DD Q2 & Current Update 9/17/2008 (James Leahey)

For Q2 DD posted an EPS $1.18, compared to $1.04 last year’s Q2. A lawsuit and a lower tax rate from a onetime tax settlement accounted for $0.07 of the EPS, but after netting that out they still beat the street by $0.04 per share. The strong growth in the Ag and Nutrition segment and emerging markets carried the load this quarter. Ag and Nutrition sales grew 23% this quarter on strong global demand for the company's corn, soybean and crop protection products. A favorable currency exchange rate played a major role in offsetting the high costs they incurred from freight, energy and raw materials. For the second straight quarter, DD has raised the floor on their FY’08 earnings estimate $.05 to $3.45 to $3.55 per share. DD does forecast 2nd half earnings in ’08 to decline from a year earlier though.

The results posted in Q2 were pretty much right along with what we had expected going forward back when we pitched the stock right after Q1 earnings. Fundamentally, nothing has changed as the growth in emerging markets and Ag and Nutrition has been able to prop the earnings up while some of the other segments have posted slower or flat growth because of the current economic conditions. One thing I would like to point out is that in the conference call management did allude to the way that they maintained margins with rising energy and commodity costs was successfully raising prices, and with some of those bubbles bursting I can’t help but think that they are still going to maintain those higher prices, therefore expanding margins. One thing that I have definitely been concerned about is the growing momentum of the dollar relative to other major currencies, because 60% of their revenues came from abroad and currency exchange contributed to 5 percentage points to revenue growth in Q2. As such a widely multinational company, the comeback in the dollar is something to definitely be aware of as that will cut back into revenue growth and create more exposure to the depressed auto and housing industries. Since one of their main drivers of earnings growth has been accelerated growth in the emerging markets, the rebound in the dollar could cut into expected revenue growth in those markets in the future.

Overall, I see no reason to change our position on DD. They seem to be in a relatively stable place right now, as upside and downside seem to be very low right now we shouldn’t expect any significant price volatility for the rest of ’08. I still see it as a long term play as I believe we will reach our price targets sometime in the range of 12-36 months once the domestic and global economies can get themselves back on their feet.