DuPont steps up cost-cutting plan

DuPont has set out plans for accelerated cost cuts and share buybacks, as the largest US chemicals company by market capitalisation seeks to rebuff pressure from Trian, the activist investment manager led by Nelson Peltz.

Reporting earnings in line with analysts’ expectations for the fourth quarter of 2014, up 20 per cent, DuPont said it expected growth of 5 per cent at most in 2015.

However, that performance will be severely affected by the rise in the dollar, the company says, because it has about 60 per cent of its business outside the US, and its underlying growth is expected to be much stronger.

One reason for that is the acceleration of DuPont’s cost-cutting plans, which had been aimed at delivering a reduction of $1bn per year by 2019, but are now intended to save that much this year.

Most of the cost reduction is expected to come through job cuts, with the rest created by more efficient use of DuPont’s plants.

DuPont’s cost structure has been a focus of criticism from Trian, which first revealed a stake in the company in July 2013 and had raised its holding to 2.7 per cent by the end of last year.

In a letter in September, Trian said DuPont was carrying $2bn-$4bn of excess costs, including $1bn of unallocated corporate expenses such as the group’s country club, theatre and hotel.

Earlier this month Trian nominated four directors, including Mr Peltz, for election to DuPont’s board at this year’s annual meeting.

The company has not yet specified the detailed impact of its planned job cuts, but they could reduce the workforce by “low to mid single-digits”, a person familiar with DuPont said.

It has also announced that it plans to move its headquarters out of its historic building in downtown Wilmington, Delaware, to Chestnut Run in the suburbs of Wilmington closer to the head offices of its business units, although it intends to retain its hotel.

DuPont also said it intended to increase its share buy-back programme following the spin-off of Chemours, a new company formed from its performance chemicals division that makes titanium dioxide paint pigment and Teflon. The split is planned for the middle of this year.

When Chemours is separated it will pay its parent a dividend of about $4bn, depending on how much it can release as it attempts to secure a BB credit rating.

DuPont aims to use that cash to add to its share buyback programme, which currently has $3bn of unused authorisation following $2bn of repurchases last year.

Ellen Kullman, chief executive, said the return of capital would help the company deliver superior returns this year, “while positioning DuPont for our next stage of growth”.

Earnings per share for the fourth quarter of last year were 71 cents, excluding one-off items and pensions costs, up from 59 cents in the equivalent period of 2013. However, for the full year, underlying earnings per share were up just 3 per cent at $4.01.

The company’s guidance is for earnings per share of $4-$4.20 this year, including a 60 cent reduction for the adverse exchange rate impact.