DuPont Earnings: Customer Inventory Destocking Continues to Weigh on Profits

DuPont’s DD third quarter showed mixed results that changed our near-term outlook but confirmed our long-term view. Having updated our model for lower near-term results, we trimmed our DuPont fair value estimate to $90 per share from $92. Our narrow moat rating is unchanged.

Companywide adjusted EBITDA was down 9% versus the prior-year quarter as volume declines from customer inventory destocking weighed on profits, as DuPont ran its plants at a lower capacity utilization rate to sell excess inventory. While we expect demand will largely stabilize by early next year, we now expect a more modest recovery in 2024 versus our prior forecast.

However, despite companywide volume declines of 10% year on year, prices largely held flat. This confirms our view that DuPont’s products are differentiated enough to hold pricing during a downturn, which underpins the thesis behind our long-term forecast for sales growth above industry levels and long-term profit margin expansion for DuPont. While DuPont’s end markets have cyclicality, we generally see long-term growth, particularly in semiconductors, interconnected solutions, housing, and water, which combined to generate the majority of DuPont’s sales.

The stock was down 5% at the time of writing as management cut revenue and EBITDA guidance in 2023 and pointed to a likely slow start in 2024. However, the stock trades in 4-star territory at more than 20% below our updated fair value estimate. Recovering profit margins and long-term profit growth is one of the largest drivers of our view that DuPont shares are undervalued.