DuPont: Global Solutions for Global Problems
DuPont: Global Solutions for Global Problems
E.I. du Pont de Nemours and Company (DD) is one of the oldest companies in the U.S. founded in 1802 as a gunpowder manufacturer. Started near Wilmington, Delaware by Eleuthere Irenee du Pont after escaping France because of the French Revolution. Eventually it became the largest supplier to the U.S. military during the civil war. It actually became so large in the early 1900's that it was ordered to divest under Anti-trust laws. It then started branching out into other chemical areas besides explosives and built the first two industrial laboratories in the U.S.
DuPont's R&D has created an extremely long list of inventions to include: neoprene, nylon, teflon, mylar, dacron, orlon, lycra (spandex), tyvex, nomex (fire resistant fabric), Qiana (faux silk), corfam (faux-leather), corian (non-porous solid surface material), and kevlar (bullet resistant fabric). Many of their developments have been in the materials industry, specifically polymers. Their research and development has changed over the years and is much more broad than just polymers. DuPont has put their foot in the door of almost any industry that can be chemically modified or enhanced. The produce genetically modified food, pesticides, herbicides, batteries for electric cars, solar panels, 134 products in the food & beverage industry to include brewing enzymes, sand used in mining processes, and durable plastics that were probably used in your toothpaste tube. DuPont has at least one product for every letter of the alphabet (except J) and the number 20. Well if you happen to be in the Government or Public sector they have a product for that too, they offer consulting services to Government agencies.
DuPont wouldn't be where they are now without the leadership that have taken them this far. Ellen Kullman the CEO and 23 year veteran of DuPont and prior employee of GE has lead DuPont since 2009. She had first worked as a marketing manager for DuPont and moved through tthe ranks in key leadership positions of several industries and key DuPont roles. Before her exceptional career progression, which has lead her to being named the 4th most powerful women in 2011 by Forbes, she graduated from Tufts & Northwestern with a Bachelor's in mechanical engineering and a Masters in management, respectively. Not only does she have the company experience but she has the educational foundation to back up her roles as CEO of DuPont.
Thomas M Conelly, Jr., the CIO or Chief Innovation Officer, an integral position to hold in the advancement of DuPont as a global competitor. He has worked for DuPont since 1977 and started as a research engineer. He has led major products such as Kevlar and Teflon, named a VP in 1999, Chief Science & Tech Officer in 2001, and Ex VP CIO in 2006 (his current role). To back up his leadership skills he graduated with highest honors from Princeton while earning a double Bachelors in Engineering & Economics and received his Doctorate in Chemical Engineering from the University of Cambridge. To top it all off he serves in advisory roles to the U.S. government and the Republic of Singapore.
To simplify the rest of the management analysis process I have done a more quantitative approach in quality (mainly because it seems like they are hogging all the smart people). All of their top executives have degrees from IVY League Universities or top Schools in their fields. To give you specific numbers 3 from Harvard, 2 from Cornell, 3 from UPENN, 1 Berkely (Ph.D), 3 UVA, and 1 MIT.
Financials, the exciting stuff, right off the bat DuPont has an extremely large amount of sales $34.8 billion in 2012. Unfortunately with such a large company (i see it as an excuse) comes quite the cost of sales and ultimate smaller percentage of profitability. DuPont however has increased their net profit margin by 1.6% from 2009-2012, but decreased 1.1% from 2011-2012. For 2013 we get an estimated 13.44% net profit margin after totaling the past three quarters of sales at $28.154 billion and adding a conservative fourth quarter estimate of $7.325 (the final quarter of 2012) to come to a total of $35.506 billion. We then divide their total estimated net income of $4.774 billion (using the same process as sales) by their total net sales. This brings us to a growth of 5.434 percentage points in their net profit margin percentage from a 2012 percentage of 8%. A more exciting number is their increase in net income of 71% from $2.788 billion to $4.774 billion. Both of these numbers tell us that DuPont is making an effort to curb the costs of running such a large corporation and is committed to efficiency.
Something I am not excited about is their large amount of liabilities, a 2012 total of $39.648 billion which has grown 28% since 2009. I generally do not like a large amount of liabilities, however their short term debt and accounts payable is a smaller portion of their liabilities @ 15.45% and can almost be totally covered by their cash on hand.
Last but not least we check out their dividends paid out and it's change over the years. Since 2009 they have increased their annual dividend by $.16. The annual dividend now stands at $1.80 which is an attractive number for a company currently valued at $61.90 a share which equates to a 2.9% yield. This is a big plus in stock attractiveness because it shows they have at least some level of care for their investors.
As far as growth perspective the sky is the limit for DuPont, or really the level of innovativeness they can squeeze out of their engineers and scientists. The first thing to notice is how big the company already is with a 2012 sales of $34.812 billion but not very big compared to the global sales of chemicals of $4.402 trillion. DuPont only represents .79% of the global chemical sales. This leaves plenty of room for growth through acquisitions and new products. While acquisitions are a possibility I like a combination of both, using new products to edge out large un-purchasable companies and acquisition to gobble up smaller competitors that are willing to sell. For now I would like to see product innovation more than acquisition since they already have a large amount of debt. These new products will be coming in revamping old technology or creating new products that have regional or global application such as GMO's and Energy production and efficiency.
One of the heaviest parts of a car is it's drivetrain because of the metal that is needed for the high heat and stress environment, that is why DuPont has partnered with "Chery" a Chinese auto manufacturer to produce lightweight polymer drivetrain parts that can withstand that environment. With Obama's new 54.5 mpg by 2025 fuel efficiency guideline these lightweight materials are needed now more than ever.
GMO's have been in the limelight recently for being possibly harmful to the human body, but here me out. The world population is set to grow by another 3 billion people by 2042 according to some estimates. More people means more land, water, and resources needed to house these new humans. Unfortunately that means less resources for the food that is needed to sustain them. To top if off we as a race already have a difficult time of feeding everyone. That's why DuPont is breaking into the GMO/Agricultural industry. They have products ranging from Herbicides & Pesticides (yes they have a pesticide that protects your precious Christmas tree farms, Westor is the name) to actual plants like soybeans & corn. DuPont's products are going to be integral in the global agricultural economy for years to come.
With a growing population comes a growing demand for energy. While fossil fuels are going out of "style" they are not going out of use. DuPont has developed many products that aid in all around efficiency and environmental friendliness of the fossil fuel production and consumption process. These developments include emissions scrubbers for power plants, water treatment solutions for injections wells (hydraulic fracturing), and a production process that increases gasoline efficiency and decreases it's emissions.
DuPont is recognizing world problems and fixing them with innovation. A testament to this is 85% of their $2 billion R&D fund was focused on increased food production, decreasing dependence of fossil fuels, and protecting people & the environment (taken directly from dupont website). Not only will this help them corner the chemicals industry in growing economies but it will help improve the quality of life throughout the world.
Now investor beware there are a lot of unforeseen things that could effect this company in the future. One large issue is research and legislation that could negatively impact it's growing Agricultural business. While research is far from being conclusive GMO's have been shown to negatively affect the health of animal test subjects. While negative outcomes in this area would create a speed bump for DuPont this is not their first road trip, they are in fact one of the oldest companies in the U.S. DuPont also holds a lot of debt/liabilities which I absolutely hate. However this seems to be a common place for such large companies in this industry. I also dislike inefficient companies, seeing as their profit margins are 13% I would put them in that group, but they are improving upon it.
I see DuPont moving forward in the future and hopefully their valuation does as well. They are a global company solving global problems while tapping into a global economy.