DuPont Approves Share Buyback

Chemical and industrial products behemoth E. I. du Pont de Nemours and Company (DD - Analyst Report) announced that its board of directors has approved a $1 billion share repurchase program. The new buyback program will be backed by the proceeds from the divestiture of the company’s Performance Coating business. It will be completed in 2013.

The company struck a deal with private equity firm Carlyle Group to divest its performance coatings business for $4.9 billion in cash. The transaction is expected to be closed by the first quarter of 2013, subject to necessary approvals.

DuPont intends to sell the business to better focus on accretive businesses including agriculture and nutrition, bio-based industrials, and advanced materials. These businesses are expected to provide higher growth and margins over the long term and help achieve the company’s target of compound annual growth rate of 12%.

Du Pont also revised its earnings outlook for 2012. The company now expects earnings from continuing operations to be at the higher end of the earlier guidance of $3.25 to $3.30 per share, excluding significant items.

DuPont also provided its outlook for 2013. The company expects earnings to increase in the low- to mid-single digits range and sales in the low-single digits. All the segments of the company are expected to perform well, except the Performance Chemicals segment, whose margins are expected to go down by six to seven percentage points. Excluding the negative impact of the chemicals division, earnings are expected to increase in the high-teens.

In October 2012, DuPont released its third quarter 2012 results. The company reported adjusted earnings from continuing operations (excluding the divestiture of Performance Coatings business) of 32 cents per share, down from the year-ago earnings of 60 cents. The results missed the Zacks Consensus Estimate of 46 cents. Including one-time items, the company posted a loss 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, unfavorable currency and negative impact from portfolio changes, partly offset by higher prices. Sales missed the Zacks Consensus Estimate of $8.1 billion. The company witnessed lower sales volumes from the Electronics & Communications and Performance Chemicals businesses, especially in Asia Pacific.

DuPont, which competes with The Dow Chemical Company (DOW - Analyst Report) and BASF SE (BASFY), currently holds a short-term Zacks #4 Rank, which translates into a short-term (1 to 3 months) Sell rating. Currently, we have a long-term (more than 6 months) Underperform recommendation on the shares of DuPont.