Stock in the materials giant DuPont de Nemours is falling after the company reported better-than-expected third-quarter numbers, but unnerved investors with a cut to its financial forecasts and a change in strategy.
DuPont reported $1.15 in adjusted per-share earnings from $4.3 billion in sales, while Wall Street was looking for about $1.11 in EPS and $4.1 billion in sales. So far, so good.
Management’s financial forecasts, however, look light. The midpoint of the range of DuPont’s forecasts for full-year 2021 earnings is about $4.20 a share, down from $4.27 a share. The current quarter is the last of the year, and the results of the previous three are in the books, so the implication is clear: fourth-quarter earnings will be about $1.01 a share. Wall Street is projecting $1.08.
Management didn’t blame inflation. They are raising prices to offset higher costs.
Instead, the problem is semiconductors. “We are seeing a deceleration in order patterns stemming from the ongoing global semiconductor chip shortage, primarily in automotive end-markets,” said CFO Lori Koch in the company’s news release.
DuPont, in its many businesses, is a major supplier to the auto industry, and fewer cars being built means fewer parts to ship. Estimates of global light-vehicle production for the second half of 2021 have come down 17% compared with a few months ago, according to the company.
Semiconductors have been a problem for the car business all year, so the latest news shouldn’t be a surprise, but weak financial forecasts are never good for a stock. The company’s shift in strategic direction is an added issue for investors to evaluate.
DuPont is buying automotive materials supplier Rogers Corp. for $5.2 billion. And with the deal, DuPont plans to divest a “substantial portion” of its Mobility & Material segment, which provides resin, adhesives, and other products to the auto market.
“With today’s announcements, we are sharpening our focus on high-growth, high-value opportunities in sectors with steady long-term secular growth trends,” said CEO Ed Breen in a news release. After the divestiture, DuPont will be focused on electronics, water, industrial technologies, and “next generation” automotive businesses such as electric and self-driving vehicles.
That all sounds positive. Investors like growth, and DuPont stock currently isn’t trading as if the company will even grow as fast as the broader market. The shares sell for about 14 times the per-share earnings expected for 2022, while the S&P 500 trades for about 20 times.
Still, it will take time for investors to sort things out. And pending asset sales bring a little more uncertainty to a business.
Management scheduled a conference call for 8 a.m. Eastern time. There is lots to discuss.