DuPont Earnings Preview: Will Pricing Pressure Ease Up And Lead To Growth?

by Trefis Team
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DuPont (NYSE:DD) will report its Q1 2017 earnings on April 25. Like its rivals, DuPont’s business has felt the impact of industry-wide pricing declines due to intense competition and low raw material prices. The company’s revenue fell nearly 11.5% in 2015, but the situation improved in 2016 as the sales decline reduced to just 1%. Data suggests that the pricing pressure is easing off. Even though average prices fell nearly 6% for full year 2016, they were flat in Q4. So the biggest question that arises is how did prices fare in Q1 2017? We expect that the volume growth is likely to continue, perhaps in mid single digits. There is a chance that the improvement in pricing trends can put DuPont on the growth path.

Our price estimate of $62.50 for DuPont stands at a discount of about 20% to the market. We may revise our price estimate if Q1 results hint towards a growth revival.

Agricultural Science Products In Focus

DuPont’s agriculture segment accounts for nearly 35% of the company’s valuation, according to our estimates, and has suffered from soft demand lately. This is especially prominent in crop protection products, which constitute nearly 75% of DuPont’s agricultural sciences revenue. Between 2011 and 2016, there was virtually no growth in crop protection product sales, and inventory still remains high. Much of this has to do with weakness in farm income growth. According to the U.S. Department of Agriculture, this weakness is likely to persist in 2017 and cash receipts from crops may decline slightly or remain flat. Therefore, we don’t expect any strong rebound in crop protection product sales in the first quarter.

There is a plus side, though. We expect growth in sales of seeds, primary driven by expansion in South America. Additionally, DuPont has managed to stay above its key competitors in terms of its agricultural business’ EBITDA growth. It will be interesting to see if these factors can offset the weakness in the crop protection segment.

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