What Could Take This Dow Stock Higher Next Week?

Neha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

DuPont (NYSE: DD) investors are a sad lot, having lost 5% over the past year. All eyes, ears and everything else will be glued to their stock screens as this Dog of the Dow delivers its fourth quarter numbers next week. Analysts don’t see it earning more than a fifth of what it served us in the fourth quarter last year, so even a cent more could bring back some glow to the stock. That isn’t far-fetched considering arch-rival Monsanto’s (NYSE: MON) recent blow-out numbers.

But I can vouch for one thing: DuPont’s full-year earnings will be miles away from last year’s record $3.93 per share. DuPont will have a tough task at hand next week. Some businesses are on shaky grounds, and what plans the company has to turn the wheels of fortune this year are what investors will be interested in. The earnings call should hold the key.

Respite finally?

Analysts (including me) are tired of DuPont’s sluggish chemicals business performance. Will they have to hear the same old story (of global slowdowns and TiO2 weaknesses) next week? Chances are the answer will be a yes.

When DuPont stepped into 2012, it set out an ambitious earnings outlook of $4.20 to $4.40 per share for the full year, riding on the back of solid 2011 performance by the business that also generated hight revenue performance chemicals. But the tables have turned since then. The performance chemicals  business was a complete disaster in the third quarter, with a 19% slump in sales. The agony is here to stay, and investors can easily expect a substantial slump in sales as well as earnings from the segment for the fourth quarter.

White woes

I have a feeling that DuPont might try to convince analysts and investors that things are getting better (read: titanium dioxide demand is improving). It tried to do so earlier, but its forecast only fell on its face. In fact, peer Huntsman (NYSE: HUN) seemed to have a better idea of the TiO2 market when it said customer destocking won’t end before the fourth quarter, unlike DuPont, which saw it ending as early as in the second quarter of last year. If Huntsman foresees its TiO2 margins taking a hit of around $350 per ton during its fourth quarter, I don’t see why DuPont would do any better.

Only Huntsman sees the market recovering during the first half of this year. Yet, I’d like to warn investors: don’t expect much good news on the TiO2 front from DuPont’s earnings call next week. PPG Industries (NYSE: PPG) just gave us a fairly good idea of where the market’s headed. TiO2 is a critical raw material for the paints PPG manufactures. Forget an upswing; PPG actually witnessed a ‘declining trend in the TiO2 pricing’ this past quarter, and feels the graph could continue its downward slope for the year. PPG even managed to reduce its TiO2 requirement by around 4% last year.

Experts from consultant-analyst company ICIS say that even if demand for the pigment recovers over the next couple of quarters, prices may not bounce back before the latter half of the year. In other words, demand is still too low to suck up the excess supply of the pigment.

Turnaround expected?

Destocking also spoiled the game for DuPont’s electronics and communications divisions last year, and the softness will likely persist during the fourth quarter. Flattish sales and lower earnings seem to be on the cards. What analysts will be hooked on to is the outlook for coming months, and any signs of winds having changed direction.

Both DuPont and Dow Chemical (NYSE: DOW) are betting on smartphones and tablet sales to save the day while photovoltaic markets recover. Dow expects these gadgets to offset weakness and stimulate its earnings from electronics and functional materials division during its fourth quarter, and is betting on new launches for growth this year. The conglomerate, which gets 10% sales from this division, will lend us a better view once it reports its numbers on Jan. 31. Whether or not DuPont has lined up any new products will only be known next week. The solar industry seems to be shaking up already, though.

Still better

Back to the business DuPont is building its future on, it will likely report a good jump in agriculture revenue for reasons similar to those that drove up Monsanto’s sales by 21% -- robust demand from Latin America and heavy pre-spring orders from the U.S. farmers. Unfortunately, everyone who bet on DuPont taking a cue from Monsanto’s numbers over the past few quarters were left sulking, as DuPont failed to deliver while Monsanto rocked.  High input and investment costs could well eat into rising sales, drilling holes into DuPont’s bottom line.

What we want to know

DuPont’s recently announced $1 billion buyback program was music to investors’ ears. But there are a lot of things the company needs to clarify next week:

  • Whether the sale of its performance coatings business to Carlyle Group is on track.
  • How it plans to go about the restructuring program announced late last year that includes 1,500 layoffs.
  • The status of the $1 billion lawsuit it lost to Monsanto last year, and what is it doing about Imprelis settlement claims.

Hang-ups remain, and next week is DuPont’s chance to instil some confidence in its investors’ minds. Stay tuned to know if DuPont meets or beats by adding the stock to your stock watchlist. Click here to add it.

 


Nehams has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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