DuPont to jettison laggards


PHILADELPHIA -- DuPont Co., which has gone through extensive restructuring over the past decade, has told Wall Street analysts that 40 percent of its businesses are failing to reach corporate profitability targets and some face restructuring or sale.

Another round of disruptive asset sales is unlikely, but some businesses will be unloaded, David Peet, director of investor relations, said in an interview. "There will have to be divestitures," he said.

DuPont also plans to cut costs or rework business plans to boost profitability in low-return units, Peet said. Some businesses can be converted into "cash missions." The company would milk them for profit but withhold capital for new plants and expansion.

DuPont has a long-standing goal of seeking businesses that earn 12 percent annualized returns and began disclosing the extent of low-return units to analysts in late 2005, when the Wilmington, Del., chemical company's profit and stock price were under pressure from soaring raw-material costs.

The company has said it would report the status of the low-return businesses quarterly and wants improvement by next summer. The number of low-return businesses has been "stable" since they were first disclosed, Peet said.

DuPont said earlier this year that it would close several manufacturing and research facilities and eliminate 1,500 jobs, mostly in Europe, in its coatings and color-technologies division.

But Peet said there were low-return units in each of DuPont's five business platforms. The company markets 35,000 products, employs 60,000 workers and has a market capitalization of $36.5 billion. Shares closed up 18 cents at $39.84 yesterday, less than half the value of its $82.75 peak over the past 10 years, which was reached in May 1998.

In the past decade, the DuPont Co. has sold or bought $60 billion in businesses as it tried to shed low-margin commodity products and insulate itself from petroleum price swings. The unloaded businesses: pharmaceuticals, oil-and-gas and textile fibers subsidiaries.

On the acquisition side, the company bought the nation's largest seed-corn company, Pioneer Hi-Bred International Inc. In recent years, DuPont, which competes for seed sales with biotechnology giant Monsanto Co., has lost seed-corn market share.

DuPont expanded in China, where it has about 5,000 employees, and has tried to revitalize its research labs by developing new products from old technologies, such as Kevlar.

Company officials and analysts said that DuPont's research had failed to develop new blockbuster products and that the futuristic biomaterials business - such as making textile fibers from crop material - had yet to generate substantial revenue.

Analysts - one of whom said DuPont in the past decade had evolved into a "serial restructurer" - said the amount of low-return businesses seemed high at a time when the global economy was so strong.

Bill Selesky, chemicals industry analyst with Argus Research, called DuPont a "big, sleepy company." He said he was surprised by the scope of low-return business. "It definitely has to go down if those guys want to generate the growth they keep telling us they are aiming for," he said of the 40 percent that are falling short.

DuPont has been hurt lately by spiking natural gas prices, in part because of the Gulf Coast hurricanes in 2005. But, Selesky said, "You can't blame everything on the weather." Natural gas is used as a feedstock for DuPont factories in the Gulf Coast region.

Richard O'Reilly, chemicals analyst with Standard & Poor's, said the number of low-return businesses "seems high, but I don't have a frame of reference" for a comparable percentage in other chemical companies.

DuPont's auto-paint business, which sells to General Motors Corp. and Ford Motor Co., is probably hurting, O'Reilly said. "Some big businesses have to be in there," he said of the low-return units.

DuPont has not identified the low-return businesses by name. But it said that 29 percent of its net assets, or $5.7 billion worth, were earning average returns of 6 percent. DuPont defines net assets as investment and working capital minus depreciation.

About $2.2 billion worth of its net assets, or an additional 11 percent, is unprofitable, or earning negative returns. The businesses in the negative territory include DuPont start-ups gobbling cash for new factories or equipment, Peet said.

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