The American chemical manufacturing giant known as DuPont (NYSE:DD) recently surprised investors with a rosier earnings report than expected. According to the company’s filings for the first quarter of FY2015, DuPont posted earnings of $1.34 per share, three cents greater than the $1.31 per share expected by financial analysts. However, this total still represented a year-over-year loss at the company, adding to shareholder doubts as DuPont faces a major struggle from an activist investor, one who may wind up decimating research and development at the company for years to come.
DuPont beat out Wall Street’s earnings per share estimates but there are still plenty of reasons for pessimism following the latest earnings reports. The $1.31 earnings per share is slightly better than forecast but well below first quarter FY 2014 returns of $1.58 per share, a year-over-year loss of 27 cents per share. Total revenues for the corporation also dropped year-over-year, from $10.13 billion in last year’s first quarter to $9.17 billion in the most recent quarter, a reduction of about 9 percent. Even though earnings beat the market prediction, DuPont’s first quarter revenues were expected to be higher, around $9.42 billion.
A strong U.S. dollar is making matters even worse for DuPont throughout 2015, hurting its ability to maintain the majority of its business which takes place in foreign countries. DuPont had already forecasted that its stock would drop in price by 60 cents per share but recently updated that loss to 80 cents per share over the course of 2015 because of the strong dollar, bottoming out close to $4 per share over the course of the year.
In a move that may have been made to placate its shareholders, DuPont recently announced the fourth dividend increase ever extended to shareholders over the course of the company’s 212-year existence. The second quarter dividend, which will be the 443rd consecutive quarterly dividend for DuPont since the fourth quarter of 1904, will increase by 4 percent, or nine cents per share. It looks like DuPont is busy trying to find ways to pay back investors so that the corporation can keep one group in particular from forcing a corporate split to break away from what those investors see as unprofitable business activities.
The challenge is being waged by Trian Fund Management LP, an investment management firm headed up by Nelson Peltz. Trian and Peltz want DuPont to split into two separate ventures, one being a growth company with a focus on agriculture and nutrition products, the other a materials company which can provide more consistent dividends to shareholders. This would, however, put a wrench into certain DuPont activities meant to encourage innovation at the company, such as networking groups and rotation programs that allow DuPont’s 1,000 scientists and engineers to provide feedback from diverse fields, which sometimes lead to serendipitous innovation. This would have hindered, for instance, the development of the biobased polymer Hyrtrel RS, a material for air ducts and office furniture which incorporates plant materials.
The latest earnings report for DuPont is seen by Trian as even more reason to split the company. Trian was especially miffed by the reduction in revenues. Again, this decrease can be somewhat attributable to the current strength of the U.S. dollar reducing DuPont’s international sales, the bulk of the company’s business. Nelson Peltz has already called the earnings report “very disappointing” at an investor’s meeting called after the report was released.
The investment history of Nelson Peltz includes at least a couple of periods of corporate activism as a major shareholder at corporations and his track record has been shaky. In 2011, Kraft announced a split into a domestic Kraft brand and an international brand known as Mondelez. Peltz and Trian then focused on the Mondelez venture but revenues and profits stagnated for both companies. This March, Kraft was purchased by a group including food manufacturer Heinz for a total of $36 billion. Another target, PepsiCo, was able to successfully fend off an activist investor push from Peltz. Since the middle of 2013, Peltz had sought to convince PepsiCo executives to divest its beverage operations from its more highly profitable snack business, which includes Frito-Lay. PepsiCo CEO Indra Nooyi was able to stave off Peltz’s efforts, aided in large part by positive market performance against major rival Coca-Cola; PepsiCo’s stock hit an all-time high in October 2014. Most of those who had followed that situation agreed that PepsiCo’s woes with Trian ended this January when PepsiCo agreed to add former Heinz chief executive William R. Johnson, who is also an adviser to Trian, to the corporate board as an independent director.
Part of Nelson Peltz’s prescribed plan for DuPont involves major shutdowns at the corporation’s central research facilities. In 2014, 32 percent of DuPont’s revenues came from internal innovations so there are those who worry that Peltz’s activism would result in a materials company with a much less productive research pipeline. As the New York Times article linked in the previous sentence points out, these types of activist stockholder shakeups at companies with a focus on scientific research miss the fact that the long-term R&D pipeline for these companies is far more important to their success than short-term profit gains.
