DuPont reported better-than-expected first-quarter results Wednesday morning. Even higher, management signaled that the chemical company has overcome a lot of the destocking headwinds which have plagued it this 12 months. LSEG said net sales fell about 3% year-over-year to $2.9 billion, beating expectations of $2.8 billion. On an organic basis, sales fell 6% in comparison with the identical period last 12 months. Adjusted earnings per share (EPS) of 79 cents were down 6% 12 months over 12 months, but well above the LSEG estimate of 65 cents. It was also well above management’s forecast of 63 cents to 65 cents. DuPont Why We Own It: We added this specialty chemicals maker as an industrial opportunity to capitalize on the recovery within the semiconductor and electronics industries, which have strong multi-year prospects as a consequence of advances in AI. Although the corporate has struggled with excess inventory in some divisions, the turnaround is more likely to be over soon. We also like the corporate’s strong balance sheet and management’s commitment to share buybacks. Competitors: 3M, PPG Industries Last Traded: February 14, 2024 Initiated: August 7, 2023 Conclusion Based on the response to DuPont’s results – DuPont shares rose 7% to a brand new multi-year high – investors consider this is strictly that This is the primary great quarter of many to return. Let’s agree. In recent years, DuPont has taken aggressive steps to reshape its portfolio and deal with global macro themes which are driving demand for its specialty services and products. The a part of the corporate that drew our attention to the story last 12 months was its top-selling end market – electronics (29%), which we consider was on the precipice of a multi-year recovery after the 2022-2023 downturn. After just a few quarters of bottoming out, we’re finally seeing the primary signs of a market recovery. But electronics history is greater than only a story about just a few quarters. In the conference call, CEO Ed Breen said the E&I business will grow within the high single digits in 2025 as fab utilization – short for chip manufacturing – continues to enhance. Increased spending on AI will speed up this growth as DuPont’s semiconductor-related products translate to advanced node chips for data centers and other key AI applications equivalent to mobile products. As for the remaining of the business, destocking within the water division and a few parts of the Industrial Technologies segment appears to have bottomed out, and the corporate has since seen a rise in orders to support its call for a return to growth. Elsewhere, the protection business is back on target for low-single-digit growth, and even DuPont’s next-gen automotive business, which focuses on electric vehicles in addition to hybrid vehicles, is seeing stable demand. Given all of those positive aspects, DuPont should meet its forecast of sequential improvement all year long. And once destocking is complete across all divisions, we expect the stock to be at a better value. We are due to this fact increasing our price goal from $78 to $85. We maintain our 2 rating as shares are trading at a high, but a drop to the mid-$70s might be an excellent level to lift it to 1. Quarterly Results Organic sales within the electronics and industrial businesses fell 2% year-over-year, with volumes and costs each declining 1%. Nevertheless, the outcomes were higher than expected. Within the segment, Semiconductor Technologies sales increased 10% because of the start recovery in semiconductor demand, which is anticipated to extend all year long as semiconductor fab utilization continues to enhance. Some of DuPont’s largest customers are Taiwan Semi and Samsung. As these manufacturers bring chips to market, DuPont’s volumes are more likely to increase. Interconnect Solutions’ revenue increased mid-single digits, marking the second consecutive quarter of year-over-year volume growth as broad electronics markets recovered. The only problem child stays Industrial Solutions, where sales fell by around 20% as a consequence of destocking of Kalrez O-rings and the biopharma product line. On the positive side, DuPont expects Kalrez orders to enhance over the following few quarters, while the biopharma industry recovery is anticipated later within the second half of the 12 months. At Water & Protection, organic sales fell 10% as a consequence of lower volumes. Within this segment, Safety Solutions sales declined within the low teens in volume terms because the channel destocked, particularly in Tyvek medical packaging products. The excellent news is that management believes its customers’ inventory levels are nearing normalization. At Water Solutions, organic sales declined within the mid-teens as a consequence of lower volumes as a consequence of dealer destocking and weaker industrial demand. But as we have highlighted in recent months, orders are increasing, leading Breen to consider inventory depletion has bottomed out and can rebound within the second quarter. And at Shelter Solutions, destocking appears to be complete after sales were flat in the primary quarter and expected to rise sequentially within the second quarter. Forecast Following a better-than-expected first quarter and positive order trends across all business areas, DuPont has raised its full-year outlook. Net sales at the moment are expected to be between $12.1 billion and $12.4 billion, above the Street’s expectations of $12.1 billion. This latest outlook reflects a continued recovery within the electronics sector and a few easing of channel destocking in industrial corporations. Operating EBITDA guidance was raised to a spread of $2.9 billion to $3.05 billion, above Street estimates of around $2.9 billion. Additionally, management increased its adjusted earnings per share guidance by $0.20 on the low end and $0.10 on the high end to between $3.45 and $3.75. This is well above analysts’ estimates of $3.44. The outlook assumes a return to year-on-year sales and profit growth within the second half of the 12 months, driven by the continuing recovery within the electronics market and a return to volume growth within the water and protection business. (Jim Cramer’s Charitable Trust is long DD. A full list of stocks could be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation’s portfolio. 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Dupont headquarters
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DuPont reported better-than-expected first-quarter results on Wednesday morning. Even higher, management signaled that the chemical company has overcome a lot of the destocking headwinds which have plagued it this 12 months.
