DuPont Sees '07 Buffeted By Housing, Auto Slowing
DOW JONES NEWSWIRES
By Laura Mandaro
SAN FRANCISCO (Dow Jones) -- A downturn in the U.S. housing and automotive markets has created stiff headwinds for chemicals bellwether E. I. du Pont de Nemours & Co., which reported Tuesday a sharp increase in fourth-quarter net profit but left Wall Street disappointed with its outlook.
"We're going into a very uncertain year, weighing all the ups and downs in the market environment," said CEO Charles Holliday in a conference call with reporters.
Results from Wilmington, Del.-based DuPont (DD) , which makes plastics ingredients like ethylene copolymers as well as specialty materials like laminate flooring and Teflon pan coatings, can act as an early indicator of the economy's direction because its products end up in so many finished goods.
On Tuesday, the country's second-largest chemicals maker threw some cold water on growing optimism that the housing market has started to rebound.
Headwinds from U.S. housing and automotive markets "turned out to be stronger than expected" during the fourth quarter, as customers reduced their inventory levels to adjust to a decline in housing starts, Chief Financial Officer Jeffrey Keefer told investors in a separate call.
The company forecast drags from lower activity in U.S. housing and automotive production continuing this year, as new residential housing demand falls in the first half from the year-ago period and sluggish auto output cuts into first-quarter earnings.
On the flip side, DuPont said it expects new products and overseas sales to drive 2007 growth higher -- much as they did in the fourth quarter, when double-digit sales growth in China and Eastern Europe offset a 3% drop in U.S. sales.
Fourth-quarter earnings, sales
The company said net income in the three months ended Dec. 31 increased more than fivefold to $871 million, or 94 cents a share, up from $154 million, or 16 cents, earned in the year-earlier period.
Earnings in the most recent quarter got a boost from one-time net gains of 49 cents a share, most of which were previously disclosed.
Excluding special items in both quarters, profits rose over three times to 45 cents a share from the hurricane-affected fourth quarter of 2005, matching the average of analyst estimates as compiled by Thomson First Call.
Net sales in the latest quarter climbed 8% to $6.28 billion, just shy of analysts' views of $6.3 billion.
The company's outlook of $3.15 a share in 2007 fell short of the $3.21-a-share average forecast by Wall Street.
"Given relief in energy costs since August, and the substantial decline in crude-oil prices year-to-date, management's guidance appears conservative," said Banc of America Securities analyst Kevin McCarthy in a note.
Shares of the Dow Jones Industrial Average component lost as much as 3.5% before closing 0.9% lower at $49.67. They had set a 52-week high of $51 on Jan. 17.
In December, DuPont said it would restructure its agricultural and nutrition unit in order to invest more in the fast-growing market for specialized seeds. It said the reorganization would cut 1,500 jobs worldwide and trigger $200 million in fourth-quarter restructuring charges.
In the fourth quarter, it took a $194 million charge from the agricultural business reorganization, offset by gains from hurricane and insurance recoveries.
Overall sales in the fourth quarter were boosted by higher crop-protection and seed sales and demand for its packaging materials.
Raw material costs climbed 3% from the year-earlier period, a slower pace than in prior quarters. The company says it expects raw material costs this year to be flat with 2006.
The drop in domestic sales resulted in a lower-than-expected tax rate in the United States, which DuPont said is one of its more highly taxed jurisdictions.
The lower tax rate boosted earnings in the fourth quarter by 2 cents a share. It expects a base tax rate of about 27% for 2007, up from 21.5% last year.
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