Price increases of nearly 30 percent on its lion’s share of a key coatings pigment brought home record earnings for DuPont in 2011, despite declining sales volume, the company reported this week.
|The paint and coatings industry is the largest consumer of titanium dioxide, and coating makers have scrambled to stabilize their supplies.|
The world’s largest producer of titanium dioxide saw 2011 earnings, before significant items, increase 20 percent, to a record $3.93 per share, beating analysts’ estimates.
Segment pre-tax operating income increased over $100 million, or 18 percent, versus the prior year.
Much of that strong showing came from DuPont’s Performance Chemicals business, including the Titanium Technologies unit, the company reported Tuesday (Jan. 24).
|DuPont is dramatically increasing its production of titanium dioxide to assure a “sustainable supply” of the popular pigment, says Titanium Technologies president B.C. Chong.|
Performance Chemicals reported sales of $1.9 billion—up 12 percent, despite 17 percent lower volume, thanks to 29 percent higher selling prices. Pretax Operating Income was $433 million—up $118 million on higher selling prices, the company said.
“TiO2 is currently the best performing major product line for DuPont,” Mark Gulley, a New York-based analyst at Ticonderoga Securities, told Bloomberg News.
DuPont attributed the slowdown in sales to “a pause in demand for titanium dioxide, particularly in Asia Pacific.”
That pause coincides with a global scramble by paint and coatings companies—the largest consumers of TiO2—to find other sources for the common pigment, after years of skyrocketing prices and shrinking supplies.
A chemical industry analyst warned in October that global supplies of titanium dioxide had reached historically low levels, ensuring continuing price increases.
Coatings companies are hastening to fill that gap. In December, PPG Industries announced a “global initiative” aimed at stabilizing its titanium dioxide supply.
PPG’s action followed AkzoNobel’s June announcement of a partnership with a Chinese chemical company to build a new TiO2 plant in Qinzhou, China.
DuPont has also announced that it will dramatically expand global production of the pigment. The company said in May that it would invest more than $500 million to add production capacity in Mexico and upgrade five other manufacturing sites worldwide, ultimately adding about 770 million pounds of global capacity.
DuPont has said that future demand growth for Performance Chemicals will come from developing economies in Asia Pacific and “favorable industrial fundamentals.” Long-term sales are expected to grow 6-8 percent compounded annually, with PTOI margin targets of 18-20 percent, DuPont said last month. Near-term PTOI margins are expected to be 22-24 percent.
DuPont also reported:
• Fourth-quarter 2011 consolidated net sales totaled $8.4 billion, a 14 percent increase over the prior year, mainly from higher local prices. A 10 percent net increase from portfolio changes was offset by a 10 percent volume decline.
• Every region saw volume declines “driven by destocking in photovoltaics, polymer and industrial supply chains” as well as weaker demand for construction and electronics products.
• That it was reaffirming its 2012 earnings outlook range of $4.20 to $4.40 per share, which represents 7 to 12 percent growth versus 2011, excluding significant items.
Selected Segment Results
Performance Coatings sales were up 8 percent, to $1.1 billion, with 10 percent higher selling prices across all market segments and 2 percent lower volume. At its Investor Day in December, DuPont said the segment’s PTOI margins were expected to improve in 2012, driven by productivity and a 6 percent increase in auto builds.
Performance Materials sales of $1.6 billion were up 1 percent, with 14 percent higher selling prices and 13 percent lower volume.
Earlier, DuPont noted “a number of challenges this year” in the segment, including the Japan earthquake and recent destocking in the automotive channel. Long-term compound annual sales growth is expected to be 4-6 percent.
"We delivered exceptional full-year results in 2011 despite significant market headwinds late in the year," said DuPont Chair and CEO Ellen Kullman.
“Acquisitions in Nutrition & Health and Industrial Biosciences, coupled with robust and disciplined productivity efforts across our businesses, contributed to our successful performance."