Dupont Issues Mixed Earnings Results But Is Worthy Of A Position In Any Dividend Portfolio

| About: DowDuPont Inc. (DWDP)
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Summary

The agriculture continues to be the big money making segment.

Bottom line results increased on better cost control measures from the prior year.

Top line results have dropped 6% from last year.

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

"Due to the tiring bullish technicals, deteriorating return on equity, and fair valuation on growth potential I'm not going to be buying a position at this price." Since that article was published the stock is up 2.49% while the S&P 500 (NYSEARCA:SPY) was up 1.36%. 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 17Apr14 and on the surface all the results were bad with the company reporting earnings of $1.58 per share (missing estimates by $0.01) on revenue of $10.1 billion (missing estimates by $350 million). 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)

1Q14

4Q13

1Q13

Q/Q

Y/Y

Agriculture

$ 4,394

$ 1,806

$ 4,669

143%

-6%

Electronics & Communications

$ 580

$ 642

$ 616

-10%

-6%

Industrial Biosciences

$ 301

$ 326

$ 289

-8%

4%

Nutrition & Health

$ 861

$ 872

$ 868

-1%

-1%

Performance Chemicals

$ 1,532

$ 1,616

$ 1,585

-5%

-3%

Performance Materials

$ 1,593

$ 1,576

$ 1,559

1%

2%

Safety & Protection

$ 947

$ 975

$ 907

-3%

4%

Other

$ 1

$ 1

$ 1

0%

0%

Total

$ 10,209

$ 7,814

$ 10,494

31%

-3%

Elimination of transfers

$ (81)

$ (67)

$ (86)

21%

-6%

Consolidated net sales

$ 10,128

$ 7,747

$ 10,408

31%

-3%

At first glance I notice that the Agriculture quarterly revenue increased by 143% but then you come to realize that this is just a seasonally adjusted value and no extra emphasis should be placed on the result. The agriculture business was responsible for 43% of the company's total revenue in the first quarter. 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 3% from last year but increased 31% from last quarter (but no weight should be added to the results from last quarter as this is just a seasonally adjusted event in the agriculture segment).

Income Statement

Income Statement

1Q14

4Q13

1Q13

Q/Q

Y/Y

Net Sales

$ 10,128

$ 7,747

$ 10,408

31%

-3%

Other income, net

$ 17

$ 89

$ 92

-81%

-82%

Total

$ 10,145

$ 7,836

$ 10,500

29%

-3%

Cost of goods sold

$ 6,000

$ 5,133

$ 6,193

17%

-3%

Other operating charges

$ 797

$ 995

$ 912

-20%

-13%

Selling, general and administrative expenses

$ 925

$ 814

$ 983

14%

-6%

Research and development expense

$ 518

$ 550

$ 521

-6%

-1%

Interest expense

$ 103

$ 108

$ 117

-5%

-12%

Employee separation/asset related charges, net

$ -

$ 114

$ -

-100%

#DIV/0!

Total operating expenses

$ 8,343

$ 7,714

$ 8,726

8%

-4%

Income from continuing operations before income taxes

$ 1,802

$ 122

$ 1,774

1377%

2%

Benefit from provision for income taxes on continuing operations

$ 357

$ (61)

$ 387

685%

-8%

Income from continuing operations after income taxes

$ 1,445

$ 183

$ 1,387

690%

4%

Non-GAAP income from discontinued operations

$ (294)

$ (1,968)

-100%

-100%

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

$ (81)

-100%

#DIV/0!

Non-GAAP Less net income attributable to noncontrolling interest

$ 6

$ -

$ 7

#DIV/0!

-14%

Non-GAAP operating earnings

$ 1,439

$ 558

$ 3,348

158%

-57%

Avg. basic outstanding shares

923

927

928

0%

-1%

Avg. diluted outstanding shares

930

934

935

0%

-1%

Non-GAAP operating earnings per basic share

$ 1.56

$ 0.60

$ 3.61

159%

-57%

Non-GAAP operating earnings per diluted share

$ 1.55

$ 0.60

$ 3.58

159%

-57%

From an income statement perspective, cost of goods sold increased 17% on a quarter basis while other operating charges decreased 20% from last quarter and decreased 13% from last year. SG&A increased 14% from last quarter while costs for employee separation disappeared completely. On the whole, operating expenses increased 8% from last quarter but decreased 4% from last year. Income from continuing operations increased 2% from last year showing effective cost control strategies on behalf of the company.

