A Solid DuPont Trips on a Stumbling Economy


On Monday, I told Fools that expectations for third-quarter, adjusted, per-share earnings at DuPont (NYS: DD) -- which were to be reported on Tuesday -- had plummeted from $0.70 three months ago, to $0.55 30 days ago, and then to $0.47.

Unfortunately, a perceptive analyst who managed to land atop the actual number was put in the position of figuratively catching a falling knife, since the company's number turned out to be $0.44 per share, down 36% from the $0.69 figure a year earlier. DuPont's revenues were down 9% to $7.4 billion from the third quarter of 2011, well below the average prognostication of $8.15 billion.

Agriculture's still taking root
Looking quickly at the performance by sector, the biggest unit, agriculture, saw its revenues expand by 4%, while its pre-tax operating earnings, or PTOI, declined by 23%. Performance chemicals, the second segment in order of size, saw its revenues slip by 19% and its PTOI drop by 37%. DuPont's performance materials segment checked in with an 8% revenue slide, but its operating earnings were up by 32%. Of the four smallest operating segments, one -- nutrition and health -- increased its revenues, one was flat on the top line, and the other two declined year-on-year. Electronics and communications took the biggest tumble -- 28% in revenue and fully 60% in PTOI -- based largely on a puny photovoltaic market.

The company announced that it would furlough 1,500 workers worldwide (about 2% of its global workforces) to save $450 million and that its full-year EPS would likely fall into a $3.25-$3.30 range, well below the $3.93 that the Wall Streeters were forecasting. All this resulted in a 9% decline in the price of DuPont shares on Tuesday, the biggest one-day drop in four years.

Nevertheless, it's clear that DuPont won't be the only company shaving its employee count and reducing the scope of its operations. Its rival Dow Chemical (NYS: DOW) , which will report its quarterly results on Thursday, has already said that it'll cut fully 5% of its workforce and shutter 20 plants in its effort to confront a softening global economy.

Extraneous effects
On the call with analysts, DuPont's Nicholas Fanandakis pointed to several factors that weighed on the company's results for the quarter. For instance, currency factors resulted in a significant $0.13 year-on-year variance, while a 24% base tax rate, versus 17% last year, lopped another $0.05 from the quarter's results. The same amount was lost by reduced pharmaceutical royalties, compared with the comparable 2011 period.

It's worth repeating for the sake of an accurate analysis of DuPont's current status and its future prospects that, like another of its rivals, Monsanto (NYS: MON) , the Delaware-based company continues to move to a predominance of agriculture and food-related industries and away from a more generalized chemicals production. As part of this restructuring, which has accelerated under CEO Ellen Kullman, DuPont Performance Chemicals is being sold to The Carlyle Group (NAS: CG) for $4.9 billion. Completion of the transaction is anticipated to occur early next year.

That sale follows the acquisition in 2011 of Danisco, a Danish manufacturer of enzyme and specialty food ingredients, for which it paid $6.3 billion. Regarding the addition, Kullman said on the call, "We set aggressive cost targets for (Danisco and similar) transactions. In the case of Danisco, we're delivering $130 million in cost synergies by year end, well ahead of the original schedule."

A savvy summary
As Kullman also noted in a rather comprehensive statement regarding the ongoing change of emphasis within DuPont, along with her company's overall position amid the stumbling worldwide economy:

This restructuring work is in addition to ongoing productivity programs that address cost and working capital. All these actions are part of a continuum for DuPont, but they obviously take on particular importance give the quarter's results. Business results in the third quarter reflect continued weak market conditions in Europe and uncertainty in Asia. The bright spots were strong performance in agriculture, nutrition & health, industrial biosciences, and performance materials. The most challenged segments this quarter were performance chemicals and electronics & communications.

DuPont joined such other major companies as United Technologies (NYS: UTX) in delivering earnings on Tuesday that were below expectations. For most, the lower-than-anticipated results related to tepid economic growth in the U.S., continuing softness in Europe, and a recent slowdown in Asia. At this juncture, it's obviously impossible to predict the ultimate duration of these conditions.

The Foolish bottom line
Nevertheless, for my money, Kullman and her team are reshaping DuPont in a way that will continue to strengthen the company, even amid the global economic malaise. For that reason alone, I'm inclined to strongly urge Fools to monitor the company's progress closely. An ideal way to do so is to be sure it's added to My Watchlist.

The article A Solid DuPont Trips on a Stumbling Economy originally appeared on Fool.com.

David Lee Smith has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Monsanto Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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