DuPont Beats Expectations

NEW YORK — Stronger third-quarter results in DuPont’s textiles and interiors division, along with a lower estimated tax rate for the year and strength in other units, helped the firm top Wall Street’s expectations.<br><br>Investors,...

NEW YORK — Stronger third-quarter results in DuPont’s textiles and interiors division, along with a lower estimated tax rate for the year and strength in other units, helped the firm top Wall Street’s expectations.

This story first appeared in the October 24, 2002 issue of WWD.  Subscribe Today.

Investors, however, traded down shares of the firm 78 cents, or 1.9 percent, to close at $40.97 on the New York Stock Exchange Wednesday. Despite the drop at DuPont, a Dow Jones Industrial Average component, the Dow managed a 44.11 point, or 0.5 percent, climb for the day, to 8,494.27.

Driven by reduced fixed-cost spending and lower raw material costs, as well as the lower estimated effective tax rate, DuPont’s textile and interiors unit’s aftertax operating profits jumped more than sixfold to $61 million, from $10 million a year ago.

For the three months ended Sept. 30, sales at the division inched up 1.9 percent to $1.58 billion from $1.55 billion in the year-ago period. The benefits of a 7 percent rise in volume growth were largely offset by lower selling prices. Volume improvement was led by the firm’s residential flooring, nylon textile, spandex and polyester filament products.

“The segment continues to recover from last year’s exceedingly difficult macro-environment,” noted Ann Gualtieri, vice president of investor relations, on a conference call. “The single most important factor in the year-over-year earnings gain has been cost productivity. As DTI advances to a more competitive cost structure, aggressive reductions in cash-fixed costs are on track with our previously announced targets.”

Of DuPont’s apparel business, she said, “Sales were about level with last year, as strong volume gains in spandex and polyester filaments were essentially offset by lower textile nylon, polyester filament and Lycra prices. Elaspan prices continue to improve modestly both year-over-year and sequentially.”

The Wilmington, Del.-based chemicals giant’s overall third-quarter earnings of $469 million, or 47 cents, marked a 230.3 percent rise. This compared with year-ago earnings of $142 million, or 13 cents.

Underlying profits, which exclude one-time items that reduced the most recent and year-ago quarters by 7 cents and 1 cent per share, respectively, leapt to 40 cents per share from 12 cents. Wall Street had DuPont pegged for EPS of 35 cents per share. Adjustments to the tax rate accounted for 14 cents of the firm’s quarterly earnings. The textiles and interiors segment, along with performance materials and coatings and color technologies, were also key to driving the firm’s overall increase.

Half of the earnings upside versus a year ago was attributed to improved operational performance, while the remainder came from the annual estimated tax rate, which was reduced to about 28 percent from around 34 percent.

Overall, sales for DuPont retreated 0.7 percent to $5.74 billion from $5.78 billion in the quarter.

“While overall volume growth has been strong, the pricing environment remains difficult,” said chairman and chief executive Charles Holliday Jr. in a statement. “We remained focused on executing well in the present while driving our long-term sustainable growth objectives.”

For the nine-month period, the textiles and interiors unit realized aftertax operating income of $28 million, up from losses of $339 million a year ago. The most recent period included pre-tax charges of $172 million and a pre-tax gain of $19 million associated with various DTI-related business exits and closures. The business’ sales for the three quarters slid 5.3 percent to $4.73 billion from $4.99 billion a year ago.

Overall, for the nine months, DuPont posted losses of $1.45 billion, or $1.46 per diluted share. This compared with year-ago earnings of $424 million, or 40 cents. Sales for the period were off 6.8 percent to $18.67 billion from $20.02 billion.

On the broader economic scene, DuPont is looking for continued growth in the fourth quarter, but at a pace “moderately below third-quarter rates.” Domestically, the firm expects the automotive and housing markets to remain robust, while consumer spending holds up “reasonably well.”

Accordingly, the firm reaffirmed its projections for underlying earnings of about $2 per share for the year, despite the unexpected upside in the most recent quarter.

“While we cannot control the economy, we can control how we execute our business plans in the face of economic challenges and uncertainty,” Holliday said.