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WIKI ANALYSIS
DuPont (NYSE:DD) is a global chemical and technology conglomerate that manufactures materials used in automotive manufacturing, construction, pharmaceuticals, agriculture, and electronics. In 2009, the firm generated $26.1 billion in revenue and $1.2 billion in net income.[1] Agriculture & Nutrition, Safety & Protection, and Electronics are the growth centers for the company, while its Performance Coatings, Performance Materials, and Performance Chemicals divisions serve as reliable sources of cash flow. [2]
Dupont has also manufactures genetically modified plants used to produce renewable energy such as ethanol and biobutanol. Rising oil prices have led to higher demand for alternative energy, and many states have started to require that ethanol be added to gasoline to reduce pollution and conserve oil. Since DuPont's acquisition of Pioneer Hi-Bred in 1999, the company has grown to become the world's largest seed company by sales, providing genetically modified plants that produce the highest levels of corn or soybean per acreage. [3]
DuPont's role as a supplier leaves the company vulnerable to adverse conditions in its customers' industries- for example, declines in the automotive industry and construction industry hurt DuPont's operating margin in 2008. [4] Earnings grew to $441 in the fourth quarter of 2009, compared to a net loss of $629 million a year earlier, as job cuts reduced expenses and demand increased for automotive plastics and electronics materials.[5] The company cut $1 billion in costs in 2009, including eliminating 14,500 employees and contractors. On a per share basis and excluding special items, net income was 44 cents a share, beating average analyst expectations of 41 cents per share.[5] In November 2009, the CEO said she expected the company to deliver 20% compound annual earnings growth for the 2009-2012 period.[6]
Company Overview
DuPont is a large chemical and biotech conglomerate organized into five primary market segments. In addition to the five segments, the company's other segments include Pharmaceuticals and Other.[7]
Business Segments
- Agriculture and Nutrition (25.8% of net sales, 29.8% of pretax operating income)[8]: This segment's mission is to identify methods to improve the quantity, quality, and safety of the global food supply through manufacturing insecticides, fungicides, herbicides, and plant food.[9] This segment includes Pioneer Hi-Bred International, a wholly owned subsidiary and the world's largest producer of seeds.[9] In 2008, Agriculture and Nutrition increased sales by 16% to $8 billion amid a 14% higher US selling price and a 3% increase in volume.[9] Higher 2008 US selling prices reflected an increase in price to offset higher raw materials costs and favorable exchange rates in Europe, Latin America, and Canada. [9] This segment's core markets are the production agriculture and food processing industries. [10]
- Genetically engineered seeds for corn and soybeans. Plants grown from these seeds have a higher yield (more starch per plant), are more resistant to disease, and have a higher tolerance for herbicides used to kill weeds. In 2008, Pioneer launched 30 new soybean varieties and 60 new corn hybrids. [9]
- Pesticides that help control insects and protect crops.
- Soy proteins and lecithins which are used by food companies to enhance their products. These are used in Snickers Marathon bars and in Bio Soja from Danone.
- Liquid packaging systems for beverages and food.
- Coatings and Color Technologies (21.2% of net sales, 8.9% of pretax operating income)[8]: This segment supplies motor vehicle coatings. It is the world's largest manufacturer by volume of titanium dioxide products, a material used in paint, plastics, and paper.[11] Sales in 2008 were flat at $6.6 billion compared to 2007. [11] A 8% higher US selling price was offset by an 8% decline in volume sales, driven by the declining motor vehicle industry, which collectively constitutes a major customer. Titanium oxide sales were strong in developing markets. [11] This segment's core markets are the automotive, paper, industrial coatings, transportation, architectural coatings, and plastics industries. [10]
- Electronic and Communication Technologies (12.5% of net sales, 11.9% of pretax operating income)[8]: This business unit provides materials for the electronics industry, inks and printing systems, fluoropolymer and fluorochemical products, displays, and alternative energy products. [12] In the growing market for flat panel displays, DuPont Electronic and Communication Technologies is a large supplier of materials for plasma displays. [12] In 2008, sales of $4 billion were up 5 percent from 2007, reflecting a 7% increase in USD selling prices and a 3% volume decline. [13] Price increases were driven by increases in the cost of raw materials and favorable changes in US dollar exchange rates. This segment's core markets include the semiconductor, automotive, displays, commercial packaging and printing, HVAC, telecommunications, and chemical processing industries. [10] Products include:
- Refrigeration chemicals used in air conditioners.
