What’s ahead for DuPont after Breen’s return?

DuPont faces several economic challenges in 2020, including the impact of the trade war with China. | DBT Photo by Jacob Owens

WILMINGTON – DuPont surprised many in the First State when it announced Tuesday, Feb. 18, that it was ousting its short-term CEO Marc Doyle in favor of previous leader Ed Breen.

Breen inherits a company that faces several challenges in 2020, however, as it manages a portfolio of varied products that face current economic challenges while investing in innovative products of the future.

Last month, Doyle, a longtime DuPont employee who served as chief operating officer of DowDuPont before being named CEO at the DuPont spinoff, reported that the company was impacted by the Chinese trade war as DuPont’s automotive and electronics end markets were buying fewer parts amid declining sales. It has concurrently been hit by falling prices for nylon compounds, which includes its Zytel product line that is used in manufacturing vehicle interiors. Subsequently, DuPont reported 2019 net sales in its Transportation and Industrial (T&I) division of $1.2 billion, a 9% decrease from 2018.

The company tried to offset volume losses with price controls and cost cutting, Doyle told analysts, but noted that the company did not believe the situation would improve soon. He said that the company anticipated a 1% decline in automotive production this year.

“Our T&I expectations for this year are disappointing, but I’m confident that we will continue to take the right actions to drive sustainable long-term growth,” he said in a Jan. 30 earnings conference call.

Among the company’s strongest divisions last year was its Electronics and Imaging (E&I) division, which was spurred by the development of new 5G smartphones. DuPont reported the division’s $937 million fourth-quarter net sales were the strongest of the year and up 3% compared to 2018.

The future merger of DuPont’s profitable Nutrition and Biosciences (N&B) division with International Flavors & Fragrances (IFF), set to close in 2021, has also raised the specter that the company may spin off other disparate parts of its portfolio. Last month, Bloomberg News reported that DuPont was exploring a merger or sale of its E&I division, although Breen downplayed that report.

When asked by an analyst on the Jan. 30 call about the potential for more reverse Morris trust deals like that with IFF, which allows it to avoid gain taxes from asset disposal, Breen said that DuPont is “actively in conversations with others.”

He noted that the company’s ability to complete such deals isn’t unlimited, however, as an existing agreement with Corteva, one of the three companies spun out of the Dow-DuPont marriage, requires that DuPont keep $2.5 in EBITDA in cases of future liability. Breen added that liability could be spread across multiple entities, however, should the opportunity for a future deal arise.

Here in Delaware, the continued selling and merging of the company’s divisions has also created a need to downsize its physical space. Last month, DuPont informed its employees that it was planning to sell a portion of its Chestnut Run headquarters campus to development firm Delle Donne & Associates. DuPont moved its headquarters from downtown Wilmington to the campus off Del. 141 to the west of the city in 2015.

The sale, which is currently in a due diligence period after the parties signed a letter of intent, is expected to close by the third quarter of 2020, according to DuPont. The employer would consolidate to six office buildings on the north side of the property and lease space in two buildings from Delle Donne, officials said.

The remaining portions of the campus would be redeveloped into an “extremely attractive area that will include [research and development] labs and offices, retail, residential and public common space,” according to DuPont. When asked about the project by Delaware Business Times in recent weeks, Delle Donne & Associates President Gary Ciaffi said it was too early to discuss details of the proposal.

The associated cost savings are likely a part of a DuPont project to consolidate its asset footprint though, which Doyle announced in the earnings call. He said that it is expected to generate a total savings of more than $150 million over a three-year period, first beginning in 2021.

By Jacob Owens

jowens@delawarebusinesstimes.com