DuPont Stock Is Leading the Dow Down

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is down after the International Monetary Fund reported that it expects the U.S. economy to slow, and consumer confidence came in below expectations. As of 1:30 p.m. EDT the Dow has lost 116 points, or 0.76%, led down by DuPont (NYSE: DD  ) after it lowered its guidance and was downgraded by Merrill Lynch. The S&P 500 (SNPINDEX: ^GSPC  ) is down 0.67%.

There were five U.S. economic releases today.

Report

Period

Result

Previous

Producer Price Index

May

0.5%

(0.7%)

Core PPI

May

0.1%

0.1%

Current account deficit

Q1 2013

($106 billion)

($102 billion)

Industrial production

May

0%

(0.4%)

Capacity utilization

May

77.6%

77.8%

Consumer Sentiment Index

June

82.7

84.5

Source: MarketWatch U.S. Economic Calendar.

Of the five reports, the most important is the Thomson Reuters/University of Michigan Consumer Sentiment Index. Consumer sentiment hit a five-year high in May, and economists had expected sentiment to continue rising to 84.7 in June. However, consumer sentiment dropped in June to 82.7. While that's still a high level, it remains to be seen whether the slowing economy will begin to weigh on consumers.

The big reason the Dow is down today, though, is the IMF's release of its concluding statement of the 2013 Article IV Mission to the U.S. The IMF stated, "The U.S. recovery has remained tepid over the past year, but underlying fundamentals have been gradually improving," leading to 2012's 2.2% real GDP growth. "However," the statement continued, "growth is expected to slow to 1.9% this year owing to an excessively rapid pace of fiscal deficit reduction, before accelerating to 2.7% next year." The IMF's expectation of a slowdown is what's weighing down the markets today. It believes the key risks are an economic slowdown resulting from sequestration, failure to raise the debt ceiling, and slower growth around the world.

Bear in mind that the report doesn't tell us anything we didn't already know.

Nevertheless, the Dow is dropping on the news, led downward by DuPont, which has slid 2.6%. Yesterday at the Deutsche Bank Global Industrial and Basic Materials conference, DuPont CFO Nicholas Fanandakis said, "Unseasonably cool, wet weather across North America and Europe is impacting our Agriculture and Nutrition & Health segments' second-quarter revenues and costs." As a result, DuPont now expects its earnings for the first half of the year to be 10% than last year, whereas it had previously called for a reduction of between 7% and 9%. For the full year, Dupont expects to hit the low end of its April guidance of $3.85 to $4.05 per share.

It should be noted that these are operating earnings; the company still expects a $0.40 per-share hit to earnings due to pension costs, making for a GAAP earnings-per-share estimate of $3.37. Based on the lower guidance today, DuPont stock was downgraded from "buy" to "neutral" by Merrill Lynch, further weighing on the shares. If you exclude the pension charges, 2013 earnings of $3.85 would give the company a 2013 P/E of 14 -- still cheaper than the market, and you get a dividend yield of 3.45%.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 14, 2013, at 3:05 PM, funfundvierzig wrote:

    In addition to the 40 cents per share hit from pension funding, we are more than mildly curious:

    What will be the hit to DuPont earnings from the payment to settle tens of thousands of claims for Imprelis losses pending in federal and state courts throughout the land? The biggest eco-disaster and most costly new product failure in 21st century corporate America will slam DuPont's long-suffering shareholders by $2 to $3 billion or MORE in our judgement. DuPont's customarily secretive and evasive Management has been conspicuously silent as to the magnitude of Imprelis contingent litigation liabilities.

    Merely the opinion and perspective of one individual retail investor with both long and short positions in DD...funfun..

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