The chemical maker will be put to another test next week when it suits up with its first-quarter report. It’s time DuPont put up some solid numbers on the board if it wants to bounce back in the game. Its chances, however, look grim.
Where’s all the excitement gone?
Analysts are looking at flattish year-over-year earnings per share of $1.52 on 7% lower revenue. Those who relished Monsanto Company (NYSE:MON)’s recent blowout numbers might expect DuPont to do well too. After all, DuPont is more of an agriculture play now than a chemicals one. Monsanto Company (NYSE:MON) reported an impressive 15% jump in its last-quarter revenue, backed by a 16% rise in corn seed and trait sales and solid business in Latin America. DuPont stands to gain too, and I am 100% sure that agriculture will be its top-performing segment in the first quarter. But the good news will probably end there.
Even if DuPont pulls off a decent quarter, it’s unlikely it will improve its outlook for the year, unlike Monsanto Company (NYSE:MON). A solid second quarter encouraged Monsanto to raise its 2013 expected EPS by $0.10 on both ends of the range. So even at the lower end, that would mean a neat 19% climb from 2012 EPS. In contrast, E I Du Pont De Nemours And Co (NYSE:DD) expects an unexciting 7% improvement even at the higher end of its earnings guidance. I am not expecting an improvement for two reasons. One, agriculture is just about a third of DuPont’s revenue, and two, its other businesses are still coping with macro challenges.
Murky waters
Demand for titanium dioxide pigment (TiO2), which is also DuPont’s key product, started slipping during the second half of last year, leaving DuPont and peers in the lurch. DuPont is desperately waiting for the weakness to end. Unfortunately, going by what DuPont said in its last earnings call, a comeback is unlikely this year. E I Du Pont De Nemours And Co (NYSE:DD) projected lower sales and 7% to 9% drop in margins for its performance chemicals business for 2013.
DuPont’s peers sound a bit more optimistic though. Huntsman Corporation (NYSE:HUN), for instance, projects both demand and prices of the pigment to bounce back as early as the second quarter this year, which should help its pigments business break even. Huntsman even reported higher pigment volumes in key market Asia during its fourth quarter. That was certainly an encouraging sign. Nevertheless, Huntsman doesn’t expect anything more than $200 million EBITDA (earnings before interest, tax, depreciation, and amortization) from its pigments business this year even if things crawl back to normal. To put it in perspective, Huntsman generated $362 million and $508 million EBITDA from the business in 2012 and 2011, respectively.
I am giving so much weightage to Huntsman Corporation (NYSE:HUN)’s projections because it has proved to be a better judge of the TiO2 market than DuPont in recent times. Keeping that in mind, I have a sneaking feeling that E I Du Pont De Nemours And Co (NYSE:DD)’s margins from performance chemicals might fall more than it expects. This is certainly something I’m going to keep my eyes on when DuPont reports next week, and I’ll make sure I tally that up with Huntsman Corporation (NYSE:HUN)’s outlook when it releases earnings at the end of the month.
