DUPONT OPERATING NET OFF 1.6%
Byline: Jennifer Brady, with contributions from Stuart Chirls
NEW YORK — The weakening polyester market caught up with the bottom line at DuPont’s fiber business in the fourth quarter.
After solid profit gains in the first three quarters of 1995, fourth-quarter operating income after taxes in fibers slipped 1.6 percent to $188 million from $191 million.
Sales in the three months ended Dec. 31 increased 4.5 percent to $1.8 billion from $1.7 billion. In a company conference call, C.L. (Jerry) Henry, chief financial officer, said,”Polyester is under a bit of pressure,” in terms of both competition and total volume. He noted that the price of intermediates used in fibers is beginning to come down, but the one area in which the company has not seen lower pricing is raw materials for polyester. Henry said that although Dacron polyester was ahead early in 1995, the momentum slowed in the latest quarter. He also cited weakness in nonwovens, but added that nylon was up in December. Lycra spandex is doing well in foreign markets, while the U.S. market is more difficult. In 1995, reflecting the strength in aramid fibers and Dacron polyester early in the year, after-tax operating profits in fibers rose 17.6 percent to $795 million from $676 million a year ago. Fiber sales were up 7 percent to $7.2 billion, attributed to a 5 percent increase in selling prices and 2 percent higher volume. “The signs are that raw materials prices have peaked,” said Jerald Blumberg, executive vice president for DuPont’s nylon, Dacron and Lycra business, in a telephone interview.
“In polyester, the whole industry suffered, but we’re expecting lower prices [for raw materials] through the coming year. We can’t withstand more increases, because it’s difficult to recover the cost up through the chain from our customers. We never dreamed the price of paraxylene [a primary ingredient in polyester] would have gone up 12 quarters in a row.”
Polyester sales also suffered when China closed its borders to imports at mid-year and some producers began dumping, Blumberg said. DuPont did not dump product, he said, “but the staple business came under a lot of pressure in the second half of the year.”
Blumberg said that he doesn’t expect the first quarter of 1996 to be strong due to continuing price pressure and excessive inventories of apparel at retail. Lower interest rates could boost business later in the year. However, he added, “Retailers hold the upper hand, and business is not all that rosy. Our customers are cutting inventory. Clinton, I’m sure, will do everything possible to grow the economy leading up to the election. If the GDP grows a couple of percent, the year could turn out to be decent.”
Meanwhile, Blumberg pointed out, DuPont continues to expand its worldwide fiber program. A nylon fiber plant is under construction in Taiwan, and a tire cord factory is being built in India. Said Blumberg, “Nearly all of our nylon plants had record yields in 1995 and we expect that trend to continue.”
Corporate-wide, DuPont’s profits in the latest quarter slid 3 percent to $627 million, or $1.13 a share, after a $83 million restructuring charge. A year ago, the company earned $646 million, or 95 cents. In 1995, the average number of shares outstanding dropped 14 percent due to redemption of Seagram’s DuPont stake.
As previously reported, the charge included $38 million for the settlement of a plumbing systems lawsuit and a $45 million write-down of petroleum assets.
Excluding the charge, earnings for the quarter climbed 35 percent to $1.28 a share. Sales rose 2.4 percent to $10.4 billion from $10.1 billion.
For the year, overall company profits climbed 21 percent to $3.3 billion, or $5.61 a share, from $2.7 billion, or $4, a year earlier. Excluding the charge, earnings came to $5.81 a share.
Total sales for the year edged up 7 percent to $42.2 billion, with U.S. sales volume up only 1 percent, while sales abroad increased 7 percent reflecting growth in the Asia Pacific and European regions.
President and chief executive officer John A. Krol said in a statement, “This was our second consecutive year of record earnings and significant year-over-year improvement.” He added that the record results were achieved across a broad span of businesses. “In addition we were able to generate net cash flow after dividends of $2.3 billion, $700 million more than last year.” Krol noted that the company’s plan to pay back debt incurred for the redemption of shares from Seagram remains “on track.”