E.I. du Pont de Nemours & Company (DD)

Energy prices will increase over the next few years putting pressure on DuPont’s production costs.

Since DuPont uses oil as a raw material to make plastics and burns natural gas as a fuel to make its products, significant fluctuations in oil or natural gas prices will impact the company's profits. Widespread commodity price increases have led DuPont to preemptively raise prices for many products. In some cases increased raw materials costs can be passed on to consumers, but in other cases the company is not so fortunate. For example, in 2008 the Performance Materials segment reported a 3% decrease in sales after increasing prices by 11% because of a 13% decrease in sales volume. After Hurricane Katrina in 2005, DuPont raised prices on 35,000 products to counter the increasing price of oil and other raw inputs.

Licensing fees from Cozaar® and Hyzaar® hypertension drugs provided a billion dollars in PTOI in 2008. These fees provided an average of 22% of DuPont's pretax operating income from 2006-2008. This income will begin to decline in 2010 as the patents expire and will cease in 2013 according to the terms of the license agreement with Merck. There will be no corresponding cost reductions as this earnings stream disappears since there are virtually no costs required to generate these earnings. Thus the reduction will directly reduce earnings per share and cash flow from operations by ca. 25% with little evidence that there are near term opportunities to replace this significant loss of cash flow.

DuPont will fail to execute on new product development.

Larger than expected liabilities will result from the Teflon intermediate PFOA lawsuit.