DuPont’s Weak Results Show Slowing Asian Demand

by Trefis Team
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Shares of DuPont (NYSE:DD) fell almost 9% after the company reported its third quarter earnings on October 23. The chemical company had a dismal quarter with net sales declining 9.2% as overall volumes dropped 5%, with growth in the agricultural & nutrition products division being more than offset by declines in electronics & communications and performance chemicals. The company attributed the poor performance to weak demand in Asia where net volumes fell 10%. It also announced the initiation of a restructuring program to reduce costs.

See our full analysis for DuPont

Weak Showing from Performance & Safety Materials and Electronics & Communications Divisions

Revenues from the performance and safety materials division, which includes performance materials, performance chemicals and safety & protection, fell 12.2% y-o-y. This was primarily due to a 19% decline in revenues for performance chemicals, which the company attributes to weak demand for TiO2 in the Asia-Pacific region.

The division has had a tough time lately with large volume declines for the past five quarters. In previous quarters, volume declines were at least partly offset by price increases, but that was not the case this time round. Performance materials, performance chemicals and safety & protection all saw price declines primarily due to unfavorable currency movements.

The electronics & communications divisions saw a staggering 27% decline in sales y-o-y with a 20% decline in volumes due to lower photovoltaic demand in Asia-Pacific and pricing decline of 8%. However, the company expects the demand for the division’s products to improve going forward on stronger demand for consumer electronics.

Agricultural & Nutrition Products Continue Growth

One of the few positives this quarter was the continued strong performance of the agricultural & nutrition products division. Sales for agricultural products grew 4% in spite of a 10% impact due to currency headwinds. Volume growth of 7% was driven by a strong performance in Latin America, South Africa and South Asia. We expect growth for this division to be strong in the future considering the robust growth in worldwide agricultural market combined with DuPont Pioneer’s industry leading technology in the development of agricultural products.

Restructuring Could Help Sustain Margins

In response to the declining trend across divisions, DuPont is looking to cut costs to generate value through higher margins by initiating a restructuring program. The company expects the program to create annual cost savings of $300 million in 2013 and $450 million from 2014. It incurred $152 million in restructuring expenses this quarter, which further hurt its bottom-line.

We will be updating our $50 price estimate for DuPont based on the earnings release.

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