DuPont Second Quarter Earnings Wither With Lower Corn Seed Volumes

Jul.27.14 | About: E. I. (DD)

Summary

Sales and earnings decreased from the prior year.

The decrease in earnings and sales were in-line with what the company announced in late June.

On the bright side, the company decided to increase the dividend by 4.4%.

The last time I wrote about E.I. du Pont de Nemours and Company (NYSE:DD) I stated:

"Due to the slightly bullish technicals, no increase to the dividend this quarter, and overall market craziness, I will pull the trigger here right now but only on a small batch." Since that article was published the stock is down 4.2% while the S&P 500 (NYSPY) is up 5.32% in the same timeframe. DuPont 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 22Jul14 and on the surface the results were not that great with the company reporting earnings of $1.17 per share (in-line with estimates) on revenue of $9.71 billion (missing estimates by $80 million). The stock dropped 0.9% the day it reported earnings and what I'd like to do 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)

Q/Q

Y/Y

2Q14

1Q14

2Q13

Agriculture

-18%

0%

$3,615

$4,394

$3,615

Electronics & Communications

6%

-6%

$617

$580

$656

Industrial Biosciences

5%

4%

$317

$301

$305

Nutrition & Health

8%

7%

$926

$861

$865

Performance Chemicals

11%

-8%

$1,696

$1,532

$1,843

Performance Materials

-1%

-2%

$1,582

$1,593

$1,614

Safety & Protection

9%

1%

$1,029

$947

$1,019

Other

0%

N/A

$1

$1

N/A

Total

-4%

-1%

$9,783

$10,209

$9,917

Elimination of transfers

-5%

6%

$(77)

$(81)

$(73)

Consolidated net sales

-4%

-1%

$9,706

$10,128

$9,844

Click to enlarge

At first glance, I notice that the Agriculture quarterly revenue was flat, but if you remember, during the quarter the company told us that revenue was going to be impacted this quarter. Impacted it was indeed as the results were 18% less than they were last quarter. The agriculture business was responsible for 37% of the company's total revenue in the first quarter (a 6% drop from the prior quarter in terms of accountability). The agriculture segment improves the quantity, quality, and safety of the global food supply through manufacturing insecticides, fungicides, herbicides, and plant food. On the whole, the company's revenue stream decreased 1% from last year and 4% from last quarter. This is the second consecutive quarter in which revenues have dropped, and is grounds for me to put this guy in the penalty box.

Income Statement

Income Statement

Q/Q

Y/Y

2Q14

1Q14

2Q13

Net Sales

-4%

-1%

$9,706

$10,128

$9,844

Other income, net

2300%

157%

$408

$17

$159

Total

0%

1%

$10,114

$10,145

$10,003

Cost of goods sold

0%

-1%

$5,999

$6,000

$6,056

Other operating charges

4%

-12%

$825

$797

$942

Selling, general and administrative expenses

2%

-4%

$948

$925

$983

Research and development expense

5%

1%

$545

$518

$542

Interest expense

-9%

-18%

$94

$103

$115

Employee separation/asset related charges, net

N/A

N/A

$263

N/A N/A

Total operating expenses

4%

0%

$8,674

$8,343

$8,638

Income from continuing operations before income taxes

-20%

5%

$1,440

$1,802

$1,365

Benefit from provision for income taxes on continuing operations

3%

9%

$366

$357

$335

Income from continuing operations after income taxes

-26%

4%

$1,074

$1,445

$1,030

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

N/A

-112%

$9

N/A

$(74)

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

N/A

-79%

$(17)

N/A

$(85)

Non-GAAP Less net income attributable to noncontrolling interest

-100%

N/A

$6

Non-GAAP operating earnings

-25%

-9%

$1,082

$1,439

$1,189

Avg. diluted outstanding shares

-1%

0%

925

930

929

Non-GAAP operating earnings per diluted share

-24%

-9%

$1.17

$1.55

$1.28

Click to enlarge

From an income statement perspective, other income increased by 157% and brought total sales up by 200 basis points, turning total sales into a positive number. Other operating charges decreased by 12% from last year and interest expenses decreased by 18%, helping continuing operations income before taxes to a 5% increase from last year. After tax income from continuing operations had a 4% increase from last year but when taking into consideration the non-GAAP items we see a 9% drop in operating earnings. After the drop in operating earnings we see a 9% drop in earnings per share as there was no effect from a share buyback.

Balance Sheet

Balance Sheet

Q/Q

2Q14

1Q14

Cash and cash equivalents

10%

$4,174

$3,782

Marketable securities

158%

$173

$67

Accounts and notes receivable, net

11%

$8,896

$8,040

Inventories

-9%

$6,940

$7,610

Prepaid expenses

-25%

$252

$338

Deferred income taxes

12%

$894

$795

Assets held for sale

-100%

N/A

$202

Total current assets

2%

$21,329

$20,834

Property, plant and equipment

0%

$13,035

$13,003

Goodwill

0%

$4,686

$4,698

Other intangible assets

-2%

$4,885

$4,975

Investment in affiliates

-1%

$982

$987

Deferred income taxes

1%

$2,420

$2,394

Other assets

7%

$977

$909

Total assets

1%

$48,314

$47,800

Accounts payable

-9%

$3,542

$3,905

Short-term borrowings and capital lease obligations

24%

$2,506

$2,019

Income taxes

120%

$763

$347

Other accrued liabilities

-12%

$4,228

$4,814

Total current liabilities

0%

$11,039

$11,085

Long-term borrowings and capital lease obligations

0%

$9,292

$9,298

Other liabilities

-1%

$9,931

$10,032

Deferred income taxes

-2%

$924

$943

Total liabilities

-1%

$31,186

$31,358

Click to enlarge

The cash and cash equivalents increased by 10% from last quarter, marketable securities increased by 158%, account receivables increased 11%, and deferred income taxes increased 12%. However, there was a negative effect on the current asset side of the equation as prepaid expenses decreased 25% and assets held for sale dropped 100%. But these negative effects didn't hurt the current assets as they increased 2% in aggregate. All total assets increased 1% from last quarter.

On the liability side of things, short-term borrowings and capital lease obligations increased 24%, and income taxes increased 120%, but other accrued liabilities decreased 12% and kept current liabilities flat. On the positive side, total liabilities decreased by 1%.

Conclusion

The company saw earnings decrease by 9% thanks in part to the 1% reduction in revenues while the share price was down 3.56% between earnings calls. I definitely hate that both revenue and earnings were down on a yearly basis. The results were horrible to me, and other investors seem to think so too as the stock dropped 0.9% after reporting while the S&P500 increased in value by 0.5%. The earnings per share drop from last year were in-line with the company's guidance back in late June. If we were to try and find a bright side to this earnings report you can say that volume in crop protection, nutrition and health, and most industrial business grew, but then again, all that was offset by the impact of portfolio changes, and lower corn seed volumes. Another bright side is that the company announced it would raise its dividend by 4.4% to $0.47 per share. I believe this earnings report earns a D at best.

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: The author is long DD, SPY. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.