27 January 2004 17:18 [Source: ICIS news]
The highlights of the DuPont fourth quarter and full year 2003 earnings announcement are the positive outlook and the assessment of the impact of higher raw material costs and pension expenses on the company.
In 2004, DuPont’s oil and natural gas raw materials burden will fall as the fibres business, Invista, separates (expected in the first half) and the pensions burden is at least not expected to increase.
DuPont is predicting global real gross domestic product (GDP) growth of 3.6% for the year which, it says, “should be the largest full-year increase since 2000”.
It is telling that DuPont also expects manufacturing sectors in the developed industrial economies to grow at rates above GDP for the first time in recent years. Chemical companies need that return to growth if they are in any way to thrive. DuPont managers may still worry about continued high oil and natural gas prices and a possibly faltering US economy. And they are not alone. Yet, they remain confident that the portfolio can do better given the strength and momentum of the current recovery.
DuPont has already said that it will drive fixed and variable costs down by $450m (Euro355m) in 2004 which should more than offset the cost of the Invista separation. And by the end of the year the rate of cost improvement will be such that it can achieve cost savings of $900m in 2005.
High oil and natural gas costs are a burden and the forecast is that they will remain so throughout 2004. The underlying assumption is that the cost impact will be about the same as in 2003 but the burden will be lower post-Invista. Following the separation, a $1 increase in the price of US natural gas and oil (combined) would lift costs by $135m over on an annualised basis, the company estimates.
To counter this burden, DuPont needs to cut costs further and it needs to grow so the initiatives announced late last year are important. DuPont saw worldwide volume growth in 2003 of 4% and 6% volume growth in the fourth quarter. For both periods selling prices were down 1%.
Fourth quarter sales were up 14% and sales for the full year up 12% at $27bn with double digit sales growth in the final quarter of the year in every operating segment, DuPont says. The important drivers in the fourth quarter were a strong agricultural season in South America, upward momentum in electronics markets and strength in the protective clothing and housing markets.
Excluding any special items, segment after-tax operating income (ATOI) in the fourth quarter was either stable, or higher, the company says, apart from performance materials and the Invista businesses that were significantly exposed too higher than expected energy and raw material costs.
For the year, segment sales growth ranged from 9% to 21%. Despite that growth, however, the businesses were under pressure from high raw material and pension costs which amounted to more than $1bn after tax over the course of the year. DuPont says the businesses were able to offset 60% of that burden through higher productivity, market share gains and with new products.
ATOI for the year was down 13% excluding a significant fourth quarter gain from the sale of Invista at $2.2bn. Excluding special items, profits were up for the safety and protection businesses, in agriculture and nutrition and in pharmaceuticals, DuPont says, but down in the other four segments: Coatings and colour, electronics, performance materials and textiles and interiors (Invista).
Before special items, earnings per share in the quarter were down 15% at $0.29 and down 17% for the year at $2.00. Pension costs in 2003 amounted to $0.40 per share but in 2004 the company expects little in the way of additional impact - $0.00 to $0.04 per share.
DuPont says that assuming oil and natural gas prices on a par with those in 2003 first quarter 2004 earnings per share are expected to be between $0.65 and $0.75. The forecast for the full year currently is between $2.00 and $2.20 per share excluding further restructuring and Invista separation costs that cannot yet be estimated.
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