Update DuPont (DD)
01/30/2012 2:30 pm EST
Back on the chemical company’s investment day in mid-December, DuPont had said that it saw the next few quarters as tough but that it saw a bright longer-term future thanks to its “new” businesses of nutrition and industrial bioscience. And that’s the story that fourth quarter earnings told too.
Fourth quarter earnings came in a 35 cents a share (excluding one-time items), beating Wall Street estimates by two cents a share. Revenue grew by 14% from the fourth quarter of 2010—if you count a big boost from acquisitions and currency. Excluding those two factors revenue grew by just 4%. At $8.43 billion for the quarter, revenue came in just below the Wall Street estimate of $8.53 billion.
As you might expect in the current global economy, DuPont’s sales in its consumer electronics and construction businesses were weak in the quarter. Electronics sales, for example, were down 18% year-to-year.
But the company’s newer and non-traditional (for DuPont anyway) businesses continued to do well. Sales in the agriculture unit, for example, were up 8% year-to-year on higher prices (five percentage points of the eight percentage point increase in total growth) and increased volume. Nutrition and health grew sales 138% year-to-year thanks to the acquisition of Danisco, which contributed $468 million of the unit’s $806 million in sales.
For 2012 as a whole, the company guided to earnings of $4.20 to $4.40 a share. That would amount to 7% to 12% earnings growth. The company added that it didn’t expect to see growth rebound until the second quarter.
A good part of DuPont’s earnings picture over the next few quarters depends on how deep the EuroZone recession is—the International Monetary Fund is projecting a mild recession with GDP falling by 0.5%—since DuPont gets about 65% of its sales outside the United States.
At the level of the company’s guidance for 2012 this isn’t an expensive stock—with a forward price-to-earnings ratio on 2012 earnings of 12 or so. By mid-way through 2012 I expect the stock to look even cheaper with the company looking ahead to a modest recovery in the U.S. and emerging market economies that should promise improved revenue in both its traditional and “new” businesses.
As of January 30 I’m keeping my target price at $58 by November 2012. At the January 30 price, the stock paid a 3.3% dividend.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of DuPont as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/