Can DuPont Bounce Back? – SWOT Analysis
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Dow component E.I. du Pont de Nemours & Company (NYSE: DD) endured a challenging 2012, as it was beset by profit declines in its Performance Chemicals and Electronics & Communications divisions. Management is guiding toward a recovery in 2013, based partly on the impact of new product development during 2012. The share price does not fully reflect the expected earnings upturn, and thus it may be a good time to add DD to a portfolio.
A SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis illustrates both the internal and external factors affecting a company. For one of Du Pont’s size and scope, there are many. The $43 billion market cap company operates across seven segments serving numerous end markets. This will provide a broad overview to assist in investment decisions.
For more examples of SWOT analyses, see my earlier blogs: First, here is an evaluation of Corning (NYSE: GLW), the producer of liquid-crystal-display glass and other items. Corning is currently seeing an upturn in display glass sales, but is up against difficulties in its solar business (part of the Dow Corning holding). GLW shares are favorably priced to hold for the long term. Secondly, see my SWOT of Walt Disney (NYSE: DIS). Disney is pairing growth in its media unit with an upturn in theme park and hotel profits. The entertainment conglomerate's stock is worth considering at this juncture. It also has film studio, consumer, and interactive assets.
1. A Sizable and Flourishing Agriculture Unit
Research and development activity has supported increased demand for Du Pont’s corn and soybean seeds, with pricing also playing a part. Crop protection product sales are on the upswing, as well, such as for insecticides. The catalysts behind these gains appear to be heightened market share and geographical expansion. It is likely that Du Pont will stay at the forefront of innovations, such as new crop genetics and drought tolerance. Putting it into numbers, in 2012 Du Pont launched 154 new corn hybrids and 33 new soybean varieties targeted at local markets.
In 2011, Du Pont acquired Danisco, and last year’s related sales of enzymes and food ingredients helped profitability substantially in its Industrial Sciences and Nutrition & Health units, respectively. Plus, Du Pont is achieving cost synergies from the purchase a year ahead of schedule. Having completed the integration, further gains seem likely. Along this line, DD has just sold its Performance Coatings business and is always looking for strategic buyouts that would add to its offerings.
1. Performance Chemicals in a Rut
Sales are pegged to again decrease in the business that contributes about 20% of the company’s total. Volume and utilization softness are apt to hurt results through the first half of 2013, after which the U.S. housing upturn and Chinese demand could assist a turnaround.
2. Margins Pressured
Growth in the agricultural unit has cost the company in the form of selling and marketing outlays. Additionally, initial R&D costs from Danisco have been elevated. Management is taking measures to allay the effects, and those initiatives should be realized throughout 2013.
1. Photovoltaics, Smartphones, and Tablets
Du Pont holds solid positions in these three growth markets, within its Electronics & Communications business, which produces materials and systems. For instance, last year it introduced a paste utilized to boost the efficiency of PV solar cells. It is also a participant in the market for LED television displays.
2. Emerging Markets
Sales in the Safety & Protection division, down last year, are poised to jump in 2013 on sales to the Chinese infrastructure market. Du Pont’s traditional Kevlar protective coating product is finding new avenues of expansion. Its protection products are often used in body armor and other personal protective gear and are finding an expanding customer base. Accordingly Du Pont can potentially grow through geographical and product market penetration.
1. Raw Material Cost Hikes
Higher energy and commodity prices would have been more of a hindrance to results last year if Du Pont hadn’t offset them by passing them along. This year, seed input and titanium ore costs are expected to climb. If Du Pont can offset these expenses in a timely manner it will likely perform well, regardless.
2. Cyclical Titanium Dioxide Downturn
Du Pont is the world’s largest supplier of that compound. However, sales are currently hampered and pricing weakness is restraining margins. Still, Du Pont is investing in a $500 million Mexico-based facility and upgrading production sites elsewhere. Thus it is anticipating a sharp turnaround.
Du Pont’s bottom line is likely to resume an upward trajectory this year, as positives including its Agriculture unit and acquisition upside exceed the effect of the slowdown in its Performance Chemicals category. Accordingly, with the shares significantly off their 52-week apex, they may be poised to outperform the market.
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