DuPont to Shed Sustainability Units in Post-Split Profit Quest

(Bloomberg) -- DuPont, the specialty products division of chemical giant DowDuPont Inc., is stepping away from “volatile” sustainability businesses in a bid to stabilize returns when it reclaims its independence next month.

Four of the six operations earmarked for sale have environmentally-oriented products including solar-panel materials and corn-derived Sorona textiles, as well as consulting services that help companies cut pollution and reduce energy use. DuPont also said it's weighing the sale of joint ventures that make polyester films and semiconductor materials.

“They are more volatile assets than I would want in my portfolio,” DowDuPont CEO Ed Breen, who will be chairman of DuPont, said on the company's final earnings call Thursday. The Corteva agriculture division will be spun off June 1, leaving DuPont as a stand alone company with businesses ranging from specialty plastics to nutrition. Dow Inc. was spun off earlier this year.

The planned divestitures, with combined sales of about $2 billion, boost Breen's plan to shed about 10 percent of DuPont's assets by revenue. In November, he sold a $200 million Iowa plant designed to make ethanol from corn stalks, leaves and cobs remaining in the field after harvest. The assets he is now looking to jettison could fetch $4.5 billion, said Jonas Oxgaard, an analyst at Sanford C. Bernstein.

“All of them are either sustainability solutions that either got overplayed (solar) or never worked (biomaterials, cellulosic ethanol),” Oxgaard said in an email.

Shares Fall

DowDuPont fell 7.2 percent to $34.47 at 2:19 p.m. in New York. The stock had climbed 3.8 percent this year through Wednesday, while the S&P 500 advanced 17%. Dow fell 6.2 percent to $52.67.

The sharp decline in DuPont shares is because the company didn't raise its earnings guidance, and the current second-quarter forecast is about $100 million less than analysts had expected, Oxgaard said.

“This has generated concerns that key end-markets are not recovering as quickly as expected,” Oxgaard said in a note. “Investors are looking for an inflection point, and this
clearly wasn't it.”

Asset Details

The businesses identified for possible sale are: photovoltaic and advanced materials, biomaterials, clean technologies, sustainable solutions, the Hemlock Semiconductor joint venture and the DuPont Teijin Films joint venture. The businesses generated about $500 million of operating earnings last year, said Marc Doyle, who will take over from Breen as DuPont's CEO.

The units will be moved into a new noncore segment as DuPont considers its options.

“We're not in any fire sale mode here,” Breen said on the call. "We're going to take our time. These are good assets.”

Newly independent Dow, a maker of commodity plastics, also is considering changes. The company is considering combining its Kuwait joint ventures and it is looking at restructuring debt at Sadara Chemical Co., its joint venture with Saudi Arabian Oil Co., CEO Jim Fitterling said.

“We have actually kicked off a team between Sadara and the two parents actively looking at how we can restructure the debt,” Fitterling said on a separate earnings call.

Improving Outlook

All three of DowDuPont's spin-off companies are banking on improving markets to bolster earnings as the final separation of the Corteva agriculture unit approaches, which will create an independent DuPont.

Dow expects second-quarter sales to improve from the prior three months, while Corteva expects sales of seeds and pesticides to more than make up for lost business from Midwest flooding in the first quarter.

Slowing auto demand and trade tensions with China are hurting DuPont's transportation and electronics businesses, which make plastics that improve the fuel economy of cars and trucks, as well as materials for smartphone displays and chips.

The company expects second-quarter adjusted earnings to fall slightly, in accord with a 5 percent decline anticipated in the first half for those markets, DowDuPont said in a slide presentation Thursday.

DuPont Performance

The decline should reverse in the second half, the company said. A 4 percent global increase in auto production and a 2 percent rise in smartphone deliveries will help boost DuPont's full-year adjusted earnings by 3 percent to 5 percent, the company forecast.

DuPont's first-quarter sales fell 3 percent and earnings declined slightly, the best performance among the three DowDuPont companies. DuPont's second quarter will be similar to the first before the turnaround, the company said.

Dow expects second-quarter sales to climb 3 percent to 5 percent compared with the prior quarter in each of its three businesses, resulting in $11 billion to $11.5 billion of revenue. That trails the $12 billion estimate of analysts surveyed by Bloomberg. First-quarter sales tumbled 10 percent from a year earlier as an oversupply of plastics and other chemicals cut global prices, reducing operating earnings by 24 percent.

Corteva stood by its April 18 forecast for 2019 agriculture sales to climb in the lower single digits, excluding currency changes, with $2.8 billion in operating earnings before interest, taxes, depreciation and amortization.

While sales declined 11 percent in the first quarter due to U.S. farm flooding, Corteva said much of the lost revenue will be made up in the current period. Second-half price hikes, increased sales in South America and accelerated cost savings will allow Corteva to meet its guidance, the company said.

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Susan Warren

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