- Ceramic circuit materials used to make electronics.
- Printing technologies used on clothing and paper.
- Materials used in flat panel televisions
- Performance Materials (30.4% of net sales, 3.5% of pretax operating income)[8]: This business unit manufactures high performance polymers, elastometers, films, and other material components. [13] In 2008, sales of $6.4 billion were 3% lower than 2007, reflecting a 13% decrease in volume sales. [14] The decrease in volume was driven by an overall reduction in inventory in anticipation of a protracted period of weak global demand from the 2008 recession and extended facility shutdowns from Hurricanes Gustav and Ike. [14] Key markets for the Performance Materials segment include the automotive, packaging, electronics, construction, and consumer durables industries. [10] Products include:
- Resins used in cars, make-up, and computer chips. (Zytel, Delrin, Hytrel, Surlyn)
- Laminate interlayers used in windows and glass--materials that prevent glass from breaking apart when shattered. (SentryGlas Plus, Butacite)
- Synthetic rubber used in adhesives and car tires.
- Polyester (plastic) films used in videotapes, packaging labels, and x-rays. (Mylar, Melinex)
- Safety and Protection (18.2% of net sales, 22.7% of pretax operating income)[8]: This business unit provides scientific-based safety products such as Kevlar, Tyvek, Nomex, and Corian. DuPont Safety and Protection also provides consulting services to assist organizations in reducing workplace injuries and operating costs. [15] In 2008, sales of $5.7 billion were 2% higher than 2007, reflecting a 9% increase in USD selling prices and a 5% decline in volume.[15] For 2009, the company's management expects sales to be tempered by the global recession, with demand for Kevlar and Nomex increasing moderately, offset by weakness in the motor vehicle industries. Key markets for this segment include the military, homeland security, transportation, construction, energy, and protective apparel industries.[10] Products include:
- High tech fibers such as Kevlar and Nomex that are used for military, law enforcement, and aviation purposes for their weight savings, strength, and durability. Sales of Kevlar and Nomex have benefited from strong demand for body armor for military, law enforcement, and firefighting personnel. [15] In 2007, DuPont invested $500 million to expand production of Kevlar and a $100 million investment for the expansion of Nomex. [15]
- Nonwoven fibers such as Tyvek and Sontara. Tyvek is used mainly as an insulation wrap for houses, while Sontara is a cleaning fabric that absorbs more efficiently than other fabric.
- Lubricants such as Krytox.
- Surfaces such as Corian (mainly used for countertops in kitchens, bathrooms and utility rooms) used in construction.
