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DuPont Shares Bolt Higher as CEO Steps Down

Shares of DuPontDD ripped higher after it announced that its Chair and CEO Ellen Kullman will retire effective Oct 16 after more than 27 years on the job. Edward Breen, an incumbent member of DuPont's board and a former CEO of Tyco International TYC , will assume the role of Interim Chair and CEO following Kullman's retirement while the board looks for a permanent replacement. DuPont did not disclose any reason for the sudden retirement.

DuPont also trimmed its earnings outlook for full-year 2015 citing continued strengthening of the U.S. dollar versus currencies in emerging markets, mainly the Brazilian real, and a further softening in the agricultural markets.

The company now sees operating earnings for 2015 to be roughly $2.75 per share, down from its earlier guidance of $3.10 per share. Unfavorable currency impact on full-year earnings is expected to be 72 cents per share, up from 60 cents predicted earlier. Moreover, DuPont envisions operating earnings for second-half 2015 to be around 40 cents per share, also down from 75 cents expected earlier.

DuPont's shares, which closed 4.1% higher at $51.28 yesterday, further shot up roughly 6% in extended trading. The stock soared around 11% in early trading today. DuPont's shares are still down roughly 25% this year (based on yesterday's close).

Kullman took the helm of DuPont back in 2009. Under her leadership, DuPont faced intense pressure from legendary activist investor Nelson Peltz's Trian Fund Management. Trian, which is among DuPont's biggest shareholders, pushed the 200-plus year old company to break itself up into two distinct entities through the separation of its high-growth businesses such as agriculture and nutrition & health from its cyclical businesses like performance materials.

Trian argued that DuPont's current conglomerate structure and flawed business plans are destroying its shareholder value. It also claimed that DuPont's board is unwilling to hold its management responsible for its sustained underperformance and failures to meet sales and earnings targets.

However, DuPont prevailed in a prolonged proxy battle with Trian in May 2015 after its shareholders elected all of its 12 director nominees at its 2015 annual meeting while rejecting the Trian nominees. That ended Trian's campaign to secure four seats on DuPont's board.

The company had been actively defending itself for nearly two years from the criticisms of Peltz of its performance and management. Peltz, having a proven track record of success, had been a key force behind the breakup of Kraft into Kraft Foods Group and Mondelez International MDLZ .

As part of its portfolio optimization actions, DuPont completed the separation of its struggling performance chemicals unit in July through the spin-off of The Chemours Company CC , a leading manufacturer of titanium dioxide (TiO2). The separation marked DuPont's transformation to a company which is more growth-driven, more science intensive and less cyclical. DuPont, earlier in 2013, also jettisoned its performance coatings business to equity firm Carlyle Group for $4.9 billion in cash.

DuPont, however, remains exposed to a challenging operating environment in the agricultural market. The company noted that demand for crop protection and seed products further weakened in third-quarter 2015. Tighter profit margins and credit are making growers in Brazil more cautious in their spending. Lower insect pressure and reduced seed volumes are also contributing to a weakening demand for crop protection products.

In response to these headwinds, DuPont has accelerated its operational redesign cost reduction actions and now expects to attain $1.3 billion of cost savings on a run rate basis by the end of the next year, a year ahead of earlier expectations. The company is also targeting additional cost savings of roughly $1.6 billion by end-2017.

DuPont is a Zacks Rank #4 (Sell) stock.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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