DuPont's 3Q Free Cash Flow Leaves Much to Be Desired
DuPont (DD) reported third-quarter results that showed revenue advancing 5% (thanks primarily to higher volume growth) and operating earnings of $0.45 per share, a modest bump from the same period a year ago. The standout on the top line was 'Agriculture' sales, which jumped 15% thanks to higher insecticide volumes and higher seed prices in Latin America. Excluding its 'Performance Chemicals' division, which suffered from price declines for titanium dioxide, refrigerants, and fluropolymers, all operating segments posted increased operating earnings versus last year. DuPont noted that it expects fourth-quarter operating earnings to be up substantially from that of the year-ago period, but it still reiterated its full-year operating earnings target of $3.85 per share, which is roughly in line with our forecast. Free cash flow continues to be decidedly negative in both the year-to-date periods of 2013 and 2012, at -$3.56 billion and -$1.57 billion, respectively. All-in, we weren't too thrilled with DuPont's third-quarter performance and continue to point to PPG Industries (PPG) as our favorite idea in the chemicals space.
Kimberly-Clark's 3Q Operating Profit Growth Muted
Kimberly-Clark (KMB) issued third-quarter earnings that showed organic sales advancing 5% (thanks to a 10% core jump in K-C International) and adjusted diluted net income per share of $1.44, roughly a 7% jump from the $1.34 mark achieved in same period a year ago. On an organic basis, sales volumes jumped 3%, while higher net selling prices and an improved product mix each contributed one percentage point to the mark. Third-quarter adjusted operating profit nudged higher just 1%, despite $70 million in cost savings from the firm's FORCE (Focused on Reducing Costs Everywhere) program. Excluding the program's cost savings, adjusted operating profit would have dropped by $63 million from the measure in the year-ago period. Looking ahead, Kimberly-Clark noted that it expects 2013 adjusted earnings per share of $5.65-$5.75, a modest bump in the lower end of the previously-issued range of $5.60-$5.75 per share and up 8%-10% from the year-ago mark. Cash provided by operations during the period was $912 million and capital spending was $203 million, resulting in free cash flow of $709 million (or 13.5% of sales). All-in, we would have preferred better performance on Kimberly-Clark's operating line, and while we have no qualms with the dividend strength of this Dividend Aristocrat, in the 'Household Products' space we prefer Johnson & Johnson (JNJ).
United Technologies' 3Q Showed Strong Orders
United Technologies' (UTX) third-quarter results followed the strength of that of GE as well as other industrial firms in the space. Sales for the quarter nudged up only slightly on an organic basis, but third-quarter earnings per share of $1.55 and net income attributable to common shareholders of $1.4 billion both advanced 13% from the prior-year period. New equipment orders at Otis increased 4%, 'UTC Climate, Controls & Security' equipment orders advanced 13%, while large commercial engine spare orders were up 17% at Pratt & Whitney (up 5% after adjusting for the Goodrich acquisition). The firm noted that, due to the strength in orders, organic growth is expected to accelerate as it exits 2013. Looking ahead, United Technologies raised its 2013 earnings per share expectation to $6.10-$6.15, up from the previous range of $6-$6.15 per share. Cash flow from operations was $1.5 billion and capital expenditures were $383 million in the period, resulting in free cash flow of $1.12 billion (or about 7% of sales). Though we're big fans of United Technologies' aerospace exposure and dividend strength, we recently added jet-engine-making peer General Electric (GE) to the portfolios of both our Best Ideas Newsletter and Dividend Growth Newsletter.
All-in, DuPont's free cash flow trends were disappointing, while Kimberly-Clark's organic operating profit actually fell during the period (if we exclude aggressive cost savings). United Technologies' order strength was a notable positive in its third-quarter release, however. Though we're keeping a close eye on each of the firms highlighted above, we prefer PPG Industries over DuPont in the 'Chemicals' space, Johnson & Johnson over Kimberly-Clark in the 'Household Products' arena, and General Electric over United Technologies as our favorite 'Industrial Conglomerate'.
Additional disclosure: GE is included in the portfolio of our Best Ideas Newsletter and the portfolio of our Dividend Growth Newsletter.