DuPont is shutting down about 50% of its polymer capacity in preparation for downside risks going forward in the automotive, aerospace, oil and gas and other industrial sectors, CEO Ed Breen said Tuesday.
He said the Wilmington, Delaware-based company was "keenly focused" on those markets, particularly the automotive sector, which is DuPont's largest area of exposure, responsible for nearly 15% of its sales, Breen said during the company's first-quarter 2020 earnings call Tuesday.
Breen said global auto builds fell 24% in Q1 and latest estimates show they will be down 40% in the second quarter of the year, he said.
"In light of this, we developed a plan in the first quarter to begin slowing and idling certain facilities in our network, primarily factories in our Transportation & Industrial segment, in order to align our supply with market demand," Breen said.
The combined decline in auto builds and year-over-year price declines, as well as charges associated with plant shutdowns, will reduce that segment's margins by 55% to 65%, Breen said.
The company did not specify which manufacturing sites would be idled, but Breen said DuPont chose to "draw down the supply chain" by temporarily shutting about 50% of its polymer capacity.
"These are not easy decisions, but the confidence to react quickly and decisively is critical, and we will continue this mindset as we move forward," he said.
COMPANY SWINGS INTO THE RED
The company reported a $616 million net loss for the most recent quarter, compared with a $521 million profit in the year-ago period.
The automotive sector has cratered during the pandemic as vehicle manufacturers shut plants, including Ford, GM, Fiat-Chrysler and Volkswagen. Record low oil prices also stemming from sharply lower demand amid widespread pandemic-related stay-at-home orders globally, as well as a Saudi Arabia-Russia price war that ended April 12 with OPEC+ agreements to curtail output starting this month, saw NYMEX May WTI futures settle at negative $37.11/b on April 20, a day before the May contract expired.
On Tuesday, NYMEX June WTI settled at $24.56/b, up $4.17/b, while July ICE Brent settled at $30.97/b, up $3.77/b.
DuPont makes products used in vehicle interiors, construction, sports and travel gear, home care, electronics, hospitals and energy production.
The construction and energy production sectors have also been hard hit by the pandemic as stay-at-home orders stalled construction projects and low oil prices amid crushed demand forced output cuts.
DuPont Chief Financial Officer Lori Koch said the company has seen strong demand in other key end markets, such as protective garments for medical workers, water filtration, electronics and probiotics.
"These areas of strength are expected to be more than offset by well-known softness in automotive, aerospace, oil and gas and other industrial markets," she said. "In April, our sales were down to the low to mid-teens percent versus last year."
