By Tomi Kilgore
DuPont’s stock suffers biggest one-day selloff in 14 months as company trims full-year earnings outlook
Shares of DuPont de Nemours Inc. took a deep dive Tuesday, after the technology-based materials and plastics company lowered its full-year outlook, as weakness in the consumer electronics markets is seen continuing for longer than previously projected.
The company, with brands including Kevlar, Corian, Tyvek, Styrofoam and Riston, reported before the open first-quarter profit and sales that fell from the same period a year ago but still beat expectations.
The company revised its full-year guidance ranges for adjusted earnings per share to $3.55 to $3.70 from $3.50 to $4.00 and for sales to $12.3 billion to $12.5 billion from $12.3 billion to $12.9 billion. That lowered the midpoint of the guidance ranges for adjusted EPS to $3.625 from $3.750 and for sales to $12.4 billion from $12.6 billion. Both were below the current FactSet consensus for EPS of $3.74 and for sales of $12.58 billion.
The stock (DD) sank as much as 9.5% intraday, before paring losses to close down 6.3% at $65.03, the lowest close since Nov. 7, 2022. That was the stock’s the biggest one-day selloff since it 7.2% on March 7, 2022.
Chief Financial Officer Lori Koch said on the post-earnings conference call with analysts that first-quarter volume declined 7% from a year ago, amid weakness in electronics resulting from “decreased consumer spending,” as well as channel inventory destocking and softness in construction markets.
“Within electronics markets, we continue to see weakness in channel inventory destocking in the near-term, based on recent customer feedback, echoed by their public commentary and third-party market forecast,” Koch said on the call, according to an AlphaSense transcript. “We expect customer utilization rates to bottom relatively near-term and to improve during the third quarter, which is about a quarter later than previously expected.”
DuPont’s interconnect solutions business, which services the signal integrity and power transmission markets, saw first-quarter sales slump 21%, “driven by weak smartphone, PC and tablet demand,” along with channel inventory destocking, Koch said.
Also read:Dell stock rises as analyst upgrades after calling bottom to PC market
For the smartphone market, DuPont estimates that overall shipments fell to 283 million units in the first quarter from 302 million in the fourth quarter and from 308 million a year ago. The company projects shipments to fall even further in the second quarter to 271 million units, before rebounding to 304 million units in the third quarter.
Koch added that sales in its semiconductor technologies business fell in the “midteens” percentage range, resulting from reduced semiconductor fab utilization rates, “due to weak end-market demand,” as well as from the destocking of finished chip inventories.
“Semi chip fab utilization rates in the first quarter average around 80%, which we expected to dip somewhat in the second quarter as these customers work down inventories,” Koch said.
For the semiconductor market, Koch said third-party research now suggests million square inches (MSI) for 2023 will be down 13% from a year ago, compared with estimates from a quarter ago for a “mid-single digits” percentage decline.
Chief Executive Officer Ed Breen said given the weakness in semiconductors started at the beginning of the fourth quarter, meaning it has now lasted for two full quarters. “Now we think the quarter we’re in now is the bottom, just slightly down more from the first quarter,” Breen said.
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Meanwhile, the company did see growth in its water and protection business, with first-quarter sales up 1.4%, helped by higher pricing and continued demand growth for water filtration products. And its safety business was boosted by demand for its Kevlar and Nomex branded products in the aerospace and automotive markets, especially for electric vehicles.
Separately, the company announced an agreement to buy Spectrum Plastics Group, which makes components and devices for medical end markets, for $1.75 billion from AEA Investors.
“This deal fits with our strategy to focus on the Industrial Technologies growth pillar expanding our offerings into the fast-growing healthcare market,” Breen said.
DuPont’s stock has shed 5.3% year to date, while the Materials Select Sector SPDR exchange-traded fund (XLB) has gained 2.6% and the S&P 500 index has advanced 7.3%.
Share buybacks help DuPont beat profit expectations
While net income and sales fell, DuPont reported first-quarter adjusted earnings per share, which excludes nonrecurring items, that rose by 2 cents to 84 cents, above the average analyst estimate compiled by FactSet of 80 cents. DuPont noted on its conference call with analysts adjusted EPS increased as volume declines were more than offset by an 11-cent benefit related to lower interest expense and a 9-cent benefit from share repurchases.
In the fourth quarter, the company had announced a $5 billion share repurchase program and paid down $2.5 billion of debt, using proceeds from the sale of its mobility and materials business for $11 billion, which was completed in November.
That helped reduce the interest expense in the first quarter, and the number of shares outstanding used in calculating first-quarter EPS was lowered by 10.4% to 460.2 million shares. Lower the number of shares outstanding increases the earnings attributed to each share.
-Tomi Kilgore
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05-03-23 0822ET
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