DuPont sets a low bar and hops over it — the quarter is a step in the right direction and investors scoop up shares

Published Tue, Feb 6 20243:26 PM EST

DuPont on Tuesday delivered a fourth-quarter earnings beat on lowered expectations after warning two weeks ago. The stock shot higher on the print but was only slightly above where it closed the day of the chemical giant's preannouncement-driven slide of 14%. Net sales for the three months ended Dec. 31 declined roughly 6.6% year-over-year to $2.9 billion, a tad short of the lowered expectations, according to LSEG but in line with the preannounced level. On an organic basis, sales were down 10% versus the year-ago period. Adjusted earnings-per-share (EPS) of 87 cents were down about 2% year-over-year but exceeded the LSEG estimate of 85 cents, and came in at the high end of the 85- to 87-cent range management provided in late January. Bottom line The results from DuPont were largely in line with what management told us to expect as inventory destocking and weakness in China weighed on the quarter. However, we were pleased to see management announce a 6% dividend increase, along with the completion of an accelerated $2 billion share repurchase program and the announcement of a new $1 billion authorization. We had wanted to see a larger buyback, but we'll take it. In Electronics & Industrials, management said they continue to see stabilization in DuPont's Semiconductor Technologies and Interconnect Solutions businesses and expect a broad-based recovery as the company works its way through 2024. The recovery already appears to be underway with Semiconductor Technologies seeing growth on a sequential basis. The recovery time for the Industrial Solutions business remains a bit more uncertain, but the team does expect to see improvement as inventory levels normalize. The Electronics & Industrials segment makes differentiated materials and component solutions for high-performance computing, 5G, electric vehicles, and consumer electronics such as smartphones and personal computers. Within the Water & Protection, the Safety Solutions business remains under pressure from channel inventory destocking, with management highlighting the medical packaging end market as a key source of weakness. Water solutions was also by plagued distributor destocking along with weakness in China's industrial sector. Shelter Solutions was down year-over-year. However, management did note that destocking here was completed, and they're starting to see improvement. While the recovery time may vary buy end market, it's important to note that on a consolidated basis, management does believe that the first quarter 2024 will represent the bottom. Management said the Water business in China is showing "signs of market stabilization, bottoming of customer inventories, and a pickup in orders in the month of January that support a view of recovering sales and earnings through 2024." They expect to see a pickup in sales as we exit the second quarter of 2024. Looking ahead, there was no update on first-quarter 2024 guidance. Second-quarter EBITDA expectations for roughly 10% sequential growth were also reaffirmed, with management adding that sales should be up about 5% sequentially. We did get full-year guidance for sales, EBITDA (earnings before interest, taxes, depreciation, and amortization), and EPS. The full-year targets did represent misses at the midpoints, but we think they're good enough to support Tuesday's 7% stock move higher, given the rock-bottom sentiment coming into the release and signs that the worst is behind us. Despite the near-term headwinds, the artificial intelligence story in Electronics still looks strong, even if it's not materializing as fast as we first thought, as demonstrated by the improvement currently being seen in the electronics business. And, with a ton of bad news baked into the stock at current levels, we find ourselves watching shares more as possible buyers than sellers. That said, we're maintaining our 2 rating for the moment as it's not our style to buy or recommend chasing a rally like what we are seeing Tuesday. DD 1Y mountain DuPont 1 year Guidance Management's forecast for the current quarter (first quarter of fiscal 2024) was unchanged from what we got on the preannouncement. DuPont's Q1 sales are expected to be roughly $2.8 billion, operating EBITDA is forecast to be about $610 million, and adjusted EPS was guided to fall into a 63- to 65-cent range. These numbers were all lower than the Street was expecting at the time of the warning late last month. We don't think there's much value to comparing them to the lowered estimates we had coming into the print. That said, DuPont did deliver a full-year financial forecast. While the numbers came up a bit short at the midpoint, they did bracket the estimates and likely have a decent amount of conservatism build into them with upside likely coming should China rebound a bit quicker than expected. Management is targeting 2024 sales in a range of $11.9 billion to $12.3 billion versus $12.28 billion expected; operating EBITDA of between $2.8 billion and $3 billion versus $2.95 billion expected; and adjusted EPS of $3.25 to $3.65 per share versus $3.58 expected. (Jim Cramer's Charitable Trust is long DD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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A DuPont sign is shown at the company's world headquarters in Wilmington, Delaware.

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