Chemical and industrial products behemoth E. I. du Pont de Nemours and Company‘s (DD) second-quarter 2012 adjusted earnings beat estimate but its profit (as reported) fell 3% on higher costs. The company expects earnings in 2012 to be at the low end of its forecast due to global economic challenges.
Second Quarter Flashback
The company reported adjusted earnings of $1.48 per share in the second quarter of 2012, exceeding the Zacks Consensus Estimate of $1.46 and the year-ago earnings of $1.37 per share.
The company saw strong performance in agriculture, food and bioscience businesses, along with its advanced materials business, which witnessed healthy results despite weak European markets.
Including one-time items (such as costs associated with the Danisco acquisition and customer claims and litigation charges), earnings came in at $1.25 per share versus $1.29 in the prior-year quarter. The drop reflects lower sales volumes across several segments and weak demand for titanium dioxide, especially in Europe and Asia.
Net sales grew 7% year over year to $11,006 million, driven by price hikes and portfolio changes, partly offset by unfavorable currency impact and lower sales volumes. However, sales missed the Zacks Consensus Estimate of $11,252 million.
We have discussed the quarterly results at length here: DuPont EPS Beats, Outlook Cautious.
Agreement – Estimate Revisions
Estimates for DuPont have showed a downward trend over the past week. Out of 13 analysts covering the stock, 8 have lowered their earnings estimates for the third quarter over the past 7 days while 3 moved in the opposite direction. An identical trend applies to the estimates for 2012, with 9 analysts (out of 14) downwardly revising their forecasts while 4 raising the same.
Estimate for the third quarter demonstrate a strong negative bias over the last 30 days with 10 analysts lowering their forecasts and only 1 increasing the same. For 2012, estimates are negatively inclined over the past month with 11 analysts lowering their forecasts while 2 making positive revisions.
Magnitude – Consensus Estimate Trend
Given the downward revisions, estimate for the third quarter and 2012 dropped by 7 cents and 5 cents, respectively, over the past week. The decline has been more pronounced over the last month with estimate for the third quarter and 2012 decreasing 8 cents and 9 cents, respectively. The current Zacks Consensus Estimates for the third quarter and 2012 are 63 cents and $4.22, respectively.
Neutral on DuPont
DuPont is a global chemical and life sciences company, with a diverse array of product offerings. The company has adopted aggressive acquisition and joint venture strategies to facilitate its transformation from an industrial chemical maker to one that has diversified businesses ranging from bulletproof vests to solar panel films.
DuPont, through its wholly-owned subsidiary DuPont Denmark Holding ApS, successfully completed its acquisition of Danisco in May 2011. The acquisition strengthens the company’s presence in the food ingredient and enzyme markets, while expanding its presence in industrial biotechnology and biofuels. The acquisition contributed 5% to the company’s sales in the second quarter of 2012.
The company is focused on an aggressive cost-cutting strategy by reducing fixed costs, retrenching employees, restructuring work schedules and improving working capital productivity. It remains on-track to exceed its three-year (2010-2012) fixed cost productivity targets of $1 billion by 2012. Moreover, DuPont’s valuable and meaningful product differentiation enables it to serve its end-markets better.
However, higher raw material costs are a concern for DuPont. The demand of titanium dioxide, which is used to give paint and other coatings a white hue, remained weak in the second quarter of 2012, leading to lower volumes in the performance chemicals business. The sluggish economic conditions also might prove to be headwinds for the company going forward.
Currently, we have a long-term (more than 6 months) Neutral recommendation on DuPont. The company, which competes with The Dow Chemical Company (DOW) and BASF SE (BASFY), currently holds a short-term Zacks #3 Rank (Hold).
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
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