DuPont's Earnings Miss On Agriculture Weakness, Cuts View
DuPont's (DD - Analyst Report) second-quarter 2015 revenues and earnings missed expectations as weakness in its agriculture business coupled with currency headwinds weighed on its results for the quarter.
DuPont logged adjusted earnings of $1.18 per share in the reported quarter versus $1.17 per share registered a year ago. It fell short of the Zacks Consensus Estimate of $1.19. The results include a 17 cents per share impact from unfavorable currency swings.
Adjusted earnings exclude one-time items including charges associated with the separation of the company's performance chemicals business and restructuring actions.
Including one-time items, DuPont registered earnings of $1.03 per share in the quarter, a roughly 10% fall from $1.15 per share a year ago. Profit slid 12% year over year to $940 million. Lower earnings from the agriculture business affected the bottom line.
DuPont posted net sales of $8,595 million for the quarter, a roughly 11% year over year decline. Revenues were hammered by headwinds from a stronger dollar and lower sales in the agriculture franchise. Declines were witnessed across all segments in the quarter. Sales also trailed the Zacks Consensus Estimate of $9,283 million.
DuPont reduced its earnings guidance for the full year citing weakness in the agricultural markets and also lowered its dividend. The Delaware-based company’s shares tumbled nearly 7% in early trading.
EI Du Pont De Nemours and Company - Earnings Surprise | FindTheBest
Segment Review
Agriculture: Revenues fell 11% year over year to around $3.2 billion in the reported quarter. Segment earnings declined as better productivity and higher pricing were more than offset by unfavorable currency impact and lower volumes from reduction in global corn planted area, lower soybean sales and reduced crop protection volumes.
Electronics & Communications: Sales went down around 13% to $534 million in the quarter. Operating earnings for the segment rose on productivity improvements.
Industrial Biosciences: Sales slipped 9% to $288 million. Earnings fell as higher bioactives demand was offset by currency impact and lower pricing.
Nutrition & Health: Sales fell 11% to $826 million. Operating earnings fell as increased productivity was more than offset by negative currency impact.
Performance Chemicals: Sales went down 11% to around $1.5 billion. Operating earnings went down on lower pricing for titanium dioxide and currency impact.
Performance Materials: Sales tumbled roughly 14% to around $1.4 billion. Operating earnings rose on higher ethylene volumes, improved mix and productivity gains.
Safety & Protection: Sales fell 10% to $925 million. Operating earnings declined on as unfavorable currency impact, lower demand for Nomex thermal resistant fiber and portfolio changes more than offset productivity improvements and increased volumes in medical packaging and protective garments.
Financials
DuPont exited the quarter with cash and cash equivalents of roughly $4.7 billion, up around 12% year over year. Total borrowings and capital lease obligations rose nearly 8% year over year to around $12.7 billion.
DuPont's board approved a third-quarter dividend of 38 cents per share. This represents a reduction from the prior payout of 49 cents per share.
Outlook
DuPont said that it is lowering expectations for its agriculture unit factoring in sustained weakness in global agricultural markets, soft demand in global crop protection markets, reduced expectations for corn area in Latin America and lower-than-expected soybean volumes in North America.
As such, DuPont now envisions adjusted earnings for 2015 to be roughly $3.10 per share (down from $4.00 per share expected earlier), excluding 80 cents per share of expected full-year earnings from the performance chemicals business. Unfavorable currency impact on full-year earnings is expected to be 60 cents per share. The current Zacks Consensus Estimate for 2015 is $3.50.
DuPont, earlier this month, completed the separation of its performance chemicals unit through the spin-off of The Chemours Company. Chemours – earlier a part of DuPont – is now an independent, publicly traded corporation and started "regular-way" trading on the NYSE on Jul 1.
The performance chemicals business had long been a weak link as lower demand and pricing for titanium dioxide weighed on the division’s profitability. The spin-off of the unit is in sync with DuPont’s strategy to shift its focus on high growth, less cyclical businesses.
DuPont, in April, said that it expects to repurchase shares worth around $4 billion utilizing the one-time dividend proceeds from the spin-off of the performance chemicals business. In connection with the spin-off, DuPont's board has authorized the company to buyback $2 billion of common stock by Dec 31, 2015 with the balance to be purchased and retired by Dec 31, 2016.
The company’s operational redesign initiatives are also expected to deliver savings of around 40 cents per share in 2015.
DuPont is a Zacks Rank #5 (Strong Sell).
Better-ranked stocks in the diversified chemicals industry include Albemarle Corp. (ALB - Snapshot Report), Innospec Inc. (IOSP - Snapshot Report) and Orion Engineered Carbons SA (OEC - Snapshot Report). All of them carry a Zacks Rank #1 (Strong Buy).
Disclosure: None.