INSIGHT: DuPont looks to strength in diversity

24 July 2007 17:16  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--DuPont chairman and CEO Chad Holliday in 2004 stressed the fact the centre of gravity of the chemicals giant’s business was shifting away from the US. He was talking as the Wilmington, Delaware-based company announced extensive job cuts.

Since making those comments, DuPont's drive eastwards has accelerated as has its push into new markets and products like biofuels. Its productivity drives are unrelenting.

The firm’s second-quarter results tell much of the story: DuPont has struggled in the US this year with the much slower housing and auto markets.

In the second quarter, top line volumes were only grown outside the US.

If the company is going to hit its 2007 profit targets it will have to make the most of its non-US businesses and locally higher selling prices and make more productivity gains at home.

DuPont is not doing badly but it has struggled in the domestic market with the titanium dioxide, industrial paints and surfaces businesses under pressure.

First-half earnings per share excluding a tax benefit in the second quarter last year were up 9% at $2.11. At the operating level, first-half margins rose to 20.2%, from 19.6% last year. Second-quarter earnings though were flat - or up slightly if last year’s tax gain is ignored. Underlying operating profits growth was 6%.

“We did not grow earnings as much as we would have liked in the second quarter,” Holliday said on Tuesday.

He admitted too the company did not react fast enough to lower US volumes and higher input costs.

But, DuPont is confident enough to stick with its October 2006 earnings forecast for 2007.

Growth outside North America will continue to drive the business. Developing country sales were more than 11% ahead in the second quarter, with greater China growth above 10%. East and central European sales were up 25%, while in India they rose 7%.

“We will do even better,” Holliday promised in a conference call.

Fixed cost streamlining will help buoy the company, he suggested.

DuPont is not expecting any respite from its construction or auto market woes in the current year, however.

Looking further ahead, the company is also placing big bets on biotechnology - bio-based products like the polymer Sorona and new agricultural traits targeted currently largely at the big US corn crop.

Investment in crop genetics - and in marketing new products from these traits - looks as though it can deliver. DuPont said its crop genetics research pipeline was on track. The aggressive ramp-up of biotech traits in its seeds business and the related crop protection products should begin paying off for the company in the growing season next year.

DuPont is often questioned about the amount of money it is spending on research and development, in agricultural biotechnology, for example, and when the real pay-back can be expected.

“We have turned the corner,” Holliday said in regard to the firm's biotech research. Nine years investment in ag biotech, bio-materials and bio-fuels would start paying off next year, he suggested.

Biotechnology was still very early in its evolution, he said, but DuPont could benefit by having multiple routes to market for biotech products – in seeds, biofuels and bio-plastics.

Just as the company is being forced to rely more extensively on new markets and new products for growth - 282 new products were launched and more than 400 new patents filed in the second quarter - so the research engine is expected to deliver on biotechnology across a number of product platforms and markets.

Currently, DuPont has some difficult domestic business conditions to cope with. In future its problems and opportunities by necessity will have to be more widespread.

By: Nigel Davis
+44 20 8652 3214

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