DuPont's agriculture segment sales flat in Q2 2016

Volume growth driven by higher corn seed and insecticide sales was offset by lower soybean volumes in North America and negative impacts from currency and portfolio resulting in flat agriculture products revenues for DuPont in the second quarter of 2016 ended June 30. Operating earnings increased 12% to $865 million on lower product costs, higher volumes and cost savings, partially offset by a $36 million negative currency impact. Operating margins expanded by 290 basis points. Excluding the impact of currency, operating earnings increased 17%. 
 

Seed sales declined 1% and crop protection sales rose 3%. In the quarter, the company was again able to fully offset the currency headwinds in Latin America for crop protection through increased local pricing.

 

Second-quarter results were stronger than the company’s expected in April, primarily due to lower product cost, continued strong sunflower sales in Europe and a benefit from timing at the expense of the third quarter. 

 

DuPont commented that Agriculture markets continue to face challenges as farmers endure tough economic conditions, seed and crop protection suppliers have elevated inventories, and credit remains tight. The company could maintain competitiveness mainly due to its cost actions.

 

 

First-half volume rose 1% with growth in corn seed partially reduced by lower crop protection volume due to insect resistant soy, weather conditions and higher inventories and lower soybean volumes. Total sales in the first half were 2% lower as higher prices and volume gains were more than offset by currency and portfolio changes. In seeds, a stronger mix of Pioneer’s newest corn hybrids resulted in higher net corn price globally led by North America. First-half operating earnings increased 3% driven by higher local price and product mix, lower product costs, and cost savings. Excluding currency, operating earnings were up 9%.

 

 

As time moves to the second half of the year the focus turns to Latin America, where the cutoff between third and fourth quarter comes in the middle of the summer season. In seeds, DuPont expects sales growth in corn business in Brazil driven by the launch of Leptra® corn hybrids -- which the company expects to exceed one-third of summer volume -- reduced by lower soybean volumes. Third quarter sales growth will be impacted by the shift of sales from the third quarter to the fourth quarter as DuPont expands direct selling model in Brazil which is a fine tuning of its route-to-market strategy. On the crop protection side, current market sentiment indicates stronger demand in the fourth quarter than the third quarter, driven by delayed purchasing decisions due to commodity prices and credit availability. For the third quarter, the company expects sales to be down in the high-single-digits percent primarily due to lower insecticide volume in Latin America. Operating earnings is expected to be down in the high-twenty-percent range as cost savings are more than offset by costs associated with the Leptra® launch in Latin America, the absence of $27 million of gains on sales of assets and a $21 million benefit related to an adjustment for prior-period cost of goods sold, which was recorded in 2015.

 

Full-year results will be impacted by the shift of a portion of fourth-quarter 2016 seed sales to first-quarter 2017. This shift is the result of enhancements the company is making to Pioneer business as the company transition to an agency-based route-to-market in the southern United States, similar to the advantaged approach it takes in the Midwest. 

 

DuPont anticipates sales for the full year to be comparable to prior year as higher pricing is offset by negative currency. Operating earnings are expected to be up in the high-single digits percent as cost savings and increased local prices are partially offset by the negative impact of currency. Excluding currency, the company expects operating earnings to be up in the low-teens percent. 

 

While markets continue to be challenging, DuPont is confident in its ability to execute and to deliver results through robust innovation pipeline. The strength of pipeline is evidenced by the favorable market reception to its best in class Zorvec™ fungicide and the fast ramp of Leptra® corn hybrids in Brazil following a successful launch this past Safrinha season, which is on record as the fastest technology introduction in Pioneer history. These two successful new product introductions are evidence that despite the current challenging conditions, farmers continue to recognize the value of DuPont’s technology.