Why Agriculture Business Is So Important For DuPont?

DD: DuPont logo

Agriculture science is DuPont‘s (NYSE:DD) biggest division, accounting for nearly 40% of its value according to our estimates. In 2016, the segment constituted nearly 39% of the company’s revenue and 36% of EBITDA. Like DuPont’s other businesses, the agriculture science business has suffered from pricing pressure, severe competition and margin fluctuation in recent years. However, the outlook has improved in the last couple of quarters, and with the expected completion of the proposed merger with Dow, the business can become even bigger. Below we take a look at what makes agriculture science business an important one from DuPont’s perspective.

Our price estimate of $83 for DuPont is in-line with the market.

Encouraging Pricing Trend Reversal

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After a challenging period of pricing pressure, DuPont’s agriculture business has shown encouraging trends recently. The company has managed to grow both its volume and prices in the last few quarters. In Q1 2017, the agriculture segment grew nearly 4%, with half of the growth coming from price increases driven by gains in Brazil, and the expansion of Pioneer brand seeds and Leptra crop protection products. The company has launched Pioneer brand soybeans and has also increased its sales of sunflower seeds, which has helped it offset decreased corn acreage. DuPont’s agriculture segment may remain its critical growth driver in the near term.

Strategic Fit In Dow-DuPont Deal

DuPont’s agricultural presence and trends, along with those of Dow, make a strong case for synergistic value from the proposed merger between the two giants. The potential in the agriculture business is likely one of the primary reasons why DuPont and Dow decided to merge. The merger would give the combined entity a comprehensive array of products in agriculture, making it a dominant player in the industry. It would help the companies gain significant bargaining power over their suppliers and, to some extent, customers. Bargaining power becomes important in an industry which faces growth challenges, and margin improvement becomes a critical source of value. Additionally, the size advantage should help the combined companies in terms of access to funds for growth and to ward off competition. Also, their presence in overlapping geographies presents an opportunity to eliminate costs and grow revenue.

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