- The Washington Times - Tuesday, April 21, 2009

DOVER, DEL. (AP) - Citing a sharp drop in global industrial demand that resulted in a 59 percent decline in first-quarter profit, chemical maker DuPont Co. said Tuesday it is boosting efforts to cut costs and developing additional restructuring plans.

The Wilmington-based company also pared its full-year outlook, saying it expects volumes to continue to decline in the coming months, but not as steeply as they did in the first quarter.

“It’s just a very volatile environment,” Chief Executive Ellen Kullman said.

DuPont reported earnings of $488 million, or 54 cents per share, for the first quarter, down from $1.19 billion, or $1.31 per share, a year ago.

Total revenue fell 17 percent to $7.27 billion from $8.77 billion a year ago as DuPont saw a drop in demand for its products in the construction and auto sectors, as well as declines in consumer spending on items such as electronic goods.

Analysts expected a profit of 52 cents per share on revenue of $7.74 billion.

The earnings decline reflected a 20 percent drop in consolidated net sales, which totaled $6.9 billion, and double-digit volume declines in all regions, including a 31 percent decline in Asia-Pacific volume.

Sales volumes were down in four of the company’s five businesses, and essentially flat in the agriculture and nutrition unit, the one current bright spot in the company’s portfolio.

“Volumes are down, but our costs are down, too,” noted Kullman, who described the economic environment in the first quarter as the most challenging she has ever seen.

In response to economic conditions even worse than predicted three months ago, DuPont said it has increased its 2009 fixed-cost reduction goal to $1 billion from $730 million and boosted its capital expenditures reduction target by $200 million to $1.4 billion.

“Our number one priority remains on driving cash generation and taking action on things we can control,” said chief financial officer Jeffrey Keefer.

While offering no details, company officials said they are reducing additional contractor positions, which already have been cut by about 10,000 since late last year, and expanding work schedule reductions.

“We will continue to adjust as needed to maintain our competitiveness,” Kullman said.

DuPont shares closed up $1.32, or 5 percent, at $28.06 on Tuesday.

The company cut its full-year earnings outlook to a range of $1.70 to $2.10 per share, from a previous forecast for profit of $2 to $2.50 per share. Analysts expect earnings of $1.88 per share, on average.

“This is the fourth time they’ve cut guidance in six months,” said Ed Yang, an analyst with Oppenheimer & Co. who has an “Underperform” rating on DuPont. “That tells me that it’s a very uncertain environment and the fundamentals are extremely weak.”

While the chemical sector has shown some momentum in the past month, Yang said DuPont needs a settle on a focused, long-term business strategy and find a “killer app” that can be as profitable as the explosive powders on which the company was founded or the nylon fiber of the 20th century.

Laurence Alexander, an analyst with Jefferies & Co., issued a “Buy” rating for DuPont on Tuesday, saying the company’s 7 percent dividend yield offset significant earnings risks.

“Each cycle, DuPont presents two opportunities to investors,” Alexander wrote in a note to investors. “As an early cyclical bellwether, it should rally before the economy turns. As a diversified conglomerate, it has the perennial promise of transformation and revival.”

But in an investor note issued last week, analyst Frank Mitsch of BB&T; Capital Markets maintained a “Hold” rating on DuPont, citing near-term uncertainty and the company’s large exposure to housing and automobile markets.

At the same time, he said he wouldn’t be surprised if DuPont used its strong balance sheet to eye possible acquisitions.

Kullman said DuPont is working to understand how it might enhance its portfolio, but she and Keefer gave no indication that an acquisition is in the works.

“Jeff is keeping a pretty tight grip on the purse strings,” Kullman said.

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