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Business

Cool Forecast For Ag Earnings

Agriculture: Weak sales to farmers in North America prompt DuPont, FMC to cut estimates

by Melody M. Bomgardner
July 7, 2014 | APPEARED IN VOLUME 92, ISSUE 27

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Credit: DuPont
A farmer loads DuPont’s Pioneer Hi-Bred corn seed into his planter.
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Credit: DuPont
A farmer loads DuPont’s Pioneer Hi-Bred corn seed into his planter.

DuPont and FMC have lowered their earnings estimates for 2014 because of lower-than-expected agriculture sales in North America in the second quarter. A long, cool spring slowed purchases of crop protection chemicals from both firms. And a shift by farmers from corn to soybeans as a result of low corn prices left DuPont struggling to sell seeds.

As a result, DuPont expects earnings of $4.00–$4.10 per share in 2014, compared with a previous estimate of $4.20–$4.45. The company wasn’t prepared for the planting shift because it has not yet introduced its next generation of soybean seeds.

“While 2014 is a transition year in agriculture, the revisions to the outlook we made today do not meet the expectations we set for our agriculture segment or for the company,” DuPont CEO Ellen J. Kullman acknowledged.

At FMC, cold weather that lasted beyond the end of April chilled sales of crop protection products in the second quarter. Under normal weather conditions, for example, farmers would purchase products such as FMC’s Capture LFR corn insecticide, which is applied before seeds germinate. FMC has adjusted its full-year earnings estimate to $4.10–$4.30 per share, down from $4.35–$4.55.

Not all agriculture businesses are suffering, however. Monsanto’s most recent earnings report, which was released on June 25, exceeded analysts’ expectations. The seed giant beat DuPont to market with a second generation of yield-improving Roundup Ready soybeans, according to John Roberts, specialty chemical analyst at investment bank UBS.

Although the magnitude of DuPont’s problems was larger than expected, the effect on earnings should be temporary and in the longer term be offset by new cost savings, Roberts explained in a note to investors. Those savings will come after DuPont spins off its performance chemicals division into a separate company. Kullman said DuPont will reduce costs by $1 billion or more by the end of 2019 from its 2013 baseline.

FMC also plans to split in two by spinning off its alkali chemicals and lithium businesses in early 2015. Once the spin-offs at DuPont and FMC are complete, both companies will be dominated by agriculture and health and nutrition businesses.

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