* Paint pigment business drags on results
* Second-quarter adjusted profit $1.28/share vs est. $1.27
* CEO expects significantly better earnings in second half
* Shares hit $60.40, best in over 13 years, but pares gains
By Swetha Gopinath and Ernest Scheyder
July 23 DuPont plans to exit its
once-lucrative paint pigments business to focus on a thriving
agricultural unit better equipped to shield the biggest U.S.
chemicals maker from market volatility.
DuPont's shares rose as much as 6 percent on Tuesday to
their highest in more than 13 years after the company said it
would consider selling or spinning off its performance chemicals
unit, which contributed a fifth of its sales last year.
The stock gave back those early gains to close down 5 cents
Investment bankers said that the paint pigments business is
likely to attract interest from private equity firms that have
been active bidders on chemicals businesses that have come to
market over the last few years.
They said that the business could be worth 6 or 7 times
earnings before interest, taxes, depreciation and amortization.
Using last year's pre-tax operating income of $1.62 billion, the
unit could be worth more than $10 billion.
DuPont declined to comment on specific options.
"It's way too soon to go down a path of who might be a
potential buyer," Chief Financial Officer Nick Fanandakis said
in an interview with Reuters.
DuPont is joining an industry-wide shift among chemical
makers, including rival Dow Chemical, into production of
seeds and pesticides, which have proven to be less exposed to
market ebbs and flows than the popular pigment titanium dioxide.
Agricultural demand is driven by North American farmers in
the first half of the year and South American farmers in the
second. The expanding global population, particularly in Asia,
is also driving demand for fertilizers, seeds and pesticides.
Chief Executive Ellen Kullman said DuPont's earnings would
be "significantly better" in the second half of 2013 than in the
same period last year due to agricultural growth in the Americas
- reinforcing the planned exit from performance chemicals.
Demand for titanium dioxide, a white pigment that gives
shine to car paints, sunscreen and toothpaste, has long been
susceptible to swings in the global economy.
Global titanium dioxide prices went into tailspin last year
after the world's biggest producers, including DuPont, Saudi
Arabia's Cristal Global, Tronox Ltd and Huntsman Corp
, restarted plants idled during the recession.
As prices declined, revenue within DuPont's performance
chemicals unit fell 8 percent in 2012. Kullman said the company
had been weighing the cash generation of the businesses against
their cyclical nature and "lower growth profile".
"There is nothing science can do to arrest the volatility or
the cyclicality of these businesses," Kullman said on a
Analysts said the hand of a new investor might also be
behind the move. Nelson Peltz, a force behind some of the global
food industry's biggest deals, had amassed a "big stake" in
DuPont through his Trian Fund Management, CNBC said last week.
Trian declined to comment on Tuesday.
Some investors have blamed the performance chemicals
business for weighing on DuPont's shares, which trade at a
discount to those of Monsanto Co, a key rival in the
"I don't think we would have seen this move about the
performance chemicals business in this quarterly release without
revelations about activist investors getting involved," said
Stephen Hoedt, senior equity research analyst with Key Private
Kullman, in an interview with CNBC on Tuesday, said she had
not spoken to Peltz. She said she had heard "rumors" about his
acquisition of a stake.
DuPont's performance chemicals unit, of which paints
pigments are a big part, generated total sales of $7.2 billion
Huntsman Corp, which is also exploring options for its
titanium dioxide business, could be looking to buy Rockwood's
pigments unit, Reuters reported this month.
Wilmington, Delaware-based DuPont, a 211-year-old company,
sold its car paint unit for $5 billion last year and bought
nutritional supplements maker Danisco for $6 billion in 2011.
Sales of pesticides and other agricultural products helped
DuPont's quarterly profit scrape past analysts' estimates, as
paint pigments once again lagged.
Net income fell to $1.03 billion, or $1.11 per share, in the
second quarter, compared with $1.17 billion, or $1.23 per share,
in the year-ago period.
Excluding pension charges and other one-time items, the
company posted profit of $1.28 per share. By that measure,
analysts expected earnings of $1.27 per share, according to
Thomson Reuters I/B/E/S.