Shares of DuPont DD sank to a 52-week low yesterday after it completed the separation of its performance chemicals unit through the spin-off of The Chemours Company CC.
Chemours – earlier a part of DuPont – is now an independent, publicly traded corporation and started "regular-way" trading on the NYSE on Jul 1. It is a leading producer of the widely-used white pigment – titanium dioxide (TiO2), market fundamentals for which remain challenging, especially in Europe.
In connection with the spin-off, shareholders of DuPont received one share of Chemours on July 1 (the distribution date) for every five shares of DuPont they held on the record date of Jun 23, 2015. Moreover, DuPont shareholders will receive cash payments in lieu of fractional shares of Chemours.
DuPont’s shares fell around 2.6% to hit a new 52-week low of $59.81 on Thursday. The stock closed roughly 2.3% lower at $59.99, making it the biggest percentage loser among Dow Jones Industrial Average (DJIA) components yesterday.
The spin-off is in sync with DuPont’s strategy to shift its focus on high growth, less cyclical businesses. DuPont said that the separation of the performance chemicals business advances its transformation to a company which is more growth-driven, more science intensive and less cyclical.
DuPont is executing its company-wide redesign actions to support its more focused portfolio of businesses following the Chemours spin-off. The company, in April, raised its cost-reduction target from operational redesign initiatives for 2015.
But DuPont is faced with several headwinds that could affect its near-term performance. As the company derives more than 60% of its sales from overseas markets, a stronger dollar is expected to considerably weigh on its top line in 2015 with most significant impact is expected in the first half and will be mostly felt in its agriculture business. As such, currency headwinds could dent the company’s second-quarter 2015 earnings. DuPont sees unfavorable currency impact of 80 cents per share on its 2015 earnings.
DuPont also faces a challenging operating environment in the agricultural market. Revenues and earnings in its agriculture unit are expected to continue to be affected by lower volumes from anticipated reduction in global corn planted area and soft insecticide demand in Latin America. Lower insect pressure in Brazil and abundant inventories in the Americas present headwinds in crop protection markets.
Sales and earnings in the company’s agriculture business are expected to fall year over year in first-half 2015 due to lower corn seed and insecticide volumes. All these concerns are weighing heavily on DuPont’s stock.
DuPont currently carries a Zacks Rank #5 (Strong Sell).
Better-ranked stocks in the chemicals space include LyondellBasell Industries N.V. LYB and Stepan Company SCL, both holding a Zacks Rank #1 (Strong Buy).
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