DuPont Takes Aggressive Actions to Strengthen Competitiveness and Increase Cash Flow
Yesterday, DuPont announced further actions to address current market challenges and strengthen the company’s competitiveness in 2009, including continued focus on maximizing cash flow, and provided earnings guidance for the fourth quarter 2008 and the full year 2009.
A steep global decline in construction and motor vehicle sales and consumer spending has resulted in declining industrial production, intensified by inventory reductions across most supply chains. These conditions have precipitated a sharp downturn in demand during the fourth quarter.
“We have taken immediate and aggressive actions to maximize cash flow by reducing cost, working capital and capital expenditures in response to current market challenges,” said DuPont Chairman and CEO Chad Holliday. “We will build on our strong financial and market positions and continue prudent financial discipline in navigating through this challenging economic environment. We are providing 2009 earnings guidance and underlying assumptions in our effort to be as transparent as possible with respect to the current and expected impact of the global recession. We are, however, realistic about the potential for further change and we will adjust actions as conditions warrant.”
* Full-year 2008 free cash flow is expected to be about USD 1.3 billion, as planned, with working capital improvements offsetting earnings decline. Free cash flow will increase to about USD 2.5 billion in 2009, reflecting a planned USD 1 billion net working capital reduction and a 10 to 20 percent reduction in capital spending.
* DuPont is taking actions to deliver in 2009 USD 600 million in fixed cost productivity improvements, excluding volume and currency, in addition to about USD 130 million in cost reductions from its restructuring plan. This compares to an original 2009 cost productivity plan of USD 200 million.
* DuPont has commenced a restructuring plan with an associated pre-tax charge of about USD 500 million in the fourth quarter resulting in a pre-tax earnings increase of about USD 130 million for 2009, and approximately a USD 250 million annual run rate.
* The company expects a loss of USD .20 to USD .30 per share for the fourth quarter 2008, excluding an estimated USD .40 per share significant item charge for the company’s restructuring plan. On a reported basis, the company expects fourth quarter earnings to be a loss of USD .60 to USD .70 per share.
* Full-year 2009 earnings are expected to be about USD 2.25 to USD 2.75 per share.
DuPont’s plan is intended to better position a number of its market-leading global businesses for future growth. Approximately 2,500 employee positions will be eliminated, principally in businesses that support the motor vehicle and construction markets in Western Europe and the United States. In addition, certain assets will be rationalized to improve future competitiveness. A pre-tax charge totaling approximately USD 500 million, or USD .40 per share, will be taken in the fourth quarter 2008 for the restructuring plan. These actions are expected to produce a pre-tax earnings increase of about USD 130 million for 2009 and about a USD 250 million annual run rate.
Accelerated Cost and Working Capital Productivity
DuPont is accelerating productivity programs started earlier this year to deliver USD 600 million fixed cost pre-tax earnings benefit and USD 1 billion in net working capital reduction in 2009. Specific actions include reducing 4,000 contractors by year-end 2008 with additional contractor reductions in 2009, implementing work schedule reductions at select locations, adjusting production to market conditions and redeploying more than 400 employees to productivity projects aimed at accelerating reductions of working capital and operating costs.
4th Quarter 2008 Earnings Guidance
The company expects a loss of USD .20 to USD .30 per share for the fourth quarter 2008, excluding an estimated USD .40 per share significant item charge for the company’s restructuring plan. Sharply lower sales volumes and resulting lower plant operating rates contributed to the reduced outlook. Fourth quarter sales are expected to be at least 15 percent lower than fourth quarter 2007, principally reflecting a significant decline in worldwide sales volumes. On October 22, the company provided fourth-quarter earnings guidance of USD .20 to USD .25 per share. The company continues to expect year-end free cash flow of about USD 1.3 billion.
2009 Earnings and Cash Outlook
The company expects 2009 earnings in the range of USD 2.25 to USD 2.75 per share, anticipating the current global recession will continue well into 2009. Actions to increase cash flow are expected to generate about USD 2.5 billion in free cash flow in 2009, about double the level anticipated in 2008. Capital expenditures are expected to be in the range of USD 1.6 to USD 1.8 billion, compared to USD 2.0 billion for 2008. Growth investments will continue for high-growth, high-margin businesses including seed products and photovoltaics. Pre-tax cost savings from the restructuring plan and productivity projects are expected to be about USD 730 million in 2009. DuPont anticipates a USD .40 to USD .50 per share increase in pension expense. While favorable conditions in global agriculture markets are expected in 2009, the company’s revenue growth in 2009 will be limited by expected lower demand for non-agriculture related products and the impact of currency exchange rates.
“DuPont has market-leading global businesses, solid financial fundamentals, and strong growth opportunities,” Holliday said. “We are aggressively managing every facet within our control to maximize cash and assure we are positioned in the long term to take advantage of above-trend growth opportunities in key markets, especially where our science-based products position us among the market leaders.”
Use of Non-GAAP Measures
Management believes that certain non-GAAP measurements, such as income excluding significant items, are meaningful to investors because they provide insight with respect to ongoing operating results of the company. Such measurements are not recognized in accordance with generally accepted accounting principles (GAAP) and should not be viewed as an alternative to GAAP measures of performance.
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