DuPont Patents: From Soil Resistant Carpets to Female Body Armor
Innovative new materials for a variety of applications are being announced all of the time by the chemical engineering giant headquartered in Wilmington, DE. At the end of April, Dupont Microcircuit Materials unveiled a photovoltaic metallization paste known as Solamet PV19x which optimizes the efficiency of solar energy collection panels, improving their overall power output. This improved paste for solar panel applications utilizes tellurium paste technologies developed and patented by DuPont. The company also recently brought its Tychem ThermoPro single-layer fire protection garment to Dubai, where it is hoped that the product will improve safety for firefighters in the United Arab Emirates.
We did a quick survey of the patents issued recently by the U.S. Patent and Trademark Office and managed to find a technology related to metallic pastes for solar cells. U.S. Patent No. 8999203, titled Aluminum Pastes and Use Thereof in the Production of Passivated Emitter and Rear Contact Silicon Solar Cells, claims an aluminum paste which includes aluminum particulate, an organic vehicle and either of two glass frits, one of which has a softening point temperature which ranges from 550? to 611?, the other having a softening point temperature range from 571? and 636?. The metallic paste of this invention is useful for forming passivated emitter and rear contact (PERC) solar cells with improved electrical efficiency, increased durability and a longer service life.
We noticed a couple of patents related to yarns developed by DuPont for very disparate consumer products. An enhanced yarn for the production of carpeting materials is at the center of U.S. Patent No. 9017788, entitled Carpets Prepared from Yarns Comprising a Fluorinated Polyester Blend. This patent claims a carpet comprising a backing, a yarn which is both tufted into and has a point of contact with the backing and an adhesive that binds the yarn and the backing at the point of contact. The fibers of this yarn are prepared by melt blending a fluorovinyl ether functionalized polyester with a non-fluorinated polyester to improve the yarn’s fluorine efficiency, or the ratio of surface fluorine concentration to the total concentration of fluorine. Improved fluorine efficiency helps to enhance the soil resistant properties of a carpet. A type of yarn utilized for tire reinforcement or the production of mechanical rubber goods is the focus of U.S. Patent No. 9011975, which is titled Treatment of Filaments or Yarn. It protects a method for treating a filament or yarn by exposing it to a mixture of reagents which includes both multi-functional isocyanate oligomers and multi-functional epoxy oligomers and then dipping the yarn into a catalyst that causes the oligomers to cross-link and form a network on the yarn’s surface. The innovation obviates the need for resorcinol and formaldehyde in rubber goods manufacturing, resulting in more environmentally friendly production practice while ensuring the effective reinforcement of rubber by fiber for producing rubber goods like tires, hoses and conveyer belts.
A more form-fitting body armor developed for females is described within U.S. Patent No. 8980773, titled Shaped Body Armor and Method of Making. The article for use in body armor disclosed and protected here includes a plurality of discrete sheet subassemblies contoured to the shape of a female breast which are stacked on top of each other without bonding. High tenacity yarns are utilized in the nonwoven layers that make up each subassembly of this invention. Joining the subassemblies without bonding them gives those layers an ability to move which is useful during ballistic impact from bullets.
Some of DuPont’s chemical innovations are pursued in order to address environmental concerns posed by certain products. U.S. Patent No. 9018263, titled Antimicrobial Compositions Comprising Trimethylene Glycol Oligomer and Methods of Using the Compositions, claims an antimicrobial composition containing at least 0.1 percent by weight of two or more trimethylene glycol oligomers having an average molecular weight less than 650. The antimicrobial composition of this invention is derived from renewable sources and is non-skin irritating and effective for repeated use in minimal amounts against a wide spectrum of microorganisms.
Finally, we’ll close up our look at DuPont by profiling a genetically modified soybean plant which is designed to have improved color and other traits that are desirable to consumers. U.S. Patent No. 8993861, titled Soybean Promoters SC194 and Flower-Preferred Expression Thereof in Transgenic Plants, claims a recombinant DNA construct which includes promoters of a SC194 polypeptide produced by soybean plants. The innovation is designed to reduce senescence, or deterioration created by aging, and flower abortion in soybean crops to produce a greater yield.