DuPont's Really Being Strengthened by Going to Seed

I can't quite claim to have monitored DuPont (NYSE: DD  ) since its founding back in 1802 as a gunpowder manufacturer. In the past few years, however, the big Delaware company has initiated a somewhat quiet restructuring that promises to make it far less cyclical and more compelling for investors.

Steadily buying and selling
In early 2011, for instance, the company acquired Danisco, a global enzyme and specialty food ingredients company based in Denmark. For $6.3 billion, including the assumption of debt, DuPont added a unit that, as is the case with its own fast-expanding agricultural unit, will be driven in the years and decades to come by our planet's expected dramatic population growth.

Conversely, in 2012 the company accepted nearly $5 million from private equity's Carlyle Group (NASDAQ: CG  ) for its car paint unit. The deal turned out to be one of more than a dozen salted away by Carlyle during the year.

Those deals, along with other trends at the company, indicate that the significant restructuring largely initiated during the reign of the company's competent CEO, Ellen Kuhlman, is likely to continue and perhaps expand. As was manifested strongly in the second quarter, DuPont continues to follow in the footsteps of its rival Monsanto (NYSE: MON  ) in emphasizing agriculture and related areas (read Danisco's food and enzyme products), while shedding its former base in more cyclical chemicals operations.

The new backbone
At was expected, DuPont's ag unit -- largely bioengineered seeds and pesticides -- led the way in the quarter, with revenues that constituted 37% of the total and expanded by 7%. But as I noted at the time, the performance chemicals segment saw its revenue dip by 15% and its operating earnings plunge by 56%.

Kuhlman et al. noted unequivocally at release time that they'd be better off without performance chemicals, which was hit hardest by excessive capacity and low prices for titanium dioxide, a whitening agent used in a host of products. A figurative "for sale" sign has clearly been placed in front of the unit, with the notion that it'd fetch about $10 billion, potentially from one of Carlyle's private equity brethren.

It's noteworthy, however, that DuPont's isn't the only titanium dioxide unit on the market. Huntsman (NYSE: HUN  ) , which also manufactures the agent, will similarly be vying for buyers' attention for its own operation.

A brightening in darkest Africa
Back on the debit side of the ledger, soon after announcing its second-quarter results, DuPont told us that, following a three-year struggle, it had completed the acquisition of South Africa's Pannar Seed. The purchase, which was first announced in September 2010, obviously will further expand agriculture's base at the company. And with it (and assuming that performance chemicals is jettisoned), I'm projecting that the three-segment agriculture- and food-related group will easily account for as much as 75% of total revenues by the end of 2015.

Let's look at what all this means to likely sources of the company's revenues in the not-too-distant future. In the most recent quarter, agriculture and its related segments accounted for nearly 49% of DuPont's total sales. Where I went to school, that's about half. But had performance chemicals been unloaded before June 30, agriculture, biosciences, and nutrition would have been responsible for nearly 60% of the total.

Add in Pennar's contribution -- which, as of now, remains somewhat hazy -- and the percentage on an ex post facto basis would obviously have been ratcheted upward. DuPont is promising to invest in a technology hub in South Africa, so the acquisition should become steadily more meaningful. That research effort will benefit work in corn, sunflower, grain sorghum, forage sorghum, wheat, dry beans, and soybeans. The benefits will clearly be felt throughout Africa and beyond.

What's this about?
With all this promising activity occurring at DuPont, I'm eager to learn what activist investor Nelson Peltz desires to effect at the company. It appears that Peltz's Trian Fund Management has socked away about 21 million shares of the company's stock, or approximately 2.2% of the total. If he's doing so through disaffection, it's difficult to suggest what Kullman and her minions might have done differently to benefit DuPont of late.

Foolish bottom line
In any event, in my rarely tentative opinion, I'm convinced that few U.S. corporations are undergoing a positive metamorphosis to the extent of the one being implemented at DuPont. It's bringing about a set of alterations that I believe will stand the company in relatively solid stead, should some of the economic perils I'm seeing on the horizon reach fruition. I'd therefore suggest that Foolish investors join me in monitoring this venerable -- albeit fast-changing company.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 07, 2013, at 2:47 PM, funfundvierzig wrote:

    Actually, DuPont Senior Management has been "transforming" this unwieldy conglomerate for 15 years now, ever promising glorious growth and profits which have never materialised. The much shrunken DuPont which was worth $110 billion in May of 1998 is now valued at less than half that, $53 billion.

    We don't believe DuPont is capable of being outstanding in the agricultural arena, where it conspicuously lags Monsanto in seeds, and Syngenta in crop protection.

    Merely the opinion of one retail investor, with long positions in MON & SYT, and both short and long positions in DD...funfun..

  • Report this Comment On September 07, 2013, at 3:00 PM, funfundvierzig wrote:

    $10 billion for DuPont Performance Chemicals may be a tad over-optimistic. Any potential buyer, should intensely and extensively study the buried or semi-visible legal legacy of the Company's chemicals:

    * Pending in numerous federal and state courts are tens of thousands of claims for tree losses caused by DuPont's consumer product fraud, DuPont Imprelis, a dandelion lawn treatment masking an extremely efficacious toxic tree-killer. We believe those litigation settlement costs may ultimately top $2 billion or more! These Imprelis charges may be assigned entirely to DuPont AG, or not.

    * Lurking are hundreds of $millions required to be expended for medical monitoring ($235 million) and the settlement of scores of individual lawsuits pertaining to DuPont's pollution and cover-up of the extraordinarily toxic, cancer-causing Teflon chemical, C8.

    * Nearly one-third of the new car market is now off-limits for the potentially explosive and dangerous DuPont Kullman Koolant (DuPont/Honeywell HFO-1234yf) for car A/C, as Daimler, VW, BMW, and Toyota reject this highly questionable refrigerant touted as "a great DuPont innovation" by DuPont's big bosses.

    * Latent environmental illegalities endemic to DuPont's run-down chemical plants, such as acid factories, which have been repeatedly cited by regulators over the years.

    * As yet undetected unlawful misconduct, such as illegal price-fixing and anti-trust violations for which DuPont has a long documented history.

    Caveat Emptor, indeed!

    Merely our individual opinion...funfun..

  • Report this Comment On September 07, 2013, at 7:43 PM, funfundvierzig wrote:

    Fellow FOOLS, as you can see by twin ad hominem attacks posted by an obvious shill for DuPont Management with the derogatory I. D, "nomofunfun", specifically. targeting us, DuPont Management proponents will try any dirty trick to harass and intimidate investors from speaking freely and openly about the intractable weaknesses of this struggling conglomerate.

    Any corporation whose avowed employees and masked Management surrogates and supporters have to resort to sleazy personal attacks on independently-speaking investors is one sick unethical organisation with a lot to hide.

    We respectfully request the author of this well-articulately write-up on DuPont or Motley Fool moderators remove these off-topic personal attacks, which so clearly contravene the rules for participation, and violate the concept of freely and candidly exchanging ideas and opinions amongst investors.

    The managements and agents of subject corporations should not be allowed to gut open discussion with distracting personal assaults.

    ...funfun..

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