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DuPont cuts outlook on weak ag results
12:05 PM MDT | June 27, 2014 | Rebecca Coons
DuPont cut its second-quarter and full-year earnings outlook, citing a lower-than-expected quarterly performance from its agriculture segment and, to a lesser extent, its performance chemicals unit. The company expects second-quarter earnings to fall “moderately below” the $1.28/share recorded in the year-ago quarter, and lowered its 2014 earnings forecast to $4–4.10/share, down from the $4.20–$4.45/share guidance announced 17 April.
DuPont says the revised outlook reflects lower than expected corn seed sales and higher than expected seed inventory write-downs. Given favorable soybean economics, soybean sales volumes in North America have been higher than expected but not enough to fully offset the decline in corn volume— “especially given the transition under way in the company's soybean lineup to newer, higher performing products,” DuPont says in a statement. The company believes this is a short-term negative trend, and there will be strong demand for its next generation soybean products. The revised outlook also reflects lower than expected crop protection herbicide sales, largely due to weather.
Analysts expected second-quarter and full-year earnings of $1.46/share and $4.86/share, respectively, according to a consensus of estimates compiled by Thomson Reuters. Shares were down nearly 2% after hours.
"While 2014 is a transition year in agriculture, the revisions to the outlook we made today do not meet the expectations we set for our Agriculture segment or for the company," said DuPont Chair and CEO Ellen Kullman. "We have a strong global market position and a rich pipeline and we will make the necessary changes so that we return to our five-year track record of delivering the reliable, attractive growth our shareholders expect from this segment."
Performance chemicals second-quarter results will be impacted by lower than expected selling prices in refrigerants for mobile and stationary applications. The company has already said it is seeking either a spin-off or Reverse Morris Trust to off-load the business, which includes titanium dioxide, fluoroproducts, and industrial chemicals, as part of its transformation to a “higher-growth, less cyclical company.”
Separately, DuPont disclosed more details of its previously disclosed "Fresh Start Initiative" aimed at streamlining support for its more focused portfolio of businesses following the separation of the performance chemicals segment, expected in mid-2015. This redesign initiative will deliver near-term savings from the movement and elimination of costs related to the separation as well as productivity improvements across all businesses, regions and functions, DuPont says. Additionally, an extensive redesign of DuPont's infrastructure, with a focus on automation and global standardization of transactional processes, will create a lower-cost systems environment and define new sources of savings as these changes are implemented broadly across the company.
"We have a unique opportunity now to reset our operating model to optimize both our effectiveness and efficiency, consistent with the purpose, strategy and needs of DuPont in 2015 and beyond," Kullman says.
The company expects to record a restructuring charge of about $270 million pre-tax, or $.20 per share, after tax, in the second quarter of 2014 related to the first actions under the redesign initiative. The company anticipates that it will incur future charges related to the initiative as it implements additional actions.
"Together, all of these efforts will contribute to at least $1 billion in savings by the end of 2019 from a 2013 baseline—two-thirds by the end of 2015 on a run-rate basis and the final third occurring between 2016 and 2019," Kullman says.