DuPont's Breen talks cost cuts, tax cuts, R&D profits, Trump trade

DuPont Co. shares rose more than 4% in early trading today, topping $76 for the first time since early 2015, as the Wilmington-based pesticide, crop seed and materials company said cost-cutting boosted profits last year, despite weak sales in key business lines. Profit statement here.

The company's planned merger with Dow Chemical, previously slated for March, has been rolled back to around June as executives and lawyers negotiate with European Commission officials who want to make sure Dow-DuPont won't cut crop research or use its market clout to unfairly boost prices.

While DuPont pesticide and seed sales fell 1% (or 3%, if you include foreign-currency changes), an 11% drop in operating costs -- including a 41% drop in corporate costs, thanks to headquarters and central staff layoffs, and vendor and procurement consolidation -- and a 27% drop in capital spending boosted cash flow and earnings above Wall Street expectations, the company said.

Breen said DuPont had plenty of fat to cut: He said he'd overseen $750 million in yearly-expense cuts in the past year -- $20 million above target -- "without disrupting our business."

Breen said he and CFO Nicholas Fanandakis have also visited "a host of plant sites," including factories where Tyvek rolls are made in a "complex" process. He said the pair "confirmed what we suspected": that DuPont can streamline operations to boost production without increasing costs over the next two to three years. 

DuPont has "clearly done a solid job on both cutting costs as well as dramatically improving procurement," analyst David Begleiter, of Deutsche Bank, told Breen during an investor conference call. But Begleiter also questioned how much more the company and its partners at Dow can cut.

Breen said a projected $3 billion in additional cutbacks "is the floor, not the ceiling" in making the combined company "lean and mean" before it spins off seperate farm-products, materials and "specialty" successor firms after the Dow deal.

While reducing total research spending, Breen said the company was cancelling some "replacement product" projects to focus on "growth R&D" that can boost profits faster.

To get the deal through, the European Commission "either wants you to spend more on R&D or divest more" businesses, noted analyst Jeff Zekauskas of JPMorgan.

"We would make some reductions in areas like regulatory-approval type stuff where you don't need (both Dow and DuPont) operations," Breen replied. "It's a lot of paperwork" that the companies hope to convince the Europeans can be eliminated without affecting customers too much.

Asked by Citi analyst PJ Jukevar how DuPont would spend billions in foreign profits "repatriated" under President Trump's proposed foreign-profits corporate tax reduction, which Trump has said is designed to create U.S. jobs, Breen said DuPont might use some of the money for capital investment -- or for buying more companies, "or returning value to the shareholders through buybacks, or dividends."

Trump's America-first trade policy might help DuPont exports "slightly" more than it would discourage imports, Breen added -- "if it actually goes through."