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DuPont's interim CEO taking "fresh look" at cost structure

October 27, 2015
Chemical Value Chain

DuPont results continue to be battered by currency headwinds, slumping agricultural markets, and weakness in emerging markets and oil and gas.

Cost cuts, however, helped the company beat analysts’ estimates, and management suggested additional measures, including a deal in agriculture, were under evaluation.

Third-quarter net income was 46% lower year-on-year (YOY), to $235 million. Adjusted earnings of 13 cts/share were 67% lower YOY but beat the 10 cts/share consensus estimate compiled by Thomson Reuters. Cost reductions contributed 10 cts/share to operating earnings, and the company says it is on track to meet its 40 cts/share target for 2015.

Net sales fell 18% YOY, to $4.9 billion. Currency impacts and lower volumes contributed 8% and 7% to the decline, respectively. YOY sales were down 9% in U.S. and Canada; 19% in Europe, Mideast, and Africa; 14% in Asia Pacific; and 33% in Latin America.

“While our bottom line continues to benefit from the positive effects of our operational redesign and productivity improvements, we are not pleased with our results this quarter,” says Nick Fanandakis, executive v.p. and CFO. “We saw significant negative impacts from currency as well as market weakness in agriculture, emerging market industrial production, and oil and gas.”

Ed Breen, DuPont’s interim chair and CEO following the departure of Ellen Kullman on 16 October, says the company is taking “a fresh look” at its cost structure and capital allocation strategy to identify ways to further improve shareholder return. The company is already on track to cut costs by $1.3 billion this year and an additional $300 million in 2016. During a conference call this morning with analysts, Breen also suggested that a deal in ag was a possibility,

The company also reaffirmed its full-year outlook for operating earnings of $2.75/share. The negative impact of currency is expected to be 72 cts/share. The outlook reflects continued strengthening of the U.S. dollar versus currencies in emerging markets, particularly the Brazilian Real; a further weakening of agricultural markets, primarily in Brazil; and continued weakness in emerging markets. Analysts’ estimates are for $2.77 share.

Segment results

Performance material sales fell 15%, to $1.3 billion, while segment operating earnings decreased 13%, to $317 million. Cost reductions and continued productivity were more than offset by $47 million of negative currency impact and lower ethylene price and volume. Operating earnings included a $16 million net benefit from a joint venture, which was more than offset by the absence of a prior year $23 million gain on the sale of a majority interest in a joint venture.

Agriculture sales fell 30%, to $1.1 billion. The segment reports an operating loss of $210 million, compared with a loss of $56 million in the year-ago quarter. Results were impacted by lower volumes and a $108 million negative currency impact. Decreased volumes are due to lower seed volumes and reduced demand for insect control products, primarily in Brazil, and an about $40 million negative impact from the LaPorte, TX manufacturing facility shutdown.

Safety and protection sales fell 15%, to $831 billion, while segment operating earnings fell 20%, to $156 million. Cost reductions and productivity improvements were more than offset by lower demand, a negative currency impact of $13 million, and the portfolio impact of the Sontara divestiture. Volume growth in Tyvek protective material for medical packaging was more than offset by weakness in the oil and gas industry, which impacted Nomex thermal-resistant fiber and sustainable solutions offerings, and by delays in military spending, which impacted Kevlar high-strength material.

Nutrition and health sales fell 10%, to $810 million, while segment operating earnings increased 3%, to $102 million. Cost reductions and continued productivity more than offset a $17 million negative impact from currency. Volume growth in probiotics, ingredient systems and texturants was offset by a decline in specialty proteins.

Electronics and communications sales fell 14%, to $532 million, while segment operating earnings increased 16%, to $104 million, on continued productivity and cost reductions. Volume growth in Tedlar film in photovoltaics and consumer electronics was more than offset by competitive pressures impacting Solamet paste.

Industrial biosciences sales fell 3%, to $305 million, while segment operating earnings increased 24%, to $52 million. Volume improved across the business driven primarily by increased demand in food and home and personal care markets. Excluding the impact of currency, operating earnings would have increased 31%.

By Rebecca Coons

Source: Chemical Week

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