Bookmark Current Page
Edit Metric
|
||||||||||||||||||||
Details
|
||||||||||||||
| 
Edit
History
Bulls: Reasons To Buy
Feeling Bullish?
Be the first to explain why this would make a good investment
Bears: Reasons To Sell
|
Top Contributors
|
Add your own Bears Reason
DuPont (NYSE:DD) is a chemical and technology conglomerate whose business spans the manufacturing of unique materials such as Kevlar and Teflon and the production of genetically enhanced plant seeds. In 2007, the firm generated $30.7 billion in revenue and $3 billion in net income.
In recent years, DuPont has shifted its focus from manufacturing to research and development. A hundred years ago, the company manufactured explosives. Today, it invents genetically engineered corn seeds which are resistant to pestilence and disease. As a result of this focus on research and development, a third of the company's revenues come from products which it invented in the last five years.
Because of its heavy research into genetically modified plants, Dupont's fate is intimately connected to that of renewable energy sources 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. As corn is currently the largest source of ethanol, companies selling higher-yielding corn seeds such as Dupont and Monsanto have been a major beneficiary of this trend.
Although Dupont's product catalog may seem haphazard at first glance (it sells paint alongside plastic and materials such as Kevlar), there is a hidden logic. Dupont identifies desirable customers, such as auto manufacturers, and aims to sell them all the raw materials they need. For example, Ford buys paint, plastic parts, and refrigeration components (for the A/C in the car) from DuPont. Dupont's future success will depend on its ability to convince these super-customers to purchase a greater ranges of supplies from Dupont -- perhaps by replacing metal car parts with lightweight synthetic plastics or Kevlar.
Contents |
[edit] History
DuPont was founded in 1802 by a French immigrant by the name of Eleuthère Irénée du Pont. In its origins, the company’s main revenue source came from the manufacture of explosives. In 1912, the company was declared a monopoly since it controlled 75% of the powder market. DuPont has transformed itself three times since its creation; the first 100 years (19th century) were focused on the manufacture and distribution of explosives, the next 100 years (20th century) were focused on the invention of synthetic fibers, and the last 10 years have been focused on industrial biotechnology and plant genetics. Today, DuPont employs over 59,000 workers and reports annual revenue over 28.9 billion.
[edit] Company Description
[edit] Industry Segments
DuPont operates in the following five industry segments:
[edit] Current State - Segment Net Assets
| 2006 Asset Value ($ bil) | 2007 Sales ($ bil) | % of Total 2007 Sales | ||
|---|---|---|---|---|
| Agriculture and Nutrition | 7.2 | 6.8 | 23.0% | |
| Coatings & Color Technologies | 3.8 | 6.6 | 22.3% | |
| Electronic & Communication Technologies | 2.2 | 3.8 | 12.8% | |
| Performance Materials | 3.9 | 6.6 | 22.3% | |
| Safety & Protection | 2.6 | 5.6 | 19.0% | |
Despite weak U.S. sales in nearly every division due to the struggling auto and housing markets, revenue rose 9 percent to $8.6 billion in the first quarter of 2008, with emerging market sales growing by 25%. Modest increases in prices, volume sold, and currency benefits combined to cap off a solid 2007 for Dupont. Sales in emerging markets grew 20 percent, led by Brazil, China and India. Sales in the United States grew 5 percent despite lower U.S. housing starts and auto builds. Increasing energy and raw materials costs alongside weakening U.S. and Japanese markets were the firm's major nemeses for 2007. Growing demand in emerging markets and new innovations, however, continue to spur further growth. In 2007, the firm generated $30.7 billion in revenue and $3 billion in net income.
[edit] Agriculture and Nutrition
This business unit produces:
- 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.
[edit] Coatings and Color
This business unit produces:
- A key ingredient of white paint, Titanium Dioxide (TiO2).
- Paint for automobiles.
[edit] Electronics and Communication
This business unit produces:
- 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.
[edit] Performance Materials
This business unit produces:
- Resins used in cars, make-up, and computer chips.
