DuPont Launches Streamlining Plan

Dupont is undertaking productivity and cost-improvement measures that it says will yield $2 billion in savings. While the program will involve some employee redeployment, the company says broad-based job cutting is not required.

Speaking at a briefing for securities analysts and investors last week, CEO Charles O. Holliday Jr. acknowledged that DuPont is behind its industry peers in taking such cost-cutting steps. A study conducted for DuPont found that the firm's human resources staffing is 20% higher than at other large companies, while its information technology cost per user is 30% higher.

Part of the productivity plan is a $1.1 billion, 13-year contract under which the customer service firm Convergys will provide human resources services to DuPont. Other plan elements call for streamlining of supply chain, procurement, and accounts payable systems.

Overall, said Richard R. Goodmanson, DuPont's chief operating officer, some 4,000 of DuPont's 60,000 employees worldwide could be redeployed under the plan, through attrition, contractor displacement, and reassignment. Within three years, he predicted, DuPont will see a one-time savings of $1 billion through a reduction in working capital and another $1 billion in annual savings through cost improvements.

The plan also calls for redeployment of capital to businesses that have a return on net assets of 12% or better. Chief Financial Officer Gary M. Pfeiffer said some businesses might be sold as a result, although he wouldn't identify candidates.

A third element of the plan is growth acceleration. Thomas M. Connelly Jr., DuPont's chief science and technology officer, told the analysts that DuPont will accelerate its investment in high-tech fields, such as biobased and photovoltaic materials, and restrict investment in commodity polymers and coatings. DuPont attained 30% of its 2004 revenue from products five years old or less, and Connelly expects that 34% of 2006 sales will be from such products.

In tandem with the growth push, DuPont is elevating its biobased materials business to the status of a technology platform. DuPont's most visible biomaterials foray is into the glucose-based polyester intermediate propanediol, for which it will open a plant in the first half of 2006. But Connelly said the company is eyeing a range of opportunities that could generate annual sales of $3 billion-plus by 2012.

Among them, he said, are three biofuel projects with a combined sales potential of more than $1 billion per year. DuPont is also developing biosurfaces technology that uses peptides or proteins to anchor desired attributes to surfaces. Connelly sees opportunities in skin, hair, oral, and home care worth more than $300 million.

Stock analysts generally welcomed DuPont's plans, although their comments at the meeting indicated some impatience with the company's cost-cutting efforts to date. Merrill Lynch chemical analyst Donald D. Carson recently upgraded DuPont to a "buy," but he told clients in a note on the meeting that he had been "cautious about the stock, owing in part to a lack of focus on productivity improvement."