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Chemical and industrial products behemoth E. I. du Pont de Nemours and Company (DD - Analyst Report) reported consolidated adjusted earnings of 44 cents per share in the third quarter of 2012, a roughly 36% decline from the year ago earnings of 69 cents.
Including one-time items, earnings came in at a penny per share, a sharp drop of roughly 98% from 48 cents registered in the prior year quarter. Lower demand across titanium dioxide and photovoltaic markets led to the decline in profit.
Adjusted earnings from continuing operations (excluding the divestiture of Performance Coatings business) was 32 cents per share, down from the ago earnings of 60 cents per share. The results missed the Zacks Consensus Estimate of 46 cents. Including one-time items, the company posted losses from continuing operations of 5 cents per share compared with earnings of 39 cents in the prior year quarter.
Net sales from continuing operations declined 9% year over year to $7.4 billion, due to lower sales volumes, negative currency impact and reduction from portfolio changes, partly offset by higher local prices. Sales missed the Zacks Consensus Estimate of $8.08 billion. The company witnessed lower sales volumes from the Electronics & Communications and Performance Chemicals businesses, especially in Asia Pacific.
Separately, DuPont announced a restructuring plan including an elimination of 1,500 jobs. The company also cut its earnings outlook for the full year.
DuPont’s shares fell $3.13 (or 6.29%) in pre-market trading on missed earnings and reduced guidance.
Agriculture: Sales in the quarter rose 4% year over year to $1.4 billion, benefiting from a 7% growth in volumes partly offset by 3% lower prices. Unfavorable currency, higher input costs and and higher investments in commercial and R&D activities to support growth led to a pre tax operating income (PTOI) seasonal loss of $85 million compared with a loss of $69 million in the year ago quarter.
Electronics & Communications: Sales plunged 28% to $607 million due to a 20% decrease in sales volumes and an 8% decline in selling prices. Sales were affected by weak demand for photovoltaic materials though it was partly offset by increased demand for smartphones and tablets. PTOI decreased 59.6% to $40 million due to lower volumes.
Industrial Biosciences: Sales were almost flat versus the year ago quarter at $292 million as higher volumes were offset by lower prices due to unfavorable currency. PTOI increased 23.5% to $42 million owing to higher volumes and realization of cost synergies related to the integration of the Danisco enzyme business.
Nutrition & Health: Sales jumped 4% to $876 million, mainly due to higher volumes and higher local prices. Increased demand for specialty food ingredients and Solae specialty soy products led to increased sales volumes. PTOI shot up 58.2% to $87 million, reflecting the positive impact from the Danisco acquisition, higher local selling prices and higher volumes.
Performance Chemicals: Sales declined 19% to $1.7 billion, with a decline of 18% in volumes and 1% lower selling prices. Volumes declined, particularly in Asia-Pacific and Europe, due to weak demand for titanium dioxide and fluoropolymers. PTOI decreased 37.3% to $372 million due to lower volumes.
Performance Materials: Sales went down 8% to $1.6 billion, with a 7% decrease in selling prices and a 3% reduction from a portfolio change, partly offset by 2% higher selling volumes. Industrial and electronics markets continued to experience weak demand, offsetting the strong demand in the automotive markets. PTOI increased 32.5% to $306 million due to lower feedstock costs and higher volume, partly offset by unfavorable currency.
Safety & Protection: Sales decreased 7% to $934 million, with a 3% lower volume due to stalled infrastructure projects in China, soft industrial conditions in Europe and lower U.S. public sector demand and 4% lower prices due to unfavorable currency. U.S. housing, however, showed encouraging trends. PTOI decreased 12.7% to $103 million.
In August 2012, DuPont announced its intention to divest its Performance Coatings businessfor $4.9 billion in cash to private equity firm Carlyle Group. The transaction is expected to be closed in the first quarter of 2013, subject to necessary approvals.
The coatings business has contributed significantly to DuPont and by acquiring the unit, Carlyle will get hold of $250 million of DuPont's unfunded pension liabilities. DuPont intends to sell its performance coatings business to better focus on accretive businesses like agriculture and nutrition, bio-based industrials, and advanced materials.
Beginning with the third quarter results, the Performance Coatings segment has been classified as discontinued operations and is excluded from the company's continuing operations results, on a retroactive basis. Third quarter earnings from discontinued operations were 6 cents per share, which included a 6 cent charge related to additional deferred tax liabilities.
DuPont expects earnings from discontinued operations to be about 41 cents per share for full-year 2012 (excluding the charge related to additional deferred tax liabilities).
DuPont had cash and cash equivalents of $3.42 billion as of September 30, 2012, compared with $3.59 billion as of December 31, 2011. Long-term borrowings and capital lease obligations amounted to $10.50 billion as of September 30, 2012, versus $11.73 billion as of December 31, 2011.
The company reduced its earnings forecast for 2012 from its previous view which it provided in July 2012. For the full year, DuPont now expects earnings from continuing operations, excluding significant items, to be in the band of $3.25 to $3.30 per share. Earlier, it expected earnings to be in the lower end of its guidance range of $4.20 to $4.40 a share.
DuPont also plans to lay off 1,500 workers across the globe over the next 12 to 18 months as part of a restructuring plan and expects to save about $450 million from the move. The restructuring actions are aimed at boostingproductivity and growth and enhancing competitiveness.
Despite slow growth in some markets and weak European markets, DuPont’s Agriculture segment delivered increased sales in the third quarter. The Danisco acquisition contributed to the growth across the company’s Industrial Biosciences and Nutrition & Health divisions. DuPont is focused on an aggressive cost-cutting strategy by reducing fixed costs, retrenching employees, restructuring work schedules and improving working capital productivity.
However, the company is exposed to increased raw material costs and is witnessing a decline in sales volumes across many segments. Moreover, sluggish economic conditions might prove to be headwinds for the company going forward.
Currently, we have a long-term (more than 6 months) Neutral recommendation on DuPont. The company, which competes with The Dow Chemical Company (DOW - Analyst Report) and BASF SE (BASFY), currently holds a short-term Zacks #5 Rank (Strong Sell).
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