By Jacob Bunge
DuPont Co. on Tuesday will detail fourth-quarter earnings and
project profits for the year ahead--but how much weight investors
should put on the forecast depends these days on whom you ask.
The Delaware-based chemical company is embroiled in a battle
with activist investment firm Trian Fund Management LP, which has
blasted DuPont's ability to forecast its own performance.
The firm, led by Nelson Peltz, argues DuPont's conglomerate
structure mires its businesses in excess costs and complexity,
making it tough for the company to deliver reliable earnings
guidance for investors.
DuPont has fired back, pointing to performance the company says
exceeded three-year targets set in 2009 and longer-term goals laid
out in 2010. It also trumpets that its shares beat the broader
stock market over the past five years.
The dispute will put added scrutiny on DuPont's fourth-quarter
results, which will reveal whether the company delivered a
full-year profit within its expected range of $4.00 to $4.10 a
share.
Stock analysts regard earnings forecasts as an imprecise
science, often buffeted by world events, weather or other
calamities. But they are almost always better than no forecasts at
all, analysts say.
A few companies enjoy clockwork-like, recurring business that is
easy to track, and are masters of meeting and exceeding earnings
targets. Basic chemical companies with highly volatile performance
occupy the other end of the spectrum, according to John Roberts,
analyst at UBS AG. "DuPont's somewhere in the middle," he said.
Trian argues DuPont's track record is unusually spotty. The
fund, which this month launched a proxy fight at DuPont by
nominating four candidates to the company's board, argues that
DuPont already faltered on its latest guidance last June, when it
scaled back 2014 earnings expectations from its earlier estimate of
$4.20 to $4.45.
Trian also contends that DuPont has lowered or missed its
guidance for the past three years--though an examination of those
years shows the argument isn't cut and dried.
-- 2012: DuPont in December 2011 said it expected to earn in
2012 $4.20 to $4.40 a share, excluding "significant items," an
estimate executives reaffirmed in January and April 2012 before
telling investors in July that results would likely fall at the
lower end of the range. In October 2012, DuPont lowered its range
to $3.25 to $3.30 a share. For the full year, DuPont reported
earnings of $3.33 after stripping out one-time items.
-- 2013: DuPont in January 2013 projected full-year operating
earnings of $3.85 to $4.05 a share, reaffirming that range in April
before zeroing in on "about $3.85" a share in July. DuPont stuck
with that figure in October and after its fourth quarter reported
$3.88 a share in operating earnings. Trian accused DuPont of
"manufacturing" 27 cents worth of profit in 2013, by counting some
seed income that otherwise would have registered in the following
quarter, and including some nonrecurring investment gains. DuPont
says it met the guidance through "disciplined execution, higher
volumes, innovative products and productivity gains," some of which
let the company deliver corn seed to customers earlier than usual,
according to a spokesman.
-- 2014: DuPont in January 2014 projected $4.20 to $4.45 a share
in full-year operating earnings, which the company reaffirmed in
April but scaled back in June to between $4.00 and $4.10 a share,
owing to slower corn seed sales and other factors. Trian made
public its critique of DuPont's management in September.
Some analysts say forecasting DuPont's performance is a tricky
task, given its businesses span corn fields, chemical plants, auto
factories and food company kitchens around the world.
"The more complex your business, the tougher it is to issue
guidance," said Don Carson, analyst with Susquehanna Financial
Group.
Write to Jacob Bunge at jacob.bunge@wsj.com
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