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Letter to the Editor

DuPont Reports 75 Percent Drop in Fourth Quarter Earnings

WILMINGTON, Del. -- DuPont has reported a 75 percent drop in fourth-quarter earnings before one-time items, blaming weaker demand and prices for its chemicals and plastics.

Fourth quarter 2001 earnings excluding one-time items were $.12 per share, consistent with expectations but below fourth quarter 2000 earnings of $.47 per share. Full-year earnings per share excluding one-time items were $1.19 in 2001 versus $2.73 for the year 2000.

Fourth quarter after-tax earnings were reduced by about $370 million due to lower volumes and selling prices, partly offset by an estimated $120 million after-tax benefit from lower energy and related raw material costs.

Excluding the impact of divestitures, sales in the fourth quarter decreased 12 percent versus fourth quarter 2000, reflecting lower worldwide volumes and prices. Segment sales for the fourth quarter and full year were $5.9 billion and $27.7 billion, respectively.

Worldwide local currency selling prices in the fourth quarter were down 3 percent versus last year's fourth quarter. Currency effects were minimal as a somewhat stronger euro essentially offset the impact of weaker Asian currencies.

Fourth quarter reported earnings per share were $3.82. One-time items in the quarter totaled a net gain of $3.70 per share and included a gain of $3.72 per share on the sale of DuPont Pharmaceuticals.

"In 2001, we restructured to meet current and future challenges; we focused capital and research expenditures on growth; and we sold the Pharmaceuticals and selected Polyester businesses. These actions helped us come out of a difficult year with exceptional financial strength," said Charles O. Holliday, Jr., DuPont chairman and chief executive officer. "Clearly more remains to be done for us to deliver competitively superior earnings performance - which we will do."

For the quarter, consolidated sales totaled $5.2 billion compared to $6.3 billion in 2000. Segment sales, including transfers and the company's pro rata share of sales by equity affiliates, were $5.9 billion versus $7.2 billion in 2000. Excluding the reduction in sales attributable to divested businesses, segment sales were down 12 percent. Fourth quarter income excluding one-time items was $124 million versus $494 million in 2000. Including one-time items, fourth quarter income was $3,915 million, compared to $261 million in the fourth quarter of 2000, principally reflecting the gain on sale of DuPont Pharmaceuticals.

For the year 2001, consolidated sales totaled $24.7 billion compared to $28.3 billion in 2000. Full-year segment sales were $27.7 billion, down 10 percent after adjusting for divestitures. Full-year income excluding one-time items was $1,251 million versus $2,878 million in 2000. Underlying segment after-tax operating income (ATOI) of $1,859 million was 49 percent below last year, reflecting significantly lower earnings in all segments, principally due to lower worldwide sales volume and margins.

Worldwide sales declined 17 percent reflecting a 9 percent reduction from lower volume, 3 percent from lower U.S. dollar prices, and a 5 percent reduction from portfolio changes. U.S. fourth quarter sales volume was down 14 percent, reflecting ongoing weakness in major U.S. industrial markets. In Europe, a volume decline of 7 percent was partly offset by the stronger euro which increased sales by 3 percent. Asia Pacific volume was flat after experiencing a 6 percent year-on-year decline in the third quarter. Weakening currencies reduced regional sales by 4 percent.

Performance Coatings & Polymers sales were 9 percent lower reflecting 10 percent lower volume. Fourth quarter sales reflect lower vehicle builds, weaker demand from electronics and high technology industries, lower global refinish volume, and inventory reductions by ink customers.

DuPont expects 2002 underlying earnings per share to exceed those of 2001, despite continual recessionary pressures through at least the first quarter 2002. The company expects that its first quarter 2002 underlying earnings per share will be substantially above fourth quarter 2001, though below first quarter 2001, and the second half of 2002 to be stronger than the first half. This view is reflected in business planning assumptions for 2002, which include zero to slightly negative global GDP real growth in the first quarter, improving over the course of the year, and averaging just below the expected 1 percent global real GDP growth for 2001. Margin benefit from lower energy and raw materials prices will likely be constrained by lower selling prices through much of 2002.

The company believes that restructuring and portfolio actions taken by DuPont in 2001 -- as well as ongoing work in productivity, product development, and customer initiatives - should more than offset the incremental macro economic challenges expected in 2002. These actions will result in reduction of fixed costs, improvement in pharmaceutical segment results, fewer shares outstanding, and lower interest expense for DuPont. In addition, reduced amortization expense, due to new accounting standards, is expected to essentially offset the impact of decreased pension credits.

"We recognize that there is more rough water ahead for manufacturers, at least through the first half of 2002," Holliday said. "But the actions we took last year position us to grow earnings per share in 2002, and we will continue to take the steps necessary to meet our longer term growth targets."

©2002 Collision Repair Industry INSIGHT
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