DuPont's Earnings Increase 191% And I Believe It's A Buy

Jan.30.14 | About: E. I. (DD)

E.I. du Pont de Nemours and Company (NYSE:DD) is a diversified technology company operating in the segments of Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Chemicals, Performance Coatings, Performance Materials, Safety & Protection, and Pharmaceuticals. The company reported earnings before the market opened on 28Jan14 and on the surface everything looked good with the company reporting fourth quarter earnings of $0.59 per share (beating estimates by $0.04) on revenue of $7.84 billion (beating analysts' estimates by $60 million). What I'd like to at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Segment Revenue

Segment Sales (millions)

4Q13

4Q12

Y/Y

Agriculture

$ 1,806

$ 1,531

18%

Electronics & Communications

$ 642

$ 623

3%

Industrial Biosciences

$ 326

$ 299

9%

Nutrition & Health

$ 872

$ 855

2%

Performance Chemicals

$ 1,616

$ 1,584

2%

Performance Materials

$ 1,576

$ 1,529

3%

Safety & Protection

$ 975

$ 965

1%

Other

$ 1

$ 1

0%

Total

$ 7,814

$ 7,388

6%

Elimination of transfers

$ (67)

$ (63)

6%

Consolidated net sales

$ 7,747

$ 7,325

6%

Click to enlarge

Compared to last year total revenue has increased by 6% for the fourth quarter. The only real notable thing about this portion of the earnings report is that Agriculture revenues increased by 18% and accounted for 23% of total revenues. Sales growth in this segment was due to higher seed prices and volumes as well as higher insecticide and fungicide volumes in Latin America. However, earlier seed shipments for the Brazilian corn season accounted for about $100 million of operating earnings in 4Q13 versus 1Q14.

Income Statement

Income Statement

4Q13

4Q12

Y/Y

Net Sales

$ 7,747

$ 7,325

6%

Other income, net

$ 89

$ 247

-64%

Total

$ 7,836

$ 7,572

3%

Cost of goods sold

$ 5,133

$ 4,980

3%

Other operating charges

$ 995

$ 1,013

-2%

Selling, general and administrative expenses

$ 814

$ 836

-3%

Research and development expense

$ 550

$ 561

-2%

Interest expense

$ 108

$ 117

-8%

Employee separation/asset related charges, net

$ 114

$ 99

15%

Total operating expenses

$ 7,714

$ 7,606

1%

Income from continuing operations before income taxes

$ 122

$ (34)

-459%

Benefit from provision for income taxes on continuing operations

$ (61)

$ (38)

61%

Income from continuing operations after income taxes

$ 183

$ 4

4475%

Non-GAAP Less significant benefit included in income from continuing operations after income taxes

$ (294)

$ (91)

223%

Non-GAAP Less non-operating pension/OPEB costs included in income from continuing operations after income taxes

$ (81)

$ (99)

-18%

Non-GAAP Less net income attributable to noncontrolling interest

$ -

$ 1

-100%

Non-GAAP operating earnings

$ 558

$ 193

189%

Avg. basic outstanding shares

927

933

-1%

Avg. diluted outstanding shares

934

941

-1%

Non-GAAP operating earnings per basic share

$ 0.60

$ 0.21

191%

Non-GAAP operating earnings per diluted share

$ 0.60

$ 0.21

191%

Click to enlarge

The income statement looks great at first glance. Other income did contract by 64% which caused total income to increase 3% when compared to 4Q12. Employee separation/asset related charges increased 15% due to restructuring charges. Total operating expenses increased by 1% which isn't too bad. Income from continuing operations before income taxes increased by an absolute value of 459%! Benefit from provision for income taxes on continuing operations increased by 61% which helped income from continuing operations after income taxes increase by 4475%! Non-GAAP Less significant benefit included in income from continuing operations after income taxes increased 223% and non-GAAP Less non-operating pension/OPEB costs included in income from continuing operations after income taxes decreased by 18%. Non-GAAP Less net income attributable to noncontrolling interest which helped non-GAAP operating earnings increase by 189%. Basic and diluted shares decreased by 1% from the prior year and overall earnings increased by 191% from 4Q12 to 4Q13.

