under pressure since March 2012, due to slowing demand of the white pigment from China, inventory depletion by manufacturers as well as downstream players and rising feedstock prices. All of the players in the industry have experienced the impact of what has been a sharp decline in prices led by slow demand. According to Bloomberg, titanium dioxide prices have fallen as much as 33% from their peak in February, 2012.  Since TiO2 revenues make up for almost 50% of the division, sharply lower TiO2 prices are expected to impact both revenues and operating income negatively.
However, going forward, demand scenario for the white pigment used primarily for manufacturing paints and coatings looks bright as the U.S. housing data shows clear signs of recovery in the housing market there, which is expected to drive higher demand for TiO2.  On the other hand, boost in planned infrastructure spending by the Chinese government implies strong underlying demand for the pigment from China. In our opinion, it is just a matter of 6-12 months before inventory levels normalize and underlying demand for the pigment starts driving its prices higher. (See More On This: DuPont’s Chemicals Business Touches Bottom As Emerging Markets Recover)
Agricultural Science Products Division To Drive Growth From GM Seeds Market
The advent of GM seeds has changed the agricultural landscape completely by providing farmers with higher yields, lower susceptibility to insects, increased tolerance to chemicals used for eliminating weeds (herbicides) and extreme climatic conditions such as drought. We believe that this trend will only flourish even more going forward due to the advancements in biotechnology as the economic benefits clearly outweigh suspected disadvantages of the use of GM seeds.
DuPont’s seed company, Pioneer, that has witnessed significant growth over the past few years backed by strong demand for GM seeds, announced 132 new corn products for 2013, including 36 new genetic platforms in March. These new seed variants are available to growers for 2013 planting and include 27 new Optimum AQUAmax products, which have doubled the availability of drought-tolerant corn seeds from Pioneer. 
Extreme drought conditions in the U.S. during the 2012 growing season led to significantly low corn yields (as low as 120 bushels per acre of planted area) and sent prices soaring to over $7 per bushel.  Farmers’ experience with dismal yields last year and prevailing moderate drought conditions this year are expected to drive increasing demand for drought-tolerant corn seeds this year. According to the latest seasonal assessment report by the National Weather Service, more than half of the U.S. is covered by drought conditions currently. With yield results from the past two seasons, better performance than the regular variants of corn in water limited environments and increased availability of Optimum AQUAmax products, DuPont Pioneer is set to reap benefits from the increasing demand for drought-tolerant seeds in 2013. 
The company also introduced its new T Series of soybean seeds in January that promises increased protection and better pest resistance through enhanced genes tailored for specific geographies. (See More On This: Dupont Looks At Extending Market Share With New Soybean T Series Seeds) These new products are expected to positively impact DuPont’s revenues from the sale of soybean seeds within the Agricultural Science products division that makes up more than 35% of our current price estimate for the company.Notes:
- DuPont Faces Second Year of Paint Pigment Price Decline, March 7th 2013, www.bloomberg.com [↩]
- Housing Starts in U.S. Surge on Demand for Multifamily Units, www.bloomberg.com [↩]
- DuPont Pioneer Research Investment Yields 132 New Products for 2013 Season, March 6th, 2013, www.pioneer.com [↩]
- Corn Background, USDA Economic Research Service, www.ers.usda.gov [↩]
- Optimum AQUAmax Product 2012 Yield Data, www.pioneer.com [↩]