DuPont Swings into Black as Looks to Appease Dow Merger Concerns

25 Jan 2017 --- DuPont swung into the black with fourth quarter profits of $263m and full-year profits of $2.5bn, but warned that transaction costs associated with its blockbuster $72bn merger with Dow Chemical Co would hit earnings for the first three months of 2017. In what is likely to be its last full-year results in its 200-year history as an independent company, DuPont posted profits of $263m in the three months ending December 31, compared to a $256m loss the year previous.
Full year profits were up year-on-year from $2 billion to $2.5bn.

Revenues, however, were down in the fourth quarter from $5.3bn to $5.2bn and down over the year by two percent to $24.6bn, due to lower volumes and decreases in prices.

However, its profits were ahead of analysts’ expectations and its shares this morning were up 4.5 percent to $76.

Profits were helped by lower tax payments and the performance of its Nutrition & Health and Performance Materials divisions.

DuPont, which is expected to complete its merger with Dow in the first half of 2017, said that costs linked to the deal would negatively impact its first quarterly performance in 2017, hitting it with a charge of around $0.15 per share for transaction costs.

DuPont said sales in Q1 would be largely flat compared to the previous year.

"2016 was an important year for DuPont as we exceeded our expectations for earnings, cost savings, operating margin expansion and free cash flow improvement," said Ed Breen, chairman and CEO of DuPont. 

"We made excellent progress on our strategic priorities in 2016 to increase shareholder value, and we will build on this groundwork as we move into 2017.”

“We look forward to closing the merger with Dow and are continuing to have constructive discussions with regulators in key jurisdictions. We now expect the merger to close in the first half of 2017, pending regulatory approval."

Across its Agriculture division, in Q4 DuPont suffered an operating loss of $19m, though this was an improvement on the year previous, when it reported an operating loss of $54m. While cost savings benefited the division, this was offset by the timing of seed deliveries in the US which hurt profits. 

Full-year earnings in its Agriculture unit were up $112m to $1.8bn amid a challenging environment, in which stocks of all major crops, including corn and soybeans, have reached record highs pressuring commodity prices and farmers’ incomes in the US.

Seed sales were down 23 percent but crop protection sales were 9 percent higher.

Operating earnings across Nutrition & Health were up from $85m to $135m in the quarter. Volumes were flat as growth in sweeteners and probiotics was offset by declines in protein solutions. 

Full-year operating earnings of $504 million represented an increase of $131 million helped by cost savings, volume growth in probiotics and cultures and a $27 million gain from an asset sale across Nutrition & Health. 

Looking forward, market conditions are expected to “remain challenging” in its Nutrition & Health division, particularly in the Middle East and Latin America, the company said.

Meanwhile, DuPont has said that it can appease concerns from regulators that its merger with Dow could undermine the discovery of new crop-protection pesticides.

The merger will create the world’s largest crop protection and seeds company.

The European Union has extended its deadline to March 14 to review the deal amid concerns that its could come at the expense of developing new pesticides.

To address the concern from regulators, it has been suggested that the new entity will sell off assets.

But DuPont said it can address these concerns, boosting investor confidence that the deal will go through.

by John Reynolds