DOW Dow Inc

EI DuPont de Nemours & Co. (DD) reported net income of $452 million or 69 cents per share in the third quarter of 2011 from $367 million or 40 cents per share in the same quarter of 2010. The profit exceeded the Zacks Consensus Estimate of 56 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 32% to $9.2 billion, up from the Zacks Consensus Estimate of $8.9 billion. The growth in sales reflected a rise of 1% in sales volume, an increase of 15% in local price, 4% currency benefit and 12% net increase from portfolio changes. Sales in the developing markets rose 38%.

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 41% to $1.4 billion with a 26% growth in volumes and 15% rise in selling prices, reflecting a strong, early start to the Latin American season. For Pioneer seed, volume and price growth was delivered in both corn and soybeans. Crop Protection sales increased across all regions and market segments, led by continued strong demand for Rynaxypyr insecticide.

Pre-tax operating income (PTOI) of $(69) million improved from $(191) million due to higher sales, partially offset by growth investments and portfolio changes.

Electronics & Communications: Sales swelled 20% to $841 million, with an increase of 28% in selling prices, primarily pass-through of metals prices, and 8% lower volume. Lower volume reflects destocking in photovoltaics, and softness in plasma displays and packaging graphics. PTOI of $99 million decreased $27 million on lower volume. 

Industrial Biosciences: Sales of $293 million and PTOI of $34 million primarily reflect the acquisition of Danisco's enzyme business. PTOI included approximately $4 million of amortization expense associated with the fair value step-up of intangible assets obtained as part of the acquisition.

Nutrition & Health: Sales of $844 million were up $540 million, principally due to the acquisition of Danisco's specialty food ingredients business. PTOI of $55 million increased $45 million reflecting the acquisition and includes $22 million of amortization expense associated with the fair value step-up of the acquired intangible assets.

Performance Chemicals: Sales escalated 28% to $2.1 billion, with a rise of 29% in selling prices and a decrease of 1% in volumes. Higher selling prices were driven by strong global demand for titanium dioxide and fluoropolymers and pass-through pricing of higher raw material costs for industrial chemicals. Volume declined in refrigerants and industrial chemicals. PTOI of $593 million increased $301 million due to higher selling prices.

Performance Coatings: Sales rose 17% to $1.1 billion, reflecting a rise of 13% in selling prices and 4% higher volume. Higher selling prices reflect favorable currency and pricing actions across all market segments to offset higher raw material costs. Demand increased for OEM motor vehicle coatings and remained strong for industrial coatings, particularly in the North American heavy-duty truck market. PTOI of $72 million increased $8 million on strong sales performance led by refinish. 

Performance Materials: Sales went up 11% to $1.7 billion, with a rise of 18% in higher selling prices, partially offset by 7% lower volume.  Higher selling prices offset higher raw material costs. Lower volume reflects broad-based channel destocking along with softening in consumer and industrial markets, and production-related supply issues in ethylene-based polymers. PTOI of $231 million decreased $50 million on lower volume. 

Safety & Protection: Sales grew 15% to $1.0 billion, with a rise of 8% in higher selling prices and 7% increase from the MECS acquisition. Higher selling prices primarily reflect pricing actions to offset raw material cost increases. PTOI of $118 million decreased $16 million on destocking in industrial markets and higher spending for growth initiatives including the Cooper River Kevlar expansion, which more than offset the impact of the acquisition and favorable currency.

Financial Position

DuPont had cash and cash equivalents of $2.8 billion as of September 30, 2011 compared with $4.3 billion as of December 31, 2010. Long-term borrowings and capital lease obligations amounted to $12.2billion as of September 30, 2011 versus $10.1 billion as of December 31, 2010.

As of September 30, 2011, DuPont had net cash flow of $431 million from operating activities versus $644 million as of June 30, 2011. Meanwhile, capital expenditures increased to $1.2 billion from $741 million in the prior quarter.

Outlook

DuPont upgraded its full-year 2011 earnings outlook to $3.97–$4.05 per share from its previous forecast of $3.90–$4.05 per share. This revision was attributable to the company’s strong earnings results. 

Expectations for the fourth quarter include slowing global growth, some destocking, and the recognition that a portion of Agriculture sales in Latin America was shifted to the third quarter by the early start of the planting season.

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) and The Dow Chemical Company (DOW).

The company currently retains a Zacks #3 Rank, which translates into short-term Hold rating. In addition, we reiterate our long-term Outperform recommendation on the stock.

 
BASF AG-ADR NEW (BASFY): Free Stock Analysis Report
 
DU PONT (EI) DE (DD): Free Stock Analysis Report
 
DOW CHEMICAL (DOW): Free Stock Analysis Report
 
Zacks Investment Research