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UPDATE 3-DuPont doubles down on cost cuts ahead of Dow Chemical merger
January 26, 2016 / 4:05 PM / 2 years ago

UPDATE 3-DuPont doubles down on cost cuts ahead of Dow Chemical merger

* Sees 2016 operating profit of $2.95-$3.10/shr vs est. $3.10

* Fourth-quarter operating profit $0.27/share vs. est. $0.26

* Says to cut 2016 costs by $730 mln year-over-year (Adds details about cost cuts)

By Swetha Gopinath and Amrutha Gayathri

Jan 26 (Reuters) - Chemicals and seed producer DuPont intensified its cost-cutting efforts, ahead of its merger with Dow Chemical Co, in an attempt to offset the impact of falling sales due to sluggish demand for its agrichemicals and seeds.

DuPont said on Tuesday it was targeting cost cuts of $730 million in 2016, with annual savings adding up to $1 billion. The company had projected cost cuts of $700 million and annual savings of $900 million in December.

“This plan will further simplify our organization into fewer, larger businesses with integrated R&D, engineering and manufacturing functions, accelerate decision-making and connect even more closely with our end-markets,” DuPont CEO Ed Breen said on a call with analysts.

The new cost-cutting program is expected to result in a 15 percent fall in selling, general and administrative expenses in 2016, including a $200 million reduction in corporate costs, he said.

Breen emphasized that the cost-cutting program was a DuPont initiative and separate from the company’s merger with Dow Chemical that will create a behemoth with an estimated combined market value of about $95 billion as of Monday’s closing.

“We have begun the process of addressing the requirements under various competition laws,” Breen said on the call.

Analysts have speculated that the deal will face intense regulatory scrutiny, especially over combining the two companies’ agricultural businesses, though both Dow and DuPont executives have said that any asset sales required would likely be minor.

DuPont’s cost-cutting measures will add about 64 cents per share to the company’s 2016 profit.

The company said it expects full-year operating earnings of $2.95-$3.10 per share, compared with analysts’ average estimate of $3.10 per share, according to Thomson Reuters I/B/E/S.

DuPont’s forecast includes a 30 cents negative impact from a strengthening dollar.

The company also said it expects its sales to fall in the low-single digits in percentage terms, hurt by slower growth in emerging markets, apart from weak farm demand.

Excluding $622 million of restructuring and other charges, fourth-quarter operating profit was 27 cents per share, above analysts’ expectations of 26 cents.

Net sales fell 9.4 percent to $5.3 billion, missing analysts’ estimates of $5.53 billion.

DuPont shares were slightly up at $53.34. Up to Monday’s close, shares of DuPont, a Dow Jones industrial average component, had lost a quarter of their value over the last 12 months.

Reporting by Amrutha Gayathri and Swetha Gopinath in Bengaluru; Editing by Shounak Dasgupta and Saumyadeb Chakrabarty

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