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Understanding DuPont’s High-Margin Agriculture Segment

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Dec. 10 2015, Updated 4:59 p.m. ET

Agriculture segment at a glance

DuPont (DD) is the world’s leading company in the agriculture segment. The agriculture segment is largely driven by innovative product launches with the help of extensive research & development (or R&D).

DuPont’s agriculture segment’s R&D expenses amounted to about 50% of its total R&D expenses in 2014. DD’s agriculture products help farmers to improve their productivity and crop yields. Major agriculture chemical products are corn hybrids and soybean varieties, herbicides, fungicides, and insecticides.

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DuPont’s agriculture segment is a high-margin business. It accounted for 40% of DD’s total sales in 2014. DD’s agriculture segment has an operating margin of 21%, compared to the company’s operating margin of 15%. The agriculture segment has global reach, with international sales at 49% of its total sales in 2014.

High seasonality

DuPont’s agriculture segment is highly dependent on the seasonality of the global agriculture markets and the weather. The segment reports higher sales and earnings in the first half of the year due to the northern hemisphere planting season. Due to this seasonality, the segment typically has higher inventory at the end of the year and lower inventory in the first half of the year.

Product portfolio

DuPont’s agriculture segment has two product segments, DuPont Pioneer and DuPont Crop Protection. DuPont Pioneer produces and markets seeds, primarily for corn, soybean, canola, sunflower, sorghum, inoculants, wheat, and rice. The segment contributed 22% to DD’s total sales in 2014.

DuPont Crop Protection produces crop protection products for wheat, corn, soybean, and rice, and for specialty crops such as fruit, nuts, vines, and vegetables. Its major crop protection products are weed control, disease control, and insect control for seed treatment.

DuPont is among the top six agrochemical companies, which include Monsanto Company (MON), BASF, Syngenta (SYT), Dow Chemical Company (DOW), and Bayer (BAYZF). MON and DOW are DD’s two major competitors in the United States. BASF and SYT are major agrichemical players in Europe.

The iShares US Basic Materials ETF (IYM) tracks the performances of US-based basic material companies, including chemical companies. DD forms 11% of IYM’s total holdings.

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