DuPont (NYSE:DD) reported its first-quarter earnings on April 23. As expected, the company reported strong growth from its agricultural business driven by both volume and pricing gains. However, the company’s performance chemicals business dragged earnings significantly due to sharply lower TiO2 prices as compared to the last year’s peak.
See Our Complete Pre-Earnings Analysis: DuPont Earnings: GM Seeds Demand Will Offset Chemicals Weakness
The company reported operating earnings per share [EPS] of $1.56, down almost 5% y-o-y. Reaffirming the full year 2013 EPS to be in the range of $3.85 to $4.05, the company announced a 5% dividend increase as well. Consolidated revenues were up 2% at $10.4 billion, primarily driven by volume growth as pricing gains were offset by unfavorable currency impact [Q1 2013 DuPont Earnings Conference Call, investors.dupont.com].
Agricultural Products Business Continues To Outperform
DuPont’s agricultural products division started the year 2013 with a strong set of first-quarter results. Revenues from the division at $4.7 billion were up 14%, driven by both volume (up 8%) as well as pricing (up 6%) gains. The segment’s operating earnings of $1.5 billion were up 13% y-o-y, as revenue growth was partially offset by higher input costs in seeds business. However, it should be noted that the division’s operating income for the quarter included around $0.02 per share of timing benefit due to accelerated pace of the North American corn seed deliveries and is expected to reverse in the following quarter.
More than three-fourths of the agricultural products division’s revenues came from the sale of seeds driven primarily by increased adoption of Pioneer’s AcreMax integrated and reduced refuge products. According to the company, there is a huge interest in their AQUAmax product among corn growers and that orders for the trademark have been stronger than expected so far. The company anticipates that AQUAmax would be planted on about 7 million acres in North America. Moreover, initial interest in the product is also high in the European markets, as the company is beginning to extend it in these markets. DuPont also benefited from record number of corn hectares planted in the Safrinha season (second-season production of corn) by growers in Brazil, which likely exceeded the summer season corn planting hectares for the first time. Pioneer’s Intrasect product posted strong 40% revenue growth, driven by higher volume and pricing.
DuPont’s crop protection business also reported within the agricultural products division posted record revenues of $1.1 billion, up by almost 17% y-o-y. Revenue growth was primarily led by strong growth in North America (up 60%) and Latin America (up 30%). DuPont’s Rynaxypyr product led revenue growth during the first quarter witnessing growth in all regions and countries.
With corn and soybean expected to cover more than 97 and 77 million acres of planted area in the North America this year, we expect the robust growth environment in the agricultural products segment to continue through 2013. Specifically for DuPont, the growth environment looks less uncertain after the company’s recent settlement deal with Monsanto. According to the deal, DuPont is expected to give at least $1.75 billion in royalties to Monsanto over the period of next 10 years, in return for access to two of its genetically modified (GM) seed technologies, RoundupReady 2 Yield and Xtend and regulatory data rights for the soybean and corn traits, previously licensed from Monsanto, enabling it to create stacked trait combinations. The deal also scraps the $1 billion penalty, the U.S. federal court in St. Louis had imposed on DuPont as it found the company misusing Monsanto’s RoundupReady technology as well as DuPont’s anti-trust litigation against Monsanto.
For More On DuPont’s Settlement Deal With Monsanto, Read: Does DuPont’s GM Technology Deal With Monsanto Make Sense?
Performance Chemicals Business Expected To Recover During The Second Half
Apart from Agriculture and Nutrition, all DuPont’s other divisions posted flat or lower revenues year-on year. However, the most significant decline was reported in its performance chemicals business. Revenues during the first quarter fell sharply by 17% y-o-y, primarily led by lower pricing, down 11%. The decline in prices was led by sharply lower TiO2 prices.
The fact that TiO2 volumes were stable year-on-year, and even grew by 8% on a sequential basis from the last quarter, reflects strong underlying demand for the pigment. It also shows that the current lower prices are largely due to inventory offloading by both the manufacturers as well as the downstream players, and is not a sustainable trend amid rising demand. As the inventory levels normalize over the next few months, we expect growth in the underlying demand, to drive TiO2 prices higher form current levels. To sum it up, we expect 2013 to be the year DuPont’s TiO2 business touches its bottom as the second half of the year would see easier year-on-year comparisons.
Disclosure: No positions