Dow, DuPont cut jobs and facilities
Slowing recovery, weak demand hit giants
The two chemicals giants of the USA, Dow Chemical and DuPont, have both announced restructurings and four-figure job cuts in the wake of weak Q3 results. Dow is to shut down about 20 facilities over the next two years and cut some 2,400 jobs, 5% of the total, while DuPont will cut about 1,500 jobs, 2% of the total, over the next 12-18 months.
Dow said that its actions are “designed to accelerate cost reduction actions and advance the next stage of the company’s transformation in the midst of persistently slow macroeconomic growth”. They are expected to lead to operational savings of about $500 million/year by the end of 2014. A charge of about $0.50-0.60/share will be taken in Q4 to pay for this.
“The reality is we are operating in a slow-growth environment in the near-term and, while these actions are difficult, they demonstrate our resolve to tightly manage operations – particularly in Europe – and mitigate the impact of current market dynamics,” said Andrew Liveris, chairman and CEO.
Among the plants to close will be those making HDPE in Tessenderlo, Belgium, sodium borhidrate in Delfzijl, Netherlands, epoxy resins in Kina Ura, Japan, automotive systems diesel particulate filters in Midland, Michigan and other Formulated Systems facilities in Spain, the UK and Ohio. Dow will also take an impairment charge related to the write-down of Dow Kokam’s assets, because of weak global demand for lithium-ion batteries, and will consolidate certain assets in its Oxygenated Solvents business.
The company will also further reduce capital spending and investments for targeted growth programmes that “are no longer a priority in this environment”, with a view to saving another $500 million. This will bring total savings on top of existing measures to $2.5 billion.
Dow stressed, however, that it will “continue funding projects where differentiation is rewarded even in this environment and where margin expansion opportunities are clear”. These include Dow AgroSciences, Dow Electronic Materials and the recent Sadara and US Gulf Coast investments in petrochemicals.
“Dow's results this quarter demonstrate the acceleration and delivery of our cost reduction actions,” Liveris continued. “We focused on execution and intervened to protect our prioritised growth path. Our low-cost feedstock advantage enabled us to deliver volume growth, despite weakening demand.”
Q3 sales were $13.6 billion, down 10% on Q3 2011, or 7% down on an adjusted sales basis, figures which actually exceeded analysts’ expectations. The fall was mainly because of Europe, where adjusted sales were 10% down because of currency effects. Adjusted volumes were 2% up, rising in all regions, with most businesses seeing a double-digit price fall. EBITDA was $1.8 billion; the adjusted EBITDA margin was essentially flat. Net income was nearly 40% down from $815 million to $497 million.
Amid plunging sales for most of the business units, Dow Agricultural Sciences reported record Q3 sales of $1.3 billion, 8% up, thanks mainly to a 7% volume increase. North America and Latin America saw two-digit sales and volume gains. Within this, the Crop Protection business grew by 6%, “driven by significant volume and sales gains in Latin America, as well as continued adoption of new products”. For 2012 to date, new Crop Protection molecules are up by 21%, led by spinetoram insecticide, aminopyralid herbicide and pyroxsulam herbicide.
DuPont, meanwhile, said that it was launching a “targeted restructuring plan to accelerate productivity, competitiveness and growth” as it announced its own Q3 results. The company will take a charge of $242 million to pay out severance to the 1,500 redundant workers
This will deliver pre-tax cost savings of about $450 million, two thirds of it in 2013. It will be done in roughly equal measures by eliminating certain unwanted legal, HR and other support staff a the Performance Coatings business, which is being divested to the Carlyle Group, and further cost-cutting in response to weak macroeconomic conditions.
“We are taking additional actions to improve competitiveness and accelerate market-driven innovation and growth by fine-tuning the organisation, eliminating costs and expanding beyond our everyday focus on productivity,” said chair and CEO Ellen Kullman. “We continue to execute well in many parts of the company, and certain segments are outperforming despite market volatility.”
DuPont said it remains on track to achieve its full-year 2012 productivity targets for both fixed costs and working capital. It expects earnings from continuing operations, excluding significant items, to be $3.25-3.30/share, compared with prior-year earnings of $3.55 per share on a comparable basis and below the $3.93 expected by analysts.
Sales from continuing operations were $7.4 billion in Q3 or 9% below Q3 last year and well below analysts’ forecasts of $8.15 billion. Excluding one-time items, Q3 earnings from continuing operations totaled $302 million, down from $579 million in Q3 2011. DuPont took a loss of $40 million, compared with a profit of $376 million in Q3 2011.
The fall in sales was primarily due to volume declines in the Electronics & Communications and Performance Chemicals businesses, particularly in the Asia-Pacific region, where sales were 15% down. Volumes were 5% down, falling in every region except Latin America, and currency had a 4% negative impact. A small net reduction from portfolio changes, and higher local prices cancelled each other out.
As with Dow, agriculture was DuPont’s star. Sales from the Agriculture division increased by 4% on higher volume and prices, despite 10% negative currency effects. The Performance Materials and Nutrition & Health divisions both saw strong earnings growth but weak demand for TiO2 and overcapacity and uncertainty in photovoltaics, where both the US and Europe are imposing or threatening sanctions on China, caused results to fall from Q3 2011’s record. Excluding these, volumes were 3% up year-on-year.