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DuPont Reports Q4 and Full Year 2003 Earnings

Published on 2004-01-27. Author : SpecialChem

WILMINGTON, Del., January 27, 2004 - :

Summary

Reported fourth quarter 2003 earnings were $.63 per share including a net benefit of $.34 per share from special items, primarily related to INVISTA. This compares to fourth quarter 2002 earnings per share of $.35.

Fourth quarter earnings before special items were $.29 per share, compared to $.34 per share before special items in the fourth quarter of 2002.

Consolidated fourth quarter net sales were $6.5 billion, up 14 percent, with significant revenue growth in all regions. Full-year consolidated sales were up 12 percent.

U.S. volumes gained momentum, with 6 percent growth versus fourth quarter 2002.

Higher raw material costs reduced earnings for the fourth quarter by about $230 million after-tax, or $.23 per share versus the prior year. Non-cash pension and stock option expense reduced fourth quarter earnings by an additional $.10 per share versus the prior year.

"Even with clear evidence that an economic recovery in manufacturing is under way, energy-related raw material costs stayed stubbornly at or near historical highs," said DuPont Chairman and Chief Executive Officer Charles O. Holliday, Jr. "Because we remained intensely focused on reducing costs while growing revenue across our businesses, we were able to overcome higher raw material costs and meet the expectations we set for our investors."

Global Consolidated Net Sales and Net Income

Fourth quarter consolidated net sales totaled $6.5 billion compared to $5.7 billion in fourth quarter 2002, up 14 percent. Fourth quarter net income was $636 million, or $.63 per share, including a $.34 per share net benefit, principally related to INVISTA (see table of special items below). This compares to fourth quarter 2002 earnings of $350 million or $.35 per share. In addition to the INVISTA related items, income reflects higher raw material costs and non-cash pension expense partly offset by a benefit from higher sales volumes and lower costs excluding pension expense.

For the full-year 2003, consolidated net sales were $27.0 billion, up 12 percent. Income before cumulative effect of accounting changes was $1,002 million versus $1,841 million. In addition to the impact of increased net charges for special items, the decline in income principally reflects higher raw material costs and non-cash pension expense which, combined, reduced income by $1 billion after taxes.

Business Segment Performance

Detailed information on fourth quarter and full-year business segment performance is provided in the Schedules. Segment sales data provided in Schedules B and C presents year-over-year comparisons and variance analysis of volume, price, and other factors. Earnings data on Schedules B and D provide year-over-year comparisons of segment ATOI both as reported and excluding the impact of special items. The company encourages investors to review these Schedules. Additional segment information is available to investors and the public via the earnings data section of the DuPont Investor Center on dupont.com.

Fourth quarter segment sales showed double-digit growth in every operating segment. Important drivers of this increase were: a strong South American agricultural season, positive momentum in electronics markets, and continuing strength in life protection garments and housing markets. Excluding special items, segment ATOI was stable or improved in every segment except Performance Materials and Textiles & Interiors (INVISTA), both of which were significantly exposed to the higher than expected energy and energy related raw material costs experienced in the quarter.

For the full year, segment sales showed strong growth (ranging from 9 to 21 percent) in every operating segment. Segment earnings for the year were pressured by high raw materials costs and pension/other post retirement benefits (OPEBs) expense. Combined, these factors were a drag to earnings of over $1 billion after-tax in the year. The businesses were able to offset more than 60 percent of this higher expense through productivity, share gain, and growth in new markets, products and applications. Excluding special items, the Safety & Protection segment and the Agriculture & Nutrition segment both delivered double digit ATOI growth; Pharmaceutical ATOI was up solidly; and the other four segments showed ATOI declines versus prior year.

Outlook

The company's overall outlook for 2004 is positive. DuPont expects cyclical recovery in major industrial economies, in addition to continuing growth in emerging economies. This is expected to support global real GDP growth of 3.6 percent in 2004, which would be the largest full-year increase since 2000. The company also expects that -

in contrast to recent years - the manufacturing sectors of the developed industrial economies will grow at rates stronger than their regional GDP.

The major risks and uncertainties associated with this outlook are sustained increases in oil and natural gas prices or a faltering U.S. economic expansion. However, with the strength of the recovery and its current momentum, DuPont is confident that the economic conditions in 2004 are positive for its businesses.

Specific key assumptions and actions that support the company's outlook for 2004 include the following:

In December of 2003, DuPont announced a program to reduce fixed costs and improve variable margins in 2004 by $450 million - more than offsetting the residual costs of INVISTA separation. By the end of 2004, DuPont expects to be at a rate of cost improvement to achieve $900 million in reductions in 2005.

With oil and U.S. natural gas prices remaining high, the company does not expect any relief from hydrocarbon costs in 2004 and anticipates that its raw material costs will be at or slightly above 2003 levels.

The estimated effective income tax rate for 2004 is 25 percent, excluding any tax effects on exchange gains/losses or special items, neither of which can be reasonably estimated at this time.

In 2004 the company expects a net negative impact versus prior year of $0.00 to $0.05 per share from the combined effect of the following non-cash expenses: pension, OPEBs, and stock option expenses. In 2003, there was a $0.40 year-over-year negative impact from these expenses versus 2002.

Assuming that oil and natural gas prices stay in line with 2003 average levels, DuPont expects 2004 first quarter earnings per share to be between $.65 and $.75. The company's outlook for the full year is between $2.00 and $2.20 per share. These outlooks do not include estimates for any 2004 special items, including anticipated restructuring and the INVISTA separation, as they cannot be reasonably estimated at this time.

"We saw strong economic growth in the fourth quarter and believe it will continue to gain momentum in 2004. Indeed, we believe that 2004 may provide the best global economic improvement we've seen in several years," said Holliday. "Our company is uniquely positioned to take advantage of the recovery. We will separate INVISTA and launch a 'new DuPont.' We will continue to grow revenue. And, we will reduce costs and improve productivity across the entire spectrum of operations, sales and marketing, and research and development. All of this will translate into higher profits for our owners."

Source: E. I. DuPont de Nemeurs and Company, Inc.


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