DuPont’s Price Increases Help Stock Blossom

DuPont (NYSE:DD) reported solid earnings buoyed by strong  performance of its agriculture segment. Total revenues for the quarter were $11.2 billion, up 12% y-o-y helped by higher prices in 2011 which were partially offset by negative volume growth. Net income rose 4% to $1.5 billion, or $1.57 per share. However, excluding special items, the company reported an earning of $1.61 a share for the quarter. ^[1] The company reaffirmed its fiscal 2012 earnings outlook range of $4.20 to $4.40 per share, excluding significant items. ^[2] DuPont competes with other chemical manufacturing majors such as Dow Chemical Company (NYSE: DOW) and Bayer AG (BAY:GR).

We have a $59 price estimate for DuPont’s stock, which is around 11% above the current market price. We are in the process of revising our estimates to incorporate Q1 earnings.

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Agriculture Leads the Pack

Revenues for agriculture products rose 16% to $4.1 billion helped by strong seed sales. The division’s operating income rose 18% to $1.31 billion helped by a 8% volume growth and a general increase in the prices of its products, partially offset by input cost increases and an unfavorable currency impact. Sales for health & nutrition products were up 149% to $0.8 billion primarily due to the acquisition of Danisco’s specialty food ingredients business. We expect the adjusted EBITDA margins for the broader agriculture, health & nutrition division to increase gradually in the long term as the company benefits from strong pricing and economies of scale.

DuPont will spend as much as $10 billion on research and development of solutions dedicated to agriculture and nutrient market by 2020. The company recently opened a new $40 million agriculture research center in Johnston, Iowa, to focus on plant breeding and developing new transgenic products.

Mixed Results for Performance & Safety Materials

Net revenues for the broader performance & safety materials stood at $5.5 billion, an increase of approximately 1%. We include performance materials, performance coating, performance chemicals and safety & protection materials in the broader performance & safety materials division. The division’s operating income for the quarter stood at $939 million, an increase of 5.5%.

Volume is still the primary cause for concern as both performance chemicals and performance coatings witnessed a 6% decline in their respective volumes. Volumes for performance materials plunged 10% whereas that for safety & protection materials decreased by 5%. However, the negative volume growth was more than offset by higher selling prices.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. DuPont Delivers Record First Quarter Earnings of $1.61 Ex-items, investors.dupont.com, April 19, 2012 [↩]
2. DuPont Reaffirms FY 2012 EPS Guidance, reuters.com, April 19, 2012 [↩]