DuPont on Wednesday reported another beat-and-raise quarter, continuing a recovery partly driven by growing demand for AI chips — and rewarding our patience with the stock. Net sales in the three months ended June 30 totaled $3.17 billion, topping the $3.05 billion estimate, according to LSEG. Sales rose 2.5% on an annual basis and 8.2% compared with the first quarter. Adjusted earnings per share (EPS) increased 14.1% year over year to 97 cents, exceeding expectations of 85 cents, LSEG data showed. Operating EBITDA of $798 million in the quarter came in ahead of the $716 million consensus, according to estimates compiled by FactSet. EBITDA — a measure of profitability — is short for earnings before interest, taxes, depreciation, and amortization. DuPont Why we own it: We added this specialty chemical maker as an industrial way to play the recovery in the semiconductor and electronics industries, which have strong multiyear outlooks due to advancements in AI. The company also is getting past excess inventory issues in a few business lines. More recently, DuPont’s plan to split itself into three separate companies has sweetened the investment case. Competitors : 3M , PPG Industries Most recent trade : June 14, 2024 Initiated : Aug. 7, 2023 Bottom line DuPont has turned the corner, and now it is hitting full stride on its recovery. On the back of the strong second-quarter results and raised full-year guidance, shares are deservedly up about 5% Wednesday and on pace for their best day since DuPont’s first-quarter earnings report May 1. That also was a beat-and-raise release . “This can go higher,” Jim Cramer said on Wednesday’s Morning Meeting. Leading the charge is its electronics and industrial segment, which delivered better-than-expected sales, EBITDA and margin in the second quarter. Improvements in the electronics market, a key reason we invested in the company last year, are showing up in a big way. DuPont’s semiconductor technologies business saw year-over-year volume growth north of 20% in the second quarter, driven by increased demand for its chemicals used in the manufacturing of artificial intelligence chips. Its Interconnect Solutions unit — serving end markets including smartphones and other consumer electronics — tallied mid-teens volume growth on an annual basis. Interconnect Solutions is benefiting from a “broad-based” comeback in consumer electronics demand, executives said. It’s a highly encouraging situation and certainly sounds in line with what fellow Club holding Advanced Micro Devices had to say on AI chips and personal computers Tuesday night . “We’re well into the recovery phase from last year’s inventory corrections in most key end markets, and electronics may be setting up for a prolonged positive cycle,” Executive Chairman Ed Breen said on the earnings call. DuPont’s water and protection segment may have seen a year-over-year decline in sales, but what matters most is that revenue was up 8% sequentially. That’s a sign the worst of the destocking issues are indeed behind the company. Notably, DuPont’s Water Solutions and Tyvek medical packaging businesses in China — an economy that’s lately been a thorn in the side of so many companies — helped drive the quarter-over-quarter expansion. A cherry on top for this segment: Shelter solutions revenue ticked up at a rate in the low-single digits as demand improved in construction markets. And that’s with interest rates still at elevated levels. The Federal Reserve expected to start cutting this fall, which is likely to spur even more activity in that area. Elsewhere, DuPont’s plan to separate into three publicly traded firms — electronics, water and a remaining DuPont serving markets including health care and construction — remains on track to be completed within 18 to 24 months, Breen said on the call. Wednesday marked its first earnings report since the announcement in late May. DuPont’s stock hadn’t done much in the intervening two months due to the perception of it being stuck in “spin purgatory,” meaning investors are waiting on the sidelines until the breakup gets closer. Nevertheless, Breen said the company has received “very positive” feedback on the plan. We’re big fans of it, too. DuPont hopes to have executives for the future standalone companies in place in early 2025, Breen said, and eventually DuPont will report segment results in accordance with the breakup. While there’s been speculation that DuPont’s water business is attracting interest from peers, management said the company has not had conversations about an outright sale. Still, Breen reiterated that if there is interest in the business , DuPont will look into it as part of a commitment to taking the best path to making money for investors — whatever that path may be. With DuPont’s fundamentals on solid ground and the value-creating separation humming along, we continue to see additional upside for shares of DuPont. We’re reiterating our 1 rating and $100 price target, which is based on a sum-of-the-parts valuation that its breakup should help realize. DD YTD mountain DuPont’s year-to-date stock performance. Quarterly results As seen in the chart above, DuPont exceeded Wall Street estimates on nearly every metric. The lone exception, cash flow from operations, is hardly a concern because free cash flow was still a beat. Ultimately, it’s free cash flow — cash from operations minus capital expenditures — that is the source of dividend payments and share repurchases. Electronics and industrial revenue (E & I) topped consensus by $90 million as organic growth, which strips out the impact of foreign exchange rates, acquisitions and divestitures, rose 8%. Volumes were up a healthy 10%, partially offset by a 2% decline in pricing. The second-quarter results were partially helped by a $30 million advanced purchase — $20 million for Semi Tech, $10 million for Interconnect — as new chipmaking plants in the Asia Pacific region come online, executives said. That will mute the sequential growth in the third quarter, but the underlying trend in the segment is pointing up. Industrial solutions remains a drag on the E & I segment, with a low double-digit percentage drop in sales during the April-to-June period. The obstacles for this business remain destocking in for its Kalrez O-rings and biopharma product lines. Water and protection sales edged out estimates by $37 million. Organic growth was down 6% as volumes fell 4% and pricing was lower by 2% — but it’s an improvement from the 10% drop observed in the first quarter. The Water solutions unit saw a bigger-than-expected lift in the quarter as it moves past inventory destocking woes, aided by the pickup in China. The medical packaging business within safety solutions grew quarter over quarter, and executives said they expect that to continue into the second half of the year, albeit it at a more muted pace. Guidance Just as it did alongside first-quarter earnings, DuPont raised its full-year guidance for revenue, operating EBITDA and adjusted earnings per share as demand trends across its key end markets are expected to remain strong. The company now expects net sales to be in the range of $12.4 billion to $12.5 billion, above the $12.27 billion expected by analysts, according to FactSet. Its prior range was $12.1 billion to $12.4 billion. The range for operating EBITDA was raised to $3.06 billion to $3.11 billion, up from $2.9 billion to $3.05 billion previously. The Wall Street consensus had been $2.99 billion, FactSet data showed. Adjusted EPS is now projected to be between $3.70 billion and $3.80 billion, exceeding the $3.64 consensus estimate, according to FactSet. DuPont had previously offered a range of $3.45 to $3.75. DuPont’s third-quarter guidance of roughly $3.2 billion in sales, $815 million in operating EBITDA and adjusted EPS of $1.03 essentially matched expectations. (Jim Cramer’s Charitable Trust is long DD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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DuPont on Wednesday reported another beat-and-raise quarter, continuing a recovery partly driven by growing demand for AI chips — and rewarding our patience with the stock.
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