EARNINGS DECLINE AT 2 DUPONT UNITS

Byline: Scott Malone

NEW YORK — Squeezed by high petroleum prices and unfavorable exchange rates, DuPont saw earnings slip at its nylon and specialty fibers businesses in the fourth quarter.
However, the benefit of moving much of its polyester operation into joint ventures became clear, as that unit swung back into the black.
The company’s Lycra spandex operations, till recently one of the few jewels in the company’s fiber crown, felt a particular pinch: Rising raw materials and energy prices bit into its margins at the same time that spandex prices were on the decline.
“The apparel business was tough in the States, for sure,” said Steve McCracken, president of apparel and textile sciences, in a phone interview. “For the year and the quarter, on the spandex side, volumes were actually up. But price declines, particularly in the ready-to-wear segment and particularly in Asia, were painful. That’s basically being forced by the huge capacity increases in Korea.”
The company’s specialty fibers segment, which includes Lycra, as well as the Kevlar and Nomex industrial fibers, saw aftertax operating income slip 24.2 percent, to $147 million. Segment sales were down 7.9 percent, to $807 million — though the company said that the revenue decline was caused by the drop in selling prices. Volume was steady for the segment as a whole.
Ann Gualtieri, vice president of investor relations, said the company is expecting to see year-over-year declines in aftertax operating income at the segment for six to eight quarters.
In the nylon segment, aftertax operating income was down 26.2 percent, to $79 million. Sales slipped 2.5 percent, to $1.11 billion. The company blamed the volume declines on lower sales into the apparel and flooring markets.
The polyester enterprise — much of which is now structured in joint-ventures with a variety of overseas and domestic partners — swung back into the black, posting aftertax operating income of $34 million, compared with a $37 million operating loss a year earlier. Sales were down 14.4 percent, to $611 million, all on volume declines.
A DuPont spokeswoman said the company expects “polyester market conditions to continue to be unfavorable, due to industry overcapacity, soft demand for fibers in the U.S. and continued high raw materials costs. Things will be extremely challenging.”
The clothing market looks bleak to company officials.
“In apparel markets, which have been softening since the fall,” said Gualtieri, “we see the highest inventory-to-sales ratios since the last recession, which portends further softening in 2001.”
McCracken said the apparel-sourcing pipeline is backing up. “On any inventory correction, folks tend to overcorrect,” he said. “We’re feeling it in several of the segments, particularly hosiery and intimate apparel.”
However, the executive pointed out that the clothing business is particularly vulnerable to perceived ups and downs in the economy, and held out hope that the market could recover.
“When there gets to be a drop in consumer confidence, what goes first are the impulse buys,” he said. “The things people have been thinking about for a few months, they’ll still buy. That might mean there’s a silver lining, depending on what interest rates and tax rates and consumer confidence does. Soft goods usually lead down and then lead back up.”
Overall, the Wilmington, Del.-based company reported net income of $261 million, or 25 cents a diluted share, for the quarter ended Dec. 31. That compares with a net loss of $1.42 billion the prior-year quarter.
Results for the 2000 quarter included $358 million in one-time charges, while results for the 1999 quarter included $1.8 billion in such charges. Net revenues slipped 18.7 percent, to $6.26 billion.
In a conference call with analysts, senior vice president and chief financial officer Gary Pfeiffer said: “This year, 2000, we faced the most challenging macroeconomic environment that we have seen in a decade.”
To illustrate how adverse the environment had been, Gualtieri said the strength of the dollar took a $150 million bite out of the company’s bottom line in the year, while increasing raw materials costs accounted for another $700 million.
For the year, net income fell to $2.31 billion, or $2.19 a diluted share, from $7.69 billion, or $6.99 a diluted share. Revenues were up 5 percent, to $29.2 billion.
Gualtieri said: “Currently, we’re expecting adverse macroeconomic conditions to last through the first half of 2001, with the greatest impact in the first quarter.”
For the year, the specialty fibers segment reported a 5.7 percent slide in aftertax operating income, to $690 million. Sales were up 0.1 percent, to $3.45 billion.
At the nylon enterprise, aftertax operating earnings multiplied, to $328 million, compared with $63 million in the year-ago period. Sales inched up 1.5 percent, to $4.55 billion.
The polyester enterprise posted $73 million in aftertax operating income, compared with a $119 million loss the prior year. That segment’s sales slipped 4.4 percent, to $2.53 billion.

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