- Pharmaceuticals (0% of net sales, 28.1% of pretax operating income)[8]: DuPont does not manufacture and distribute its own pharmaceutical products. Rather, the company's pharmaceutical income is based on its licensing interest in two drugs for the treatment of high blood pressure, Cozaar and Hyzaar, manufactured and distributed by Merck (MRK). [16] The exclusivity period for these drugs is set to expire in 2010, and income from these drugs will stop in 2013 per the agreement with Merck. [4]
- Other (0.5% of net sales, -5.0% of pretax operating income):[17] Other includes embryonic businesses not included in the growth segments, including applied biosciences and nonaligned businesses. Applied biosciences aims to provide products for agricultural energy crops, feedstock processing, and advanced biofuels. The division commercializes ethanol and biobutanol in joint ventures with Danisco (DCO-KO) and BP (BP).[15] Nonaligned businesses include costs of Benlate fungicide and other discontinued products as well as the remaining assets of the Textiles & Interiors segment. [15]
Research and Development
In 2008, DuPont spent $1.4 billion on research and development, spending which was been fixed at 5% of net sales for the past from 2006-2008.[18] DuPont brings more than a thousand new products to market a year. [19] In 2007, the company was ranked No. 1 in a Patent Board 500 ranking of patent portfolios of companies across the globe, with about 2000 new patent filings and over 20,000 patents in force worldwide. [19] DuPont operates more than 50 R&D centers around the world, aiming to attract the best available scientific talent and take advantage of regional knowledge necessary to create products catered to the varying needs of customers in every market[19] with the highest concentration of research at its Wilmington, DE facilities. [20] DuPont's modern research concentrates on renewable bio-based materials, advanced biofuels, energy-efficient technologies, enhanced safety products, and alternative energy technologies. [20]
Trends and Forces
Rise of Ethanol has Increased Demand for Corn
Increased demand for corn by ethanol refineries pushed corn prices to record highs in 2008.[21] DuPont's genetically modified seeds allow farmers to grow more corn in a given acreage of land. The average yield of corn in the US is 150 bushels per acre, but DuPont aims to push the yield to 400. [22] US farmers increased corn plantings 19% in 2007.[4] In addition, the percentage of genetically modified corn in the US has risen from 46% in 2004 to 61% in 2006, driving higher seed sales for Pioneer, DuPont's seed company.[22] Pioneer is investing 9-11% of its revenue on seed research to boost corn productivity.[22] Adverse crop prices, weather patterns, harvest strength, and pest epidemics all influence farmers' buying capacity for Dupont's products.
Declining Automotive Industry Slows Demand for Many DuPont Products
The rubber in engine hoses and belts, the plastics in car bumpers and under the hood, the refrigerant in the A/C and the safety membrane in the windshield are all produced by DuPont. A global decline in demand for motor vehicles, led by the near-collapse of the Big Three U.S. automakers (Ford, Daimler Chrysler, and GM), has depressed volume sales of these products. In December 2008, the Coatings & Color Technologies segment laid off 1,600 workers and closed several manufacturing units at a cost of $236 million because of declining sales. [11] Dupont expects this restructuring plan to cut operating costs by $140 million annually after it is completed in 2010. [11]
Exchange Rates and Currency Fluctuations
More than half of DuPont's sales are outside the US.[24] As the dollar strengthens in comparison to other currencies, DuPont's dollar earnings decrease, as foreign customers pay in a foreign currency that has decreased in value. Between early 2008 and early 2009, the US dollar appreciated about 20% against a basket of major currencies. [23] While the low value of the dollar benefited Dupont in FY2008, the appreciating dollar has the potential to drag growth in FY2009.
