Evidencing the ill health of the chemical industry, EI DuPont de Nemours & Co., or DuPont, (DD) Tuesday reported a loss for the fourth quarter compared with a profit last year, hurt by restructuring costs and weaker demand across most markets. On an adjusted basis, the company's loss per share was wider than analysts' estimates. The company provided an earnings outlook for the first quarter and trimmed its fiscal 2009 forecast, stating that weak industrial economic conditions are expected to continue in 2009.
The chemical industry worldwide is undergoing a demand slump, and it has severely impacted the industry's profit margins, offsetting the positive effects of lower energy prices. Falling product sales prices are keeping customers away from purchases as they hope for further decline in prices. According to industry experts, the chemical companies that are facing the most vulnerable situation are those rely on business from the ailing U.S. auto and housing industries.
Q4 Results
Wilmington, Delaware-based DuPont posted fourth-quarter net loss of $629 million, or $0.70 per share, compared with a net income of $545 million, or $0.60 per share, last year. Excluding a $0.42 per share charge from a previously announced restructuring program, the company's fourth-quarter loss was $0.28 per share, in line with guidance, in comparison with a profit of $0.57 per share a year ago. The company had said in early December that it expects a fourth-quarter adjusted loss of $0.20 to $0.30 per share.
On average, fourteen analysts polled by First Call/Thomson Financial estimated a loss of $0.24 per share for the quarter. Analysts' estimates typically exclude one-time items.
DuPont's quarterly net sales declined 17% to $5.82 billion from $6.98 billion in the prior-year quarter. Total revenues were $6.07 billion, compared with $7.21 billion in the previous year. Eight analysts had a consensus revenue estimate of $6.17 billion for the quarter.
DuPont said that lower sales reflected a 20% fall in volume, 7% higher local prices, 3% negative impact from currency and a 1% net reduction from portfolio changes. Weaker demand across most markets led to significantly lower global sales volume.
According to the company, as anticipated, declines in construction, motor vehicle sales and consumer spending, magnified by inventory destocking across most supply chains during the fourth quarter, caused a steep decline in global industrial production. These conditions precipitated a sharp downturn in demand and the company's sales volume. However, agriculture fundamentals remained strong.
Further, local pricing gains in all regions and in all segments were more than offset by declines in volume and unfavorable currency. Sales were down in all regions, including a 16% decline in emerging markets, DuPont noted.
Q3 Comparison
For the sequentially preceding quarter, the science and technology company's profit declined 30%, impacted by a hurricane-related charge, as well as higher raw material costs and lower volume. The company's third-quarter net income was $367 million, lower than $526 million recorded in the prior year. On a per-share basis, the company reported earnings of $0.40, including a hurricane-related charge of $0.16 per share. Adjusted earnings per share were $0.56 for the quarter.
Business Segments
DuPont's Agriculture & Nutrition segment reported fourth-quarter sales of $1.2 billion, down 2% from last year. Although increased USD pricing in all regions and seed market share gains in Latin America helped the segment's sales, volume declines in crop protection and food ingredient products offset those gains.
The company's Coatings & Color Technologies business also reported a 21% decline in fourth-quarter sales to $1.3 billion, as higher USD prices were more than offset by a decline in volume in all businesses and regions.
Fourth-quarter sales of Electronic & Communication Technologies totaled $834 million, a 13% decline from the prior-year quarter, hurt by weakness in consumer electronics, motor vehicles and industrial markets. Meanwhile, the segment witnessed strong results in photovoltaics and pricing gains in fluoroproducts.
Further, DuPont's Performance Materials generated quarterly sales of $1.2 billion, a 30% fall year-over-year as weak global demand led to a 32% decline in volume, partially offset by higher USD prices.
Additionally, the company's Safety & Protection business delivered sales of $1.3 billion, 10% lower than last year. Pricing gains, particularly in aramids and chemical products, were more than offset by lower demand, as all businesses experienced the impact of the global economic slowdown and destocking in the supply chain, DuPont noted.
Fiscal 2008 Highlights
DuPont earned $2.01 billion, or $2.20 per share, in fiscal 2008, compared with $2.99 billion, or $3.22 per share, a year ago. Net sales reached $30.53 billion, up from $29.38 billion in the previous year. Full-year total revenues rose to $31.84 billion from $30.65 billion in fiscal 2007. Wall Street analysts were looking for fiscal 2008 earnings of $2.79 per share, on revenues of $31.33 billion.
Peer Review
Similar to DuPont, its rival Dow Chemical Co. (DOW) also is facing a tough time amid adverse market conditions. The Midland, Michigan-based company said on December 8 that it plans to slash about 5,000 full-time jobs, or roughly 11% of its global workforce. The company also said it will close 20 facilities in high-cost locations and divest several non-strategic businesses as part of its efforts to reduce costs.
In addition, Dow intends to temporarily idle about 180 plants and significantly reduce its contractor workforce worldwide by approximately 6,000 as predicated by reduced operations. In addition, the company has been reorganized into a shared business services group and three business operating models, effective January 2009.
Dow is slated to announce its fourth-quarter results on February 3. Wall Street analysts forecast earnings of $0.13 per share on revenues of $13.43 billion.
Outlook
Going forward, DuPont expects that global macroeconomic conditions for first quarter 2009 will be similar to fourth quarter of 2008, with very weak demand in most of its key markets, excluding Agriculture & Nutrition segment.
Consequently, DuPont expects first quarter earnings per share in the range of $0.50 - $0.70. Wall Street analysts forecast first-quarter earnings of $0.81 per share.
DuPont also expects that weak industrial economic conditions will continue in 2009. The company now sees full-year 2009 earnings per share in a range of $2.00 - $2.50, down from the prior estimate of $2.25 - $2.75. Analysts are of the view that the company will earn $2.79 per share for fiscal 2009. On January 26, Barclays Capital cut its fiscal 2009 earnings per share estimate for the company to $1.40 from $1.95.
While favorable conditions in global agriculture markets are expected in 2009, lower demand for non-agriculture products and the impact of currency is expected to limit the company's revenue growth. The company also expects to continue an appropriate level of spending for high-growth, high-margin businesses, including seed products and photovoltaics.
"We do not underestimate the difficulties presented by the current environment. We will rigorously guard our financial strength and flexibility, while carefully preserving our science-driven competitive advantage to assure that the company is well-positioned for an eventual improvement in global markets," said, DuPont's chief executive officer Ellen Kullman.
"For 2009, we will deliver about $730 million in fixed cost reductions and about $1 billion in reduced working capital, and we will capitalize on opportunities that emerge in the current environment," Kullman added.
DuPont had earlier announced a series of measures to address the impact of global economic slowdown. As part of the company's restructuring plan, approximately 2,500 employee positions will be eliminated, principally in businesses that support the motor vehicle and construction markets in Western Europe and the United States. Additionally, the company plans to rationalize certain assets to improve future competitiveness.
DD is trading at $22.33, down $0.85, on a volume of 3.25 million shares.
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