EI DuPont de Nemours &
Co. (DD) reported an increase in profit of $1.22 billion
or $1.37 per share in the second quarter of 2011 from $1.16 billion
or $1.17 per share in the same quarter of 2010. The profit exceeded
the Zacks Consensus Estimate by 4 cents per share.
The improvement in profit was
attributable to higher selling prices, increased sales volume and
currency benefit, partly offset by higher raw material, energy, and
freight costs.
Sales in the quarter grew 19% to
$10.3 billion, up from the Zacks Consensus Estimate of $9.95
billion. The increase in sales reflected a rise of 2% in sales
volume, an increase of 11% in local price, 3% currency benefit and
3% net increase from portfolio changes. Sales in the developing
markets rose 29%.
Segment
Details
In view of the company's expanded
business portfolio following the Danisco acquisition, two new
reportable segments have been added: Industrial Biosciences and
Nutrition & Health. The Industrial Biosciences segment
includes Danisco's enzyme business and DuPont Sorona and Bio-PDO
businesses, previously reported in Other. The new Nutrition
& Health segment contains Danisco's food ingredients business
and DuPont's Nutrition & Health business previously reported as
part of the Agriculture & Nutrition segment. The former
Agriculture & Nutrition segment, now renamed Agriculture,
includes the seed and crop protection businesses.
Agriculture &
Nutrition: Sales rose 10% to $3.0 billion with a 4% growth
in volumes and 6% rise in selling prices. Pioneer seed growth was
driven by strong market performance in North America, spanning
volume, price and portfolio gains. Crop Protection
sales increased across all product lines, more than offsetting the
impact of divested businesses. Pre-tax operating income
(PTOI) for the quarter went up 11% to $826 million on higher sales,
partly offset by the impact of portfolio changes.
Electronics &
Communications: Sales swelled 36% to $891 million, with an
increase of 27% in selling prices, primarily pass-through of metals
prices, and 9% higher volume. The strong volume was driven by
strong demand for photovoltaics and consumer electronics in Asia
Pacific. PTOI decreased by 5 million to $103 million, reflecting
increased spending of photovoltaics growth initiatives and extreme
volatility of metals pricing, which reduced PTOI by about $20
million.
Industrial
Biosciences: Sales of $123 million and PTOI of $10 million
primarily reflect the acquisition of Danisco's enzyme
business. PTOI included approximately $2 million of
amortization expense associated with the fair value step-up of
intangible assets acquired as part of the acquisition.
Nutrition &
Health: Sales of $486 million were up 64%, with an
increase of 58% from the acquisition of Danisco's food ingredients
business, 4% higher selling prices and 2% volume growth. PTOI
of $38 million increased $22 million, primarily due to the
acquisition. PTOI included approximately $7 million of
amortization expense associated with the fair value step-up of
intangible assets acquired as part of the acquisition.
Performance
Chemicals: Sales escalated 27% to $2.0 billion, with a
rise of 28% in selling prices and a decrease of 1% in volumes.
Sales increased in all major regions. Higher selling prices stemmed
from strong global demand for titanium dioxide, refrigerants,
fluoro products and industrial chemicals, more than offsetting raw
material increases. Lower volume reflects weather-related
supply disruptions in industrial chemicals. PTOI was $503
million, increasing $229 million on strong sales performance.
Performance
Coatings: Sales rose 15% to $1.1 billion, reflecting a
rise of 14% in selling prices, partially offset by a decrease of 2%
in volume. Higher selling prices reflect pricing actions across all
market segments to offset higher raw material costs coupled with a
favorable currency impact. Strong demand continued in industrial
coatings, particularly in North American heavy-duty truck
markets. PTOI of $73 million decreased slightly as higher
sales were offset by higher raw material, energy and freight
costs.
Performance
Materials: Sales went up 11% to $1.7 billion, with a rise
of 14% in higher selling prices, partially offset by 2% lower
volume and a 1% reduction from a portfolio change. Ongoing
demand in electronic, packaging and automotive markets led to
favorable pricing in all regions. Lower volume reflects
supply constraints due to production outages, as well as supply
chain disruptions as a result of the Japan earthquake. PTOI
of $254 million decreased slightly due to the absence of a $27
million benefit from the sale of a business and an insurance
recovery in the prior year and lower volume, partially offset by
higher selling prices.
Safety &
Protection: Sales grew 21% to $1.0 billion, with a rise of
8% from a portfolio change as a result of the MECS acquisition, 7%
higher volume and 6% higher selling prices. Higher volume
reflects continued growth from increased demand for aramid and
nonwoven products in industrial and public sector markets across
all major regions. Higher selling prices primarily reflect
pricing actions taken to offset increases in raw material
costs. PTOI of $143 million increased significantly,
primarily driven by the portfolio change and a favorable currency
impact, partially offset by higher spending for the Kevlar
expansion at Cooper River.
Financial
Position
DuPont had cash and cash
equivalents of $2.3 billion as of June 30, 2011 compared with $4.3
billion as of December 31, 2010. Long-term borrowings and capital
lease obligations amounted to $12.5 billion as of June 30, 2011
versus $10.1 billion as of December 31, 2010.
As of June 30, 2011, DuPont had a
net cash flow of $644 million from operating activities versus $424
million as of June 30, 2010. Meanwhile, capital expenditures
increased to $741 million from $500 million in the year-ago
period.
Outlook
DuPont upgraded its full-year 2011
earnings outlook to $3.90–$4.05 per share from its previous
forecast of $3.65–$3.85 per share. This revision was attributable
to the company’s strong earnings results, the expectation for
continued global economic growth and about $.05 per share full-year
operating earnings from Danisco on an underlying
basis.
The company's estimate for the
impact of the Danisco acquisition on full-year reported earnings is
at present a reduction of $.18 to $.29 per share, versus the
previous estimate of $.30 to $.45 per share. The current view is
based on anticipated full-year Danisco operating earnings of about
$.05 per share and significant item charges related to the
acquisition estimated to be $.23 to $.34 per share. In addition to
these Danisco charges, the company expects a $.03 per share
significant item charge in the third quarter associated with a
licensing agreement.
DuPont is a global chemical and
life sciences company, employing more than 60,000 people worldwide
with a diverse array of product offerings. With over 21,000 patents
and 15,000 patent applications worldwide, DuPont sells its products
in diverse markets, such as transportation, construction, apparel,
agriculture, nutrition and health, packaging and electronics
markets.
DuPont faces stiff competition from
BASF SE (BASFY.PK) and The Dow Chemical Company
(DOW).
The company currently retains a
Zacks #2 Rank on its stock, which translates into short-term “Buy”.
In addition, we reiterate our “Outperform” recommendation on the
stock for the long term.
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