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DuPont CEO: Next, we'll cut factories, suppliers

"We're hitting them one by one," says Breen

DuPont Co.'s target date to merge with Dow Chemical Co. has been delayed into early 2017 as regulators on four continents scrutinize its impact on pesticide prices and other corporate competition.

But further plans for factory closings and consolidations, and for spinning off the combined chemical giants' pesticide, materials and specialty groups into new companies, remain on schedule, and should be finished by summer 2019, CEO Edward Breen told investors in the Wilmington chemical company's third-quarter conference call today.

Indeed, Breen said he expects future cost cuts will rise above the previously projected $3 billion. After axing 1,700 Delaware-based central management, research and support staff last winter, among other job cuts, "we think there's really nice opportunity" to reduce expenses on the "operations side of the house," Breen added.

"Every facility needs to prove what its entitlement is" to continue to deserve DuPont investment, the CEO told shareholders and analysts. "We have a couple of hundred facilities, but there's 17 of them that are really large and really make a difference at DuPont," including "complex facilities with multiple product lines."

Breen said he and CFO Nicholas Fanandakis are "hitting them one by one," visiting factories to find "the next opportunity for us to streamline and get more efficient."

Spokesman Daniel Turner said the company wouldn't elaborate on which 17 DuPont facilities Breen meant.  In the Philadelphia area, DuPont still employs around 5,000 at its Wilmington and Newark, Del. and Carneys Point, N.J. operations, after selling or spinning off plants in Philadelphia's Grays Ferry section and in Edge Moor, Del. in recent years.

Breen  said the company has already cut and consolidated senior managers, and moved scientists and technicians who survived last winter's layoffs at DuPont's old Wilmington central research center to labs where they can more easily help corporate customers and respond readily to DuPont business managers.

Breen also expects "some nice opportunity" to squeeze suppliers and cut costs by consolidating procurement among fewer, cheaper vendors.

DuPont's own third-quarter data shows the company shipped more product at lower prices in July, August and September, noted Jeffrey Zekauskas, analyst at JPMorgan Chase & Co.

He asked Breen to explain the apparent price cuts at a time when DuPont has promised higher profit margins.

Breen blamed, among other factors, a "tough consumer electronics market," including a drop in handset sales.

Shouldn't at least one of the Big Four competition regulators -- in the U.S., Europe, China or Brazil -- have approved the merger by now? two analysts asked during the Q&A session.

Even after they combine, DuPont-Dow will still be smaller than its largest multinational seed and pesticide competitors, so regulators are more likely to approve the deal, Breen said.

Noting that Breen's predecessor, Ellen Kullman, blamed "centralized management" for slowing DuPont product innovation, analyst Mark Connelly of CLSA asked "what's different" after a year of cost-cutting.

Breen reiterated that his group had cut senior management ranks, consolidated researchers from headquarters into the business lines, and added that he has realigned factories so they report to the business managers they produce for, giving business-unit bosses "total accountability for every number" and promising a "huge, huge payback." (The business units may also be easier to sell.)

Goldman Sachs analyst Ryan Berney asked if the third quarter's growth -- DuPont's biggest in almost two years -- was "sustainable." Breen said he was better targeting the bank's reduced capital investment to "high-growth" businesses in nutrition, health and other key markets.

Citi analyst P.J. Jukevar asked if falling U.S. home and auto sales would slow DuPont revenues and earnings. Breen agreed that both industries face a short-term decline, so "we are modeling a little bit of a downdraft."

In the third quarter, sales rose 1 percent -- sales materials volume rose 3 percent, as prices slipped -- and DuPont cut capital spending, working capital and administrative expenses to boost profitability during the quarter, while "continuing to fund investments for long-term growth" in nutrition and other promising businesses, Breen told investors.

Shares closed nearly 1 percent lower Tuesday, after the company said it will spend less than its projected $2 billion buying back shares this year. But DuPont remains close to its 2016 high. DuPont says it expects profits will reach $3.25 a share this year, up from a previous projection of $3.15-$3.20.

"The ag industry continues to face tough conditions," warned DuPont pesticides and seeds chief Jim Collins, who has brought in management consultants to choose which Dow and which DuPont managers will survive the merger and which should be paid to go away.

"Combination of our portfolios will enable our R&D organization to deliver growth" more than the companies could on their own, Collins told investors.