Materials giant
DuPont
pre-announced fourth-quarter results and provided financial guidance for the first quarter. The numbers weren’t good.
A weakening Chinese economy and inventory destocking are to blame. Investors were seeing lots of red on their trading screens:
DuPont
stock was down close to 13% in recent trading at $65.11, while the
S&P 500
and
Nasdaq Composite
were up 0.5% and 0.9%, respectively.
DuPont said Wednesday that it expects adjusted fourth-quarter earnings of between 85 cents and 87 cents a share on sales of $2.9 billion. Wall Street was looking for earnings of 85 cents and sales of $3 billion. Not too bad, though sales were a little light relative to expectations.
The problem is the guidance. For the first quarter, DuPont expects to earn 63 cents to 65 cents a share on sales of $2.8 billion. Wall Street is looking for 88 cents and $3 billion, respectively.
The update Wednesday isn’t a full quarterly report. Companies sometimes pre-announce results when they are significantly different from what Wall Street, and investors, expect.
In this instance the variance was negative. Shares should drop while investors look for answers.
“As we finished 2023, we saw additional channel inventory destocking within our industrial businesses as well as continued weak demand in China,” said CEO Ed Breen in a news release. “We are seeing similar trends continue and expect sequential sales and earnings to decline in the first quarter of 2024.”
Destocking refers to a situation in which customers don’t order products, choosing instead to work down their inventory levels to preserve cash. It happens more often in a declining economy, and the U.S. industrial economy has been contracting for 14 consecutive months.
As for China, it accounts for roughly 20% of DuPont sales, and its economy has weakened as real estate prices came under pressure. Real estate is a significant source of wealth for Chinese consumers. A weak property market in China is similar to a significant stock market decline in the U.S.
Citi analyst Patrick Cunningham expected a negative reaction after the update. There are a few positive tidbits for investors, though. DuPont’s technology-related business “continues to stabilize, with slight sequential uplift in sales in the fourth quarter of 2023,” the analyst wrote in a Wednesday report. “Cost savings tied to the restructuring actions announced last November will be realized in the first quarter of 2024.”
He rates DuPont shares Hold and has an $80 price target for the stock. Overall, 63% of analysts covering DuPont rate the stock Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for DuPont shares is about $83.
DuPont will report full quarterly results on Feb. 6. Investors can expect more detail about what segments of its businesses were weakest, and strongest, as well as when destocking trends will end.
Coming into Wednesday trading, DuPont stock had been flat over the past 12 months. The S&P 500 and Nasdaq have risen about 21% and 26%, respectively, over the same span.
Write to Al Root at [email protected]
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