DuPont Forecast Disappoints as Strong Dollar Erodes Revenue

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  • Chemical company posts first quarterly loss since 2008
  • Sees `difficult' conditions in agriculture continuing

DuPont Co., which agreed last month to a historic merger with Dow Chemical Co., forecast lower-than-expected full-year earnings and sales as the chemical company struggles with the effects of a strengthening dollar and weak demand for its agriculture products.

Profit excluding some items will be $2.95 to $3.10 a share this year, DuPont said Tuesday in a statement. The average of 21 analysts’ estimates was $3.15 a share. Wilmington, Delaware-based DuPont also posted its first quarterly net loss since the height of the financial crisis, losing 29 cents a share in the final three months of 2015 compared with net income of 74 cents a year earlier.

“Current difficult global economic conditions in agriculture and slower growth in emerging markets are expected to continue, challenging the company’s sales growth in 2016,” DuPont said in the statement. The shares fell 0.1 percent to $52.96 at 9:38 a.m. in New York.

DuPont and Dow’s merger, the biggest ever in the chemicals industry, is planned as a prelude to a split that will create three new companies focused on agricultural products, commodity chemicals and specialty materials. Ed Breen, who was appointed DuPont’s chief executive officer a month before the merger was announced, is planning to reduce expenses, partly by eliminating 10 percent of the workforce. DuPont is cutting costs as its agriculture unit, the company’s largest by revenue, faces weaker commodity markets.

Farm Incomes

Sales this year will decline by a percentage in the low-single digits due to the currency effects and "challenges" in emerging markets and agriculture, DuPont said in a slide presentation. Analysts had seen revenue about flat for 2016. Farmer net incomes will continue to decline in 2016 because land rents have lagged behind the slide in commodity prices for row crops such as corn and soybeans, DuPont said.

"Agriculture companies continue to be negatively impacted by low corn prices, currency headwinds, particularly the Brazilian real and Argentine peso, and further weakness in crop protection and seed products, primarily in Brazil," David Begleiter, a New York-based analyst at Deutsche Bank AG who recommends buying DuPont shares, said in a Jan. 20 note.

Operating earnings in the agriculture unit will be down by a percentage in the "low teens" in the first half, although the effects of higher product prices and cost savings mean profit will be about flat for the full year, the company said.

Cost Savings

DuPont also said it expects a benefit of about $730 million, or 64 cents a share, this year from its cost savings and restructuring. That’s higher than the company’s previous view of $700 million. Annual savings will ultimately reach $1 billion, up from an earlier projection of $900 million, it said. However, it also expects earnings to be reduced by about 30 cents a share due to currency and by another 5 cents to 10 cents from higher taxes.

Fourth-quarter profit excluding restructuring costs and other items was 27 cents, beating the 26-cent average estimate. Operating profit dropped in the largest business segments while gains were posted in the nutrition and health and industrial biosciences units. Revenue declined to $5.3 billion from $7.38 billion, missing the $5.39 billion average estimate, as volumes fell 3 percent and currency exchange cut sales by 7 percent.