Dipping Profits Shouldn't Keep You Away From This Stock

The drop inDuPont's (NYS: DD) fourth-quarter profits didn't really come as a surprise, since the company had sounded the warning bells last month. Also, on an operating basis, profits more than doubled compared to the prior-year quarter.

Looking beyond the short-term pain, the company looks poised to reap rich benefits from its expanding chemical business and the well-timed acquisition of enzyme and specialty food ingredients company Danisco.

A lucrative agribusiness
DuPont is betting big on the growth of its agribusiness, given the rising demand for food from a growing population. In fact, agribusiness was the only segment where volumes grew during the fourth quarter. The Danisco acquisition is doing the trick for DuPont. After the acquisition, the share of agriculture and nutrition and health segments in DuPont's top line has moved up significantly.

DuPont's seed business, Pioneer Hi-Bred, is already gaining a bigger share in the North American market. Pioneer will also commercially launch two new corn insect-protection products this year, which should boost sales. DuPont is capitalizing on emerging-market opportunities, too. Seed sales from the Latin American region were up by more than 40% in the last two quarters alone. DuPont's focus on Latin America is easy to understand given the significant economic as well as population growth in the region.

The company seems to have caught the rising agriculture business cycle and has positioned itself sweetly to gain from the boom.

Strong core business
Besides the agribusiness, the company is deeply focused on its core business of chemicals. DuPont is one of the few companies expanding its titanium dioxide (TiO2) capacity. In the fourth quarter, its performance chemicals segment sales climbed 12% from the comparable period last year as a result of higher TiO2 prices.

DuPont is investing in a new facility in Mexico, while upgrading five existing plants in various sites to generate higher volumes. I think it's a great move and should keep it ahead in the chemical race.

No worries here!
While DuPont's electronics segment was the dampener, the company believes it is a temporary phase and expects sales to bounce back by midyear. In the fourth quarter, sales in the segment fell 18% largely due to destocking, particularly by solar industry customers.

DuPont's net profit slipped to $373 million from $376 million a year ago. But if we exclude the tax gain of $152 million in the prior-year period, the results weren't bad at all. In line, DuPont left its previously announced full-year earnings outlook untouched on the back of rapid growth in emerging nations and a strong presence in the TiO2 market. (DuPont is the world's largest TiO2 producer.)

The Foolish bottom line
Solid business lines, great performance, and handsome dividends (it currently yields 3.2%) make DuPont a delectable stock. Make sure you do not miss out on any news and analysis on DuPont. Click here to add it to your stock watchlist.

At the time this article was published Neha Chamaria does not own shares of any of the companies mentioned in this article.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.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story