As anticipated, chemical giant EI DuPont de Nemours & Company (DD) recorded robust growth in revenues and earnings in the second quarter of 2010.

DuPont recorded a near three-fold increase in quarterly earnings to $1.20 billion or $1.76 per share versus $400 million or 46 cents in the second quarter of 2009. Excluding non-recurring charges, the company earned $1.1 billion or $1.17 per share, outpacing the year-ago earnings of 61 cents and the Zacks Consensus estimate of 94 cents.

Higher revenues across all segment and regions, coupled with lower costs, culminated into higher earnings. Quarterly revenues of $8.6 billion exceeded the Zacks Consensus Estimate of $8.3 billion.

A 26% jump in revenues was primarily driven by a 21% increase in volumes. Improving selling prices (5%) and positive currency impacts (1%) partially offset by higher raw material, energy and transportation costs further aided revenue growth. DuPont saw sales volumes rising in double digits across all business segments, with the Electronics & Communications, Performance Materials and Safety & Protection segments reporting a pronounced 25% year-over-year volume expansion.

Regional Sales

Emerging markets sales grew 32%. Revenues in Asia-Pacific leapt 47% to $1.8 billion on a 40% rise in volumes, while earnings in Europe, Middle East and Africa shot up 24% to $2.1 billion helped by a 22% increase in volumes. Sales in Canada and Latin America grew 30% and 20% to $400 million and $700 million, with volumes rising 16% and 12%, respectively. Sales in the North American markets were up 18% to $3.6 billion reflecting a 14% increase in volumes.

Segment Review

Agriculture and Nutrition: Segment’s sales improved 16% to $3 billion on a 12% rise in volumes and 5% rise in prices. Higher sales in the North American seed business helped higher volumes in the segment. Crop protection products volume increased especially insecticides and fungicides under the Rynaxypyr brand in Latin America. Operating income improved 31% to $762 million.

Electronics & Communications: Higher demand for photovoltaics drove revenues in the segment. Revenues soared 53% to $700 million driven by a 48% and 5% rise in volumes and prices respectively. Operating income was up 81% to $108 million.

Performance Chemicals: Revenues in the segment climbed 26% to $1.6 billion on a 19% increase in volumes and a 5% rise in prices. The segment saw strong demand for titanium dioxide, fluoropolymers and refrigerants. Operating income grew 48% to $274 million.

Performance Coatings: An 11% and 4% rise in volumes and prices pushed the segmental revenues by 15%. Volumes were driven by improving demand in the automotive OEM markets, particularly in the heavy duty trucks markets, globally. Operating income more than doubled to $75 million.

Performance Materials: A robust 45% jump in revenues to $1.6 billion was on account of a 35% and 11% rise in volumes and prices. Strong demand in automotive, electronic and packaging markets led to growth in all regions. Operating income increased by $224 million to $261 million in the reported quarter.  

Safety and Protection: Sales increase of 27% to $800 million was primarily driven by volume rise of 27% year over year. Operating profits more than doubled to $121 million.

Guidance

Encouraged by the strong second quarter performance on the back of an improving global economy, DuPont raised its full-year earnings outlook to a range of $2.90 to $3.05 per share from its initial guidance of $2.50 to $2.70 per share. The company expects to record higher revenues and further strengthen its Safety & Protection.

In 2010, DuPont expects to post profits in the Pharmaceuticals business in the range of $460 to $480 million. The company expects full-year free cash flow to exceed $1.7 billion.

Zacks Recommendation

DuPont has focused on aggressive cost-cutting, and plans to capture $1 billion each by way of fixed costs and working capital productivity gains during 2010-2012. A focus on emerging markets along with a strong performance in the Agriculture & Nutrition segment is likely to generate about 10% growth in the top line during 2010–2012. DuPont hopes earnings to shoot up at a rate of 20% during this period.

However, the U.S. housing market slump and weak North American construction market have hurt DuPont’s Coatings business. Pharmaceutical royalties are also expected to decline after the expiration of patents in 2010.
 
Currently, DuPont has a short-term (1 to 3 months) Zacks #3 Rank and a long-term (6 months and longer) Neutral recommendation.
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