Dow Keep Agri Business

EI DuPont De Nemours Co. (NYSE: DD - News) recently said it expects the performance of its seed business, Pioneer Hi-Bred, to grow more than 15% year over year in 2009. The company’s seed business has gained more than 2% of share in the North American seed corn market, which is the largest industry gain in the current year. It gained 3% in the North American soybean market and 5% in the Canadian canola seed market.

Considering a 15% growth, the seed division should generate revenue of $4.6 billion, compared with $4 billion in 2008. The business had accounted for roughly 13% of Du Pont’s total sales of $30.5 billion last year.

DuPont is the world’s second-largest chemical company. While its Agricultural and Nutrition segment is expected to be the key performance driver, continued weakness in demand across most of US markets offsets overall growth for the company. DuPont’s second-quarter profit of $417 million, or 46 cents per share, missed the Zacks Consensus Estimate of 53 cents, due to lower sales volumes and adverse currency impact.

Meanwhile, rival Dow Chemical Co. (NYSE: DOW - News) also said it does not plan to divest Dow AgroSciences in the near term. Rumors were rife earlier this year that Dow might spin off this fast-growing agricultural unit or team it up with another agricultural company in order to reduce its over $16 billion debt from the Rohm & Haas acquisition.

Dow AgroSciences, which makes genetically modified seeds, herbicides and pesticides, has seen robust growth in recent years and added to the parent company’s first-quarter profit. Currently, the unit is facing tough competition from the industry leader Monsanto Co. (NYSE: MON - News). Dow is also planning to pay off the loan from the sale of its Morton Salt and Optimal businesses. The deal is expected to close by the end of the year.

We maintain our Neutral recommendation on Du Pont and Dow Chemical.
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