DuPontAn investment analysis
DuPont makes a variety of high-value products for industry today, including
polymers,chemicals, fibers, and petroleum products…products for agriculture,
electronics,transportation, apparel, food, aerospace, construction, and health care.DuPont servescustomers in these and other industries every day, offering “better thingsfor better living”as the company prepares to begin its third century of scientific,technological,commercial, and social achievement. DuPont is a research and technologybasedchemical and energy company with its annual revenue exceeding $39 billion.Eleuthre Irne du Pont de Nemours, a French immigrant, established DuPontin1802 in a small Delaware town. E.I. du Pont was a student of AntoineLavoisier, thefather of modern chemistry, and when he came to America he brought some ofthe newideas about the manufacturing of consistently reliable gun powder. Hisproduct ignitedwhen it was supposed to, in a manner consistent with expectations. This wasgreatlyappreciated by the citizens of the growing nation, including ThomasJefferson, who wrotethanking du Pont for the quality of his powder, which was being used to clearthe land atMonticello. Many other heroes of early America owed their success, and theirlives, tothe dependable quality of DuPont’s first product. This represents a good,strong start fora company. DuPont, which is moving through the last decade of the twentieth century andtoward its third century, emphasizes several things; competing globally;sharpening itsbusiness focus; increasing productivity; committing to safety, health, andenvironmentalexcellence; and continuing to extend its significant science andtechnologicalachievement. One of DuPont’s major strategies is to focus on businesses in which DuPonthascore competencies, where DuPont can build competitive advantage. The mostnotableexample of this focus was the 1993 transaction in which DuPont acquired ICI’snylonbusiness and ICI acquired DuPont’s acrylics business. This strengthened thecompany’sposition in the global nylon business while divesting a business that nolonger fit itsportfolio. Another major factor in the transformation of the company in the1990s wasthefocus on reducing costs and improving productivity. This was necessary togive thecompany the flexibility for competitive pricing and to grow market share andearnings. DuPont had strong plants in several countries around the world for manyyears,and their globalization trend continued in the 1990s. New plants opened inSpain,Singapore, Korea, Taiwan, and China, and a major technical service centeropened inJapan. In 1994, a Conoco joint venture began producing oil from the ArdalinField in theRussian Arctic–the first major oil field brought into production by aRussian/Westernpartnership since demise of the Soviet Union.A further major development was the redemption of 156 million DuPont sharesfrom Seagram for $8.8 billion in cash and warrants — one of the largeststockredemptions in history. This large block of shares was redeemed at a 13percent discountto market price. While DuPont later sold some new shares, there are 18percent fewershares currently outstanding than just prior to the redemption. This resultedin asignificant opportunity for wealth creation for our stockholders. The shareredemptionwas made possible by four years of cost reduction, productivity improvementandorganizational change that have made DuPont strong financially and allowedthem tomove decisively and quickly. The DuPont that emerged from the company’s transformation in the 1990s hasoften been described by people inside and outside the company as “the newDuPont.”This characterization is only partly appropriate, because while DuPont haschanged, thereare many things that remain the same. The core competency in science andtechnology,the commitment to safety, the concern for people, the feeling of community,theemphasis on personal and corporate integrity, the future focus, and indeedthe willingnessto change. DuPont is a company not only out for their own interest, but alsofor the bestinterest of the world.What has always set DuPont apart is the quality of the people, peoplecommittedto making life easier and better for everybody, proud to be a part of anenterprise making”better things for better living.” That was true in 1802. And it is just astrue today. In the second quarter of 1995 DuPont reported earnings per share of $1.70,up 47percent from the $1.16 earned in the second quarter 1994.Net incometotaled $938million, compared to $792 million earned in 1994. Both earnings per shareand netincome increased 27 percent.”These outstanding results continue to reflectstrongrevenue gains and ongoing productivity improvements,” said DuPont ChairmanEdgarS.Woolard Jr. Sales for the second quarter were $11.1 billion, up 9 percentfrom prioryear.The third quarter of the 1995 business year led DuPont to a $1.38 per shareearning. This number exceeded the $.95 earned in the third quarter of 1994by more than45%. Net income totaled $769 million compared to $647 million earned in1994. Salesfor the third quarter were $10.2 billion, up 4 percent from the prior year.DuPont saw a drop in the earnings per share price for the fourth quarter of1995. The $1.13 per share of the fourth quarter was $.25 lower than the thirdquarters report. But the report was still $.18 higher than the fourth quarter report from1994.The average rise in earnings per share per quarter from 1994 to 1995 isroughly$.40, which is not bad at all.The full year’s earnings were $5.61 per share compared to $4.00 per share in1994(Graph 3). The average number of shares outstanding in 1995 declined 14percent due tothe redemption of stock from Seagram in 1995.
“This was our second consecutive year of record earnings and significantyear-over-year improvement,” said John A. Krol, DuPont president and chiefexecutiveofficer. “These outstanding results are a tribute to the talent anddedication of DuPont’speople worldwide. We are pleased with the progress we have made to increaseprofitability and expand our businesses globally.” In a day and age where any thing can happen, diversity in production is key.
Nocompany comes close to the variance that DuPont expresses in theirproduction. Shareearnings continue to rise throughout the past two years, as do the price pershare numbers(Graph1), and there is no reason for the pattern to change. DuPont is obviously a company that is going places in the global community.
Ifsomething goes wrong with the clothing industry, they will still compete intheconstruction industry. If something happens in transportation, electronicswill be there tohold strong for the company. With a company that is so diversified in itsproduction,DuPont is a smart investment, and I fully endorse it.