Before the market opens Tuesday, E I Du Pont De Nemours And Co (NYSE:DD) is scheduled to announce first-quarter earnings. According to Thomson Reuters, analysts expect a net income of $1.31 a share, down from $1.58 a year earlier.
Revenue for the quarter is forecasted at $9.4 billion, compared to $10.1 billion prior year.
DuPont stock has hit some headwinds from proxy fights to a strong dollar creating a negative currency impact. Here’s what to watch for Tuesday and see how DuPont management addresses these issues going forward.
DuPont Stock Outlook
Since the beginning of the year, the strong dollar has weighed heavily on DD’s outlook. The WSJ Dollar Index, which tracks the dollar against a basket of international currencies, rose nearly 6% over the first quarter.
Amongst all the players in this industry, DuPont stock has the highest exposure to foreign currency impact as nearly 60% of its sales take place overseas. DuPont’s chemicals, seeds and other food products have become expensive to foreign customers.
In a conference call announcing Q4 2014 earnings, DD officials said they expect an earnings headwind of 60 cents per share for Dupont stock in 2015 from the stronger dollar, to be felt primarily in the first half of the year.
DuPont Stock: Corn Versus Soybeans
As the weather starts to warm, an important question will be answered for seed makers like DuPont — how much corn will North American farmers plant compared to soybeans? Corn comprises the majority of sales for seed companies because it can yield more grain for farmers.
However, there’s a catch. Sometimes farmers can produce too much grain, which in turns causes a supply glut. In these instances, farmers may see soybeans as an alternative crop. Recently, the Monsanto Company (NYSE:MON) stated that the switch from corn to soybeans may cause it to miss some of the earlier earnings forecasts for 2015.
The switch hurt DD’s outlook last year and it will be interesting see how this affects profits for DuPont stock.
DuPont Stock: The Proxy War
And then there’s a headline that seems more in line with all of the corporate raider movies of the 1980s. This isn’t about a seasonal or monetary headwind — this risk threatens to shake up the structural makeup of DuPont.
Trian Partners — representing activist investors — has launched a proxy war against DuPont. Nelson Peltz’s investment firm holds about 2.7% of DuPont stock and proposes to break up the conglomerate while adding four directors — including himself — to the company’s board.
Under Peltz’s vision, one entity would consist of DuPont’s high-growth agricultural, nutrition and health and industrial bioscience business units. The remaining units would be combined into another company.
Peltz has been adamant about his claims that Trian’s plans could unlock tremendous growth — with an implied per share value greater than $120 for DuPont stock by the end of 2017. DuPont stock opened today at $71.55.
DuPont told investors this month that a breakup would cost $4 billion, including tax implications and the shifting of debt, and would increase annual expenses by $1 billion.
DuPont management went on to argue that the costs arising from such a split would lead to major debt and a “black eye” on the company’s credit rating.
The vote takes place May 13. If Peltz gets his way, then the DuPont that has been around for 212 years would go through substantial changes, creating an uncertain future.
At the moment, DuPont stock is one of those plays where investors need to take a wait-and-see approach.
As of this writing, Jason Jenkins did not hold a position in any of the aforementioned securities.
