DuPont Co. will cut costs and shrink its product line by at least 20 percent to reach $900 million in savings by the end of 2005.
In a Dec. 1 news release, officials at the Wilmington, Del.-based chemical giant also said the firm will ``rebalance resources'' away from its traditional bases of the United States and Western Europe and focus more on ``emerging markets, where much of [DuPont's] growth will occur in the coming years.'' Those markets include China, Brazil and central and Eastern Europe.
The release offered little detail as to how the move will affect its plastics units, including its market-leading nylon resin business. The announcement comes less than two weeks after DuPont revealed the planned sale of its Invista fibers business - which accounted for about 25 percent of DuPont sales last year - to Koch Industries Inc. for $4.4 billion in cash. Invista also employs 18,000 - about 23 percent of DuPont's total workforce.
``With the anticipated sale of Invista, DuPont will be a smaller company with the potential for higher growth and profitability,'' DuPont Chairman and Chief Executive Officer Chad Holliday said in the release. ``But unlocking that potential means doing things differently.
``If we are to meet our earnings growth objectives - and we will - we cannot support the complexity and cost entailed by diverse and specialized organizations and processes.''
Officials expect to see $450 million in savings next year, with the remainder coming in 2005. After the cuts, DuPont expects to see sales growth of 6 percent annually.
DuPont spokesman Cliff Webb said officials are ``in the process of making decisions'' about the cost-cutting. Those decisions will be publicized sometime in April, coinciding with the release of DuPont's first-quarter results. The moves will include some job cuts, according to Webb, but he declined to offer details.
DuPont's Performance Materials unit - a major producer of nylon, polyester, acetal and other specialty plastics that also represents DuPont in the DuPont Dow Elastomers and DuPont Teijin Films joint ventures - largely was spared in a round of 4,000 job cuts enacted in early 2001. Since then, DuPont has cut 400 jobs and closed three production lines at DuPont Teijin's four North American film plants. DuPont also confirmed recently the elimination of 150 jobs at its Teflon-brand fluoropolymer plant in Parkersburg, W.Va.
Performance Materials ranked third among DuPont's six business units in 2002, with sales of $4.9 billion, about 20 percent of the firm's total.
Through September, DuPont's 2003 sales were up 12 percent to $20.5 billion, compared with the same period a year ago. DuPont also turned a profit of $337 million in that period after posting a full-year loss of $1.1 billion in 2002.
The product line reduction is aimed at cutting a list that had swelled to 700,000 individual products, Webb said. The geographic rebalancing is needed to achieve growth, but DuPont's North American customer base ``is still very important'' to the firm, he added.
Asia and South America combined for about 30 percent of DuPont's third-quarter sales, but sales in Asia were up 17 percent, while South American sales climbed 20 percent.
Industry consultant Balaji Singh, president of Chemical Market Resources Inc. in Houston, said he is not sure if DuPont is doing the right thing by making significant cuts.
``DuPont really stopped innovating in the mid-1990s, when they focused on biotechnology and pharmaceuticals,'' Singh said. ``And in the 10 years since, they really haven't hit on any big winners.
``All of [DuPont's] major successes - nylon, Kevlar, Teflon, Mylar - were products where they got into the market first and were able to set the highest standards and set their price based on what the customer was willing to pay. But they haven't been able to duplicate that success for awhile.''
Several industry contacts suggested DuPont's announcement may be an attempt to match Dow Chemical Co., its Midland, Mich.-based competitor that has achieved financial success this year through similar cost cutting. Singh said he does not think DuPont should follow Dow's path.
``The Dow cuts may have a negative effect in four or five years because they'll have no funding in place for new products,'' he said. ``[Dow] is doing it very rashly just to satisfy Wall Street, and it looks like DuPont might be doing the same thing.''