Why DuPont’s Earnings Results Are So Typical for This Stock Market
Thursday, April 25th, 2013
By Mitchell Clark, B.Comm. for Profit Confidential
The stock market’s reaction to E. I. du Pont de Nemours and Company’s (NYSE/DD) earnings results was solid, especially considering the company’s five-percent dividend increase.
For E. I. du Pont, more commonly known as DuPont, first-quarter revenues for 2013 grew two percent to $10.4 billion. Like many large-caps, currency translation was an issue.
Of this $10.4 billion, $4.85 billion represented North American sales, which grew a solid eight percent (four percent due to rising prices and four percent due to better volumes). Latin America also saw strength, but Europe and Asia, in particular, were weak points.
DuPont’s record performance in its agriculture division was the standout once again. Global agriculture sales grew 14% to $4.7 billion; equally as impressive were the company’s agriculture operating earnings, growing 13% to $1.5 billion.
Other than a two-percent gain in DuPont’s industrial biosciences division, operating earnings at all of DuPont’s other divisions were down, particularly in performance chemicals.
DuPont reaffirmed its 2013 full-year outlook, which reassured the stock market. Along with its dividend increase, the company is basically offering a high single-digit potential return this year. You could argue it’s already accomplished this. The company’s stock chart is featured below:
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Chart courtesy of www.StockCharts.com
Weakness in DuPont’s non-agricultural businesses is definitely an issue. To me, the stock looks fully priced if not a tad expensive, given the company’s latest earnings report.
Without question, if business were to pick up in DuPont’s industrial divisions, it would easily move higher on the stock market.
The company’s shifting focus into agriculture and food-related products is a good move. But in terms of investment risk, such a large portion of corporate revenues coming from agriculture could also be problematic for the company when that cycle changes. Near term, however, it’s proving to be a good move.
It’s pretty clear from the earnings results so far that the agriculture investment theme offers growth and good profitability. (See “How Wall Street and Agriculture Can Boost Your Returns.”)
It would be wonderful if there were more pure play agriculture opportunities in the marketplace related to seed development and crop protection. These areas are definitely poised for more growth going forward.
One other noticeable trend in DuPont’s latest earnings report was the huge increase in the company’s cash balance. Cash and cash equivalents jumped to $6.6 billion, way up from $4.3 billion. Shareholders’ equity also grew significantly.
The stock market can definitely move a little higher if corporate earnings keep holding up. Revenues are light, while earnings are basically meeting expectations and companies are confirming their existing full-year outlooks.
Risk, however, is going up. The stock market must experience a meaningful pullback soon or it will be too far ahead of the economic landscape.
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