Despite Hurricane Sandy and the increased demand for suction hoses
, for which DuPont
(NYSE:DD) manufactures raw materials, DuPont’s earnings and profitability outlook doesn’t seem so rosy, especially considering its lackluster third-quarter report for 2012. The chemical and industrial company fell short of Wall Street’s estimates. According to the company, the profit drop was due to decreased demand in two particular areas: Titanium dioxide and photovoltaic materials. As a result, DuPont lowered its projected earnings and announced a comprehensive restructuring plan. Translation: There will probably be layoffs. DuPont revamped its earnings projections to $3.25 to $3.30 per share, a big drop from former projections of $4.20 to $4.40 per share.
In the third quarter, DuPont’s earnings fell 36% to $.44 per share. That means that including one-time items, earnings dropped from $.48 the previous year to $.01 per share, a drop of 98%, which is significant. Adjusted earnings came in at $.32 per share, missing the analysts' estimate of $.46.
Overall revenue fell 9% from the previous year, down to $7.4 billion. Wall Street had expected revenue of just over $8 billion. Reasons cited for this drop are sales volumes, negative currency rates, and reduced demand, especially in Asia, where DuPont’s Electronics, Communications, and Performance Chemical businesses reported losses.
Analysts’ estimates for the fourth quarter were reduced by $.33 and have remained unchanged. At the present juncture, most analysts are bearish on DuPont because of the company’s dismal performance.
DuPont’s restructuring plan revolves around cutting costs, layoffs, and careful monitoring of working capital. The company has already announced the layoffs of 1,500 workers over the next year. As a result, DuPont forecasts savings of $450 million.
But things may not be all that bad long-term. DuPont is a vast global chemical company with a wide-range of products. The company has made recent moves to facilitate its transition into new areas, including body armor and solar panels. In addition, the company’s agricultural prospects look strong, especially in seed genetics and crop prophylaxis. And its far-sighted acquisition of Danisco should open doors in the food industry, biotechnology, and biofuels.
Thus, DuPont’s agricultural and nutritional sectors show potential. In fact, with a little patience, these two sectors may prove to be the goose that laid the golden egg. As already stated above, the company’s weaknesses reside in photovoltaic materials and titanium dioxide, which is used in paint products. Some analysts also cite DuPont’s vulnerability to price hikes in raw materials. So they expect the company to underperform for at least the next six to nine months.
On a positive note, DuPont announced an agreement with Ergodyne Corporation, which will begin incorporating DuPont Kevlar brand fiber into its Pro-Flex gloves. These will be used by industrial workers throughout the world to prevent cut and slash injuries.
No positions in stocks mentioned.