DuPont (DD) CEO Edward Breen appears to have narrowed his mission to one central point: Cut costs before cutting more when Dow Chemical (DOW) helps comes to the rescue.
And he has good reason to want to shed weight (although Breen contends such cuts would have been DuPont's turnaround tactic regardless of the merger).
The companies are expected to combine in order to form three leaner business operations in the second half of the year. And DuPont could certainly use the help.
Last year was the Wilmington, Del.-based chemical and seed producer's most turbulent year since the 2008 financial crisis. Shares plummeted 41% between March and September, swung back 42% into mid-November, and then rapidly fell into the tailspin they're caught in today.
Since shares have dropped 28% since mid-December highs, shareholders are left eyeing Dow in hopes of stabilization and a lasting turnaround. (Dow Chemical is part of TheStreet's Action Alerts PLUS portfolio.)
"Here's a company that really is doing fabulously with a 43% yield and it is on the cusp of a very important merger with DuPont that will bring out a huge amount of value as the merged company gets split into three different, very focused entities," Jim Cramer said in a Real Money article.
"You are paid while you wait and yet it doesn't matter at all because investors, wrongly, think it is linked to oil, and when oil goes down, it should go down," he said. "That's nonsense."
DuPont's story certainly has not been as bright as Dow's: Cash has been pouring off its balance sheet as sales are drying up steadily.
That helps explain why, on Tuesday, when Breen clocked in last quarter's income at a dismal $236 million (or down 56% year over year), he still beat Wall Street earnings-per-share forecasts by 4.5%, based on Bloomberg consensus data. (Shares were only given a temporary bump Tuesday, lifting less than 1% before falling in after-market trading.)
Breen announced on the earnings call that DuPont hiked its cost savings expectations by 11% to about $1 billion for the year.
"We also announced in December a new global cost savings and restructuring plan designed to reduce 2016 costs by $700 million vs. 2015, or $900 million on a run-rate basis," Breen said on the earnings call. "We have since identified an additional $100 million in savings, bringing our run rate total to $1 billion, and increasing our 2016 savings to about $730 million."
But DuPont shares, which are down 20% on the year, will ultimately depend on seizing on Dow's healthier earnings picture as operations combine in the second half of the year -- especially as the $1 billion in costs DuPont is shedding doesn't touch the expected $3 billion the combined companies can offload.
"I really plan, and we're really pushing with the teams, that we are totally identified on the $3 billion minimum by the time we get to close the merger, so we can move immediately on it," Breen said on the call. "And I would also say to you, I would be very hopeful that the $3 billion is our floor number, not the ceiling number."