INSIGHT: Some bright spots for DuPont as it struggles with slower growth

22 January 2013 16:40  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--DuPont’s shares were climbing higher on Tuesday ahead of Wall Street’s opening as investors savoured better-than-expected fourth-quarter 2012 financial results and a positive 2013 outlook.

There were also clear signs that the diversified science-based chemicals maker was having some success in tackling slower growth, and indications of an upturn in demand in important customer industries, such as US autos.

Fourth-quarter profits were down sharply in the company’s industry and construction focused materials segments but lower cost feedstocks benefitted some of the plastics and fibres businesses.

DuPont is not overly-confident of much stronger global economic growth in 2013 but expects China to pick up after the Lunar New Year.

“Weakness in markets served by Performance Chemicals and Electronics & Communications provided significant challenges in 2012,” CEO Ellen Kullman said. “We've adjusted our plans to meet the changing market environment and grow our businesses in a slow-growth world economy."

"DuPont stands stronger today than it did a year ago,” she said. “Our segments delivered innovation, productivity and integration cost synergies. This, coupled with a record year in new product introductions, has strengthened our market position."

DuPont captured some volume growth in the fourth quarter - up 3% compared with the year earlier period - but sales were flat after portfolio changes and a negative currency impact.

The volume growth came in the agriculture segment, as the North American selling season got underway, and in Asia Pacific for plastics, fibres and chemicals. On a regional basis, there was an 8% decline in sales in Europe, the Middle East and Africa with volumes down 2%.

Income from DuPont’s continuing businesses during the fourth quarter, excluding exceptional charges and gains, were well down at $110m (€83m) from $246m in the year before with alot of the decline due to the much lower titanium dioxide (TiO2) price.

DuPont said that sales in its performance chemicals segment, down 15% in the quarter: 8% lower volumes and 7% lower prices, were hit by weak demand for fluoropolymers in the US and Europe and by “cyclical pressure in the titanium dioxide market”. Segment pre-tax operating income was down $233m at $200m.

Profits from the performance materials segment businesses were, by sharp contrast, $103m higher at $254m, due, DuPont said, to lower feedstock costs and higher volumes. Volumes in this segment were up 3% but sales were down 5% because of lower prices and portfolio changes.

“Stable packaging markets and strong demand in the North America automotive market were partially offset by softness in the industrial and electronics markets and a weak Europe,” the company said.

The mixed bag of business and segment results is indicative of shifting market dynamics overshadowed by the marked economic slowdown. DuPont is confident that it can achieve top line and profits growth in 2013 and this has been picked up by investors. But the underlying business operating conditions are likely to be difficult.

The company says now that it expects 3% sales growth in 2013 and earnings per share growth of between 2% and 7% with earnings down on a year-on-year basis in the first half but up in the second.

DuPont expects to deliver more than $600m of savings from restructuring and productivity improvements in 2013. And it is planning on only modest global GDP growth of 2% and industrial production growth of 2% so there could be some upside.

However, some of the company’s businesses will continue to be under pressure, the TiO2 business for instance as it moves through its own industrial cycle.

DuPont adjusted its TiO2 inventories in the fourth quarter of last year and expects industry fundamentals to improve gradually through 2013. Full-year pre-tax operating margins for the business, however, could still be 7-9% lower in 2013 than at the business’s cycle peak.

DuPont is also being hit by overcapacity in photovoltaics, which drive performance in the electronics & communications reporting segment. But it expects a slight improvement in 2013.

Renewed automobile demand in North America and China is likely to help the company this year, although the year-end 2012 spurt is unlikely to be sustained.

DuPont said it expects auto builds globally to be down 4% in the first quarter with a 10% slowdown in Europe. Automobile output could be up just 2% in 2013, compared with growth of 6% in 2012, it said.

The company has products tied closely to infrastructure and housing and is looking forward to some recovery in new house builds in the US this year. It also expects an improvement in infrastructure spending in China.

Kullman said DuPont sees market conditions stabilising in 2013 for the performance chemicals and the electronics & communications businesses. The US is experiencing a weak recovery with some bright spots, she said.

“Growth in China is picking up with positive implications for the rest of Asia.”

($1 = €0.75)

Read Paul Hodges’ Chemicals and the Economy blog
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By: Nigel Davis
+44 20 8652 3214

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