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DuPont exploring sale of performance chemicals unit

5:01 AM MDT | July 23, 2013 | Michael Ravenscroft and Robert Westervelt

DuPont says it is exploring the sale or spin-off of its $7-billion/year performance chemicals unit as part of its transformation to a “higher growth, less cyclical company.” DuPont’s decision to exit performance chemicals segment follows the sale of its automotive coatings business earlier this year and the acquisition of Danisco, in 2011.

"We have been carefully weighing the strong cash generation of our performance chemicals businesses against their cyclicality and lower growth profile, as well as where the power of DuPont's science can be differentiated," says DuPont chair and CEO Ellen Kullman.”We are evaluating options for performance chemicals as part of our ongoing plan to deliver higher growth and greater value creation for our shareholders."

Options being considered include a full or partial separation of each of these businesses through a spin-off, sale, or other transaction, the company says. DuPont’s performance chemicals business includes titanium dioxide (TiO2), fluorochemicals, and specialty and industrial chemicals. Key end markets include plastics and coatings, textiles, mining, pulp and paper, water treatment, and health care.

The performance chemicals unit posted 2012 segment sales of $7.2 billion, roughly 20% of DuPont’s total net sales, and pretax operating income (PTOI) of $1.6 billion, 33% of total DuPont PTOI last year.

DuPont also announced that it would realign its leadership team “to accelerate its integrated science execution.” James Collins will become senior v.p., responsible for the businesses industrial biosciences, performance polymers, and packaging and industrial polymers. DuPont says he will work on integrating DuPont's industrial biosciences into the advanced materials business. Collins has been with DuPont for 29 years and previously led the integration team for the acquisition of Danisco.

Matthew Trerotola will rejoin DuPont as senior v.p. managing the protection technologies, building innovations, and sustainable solutions businesses. He will be responsible for driving improved execution and accelerating growth. Trerotola's previous role was v.p. and group executive/life sciences for Danaher (Washington).

DuPont shares soared 5.3% on 17 July after reports that activist investment firm Trian Fund Management (New York) had acquired a large stake in the company. The investment was first reported by Andrew Ross Sorkin, a reporter with The New York Times and CNBC, at the CNBC-Institutional Investor Delivering Alpha Conference, held last week in New York. Trian’s CEO is activist investor Nelson Peltz.

DuPont today reported second-quarter net income of $1.03 billion, down 12% year-on-year (YOY). Reported adjusted earnings were $1.28/share, down 15% YOY and in line with lowered company guidance announced in June. Net sales were $9.8 billion, down 1% YOY, principally reflecting lower TiO2 pricing, DuPont says. Total company volume increased 1% with increases in agriculture, performance chemicals, performance materials, and safety and protection. Volume declined in electronics and communications and nutrition and health.

Total segment operating earnings were $1.9 billion, down 17% YOY or $386 million. Performance chemicals operating earnings were down $330 million, about 27 cts/share, from peak levels last year, principally reflecting significantly lower TiO2 prices.

DuPont says it continues to expect full-year operating earnings to be about $3.85/share.

"Agriculture sales remained strong in the second quarter and titanium dioxide volume improved.  As expected, this was largely offset by a substantial decline in performance chemicals earnings from last year's peak levels," Kullman says. "We anticipate second-half earnings will be significantly better than last year's second half. We expect to deliver full-year earnings modestly above 2012 results, overcoming steep declines in the TiO2 market and economic headwinds in Europe and parts of Asia."

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