Could DuPont sales slump fuel Nelson Peltz return?

Activist investor Nelson Peltz has been quiet since his failed bid to land four seats on DuPont's board.

The silence has many wondering if Peltz is preparing new ammunition for arguing he should be among the chemical giant's 12 directors. If Peltz does renew his attacks on DuPont's management, analysts say the second-quarter sales results released Tuesday could be among his weapons.

DuPont reported a sales decline of 11 percent in the second quarter to $8.6 billion. In addition, four of the company's six businesses posted earnings decreases during the quarter. DuPont has posted revenue decreases in the last six consecutive quarters.

The company said the combination of a weakened U.S. dollar in overseas markets, a decrease in overall sales volume and changes to its portfolio were responsible for the sales decline.

Peltz, who leads Trian Fund Management, declined to comment on DuPont's quarterly earnings. But some wonder if we could soon hear from the activist investor, who still owns 2.7 percent of DuPont.

"He could use the current weakness to make some noise," said Matt Arnold, an analyst with Edward Jones investments in St. Louis.

Lawrence Hamermesh, a professor of corporate law at Delaware Law School, said it's hard to know if a poor quarter is enough to inspire Peltz to take another crack at DuPont's board. Peltz fell 58 million votes shy of winning a seat. At that margin, the support of one or two institutional investors could have put him over the top.

"The real question is how bad do things have to get before he is persuaded to take another run?" he asked.

With DuPont posting earnings for only half the year, it's still possible that improved earnings in the second and third quarters could dissuade Peltz from another proxy war. DuPont did report operating margin improvements in five of its six business units. An operating margin measures a company's revenue after paying variable costs such as wages and raw materials.

Steve Isberg, a professor of finance at the University of Baltimore, said the improved margins show things could be improving because DuPont is jettisoning its lower revenue units. One of Peltz's big complaints during the proxy war was DuPont's inability to separate its low- and high-margin businesses.

"If you are restructuring, you might expect a revenue decline along with an increase in margins," Isberg said. "The restructuring is creating some irregularities because of one-time expense charges."

Hamermesh remained skeptical that better margins are enough to ward off another proxy fight.

"If your margins improve, but your overall revenue declines, you still lose money," he said.

Shareholders have yet to see the results of DuPont's restructuring plan. The company spun off its performance chemicals unit as an independent company, dubbed Chemours, earlier this month. As a unit of DuPont, Chemours had the worst second quarter among the six business sectors. The unit posted $113 million in sales during the quarter, a 55 percent drop from $251 million during the second quarter of 2014.

DuPont blamed the decrease on negative currency impact, noting had the U.S. dollar remained strong in overseas' markets, the unit's sales would be down by 38 percent.

"Chemours was the dark spot in the quarter," Arnold said. "No question about that."

The company is also committed to growing its agriculture, nutrition and industrial biosciences businesses. All three units posted revenue decreases for the second quarter. In fact, industrial biosciences saw a sales decline of $9 million, or 15 percent, from the previous year.

"It's still a little early, and proxy campaigns are sort of like political elections," Hamermesh said. "You can have a down month, but if earnings are strong for the next two quarters, everyone will forget about the down month."

DuPont's earnings decline did not appear to shake Wall Street investors Tuesday. DuPont stock closed at $55.90, down 83 cents from the previous day..

Hamermesh said the stock market's apathetic reaction to DuPont's earnings suggests traders were expecting revenue decreases, but take some of the bite out of Peltz's rhetoric.

"It will give him some ammo, but not tons," he said. "Especially if earnings are stronger next quarter."

Activist investors love a good proxy war, and if Peltz is preparing for another one, he most certainly will pounce on DuPont's revenue decreases.

"An activist investor is going to play whatever information he or she can to their advantage," Isberg said. "If there is a way to spin the information to look like they want, they will do that."

Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or jmordock@delawareonline.com.