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DuPont forecasts better times for flagging ag unit

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DuPont forecast an end-of-year recovery at its agriculture division, even as it confirmed the dent to the business from the drop in US corn sowings which prompted a profits warning.

The US pigments-to-healthcare conglomerate reported underlying earnings for the April-to-June quarter down 8.7% at $1.09bn, equivalent to $1.17 per share.

The result was in line with market expectations, which were reduced after DuPont warned on profits last month, citing the dent to its performance from lower-than-expected sales of corn, which had in turn brought a second whammy in inventory writedowns.

"Lower agriculture earnings impacted our results this quarter," Ellen Kullman, the DuPont chairman and chief executive, said on Tuesday.

Corn vs soybeans

Indeed, while agriculture revenues remained flat at $3.62bn, with a small rise in prices in dollar terms offset by weaker volumes, operating profits fell 11.2% to $836m.

DuPont blamed "lower corn seed volumes, lower North America herbicides and higher seed inventory writedowns" for the decline.

Lower corn prices prompted US farmers to cut by 3.8m acres to 91.6m acres their corn plantings this year, largely in favour of soybeans.

While seed groups have enjoyed strong soybean seed sales as a result DuPont said that the impact had only "partially offset" the setback from the weaker corn market.

'Stronger fourth quarter'

The group forecast a further soft performance by the agriculture division in the current July-to-September quarter, a seasonally weak period for seed groups, with northern hemisphere farmers absorbed by harvesting and southern hemisphere spring plantings yet to begin.

Indeed, DuPont forecast a "similar loss" for the quarter as in the same period last year, when it lost $62m, which actually represented a small improvement on the $70m lost in the July-to-September period of 2012.

However, it forecast a "stronger" October-to-December quarter, foreseeing a boost to insecticide volumes from its Cyazypyr product, designed to counter sucking and chewing pests such as thrips and whitefilies, besides its Dermacor seed treatment.

Seed volumes in the fourth quarter ahead of Brazil's safrinha sowings, typically around March, and for northern hemisphere spring plantings will be "similar" to those a year before.

Profit forecasts

DuPont stuck by a forecast for underlying group earnings of $4.00-4.10 a share, as revealed in last month's profits warning.

For the second half of 2014, operating earnings will reach $1.25-1.35, of which 40% is forecast in the current quarter, equivalent to some $0.50-0.54 per share, a little below the $0.60 per share which Wall Street has forecast for the period.

By Agrimoney.com

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