Commodity Prices
Since DuPont uses oil as a raw material to make plastics and burns natural gas as a fuel to make its products, any significant fluctuation in oil or natural gas prices will impact the company's profits. Despite widespread commodity price increases, DuPont has actually increased margins by preemptively raising the prices for its products. In 2008, increased prices in the Agriculture and Nutrition segment contributed to a 16% increase in sales to $8 billion.[9] However, in other cases increased raw materials costs have not been successfully passed on to the customers. In 2008 for example, the Performance Materials segment reported a 3% decrease in sales after increasing prices by 11% because of a 13% decrease in sales volume. [14]
Competition
DuPont's business units compete in a range of markets. The company's competitors include chemical, agricultural, and biotechnology companies. [25]
| R&D ($M) | R&D % Revenue | Revenue ($B) | Net income ($B) | EBITDA margin | |
| DuPont | $1,393 [18] | 5% [18] | $31.80 [26] | $2 [26] | 13.23% [26] |
| BASF SE (BASFY) | $1831** [27] | 2.20%[27] | $84**[27] | $3.9**[27] | 26.50%[28] |
| Bayer AG (BAYRY) | $3869**[29] | 8.10%[29] | $48 [30] | $2.20 [30] | 21.20%[31] |
| Dow Chemical Company (DOW) | $1305* [32] | 2.40%[32] | $57.50 [33] | $0.58 [33] | 5.68% [33] |
| Monsanto Company (MON) | $980 [34] | 8.6%[34] | $11.4 [35] | $2.0 [35] | 30.63% [33] |
Notes:
- 2007 data
- Company reports earnings in euros. Conversions to US dollars are based on exchange rates as of December 2008 and provided for reference only. [36]
References
- ↑ Dupont 2009 Fourth Quarter earnings release
- ↑ Jefferies analyst report, Nov 19, 2009
- ↑ DUPONT (E.I. DUPONT DE NEMOURS AND COMPANY)
- ↑ 4.0 4.1 4.2 Bloomberg "DuPont Net Falls Unexpectedly on Auto, Housing Slides"
- ↑ 5.0 5.1 Bloomberg "uPont Profit Tops Estimates on Automotive Materials "
- ↑ CNN Money "DuPont CEO Outlines Plan for Delivering Growth in 2010 and Beyond"
- ↑ Dupont 2008 10-K, Item 1 "Business," page 2
- ↑ 8.0 8.1 8.2 8.3 8.4 8.5 8.6 Dupont 2008 10-K, Notes to the Consolidated Financial Statements, page F-47
- ↑ 9.0 9.1 9.2 9.3 9.4 9.5 Dupont 2008 10-K, Item 7 "Management's Discussion," page 27
- ↑ 10.0 10.1 10.2 10.3 10.4 Dupont 2007 Annual Review, page 8
- ↑ 11.0 11.1 11.2 11.3 11.4 Dupont 2008 10-K, Item 7 "Management's Discussion," page 28
- ↑ 12.0 12.1 Dupont 2008 10-K, Item 7 "Management's Discussion," page 28
- ↑ 13.0 13.1 Dupont 2008 10-K, Item 7 "Management's Discussion," page 32
- ↑ 14.0 14.1 14.2 Dupont 2008 10-K, Item 7 "Management's Discussion," page 33
- ↑ 15.0 15.1 15.2 15.3 15.4 15.5 Dupont 2008 10-K, Item 7 "Management's Discussion," page 34
- ↑ Dupont 2008 10-K, Item 1 "Business," page 3
- ↑ Dupont 2008 10-K, Item 7 "Management's Dicussion," page 34
- ↑ 18.0 18.1 18.2 Dupont 2008 10-K, p. 21
- ↑ 19.0 19.1 19.2 Dupont 2007 Annual Review, page 4
- ↑ 20.0 20.1 Dupont 2008 10-K, Item 1 "Business," page 7
- ↑ USDA "Corn Prices Near Record High, But What About Food Costs?"
- ↑ 22.0 22.1 22.2 Dupont sees key GMO role in ethanol corn challenge
- ↑ 23.0 23.1 Federal Reserve Trade Weighted Exchange Index: Major Currencies
- ↑ Morningstar analyst report, DD, 23 Feb 2009
- ↑ DUPONT (E.I. DUPONT DE NEMOURS AND COMPANY)
- ↑ 26.0 26.1 26.2 Google Finance DD
- ↑ 27.0 27.1 27.2 27.3 BASF Annual Report 2008, p. 2
- ↑ BASF Annual Report 2008, p. 79
- ↑ 29.0 29.1 Bayer 2008 Annual Report, page 2
- ↑ 30.0 30.1 Post Gazette "Bayer 2008 revenue rises, profit plunges"
- ↑ Bayer 2008 Annual Report, page 52
- ↑ 32.0 32.1 DOW 10-K 2007, Item 1 "Business," page 8
- ↑ 33.0 33.1 33.2 33.3 Google Finance DOW
- ↑ 34.0 34.1 MON 10-K 2007, Item 1 "Business," page 7
- ↑ 35.0 35.1 Google Finance MON
- ↑ U.S. / Euro Foreign Exchange Rate
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