DuPont Revises 2011 Guidance
Dec09

DuPont Revises 2011 Guidance

DuPont has reduced its 2011 earnings-per-share guidance by a dime, down to a range of $3.87 - $3.95. In the company’s press release CEO Ellen J. Kullman said something somewhat disconcerting: “We are seeing slower growth in certain segments during the fourth quarter, driven by economic uncertainty. This uncertainty is contributing to ongoing conservative cash flow management in some supply chains.” Inventory drawdowns are very normal this time of year. A bigger inventory reduction than expected can mean many things. For instance, it can mean that customers expect prices in the supply chain to decline. (The most benign option.) Customers can be cashing out their inventories in order to brace themselves for potential Armageddon. (This happened during the 2008 panic.) Or customers, not knowing what the future has in store, don’t want to tie up too much of their working capital in inventories. (Middle of the road, not necessarily bad. This seems to be Kullman’s view.) Also, keep in mind that DuPont has reset its 2011 guidance a bunch of times. Here are the changes: Oct. 25, 2011:      $3.97 - $4.05 July 28, 2011:     $3.90 - $4.05 Apr. 21, 2011:      $3.65 - $3.85 Jan. 25, 2011:     $3.45 - $3.75 Dec. 14, 2010:     $3.30 - $3.60 DuPont is still way ahead of where it was in April. Looking at the list reminds me of Dow Chemical, which rather famously doesn’t give earnings guidance. I do see the wisdom in such a policy. Real numbers come in every quarter. Analysts have their own set of fake numbers. Why have another fake number? (Companies tend to lowball these anyway to set the stage for an artificial earnings beat.) If I am ever at the helm of a public company*, I would adopt the no guidance policy. *It would be a breach of fiduciary duty for a board of directors to let such a thing...

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Megatrend Madness
Jan12

Megatrend Madness

A big part of what I do for a living is attending press conferences and listening to conference calls where top executives from leading chemical firms talk about their companies. Oftentimes, they invoke “megatrends” to justify what they are doing or otherwise convince shareholders that they are on the ball. All the leading chemical companies have them. They are the mission statements of the post-Friedman, Thomas not Milton, flat, hot world. Here are a few of the most prominent examples: DuPont: Increasing Food Production, Decreasing Dependence on Fossil Fuels, Protecting People and the Environment, and Growth in Emerging Markets. BASF: Growing and Aging Population, Urbanization, Energy Demand and Climate Protection, and Mobility and Communication Dow: Energy, Consumerism, Transportation Infrastructure, and Health And Nutrition. When these companies and others talk about Megatrends, I either put down my pen or start doodling with it. I perk up again when companies get down to brass tacks. Megatrends strike me as too obvious to be a serious tool to justifying anything. For example, DuPont recently invoked the food production and fossil fuel trends when it announced its purchase of Danisco. Fine, the company makes food additives and has technology that can be applied to cellulosic biofuels. The problem is that those megatrends tell me nothing about whether it will be a good acquisition or not. That depends on the specific value propositions of the Dansico businesses, and its pipeline, to specific markets as well as new opportunities that wouldn’t be possible without a DuPont/Danisco combination. DuPont might have used the same megatrends to argue for the purchase of Clorox’s Kingsford Charcoal unit—charcoal is made of wood and is used to cook food. (Heck, Kingford’s charcoal briquettes were originally made from the wooden remnants of Ford Model T production.) Dow’s megatrends are the most egregious because they are so vague. Energy and Nutrition have been “megatrends” ever since the first caveperson roasted the first boar over the first fire. And Dow’s megatrends can justify ANYTHING. Can Dow go out and buy Brown Forman? Sure. They can invoke consumerism: A growing and increasingly wealthy population will demand more Jack Daniel’s and Southern Comfort. There might even be a biofuel connection because of Brown Forman’s ethanol expertise. BASF’s are the most specific. Though, urbanization has been with us for quite a long time as well. In the interest of not wanting to sound overly shrill, I don’t want to accuse these firms and other companies of being insincere. I do think they actually believe in this megatrend stuff. And nobody likes to make mistakes with hundreds of millions of dollars. When companies make investments, I do...

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