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Dow 30 Profile: DuPont
DuPont (DD - Free DuPont Stock Report) was originally founded in 1802 as a manufacturer and supplier of gunpowder. The company grew very quickly, and by the mid-19th century, it was the largest supplier of gunpowder to the U.S. military, which undoubtedly helped the Union during the Civil War. DuPont continued to expand into the production of smokeless powder and dynamite.
Its purchase of several chemical companies in the early 20th century resulted in greater government scrutiny under the Sherman Antitrust Act. The Justice Department argued that these acquisitions and the company’s position as a dominant manufacturer of explosives were a monopoly. The courts agreed, and ordered the divestiture of Hercules Powder Company and Atlas Powder Company. Following this, DuPont looked for new areas into which it could expand. The company established two of the first industrial laboratories in the United States, where they began working on non-explosive products, including cellulose chemistry and lacquers.
In the 1920s and 1930s, DuPont continued to focus on materials science. Research in polymers resulted in important breakthroughs, such as the development of neoprene (synthetic rubber) and nylon.
The company was an important producer of supplies during World War II. Manufacturers used nylon in hundreds of products during this period. In addition, DuPont played an important role in the Manhattan Project. Following the war, the company continued to develop new materials, including Mylar, Tyvek, and Vespel. Its materials proved very important in the Apollo Project of the United States space program. In addition, the company developed Kevlar in 1965. This high-strength material is used in a wide variety of products, including bicycle tires, sports equipment, and modern body armor.
DuPont has built a powerful brand name over the past two centuries. Indeed, the company has proven quite successful at popularizing the brands of its material products. Today, DuPont is one of the largest chemicals companies in the world. It is a science and technology company engaged in a wide range of disciplines, including high-performance materials, electronics, safety and security, and biotechnology. The company serves a wide variety of markets, including automotive, construction, agricultural, protective apparel, electronics, and nutrition. As of December 31, 2012, it had about 70,000 employees and operations in over 90 countries, with roughly 60% of consolidated net sales made to customers outside of the United States. The stock is a member of the Dow Jones Industrial Average (Dow 30).
Major competitors include diversified industrial companies, such as Dow Chemical (DOW) and BASF SE. DuPont’s intellectual property estate is an important source of competitive advantage. The company owns approximately 25,635 patents worldwide, with roughly 20,925 patent applications. Research and development remains important for this technology-oriented company. Indeed, R&D expense was almost $2.1 billion for 2012.
DuPont operates in the cyclical chemicals industry, which is influenced by broader economic trends. The company has usually benefited the most during periods of increasing economic activity. Its earnings have fluctuated over the past fifteen years, with periods of solid performance typically followed by one or two years of bottom-line contraction during times of economic weakness. Productivity improvements and effective cost management assume greater importance during such periods.
The company appears well-positioned to benefit from several important megatrends in the coming years. This includes increased demand for food production, alternative energy, environmental solutions, and products that enhance personal safety. Much of this broad-based growth will probably occur in international markets. Furthermore, DuPont’s recent acquisition of Danisco should serve to establish the company as a leader in the field of industrial biotechnology.
In sum, DuPont is a stable company with solid growth prospects. Over time, it should benefit from growth in the global economy and its exposure to emerging markets, though there may be some volatility along the way.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.