RECORD DARCON SALES LIFT DUPONT’S FIBER
Byline: Stuart Chirls / With contributions from Tom Ryan
NEW YORK — Polyester is back in fashion, and that’s record-breaking news for DuPont.
The strongest quarter in the history of its Dacron polyester business and fatter profits in Lycra spandex helped offset declines in nylon and lift operating earnings in DuPont’s fibers unit 15.5 percent in the third quarter.
“There is no doubt about it, polyester is becoming more widely accepted as a fashion fabric,” said Jeff McGuire, specialty development manager for polyester filament, in a telephone interview.
“The European designers are doing a lot of exciting things in polyester, and that has translated across the Atlantic Ocean to here. It started in juniors, and we are now seeing it in the misses’ and career markets. And once the working woman picks up on it, I think polyester will be around in fashion for a long time.”
“The third quarter was the strongest for Dacron since the division was created in 1953,” said Ned Jackson, vice president and general manager of Dacron, in a conference call. “Our polyester business, both in staple and filament, was up across the board. The market for polyester has been resurgent, in part because of our specialty products such as Micromattique, CoolMax and ThermaStat, which all sold very well. We saw growth in apparel, home furnishings, automotive and the industrial areas. All of our strategies in polyester are coming together.”
DuPont also cited higher earnings in Lycra spandex and aramids, but said nylon earnings were hurt by the stronger dollar against most foreign currencies, and higher raw materials costs due to supply disruptions in the U.S.
In the quarter ended Sept. 30, after-tax operating income of the fiber division rose to $238 million from $206 million. Sales gained 8.6 percent to $1.88 billion from $1.74 billion, and a 12 percent hike in volume offset a 3 percent erosion in selling prices.
In the nine months, fiber’s operating earnings climbed 27.6 percent to $716 million from $561 million. The 1996 nine months includes a $32 million charge to cover layoffs in the U.S. Excluding this charge, earnings in the latest nine months rose 20.7 percent.
Sales moved up 8.4 percent to $5.7 billion from $5.3 billion.
Jackson said the “unusual growth” in specialty products was in addition to expected growth in commodity polyester products. “I think that there’s been an overconsumption of cotton during the past 15 years,” he said, explaining polyester’s popularity.
Looking ahead, Jackson expects Dacron to do “quite well’ in the fourth quarter, with volume increases of 5 to 6 percent over the previous year. “All in all, 1997 will turn out to be one of the greatest years ever for Dacron,” he said.
Nylon intermediates production has returned to normal levels at two plants in Texas after mechanical failures that occurred within weeks of each other forced DuPont to shut down production for several weeks. A more serious problem is a backup in rail traffic in the Gulf Coast region that has prevented intermediates from getting through on time.
“Logistics in the Gulf Coast have been a disaster because of Union Pacific’s acquisition of Southern Pacific,” said Gary Pfeiffer, vice president and general manager of DuPont Nylon North America. “There has been significant indigestion there on the part of UP, and service has been horrible. Also, there aren’t enough rail cars for shippers when the trains do move.”
Union Pacific has told customers it expects service to return to normal late this year or early in 1998, but Pfeiffer said, “We are putting contingency plans [in place] to shift shipments to trucks. However, there aren’t enough trucks to go around either, so our options are limited. Otherwise, our internal problems are behind us and we are running at peak yields.”
Overall, DuPont reported a loss of $17 million after net charges of $998 million, or 88 cents a share, to write off research and development associated with the acquisition of a 20 percent interest in Pioneer Hi-Bred International Inc., and charges to divest certain printing and publishing businesses.
Excluding the charges, DuPont’s earnings inched up 3.1 percent to $972.7 million, or 86 cents a share, from $943.1 million, or 84 cents, a year ago. That was just short of the 87 cents a share Wall Street had forecast for the latest quarter. Sales increased 6.2 percent to $11.1 billion from $10.5 billion.
DuPont shares closed at 59 5/8, up 1 7/16, on the New York Stock Exchange.
Commenting in a statement on the third quarter, John A. Krol, DuPont president and chief executive officer, said, “In recent months, we’ve aggressively pursued our long-term strategies to profitably grow DuPont and create value for our shareholders. In the third quarter, our underlying business continued to perform at record levels, driven by strong volume growth from our chemicals and specialties businesses and record earnings from petroleum. At the same time, we announced several major acquisitions in key areas of our business portfolio, which will position us for sustained profitable growth.”
In the nine months, income, including nonrecurring charges, fell to $2.1 billion from $2.8 billion. Excluding special charges in both years, earnings rose 9 percent to $3.1 billion from $2.9 billion. Sales gained 4 percent to $33.7 billion from $32.4 billion.