Provision for income taxes on continuing operations increased a whopping 685% from last quarter and the end result was that income from continuing operations increased 690%! On a year-over-year basis, the increase was 4%.

Balance Sheet

Balance Sheet

1Q14

4Q13

1Q13

4Q12

Q/Q

Y/Y

Cash and cash equivalents

$ 3,782

$ 8,941

$ 8,941

$ 4,284

-58%

-58%

Marketable securities

$ 67

$ 145

$ 145

$ 123

-54%

-54%

Accounts and notes receivable, net

$ 8,040

$ 6,047

$ 6,047

$ 5,452

33%

33%

Inventories

$ 7,610

$ 8,042

$ 8,042

$ 7,565

-5%

-5%

Prepaid expenses

$ 338

$ 206

$ 206

$ 204

64%

64%

Deferred income taxes

$ 795

$ 775

$ 775

$ 613

3%

3%

Assets held for sale

$ 202

$ 228

$ 228

$ 3,076

-11%

-11%

Total current assets

$ 20,834

$ 24,384

$ 24,384

$ 21,317

-15%

-15%

Property, plant and equipment

$ 13,003

$ 12,993

$ 12,993

$ 12,741

0%

0%

Goodwill

$ 4,698

$ 4,713

$ 4,713

$ 4,616

0%

0%

Other intangible assets

$ 4,975

$ 5,096

$ 5,096

$ 5,126

-2%

-2%

Investment in affiliates

$ 987

$ 1,011

$ 1,011

$ 1,163

-2%

-2%

Deferred income taxes

$ 2,394

$ 2,353

$ 2,353

$ 3,936

2%

2%

Other assets

$ 909

$ 949

$ 949

$ 960

-4%

-4%

Total assets

$ 47,800

$ 51,499

$ 51,499

$ 49,859

-7%

-7%

Accounts payable

$ 3,905

$ 5,180

$ 5,180

$ 4,853

-25%

-25%

Short-term borrowings and capital lease obligations

$ 2,019

$ 1,721

$ 1,721

$ 1,275

17%

17%

Income taxes

$ 347

$ 247

$ 247

$ 343

40%

40%

Other accrued liabilities

$ 4,814

$ 6,219

$ 6,219

$ 5,997

-23%

-23%

Liabilities related to assets held for sale

$ -

$ -

$ 1,084

#DIV/0!

#DIV/0!

Total current liabilities

$ 11,085

$ 13,367

$ 13,367

$ 13,552

-17%

-17%

Long-term borrowings and capital lease obligations

$ 9,298

$ 10,741

$ 10,741

$ 10,465

-13%

-13%

Other liabilities

$ 10,032

$ 10,179

$ 10,179

$ 14,687

-1%

-1%

Deferred income taxes

$ 943

$ 926

$ 926

$ 856

2%

2%

Total liabilities

$ 31,358

$ 35,213

$ 35,213

$ 39,560

-11%

-11%

The cash and cash equivalents took a beating from last quarter and last year by decreasing an eye popping 58%. Marketable securities also took a hit by dropping 54%. Accounts receivable increased 33% and prepaid expenses increased 64%. Assets held for sale have decreased by 11% making total current assets decrease by 15%. On the whole, total assets decreased by 7% for the company.

On the liability side of things, accounts payable decreased 25% while short-term borrowings and capital lease obligations increased 17%. Income taxes have increased 40% but other accrued liabilities have decreased 23% helping total current liabilities decrease 17%.

From the long-term liability perspective, we see that long-term borrowings have decreased 13% and total liabilities have decreased 11% for the company on a whole from last year.

Conclusion

The company reported earnings which were 5% higher (if you exclude the income from discontinued operations) than a year before on slightly less revenue while the share price was up 34.44% in the past year excluding dividends. The share count has decreased slightly for the entire year. I definitely hate that revenue was down year over year. The results were mixed, but I don't like to see earnings increase through financial engineering methods and investors seem to think the same as the stock dropped 1.09% after reporting while the S&P500 increased in value by 0.14%. That being said, I think the stock is inexpensive and the revenue drop isn't too significant that I think the company should be purchasing shares right now and save some powder for later when Mr. Market pulls back a little more. Earnings only plummeted by half because of the loss of the boost last year from the sale of the coating business, so this should not be held against the company. With the mixed results the stock is on my team, but not in the starting lineup.

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, SPY. 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.