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DuPont
MALCOLM BERKO
Taking Stock
Published: October 2, 2014
Dear Mr. Berko: In 1996, my father passed away, and one of the three stocks I inherited was E.I. du Pont de Nemours & Co. At that time, my 110 shares were selling between $70 and $90. I also got two Fidelity mutual funds, which have done well, but DuPont stock does nothing. What's wrong with this company? I know it's in chemicals, but I never see the name on any products. What does it make? I am now 66 and need help on what to do with this stock. Should I sell it and put the money in the two Fidelity mutual funds? -- JN, Springfield, Ill.
Dear JN: In 1802, when Thomas Jefferson was president, Eleuthere Irenee du Pont broke ground in Wilmington, Delaware, for the company that bears his name. Ele, born in France, studied advanced explosive techniques and black powder manufacturing under chemist Antoine Lavoisier. Between 1802 and 1880, black powder was Ele's sole product, and DuPont became the leading powder supplier to the U.S. government. World War I created unprecedented opportunity for DuPont. It became the world's largest dynamite producer and researched new uses for the raw materials of explosives, specifically for the production of paints, lacquers and textiles. During World War II, DuPont launched its involvement in atomic explosives, building a full-scale plutonium plant for atomic weapons in Washington state. And then DuPont began to expand in earnest.
Today this $37 billion-revenue science and technology company has seven divisions: 1) Electronics & Communications: photopolymers and photovoltaics. 2) Industrial Biosciences: vatsful of enzymes. 3) Nutrition & Health: emulsifiers, gums, soy-based food ingredients, sweeteners. 4) Performance Chemicals: plastics and coatings, textiles, mining, pulp/paper, water treatment, and numerous industrial products. 5) Performance Materials: engineering polymers, elastomers, film, packaging, chemical processing, electronics. 6) Safety & Protection: nonwovens, aramids and solid surfaces for various industries. 7) Pharmaceuticals: propellants, rare sugars, antihypertensive drugs and nutraceuticals.
DuPont (DD-$71.25) has morphed into a multibillion-dollar-revenue conglomerate with a complementary variety of products in its marketing bag. But with this pastiche of product and a 212-year history, the company is cursed with dispassionate, inutile and low-IQ leadership, which manages DD while in a perpetual state of ennui. And the stock's dreary performance (it's the same price today as it was when you inherited it in 1996) certainly matches management's capability. Since 1996, as the number of outstanding shares has been reduced by 75 percent, dividend growth has been achingly feeble, and capital spending has declined. Return on capital and shareholder equity have barely budged. Yes, revenues have grown 2.7 percent annually, and comparative share earnings have grown 1.6 percent annually. But several evil yetis and golems seem to be holding DD's stock price down. Something has been hugely wrong with this company for several generations. And many may agree, because with the exception of a strong buy recommendation by Oppenheimer in 2009, I can't find any excitement about it on Wall Street. Certainly, few of DD's 64,000 employees are delighted with their stock option program.
But things are happening that may be good. Nelson "Nellie" Peltz, among the most vainglorious financial privateers who only sail troubled waters, has guns aimed at DD. Though his Trian Fund Management owns 3 percent of the stock, he proclaims that DD's "conglomerate structure is destroying shareholder value." Nellie -- who wants DD to divest into smaller, independently managed companies -- has participated in a series of reluctant discussions with CEO Ellen Kullman. And this may be productive. DD's board recently authorized a $5 billion share repurchase program and announced steps to streamline its overweening, bungling bureaucracy. The board plans to implement sundry cost-cutting measures and will spin off its low-performing, volatile Performance Chemical division. As a result, Deutsche Bank recently suggested that DD should be valued at $85. But Nellie wants more and believes a breakup could double the current share price. Of course, the process of divestiture and cost savings measures might force 6,500 employees from their jobs. Though corporate raiders such as Peltz, Carl Icahn, Dan Loeb, Bill Ackman and David Einhorn will greatly improve the price of a stock -- making billions in the game -- they've also been responsible for the loss of hundreds of thousands of jobs. Keep DD for another year.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.