Balance Sheet

Balance Sheet

4Q13

4Q12

Y/Y

Cash and cash equivalents

$ 8,941

$ 4,284

109%

Marketable securities

$ 145

$ 123

18%

Accounts and notes receivable, net

$ 6,047

$ 5,452

11%

Inventories

$ 8,042

$ 7,565

6%

Prepaid expenses

$ 206

$ 204

1%

Deferred income taxes

$ 775

$ 613

26%

Assets held for sale

$ 228

$ 3,076

-93%

Total current assets

$ 24,384

$21,317

14%

Property, plant and equipment

$ 12,993

$ 12,741

2%

Goodwill

$ 4,713

$ 4,616

2%

Other intangible assets

$ 5,096

$ 5,126

-1%

Investment in affiliates

$ 1,011

$ 1,163

-13%

Deferred income taxes

$ 2,353

$ 3,936

-40%

Other assets

$ 949

$ 960

-1%

Total assets

$ 51,499

$49,859

3%

Accounts payable

$ 5,180

$ 4,853

7%

Short-term borrowings and capital lease obligations

$ 1,721

$ 1,275

35%

Income taxes

$ 247

$ 343

-28%

Other accrued liabilities

$ 6,219

$ 5,997

4%

Liabilities related to assets held for sale

$ -

$ 1,084

-100%

Total current liabilities

$ 13,367

$13,552

-1%

Long-term borrowings and capital lease obligations

$ 10,741

$ 10,465

3%

Other liabilities

$ 10,179

$ 14,687

-31%

Deferred income taxes

$ 926

$ 856

8%

Total liabilities

$ 35,213

$39,560

-11%

Preferred stock

$ 237

$ 237

0%

Common stock

$ 304

$ 306

-1%

Additional paid-in capital

$ 11,072

$ 10,655

4%

Reinvested earnings

$ 16,784

$ 14,383

17%

Accumulated other comprehensive loss

$ (5,441)

$ (8,646)

-37%

Common stock in treasury

$ (6,727)

$ (6,727)

0%

Total shareholders' equity

$ 16,229

$10,208

59%

Noncontrolling interests

$ 57

$ 91

-37%

Total equity

$ 16,286

$10,299

58%

Total shareholder equity and liabilities

$ 51,499

$49,859

3%

Click to enlarge

The first thing to notice is that cash and cash equivalents increased by 109%! Marketable securities increased 18% and accounts receivable increased 11%. Short-term deferred income taxes increased 26% while assets held for sale decreased 93%. All these eye-popping balance sheet items helped total current assets increase 14% during all of 2013. Investment in affiliates decreased 13% while long-term deferred income taxes decreased 40% causing total assets to increase 3% for all of 2013. On the liability side of things short-term borrows have increased 35% and income taxes have decreased by 28%. Liabilities related to assets held for sale have decreased 100% and total current liabilities have decreased by 1%. Other liabilities decreased 31% helping total liabilities decrease 11%.

Conclusion

The company reported earnings which were 191% higher than a year before on 6% more revenue while the share price was up 25.62% in the past year excluding dividends. The share count has decreased 1% for the entire year but during the earnings call, management announced a $5 billion share repurchase program ($2 billion of which will be used during 2014) which should retire about 82 million shares at today's share price of $60.71. I definitely love that both earnings per share and revenue were up year over year. On a fundamental basis, this company is inexpensively valued with respect to 2014 earnings. The stock was up 1.91% the day after reporting earnings in the face of an S&P500 which dropped 1.02% that day. This was a pretty good quarter to me and the stock seems interesting at these levels but keep in mind it's not a high flier.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long DD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.