If you thought that the chemicals and materials sector was immune from the recession, guess again. This morning DJIA component DuPont (NYSE: DD) posted a loss for the Q4-2008 period. It might not be a surprise that business slowed to a crawl with sales volumes off roughly 20%, but the outlook here is where it gets interesting.
DuPont’s loss here is staggering at $629 million. The company’snon-GAAP earnings came in at -$0.28 EPS and its net loss includingitems came to -$0.70 EPS. According to Thomson Reuters (First Call),analysts were looking for a loss of -$0.24 EPS. The giant also postedmore than a $1.1 billion drop in revenues year over year to $5.82billion, which is also worse than the First Call consensus of $6.17billion.
DuPont did note the global recession as going through 2009, and that isthe launch pad for lower expectations. For the quarter ahead thecompany sees earnings of $0.50 to $0.70 EPS and First Call hasestimates at $0.81 EPS for the coming quarter, so if the rough economyslows even further the company will be way under target. The companysees US sales down 15% and volumes down about 22%.
The earnings slash gets even worse for all of 2009 where it loweredguidance to $2.00 to $2.50 EPS. Its prior earnings guidance range was$2.25 to $2.75 EPS. The analyst community had already ratcheted downthose targets sharply to $2.24, which was down from $2.37 a month agoand down sharply from the estimate of $3.22 just a quarter ago.
The company has already been very far behind Wall Street in itsguidance targets. It is targeting $730 million in fixed-cost reductionin 2009, but it sees about $1 billion less in working capital as well.There is still a deficit there, and the risk is one where the companycould have to catch up to analysts even more. When the community seeshow the performance so far has been, you might as well expect theforward numbers and targets to come down from analysts.
What if the company cannot cut its costs as fast as business is slowing? Losses, or lower earnings, could become a trend rather than a one-off quarter. That forward P/E ratio of "roughly 10" may very soon become very cloudy. At best.
Jon C. Ogg
January 27, 2009