Though DuPont results beat, cost concerns abide

More expensive crude oil, metals and other supplies fueled a 15 percent drop in the company's net income. DuPont has been able to pass on those costs in the past, but it's not clear how much longer it will be able to do so as commodity prices continue to climb.

The fact that they are passing through (higher raw material costs) is telling you that underlying demand for their business is pretty strong, CLSA analyst Mark Connelly said on Tuesday. There's no question that costs are going to rise; the question is whether or not they'll be able to pass it through.

DuPont's smaller rival Ashland Inc also reported higher supply costs during its fiscal first quarter, though it was able to pass those costs on more easily due to its blend of businesses more focused on commodity chemicals.

What's interesting about this is that you have a big dichotomy between oil and natural gas prices. So it'll be a mixed bag, Soleil Securities analyst Mark Gulley said. Raw materials based on natural gas will be well-behaved, those based on oil will not.

DuPont's finance chief, Nick Fanandakis, described the raw material price situation as somewhat dynamic. The company has seen prices for ethane, chlorine, metals, pigments and solvents all rise recently, he said.

(For a graphic on DuPont's earnings, click on:

http://r.reuters.com/qeq67r)

While supply costs remain a concern, long-term investors generally were happy with the report. Five of DuPont's six units reported double-digit sales jumps, and volume and revenue rose in all regions.

I sort of look at it as a good quarter, with some cost pressures offset by good sales growth, said Kent Croft, co-manager of the Croft Value Fund , which owns about 190,000 DuPont shares. The results make me comfortable owning it. It looks like a good, long-term value.

DuPont reported fourth-quarter net income of $376 million, or 40 cents per share, compared with $441 million, or 48 cents per share, a year earlier.

Excluding charges for job cuts and other items, DuPont earned 50 cents per share. By that measure, analysts expected earnings of 32 cents per share, according to Thomson Reuters

I/B/E/S.

Revenue rose 15 percent to $7.4 billion. Analysts expected $6.95 billion.

Sales in DuPont's performance chemicals unit, which sells titanium dioxide paint to car makers, rose 26 percent. The unit also brought in the largest slice of DuPont's operating income, roughly $315 million.

Ford Motor Co is one of DuPont's biggest customers.

The performance materials unit, which makes plastics for automakers to cut down on the amount of metal they use, saw sales jump 11 percent.

Demand from the auto sector continues to grow. U.S. auto sales rose to the highest rate in 16 months in December, and major automakers forecast the recovery would gather momentum in 2011.

The $117 million operating loss in DuPont's agricultural unit was much less than expected, due in part to strong performance in South America. The unit typically loses money in the fourth quarter as farmers gear up for the North American spring planting season.

DuPont also raised its 2011 earnings forecast to a range of $3.45 to $3.75 per share. It previously forecast $3.30 to $3.60 per share, and Wall Street expects $3.11 per share.

The update was due in part to a lower tax rate, brought on in part by a tax agreement between U.S. President Barack Obama and Congress. The company also over-accrued for taxes for the first part of the year, Gulley said.

Earlier this month, DuPont said it would further expand into food by buying Denmark-based food additives maker Danisco for $5.8 billion cash.

The buyout will drain 2011 earnings by 30 cents to 45 cents per share, DuPont said.

Shares of the Wilmington, Delaware-based company rose 34 cents to $49.23.

ASHLAND & RAW MATERIALS

Ashland's ability to pass through raw material costs has been largely due to tight supply markets, Chief Executive Jim O'Brien told Reuters.

If the customer wants to go through some other source of supply, it's just not there, he said. There isn't an alternative in some cases because everybody is feeding off of the same supply base.

Ashland reported net income of $87 million, or $1.09 per share, compared with $86 million, or $1.10 per share, a year earlier.

Excluding one-time items, the company posted a profit of 79 cents per share. By that measure, analysts expected earnings of 65 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 8.2 percent to $1.43 billion. Analysts expected $1.40 billion.

Shares of Covington, Kentucky-based Ashland rose $3.45, or 6.5 percent, to $56.71.

Dow Chemical , a rival to both Ashland and DuPont, is scheduled to post quarterly results on February 3. Analysts expect the company to widely surpass results from the year-ago quarter.

(Reporting by Ernest Scheyder; Editing by Lisa Von Ahn, Derek Caney, Dave Zimmerman)