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DuPont Stock Soars After CEO Quits And Company Slashes Q3 EPS Guidance By Nearly 50%

Several months ago activist Nelson Peltz may lost his proxy fight against DuPont, but in retrospect he may be counting his lucky stars as moments ago the company became only the latest chemical giant to admit the gruesome reality of the global economic slump driven by a historic USD surge, when it not only cut its second half operating EPS from $0.75 to $0.40, in the process also slashing full year operating EPS from a prior guidance of $3.10 to just $2.75 mostly blaming Brazil, but in an even bigger shocker also reported that its CEO and Chairman Ellen Kaufman is retiring from the company effective October 16.

First, the reason for the dramatic guidance cut, from the company:

DuPont announced that it now expects operating earnings per share for the full year to be approximately $2.75, compared with the prior guidance of $3.10. The revised outlook primarily reflects continued strengthening of the U.S. dollar versus currencies in emerging markets, particularly the Brazilian Real; and a further weakening of agricultural markets, primarily in Brazil. The new guidance assumes full-year currency impacts of $0.72 per share, versus the prior expectation of approximately $0.60 per share. Excluding the impact of currency, the revised guidance for full-year operating earnings per share, including expected benefits from share repurchases and cost savings, represents an approximately 3 percent increase in operating earnings per share year over year. The company now expects second-half operating earnings per share to be approximately $0.40, compared with the prior guidance of $0.75. Approximately 25 percent of expected second-half operating earnings will be earned in the third quarter. Prior year operating earnings were $3.36 and $0.96 per share for the full year and second-half 2014, respectively. Reconciliations of non-GAAP measures are included at the end of this release.

 

Demand for crop protection and seed products, primarily in Brazil, further weakened in the third quarter impacted by macroeconomic and competitive pressures.  In Brazil, where the planting season is in progress, tighter farmer profit margins and credit are causing growers to be more cautious in their spending.  The company is experiencing reduced demand for crop protection products reflecting low insect pressure and lower seed volumes as growers are expected to reduce hybrid corn planted area.

 

The U.S dollar continues to strengthen versus currencies in emerging markets.  The Brazilian Real has declined more than 60 percent year over year and approximately 20 percent since the company reported second-quarter results.

 

In response to these macro conditions, the company announced that it is accelerating, by one year, its operational redesign cost saving actions and as result, expects to achieve $1.3 billion of savings on a run rate basis by the end of 2016. In addition, the company announced its commitment to achieving additional cost savings as a part of its operational redesign and is targeting approximately $1.6 billion on a run rate basis by the end of 2017.  Plans related to the additional cost savings are expected to be finalized in the fourth quarter.

 

Nick Fanandakis, DuPont's Chief Financial Officer, said, "As macro conditions have deteriorated further, we are intensifying our effort to offset these pressures with further productivity improvements and cost savings, while making disciplined and targeted investments in innovation to increase value for shareholders over the long term. While we are experiencing challenging market conditions this season in Brazil, we continue to see long-term strategic growth opportunities for our products. Over the long term, we believe our pipeline of new products and our portfolio of capabilities position us well in global agriculture markets."

And as for the retirement of Ellen Kaufman...

Ellen Kullman, Chair and CEO of DuPont, announced that she will retire from the company effective October 16.  On that date, Edward Breen, a current member of the DuPont Board of Directors, will assume the role of Interim Chair and CEO of DuPont.  The Board has engaged an executive recruitment firm to identify a full-time replacement.

 

"Over the past seven years, with the dedication of our entire team, we have transformed this great company by focusing our portfolio, streamlining the organization, and driving innovation that leverages our unique science and engineering capabilities. With a strong foundation in place now is the right time for a new leader to continue to drive the pace of change to capitalize fully on the opportunity ahead," said Kullman. "I want to express my sincere thanks and admiration to all of my DuPont colleagues around the world.  I have complete confidence that they will realize the enormous potential of the next generation DuPont."

 

"We thank Ellen for her extraordinary leadership as Chair and CEO of DuPont.  During more than 27 years with the company, Ellen has consistently led constructive change by focusing the organization on identifying and solving our customers' needs.  As our Chair and CEO, Ellen led DuPont through the global recession and the dramatic transformation of the last several years with the highest standard of integrity and commitment," said Alexander Cutler, DuPont's Lead Independent Director.

Despite the collapse in full year EPS, the stock is surging and is now up 10% on a day in which the company just cut its 2015 EPS by 12%, for the simple reason that the market now believes that Nelson Peltz will redouble his activist campaign to soak up what little free cash flow the company has and load up the company with even more debt, to distribute the proceeds to shareholders as fast as possible before the next leg down in the global economy.