UPDATE 3-DuPont earnings boosted by agriculture business

Tue Jul 22, 2008 1:56pm EDT

(Adds CEO comment on M&A, updates share price)

By Euan Rocha

NEW YORK, July 22 (Reuters) - Chemical maker DuPont Co (DD.N) posted higher-than-expected quarterly earnings on Tuesday as increased product prices and strong demand for its corn and soybean seeds offset weakness in the domestic housing and automotive markets.

The company's shares rose more than 2 percent following the announcement in which DuPont also raised the lower end of its full-year 2008 outlook.

DuPont, one of the largest U.S. chemical makers, has benefited from a global agricultural boom that has spurred sales of its genetically modified seeds, insecticides and other products.

"It's a tale of two DuPonts. The ag segment continues to go gangbusters while the rest of DuPont continues to struggle, primarily in North America," said Morningstar analyst Ben Johnson.

Sales of products used in insulation, roofing, surfaces and windows have suffered due to the slump in domestic housing. Weak automotive markets have also hurt DuPont, as it is one of the largest suppliers of paints to that industry.

Second-quarter net income increased to $1.08 billion, or $1.18 a share, from $972 million, or $1.04 a share, a year earlier.

Excluding gains from a litigation settlement and a lower tax base, earnings were $1.11 a share, above Wall Street's expectations of $1.07.

Revenue rose 12.2 percent to $8.84 billion, driven by increased demand at the agriculture business and 18 percent sales growth in overseas markets. Analysts on average had forecast revenue of $8.43 billion, according to Reuters Estimates.

AGRICULTURE SHINES

"DuPont captured strong growth in agriculture and emerging markets and grew earnings, despite accelerating raw material and energy costs in the second quarter," Chief Executive Charles Holliday said in a statement.

The agriculture business posted an 18 percent increase in pretax operating income, driven by higher volumes and prices that were partially offset by expansion costs, higher commodity prices and a $52 million charge for certain soybean contracts.

DuPont said it held market share in the North American corn seed market in 2008. It had in recent years been losing market share in the world's largest corn-growing region to rival Monsanto Co (MON.N).

The company expects to increase its share of the corn seed market in North America in 2009, but declined to comment on the size of the gain it anticipates.

Revenue also increased in all of DuPont's other key segments, helped by higher selling prices, a weak U.S. dollar and growth in emerging markets.

However, pretax operating income in some of these businesses suffered for various reasons, including higher raw material costs, the weak U.S. housing and automotive markets, and costs from expansion.

The coatings and color technologies business, which sells to both housing and automotive markets, posted surprisingly strong results. Pretax operating income rose 9 percent, helped by volume growth in overseas markets and a weak U.S. dollar.

CAUTIOUS OUTLOOK

Wilmington, Delaware-based DuPont increased the lower end of its full-year earnings outlook to $3.45 per share from $3.40, while keeping the high end at $3.55. Wall Street is expecting $3.50.

"Not only did DuPont beat the number, but they also tightened that guidance range," said HSBC analyst Hassan Ahmed. "This is clearly a positive with the macro environment in mind."

The company expects second-half earnings per share to be modestly lower than a year earlier because of higher energy and ingredient costs, lower demand in certain developed markets, lower income from asset sales and a higher tax rate.

Second-half earnings per share should be about equally split between the third and fourth quarters, DuPont said.

DuPont's Holliday said the company will use the period of tighter credit as an opportunity for acquisitions that are a "perfect fit" and add to the company's product portfolio.

"We're not talking about some massive acquisition, we believe that would be very disruptive to delivering the consistent earnings pattern we show," said Holliday, on a conference call.

The company's shares were up $1, or 2.3 percent, at $45.07 in afternoon trading on the New York Stock Exchange. DuPont stock has fallen about 8 percent over the last three months, while the Standard & Poor's Chemical Index .GSPPM is down about 2.7 percent. (Editing by Mark Porter and Andre Grenon)

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