- Laminate interlayers used in windows and glass (which prevents glass from breaking apart when it is shattered).
- Synthetic rubber used in adhesives and car tires.
- Polyester (plastic) films used in videotapes, packaging labels, and x-rays.
[edit] Safety and Protection
This business unit produces:
- High tech fibers such as Kevlar and Nomex that are used for military and aviation purposes for their weight savings, strength, and durability.
- 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 and bathrooms) used in construction.
[edit] Business Drivers
While DuPont competes in different markets, there are four main industries that determine the company's profits:
- Agricultural: DuPont's seeds let farmers grow more corn or soybeans in a given acreage of land. This agricultural productivity is important for the world's food supply (70% of corn is used to feed livestock), and is also important for alternative energy fuels such as ethanol, which is made from corn. The demand for corn by ethanol refineries has led to a spike in the price of corn / bushel. This in turn has increased the number of acres of corn that farmers are planting, and has led to an increase in DuPont's sales. Any factors which affect farmers will in turn impact DuPont's performance. Crop prices, weather patterns, harvest strength, and pest epidemics all influence farmers' buying capacity for Dupont's products.
- Construction: New home construction and remodeling drive the growth of several of DuPont's businesses. When a new building is built it needs exterior and interior paint and coating, plastic pipes, protective glass for windows (Sentry), insulating wrap to keep the interior of the house warm or cold depending on the season (Tyvek), surfaces for countertops (Corian), and other DuPont products. A robust construction market is beneficial to the company's revenues. DuPont has capitalized on growing demand for 'green' products by developing more efficient insulators, products used in solar energy production, and building materials made from recycled materials. In July 2008 DD announced a campaign to grow annual sales for its solar products from $300 million to $1 billion by 2013, on the back of higher energy costs and the popularity of environmentally conscientious building.[1]
- Automotive: Practically every single part of a car except steel and gasoline is, in part, manufactured by DuPont. The rubber in the hoses and belts, the plastics in the bumpers and under the hood, the refrigerant in the A/C and the safety membrane in the windshield are all produced by DuPont. While the success of the Big Three U.S. automakers (Ford, Daimler Chrysler, and GM) has traditionally been of utmost importance to DuPont, during the past decade DD has expanded to supply different automotive components to foreign car companies also. As a result, the current 6-7% annual decrease in domestic U.S. car production has been offset by a similar growth rate for automotive component sales captured by DuPont in countries such as China, Brazil, and Russia.
- Bio-Based Materials: This section of DuPont's business is small today, representing only around a half a percent of the company's sales, but could grow rapidly. The company has teamed up with Danisco's Genencor to develop enzyme-based methods of producing cellulosic ethanol, and is planning on spending $140 million in the next few years on building a pilot plant.
Other factors that affect the success of the company are:
- Currency fluctuations: More than half of DuPont's sales are outside the US. As the dollar weakens in comparison to other currencies, DuPont's dollar earnings go up, as foreign customers pay in a foreign currency that has increased in value.
- Commodity prices: Since DuPont utilizes 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. The company estimates that a 1% increase in the price of natural gas reduces the company's earnings by $115 million. Despite widespread commodity price increases, DuPont has actually increased margins by preemptively raising the prices for its products.
[edit] Competition
DuPont faces hundreds of competitors across different product categories. For this reason, the following table compares DuPont versus its main competitors within the Agriculture and Nutrition business segment, which represents the most promising segment to the company:
| Chemical Crop Protection | Seeds/Biotech | Total | ||||
|---|---|---|---|---|---|---|
| Sales (m) | Market Share | Sales (m) | Market Share | (m) | ||
| Syngenta | 6,307 | 19% | 1,797 | 21% | 8,104 | |
| Bayer | 6,917 | 21% | 407 | 5% | 7,342 | |
| Monsanto | 2,910 | 9% | 3,440 | 40% | 6,350 | |
| DuPont | 2,250 | 7% | 2,785 | 32% | 5,035 | |
| BASF | 4,097 | 12% | 0% | 0% | 4,097 | |
