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

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Peter Maa

Raul Munoz

J.D. Thornton

DuPont (NYSE:DD) is a global chemical and technology conglomerate that manufactures materials used in automotive manufacturing, construction, pharmaceuticals, agriculture, and electronics.^[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]

Company Overview

Dupont 2008 Net Sales by Segment ($M) ^[5]

Business Segments

• Agriculture and Nutrition (31.7% of 2009 net sales, 36.6% of pretax operating income)^[6]: 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.^[7] This segment includes Pioneer Hi-Bred International, a wholly owned subsidiary and the world's largest producer of seeds.^[7] This segment's core markets are the production agriculture and food processing industries. ^[8] Agriculture is a key driver of future growth for Dupont, which said in June 2010 it will focus on expanding seed production to boost global agriculture productivity.^[9]
  • 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.
  • 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.

• Performance Coatings (13.1% of 2009 net sales, 2.1% of pretax operating income)^[6]: 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.^[10] This segment's core markets are the automotive, paper, industrial coatings, transportation, architectural coatings, and plastics industries. ^[8]

• Electronic and Communication Technologies (7.3% of 2009 net sales, 2.6% of pretax operating income)^[6]: This business unit provides materials for the electronics industry, inks and printing systems, fluoropolymer and fluorochemical products, displays, and alternative energy products. ^[11] In the growing market for flat panel displays, DuPont Electronic and Communication Technologies is a large supplier of materials for plasma displays. ^[11] 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. ^[8] 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 (18.1% of 2009 net sales, 8.6% of pretax operating income)^[6]: This business unit manufactures high performance polymers, elastometers, films, and other material components. ^[12] 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. ^[12] Key markets for the Performance Materials segment include the automotive, packaging, electronics, construction, and consumer durables industries. ^[8] 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 (10.7% of 2009 net sales, 7.8% of pretax operating income)^[6]: 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. ^[13] 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.^[8] 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. ^[13] In 2007, DuPont invested $500 million to expand production of Kevlar and a $100 million investment for the expansion of Nomex. ^[13]
  • 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 2009 net sales, 31% of pretax operating income)^[6]: 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). ^[14] 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. ^[15]
• Other (0.5% of 2009 net sales, -5.0% of pretax operating income):^[6] 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).^[13] Nonaligned businesses include costs of Benlate fungicide and other discontinued products as well as the remaining assets of the Textiles & Interiors segment. ^[13]

Research and Development

Research and development spending is fixed at approximately 5% of net sales.^[16] DuPont brings more than a thousand new products to market a year. ^[17] 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. ^[17] 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^[17] with the highest concentration of research at its Wilmington, DE facilities. ^[18] DuPont's modern research concentrates on renewable bio-based materials, advanced biofuels, energy-efficient technologies, enhanced safety products, and alternative energy technologies. ^[18]

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Competition

DuPont's business units compete in a range of markets. The company's competitors include chemical, agricultural, and biotechnology companies such as BASF SE (BASFY), Monsanto Company (MON), Dow Chemical Company (DOW). ^[19]

References

1. ↑ Dupont 2009 Fourth Quarter earnings release
2. ↑ Jefferies analyst report, Nov 19, 2009
3. ↑ DUPONT (E.I. DUPONT DE NEMOURS AND COMPANY)
4. ↑ Dupont 2008 10-K, Item 1 "Business," page 2
5. ↑ Dupont 2008 10-K, Notes to the Consolidated Financial Statements, page F-47
6. ↑ ^{6.0 6.1 6.2 6.3 6.4 6.5 6.6} DD 2009 10-K, page 51
7. ↑ ^{7.0 7.1} Dupont 2008 10-K, Item 7 "Management's Discussion," page 27
8. ↑ ^{8.0 8.1 8.2 8.3 8.4} Dupont 2007 Annual Review, page 8
9. ↑ Wall Street Journal, "DuPont Profit Nearly Triples, Raises View", 27 July 2010
10. ↑ Dupont 2008 10-K, Item 7 "Management's Discussion," page 28
11. ↑ ^{11.0 11.1} Dupont 2008 10-K, Item 7 "Management's Discussion," page 28
12. ↑ ^{12.0 12.1} Dupont 2008 10-K, Item 7 "Management's Discussion," page 33
13. ↑ ^{13.0 13.1 13.2 13.3 13.4} Dupont 2008 10-K, Item 7 "Management's Discussion," page 34
14. ↑ Dupont 2008 10-K, Item 1 "Business," page 3
15. ↑ Bloomberg "DuPont Net Falls Unexpectedly on Auto, Housing Slides"
16. ↑ DD 2009 10-K, Item 6 "Selected Financial Data," page 16
17. ↑ ^{17.0 17.1 17.2} Dupont 2007 Annual Review, page 4
18. ↑ ^{18.0 18.1} Dupont 2008 10-K, Item 1 "Business," page 7
19. ↑ DUPONT (E.I. DUPONT DE NEMOURS AND COMPANY)