DuPont Sees Disappointing Third-Quarter Profit as Peltz Watches

Jul 22, 2014 12:11 pm ET

July 22 (Bloomberg) -- DuPont Co. forecast third-quarter earnings that trailed analysts’ estimates, risking a rebuff from activist investor Nelson Peltz who last week expressed his disappointment with the chemical maker’s performance.

Second-half earnings will be $1.25 to $1.35 per share, with about 40 percent in the third quarter, the Wilmington, Delaware- based chemicals maker said today in a statement. That implies earnings in the current quarter of 50 cents to 54 cents a share, missing the 59-cent average estimate of 18 analysts compiled by Bloomberg.

“It’s a complex business,” Peltz July 16 at a conference organized by CNBC and Institutional Investor where he expressed disappointment with earnings. “We are always trying to simplify businesses, because simple businesses grow faster.”

This quarter is a crucial period for DuPont as Peltz said he will know by the end of the summer whether talks aimed at improving results have been “constructive.” DuPont plans to spin off of the business that makes paint pigments and Teflon coatings, an announcement that came after Peltz’s Trian Fund Management LP publicly disclosed its stake in the company.

“Volumes were pretty weak in the second quarter and I think that continues into the third quarter,” John Roberts, New York-based analyst at UBS Securities, said by phone today.

DuPont expects improved results in the fourth quarter to make up for its forecast earnings miss in the third, said Matt Arnold, a St. Louis-based analyst with Edward Jones.

The company forecast full-year operating earnings of $4 to $4.10 a share, reiterating its reduced June guidance. The company has lowered its full-year earnings forecast during each of the past three years including this one, according to data compiled by Bloomberg.

Shrinking Footprint

“The full year is intact,” Arnold said by phone today. “Investors are already looking at 2015 and the implications of the separation that is going to create a more exciting growth profile for the company.”

DuPont fell 0.2 percent to $65.40 at 11:24 a.m. in New York. The shares have gained 0.7 percent this year.

Chairman and Chief Executive Officer Ellen Kullman reiterated on a conference call today that she plans to eliminate $1 billion in annual costs by 2019. The cuts will align DuPont’s cost structure with its shrinking footprint after the separation of performance chemicals, its second-biggest business, she said.

Kullman has been selling units to focus the company on the intersection of chemistry and biology, a strategy embodied in DuPont’s agriculture, biofuels and nutrition businesses. The spinoff of performance chemicals follows DuPont’s sale last year of its auto-paint unit to Carlyle Group LP for $4.9 billion.

Fall Armyworms

At the same time, Kullman said she is looking for acquisitions as performance chemicals, which accounted for 20 percent of sales last year, is spun off.

The agriculture unit will face slower near-term growth as farmers in North America and Brazil plant less corn in favor of soybeans, Jim Borel, an executive vice president, said on the conference call.

DuPont has cut prices on its Herculex corn-seed in Brazil because fall armyworms are overcoming the insecticide produced by the genetically modified plant, Borel said. DuPont also is losing soybean sales because it delayed licensing Monsanto Co.’s Roundup Ready 2 genetics, Roberts said. The full transition to Roundup Ready 2 will take a couple more years, Borel said.

The agriculture unit’s loss in the third quarter will be similar to the year-ago period, followed by improvement in the fourth quarter, DuPont said.

Trimmed Estimates

Third-quarter operating income will rise at five of DuPont’s seven segments compared with a year earlier, DuPont said in a slide presentation posted on its website today. The gains will be led by a 20 percent increase at the safety and protection division, which makes Kevlar anti-ballistic materials. Electronics is the only unit with a forecast profit drop.

Second-quarter net income rose to $1.07 billion, or $1.15 a share, from $1.03 billion, or $1.11, a year earlier. Profit was reduced by a $263 million restructuring charge that was mostly to pay for employee severance.

Operating earnings were $1.17 a share, matching the average estimate of 18 analysts in a Bloomberg survey. Sales dropped 1.4 percent to $9.71 billion, missing the $9.77 billion average prediction.

Analysts trimmed estimates after DuPont said June 26 that operating profit in the second quarter would be lower than expected because of the performance at its agriculture unit. The segment, DuPont’s largest by revenue, was affected by the decision of some U.S. farmers to switch to soybeans planting instead of corn, leading to writedowns on seed inventories.