DuPont Earnings Preview

Jan.23.12 | About: E. I. (DD)

E. I. Du Pont de Nemours and Company (NYSE:DD) is scheduled to report its fourth quarter and full-year 2011 results before the market opens on Tuesday, January 24. The Zacks Consensus Estimate for the quarter is 33 cents per share, representing a year-over-year decrease of 33.38%.

With respect to earnings surprises, the company outdid the Zacks Consensus Estimate in the trailing four quarters. This is reflected in the average earnings surprise of 23.36%, with positive surprises in all the four quarters.

Previous Quarter Performance

DuPont’s earnings in the third quarter of 2011 came in at 69 cents per share compared with 40 cents per share in the same quarter of 2010. The profit exceeded the Zacks Consensus Estimate of 56 cents per share.

The improvement in profit was attributable to higher selling prices, increased sales volume and currency benefit, partly offset by higher raw material, energy and freight costs.

Sales in the quarter grew 32% to $9.2 billion, up from the Zacks Consensus Estimate of $8.9 billion.

Company’s Outlook

In December 2011, DuPont revised its earnings guidance for full-year 2011 to a range of $3.87-$3.95 per share, excluding significant items. However, this is lower than its previous expectation (announced during the third quarter release) of $3.97 to $4.05 per share. The company expects slower growth in certain segments during the fourth quarter, driven by global economic uncertainty.

The company also expects EPS in the range of $4.20-$4.40 for 2012, representing a 7%-12% growth compared with 2011 guidance midpoint. This range includes about 17 cents of additional pension expense. Excluding these additional pension costs, guidance for 2012 would represent a 12%-17% growth.

Agreement of Estimate Revisions

In the past 30 days, the analysts have not shown any movement in estimates.

Magnitude of Estimate Revisions

In the last 30 days, the Zacks Consensus Estimate remained flat at 33 cents for fourth quarter and fiscal 2011.

Over the 90-day period, the Zacks Consensus Estimate plunged 18 cents from 51 cents to 33 cents per share for the fourth quarter and 5 cents from $3.97 to $3.92 per share for fiscal 2011.

Our Viewpoint

We believe DuPont will have a tough fourth quarter due to destocking and inventory accounting. The company’s Consumer electronics segment demand has softened, and housing and construction markets continue to remain weak.

The slowdown in the global economic growth could reduce the company’s capital spending, thereby adversely affecting its operating performance. Further, DuPont faces stiff competition from The Dow Chemical Company (NYSE:DOW) and BASF SE (OTCQX:BASFY).

However, markets for DuPont's agriculture and food businesses continue to be strong, especially with a strong planting season in Latin America.

In view of the above stated reasons, the company retains Zacks #3 Rank on its shares which implies a short-term (1 to 3 months) Hold rating and we have recommended the shares of the company as Neutral for the a long-term (more than 6 months).

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