DuPont de Nemours, Inc.

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 3/5

DuPont de Nemours, Inc. is a global innovation leader, with technology-based materials and solutions that help transform industries by applying diverse science and expertise to help customers in a wide array of markets.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

DuPont’s business is primarily driven by its ability to provide high-performance materials and specialty chemicals to a range of industries. This requires constant innovation and investment in R&D.

Business Overview

DuPont de Nemours, Inc., commonly known as DuPont, is a global specialty materials and chemicals company. Its revenue is divided into three segments:

  • Electronics & Industrial: This segment supplies materials for microchips, electronic devices, displays, and industrial materials such as specialty polymers and high performance materials.
  • Water & Protection: This segment focuses on water purification and separation technologies, personal protective equipment, and sustainable building materials.
  • Corporate & Other: This segment include business segments not allocated to the other two segments.

DuPont’s revenue and profit distribution indicates a diverse customer base and product portfolio, thus lowering the revenue risk tied to specific customers or products and making the company a bit more resilient to market changes.

Trends in the Industry

  • Technology-Driven Innovation: Rapid technological advancements necessitate continuous investment in R&D to remain competitive.
  • Sustainability: Increasing demand for sustainable and eco-friendly products.
  • Shifting Supply Chains: Supply chain disruptions have made it crucial to focus on supply chain diversification.
  • Growth in Emerging Markets: Developing countries offer significant opportunities for growth, driven by industrialization and increased demand.

Margins and Competitve Landscape

DuPont’s operating profit margins vary by segment. The margins are typically better in the Electronic and Industrial sector than Water and Protection.

  • DuPont’s overall operating margin was around 11% in 2022.

Key competitors include:

  • Specialty Materials: Competitors like Dow, BASF, and Eastman are present.
  • Water and Protection: Companies such as Ecolab, Veolia, and Xylem are present.

What makes Dupont different from competitors?

  • Innovation: Dupont has invested large amounts of money in R&D, they are working on next generation technologies.
  • Customer Focus: DuPont focuses on working with the customers, which is especially important in the Electronics and industrial division.
  • Scale and Reach: Dupont has a large reach and operates globally.

Financials (In-depth)

  • Revenue: DuPont generated $12.9 billion in revenue for 2022, up from $11.6 billion in 2021. The growth in revenue came mainly from the electronics & industrial sector. In first half of 2023 Dupont had revenue of 6.6 billion, compared to 7.2 billion the same time last year.
  • Net Income: Net Income attributable to shareholders came at $631 million in 2022, down from $1.6 billion in 2021. The reduction in net income is mainly because of higher interest rates. For first half of 2023, the net income was $396 million compared to 769 million in the first half of last year. The increase in interest expense has hurt DuPont.
  • Earnings Per Share (EPS): For FY 2022 DuPont had diluted EPS from continuing operations of $2.51 compared to $4.17 in 2021. The first half diluted EPS from continuing operations was $0.87 compared to $1.97 from last year.
  • Cash Flow: Dupont continues to be good at generating cash through operations. In 2022 the cash from operations was 2.2 billion dollars. During the first half of 2023 the company did generate more cash, although at a lower rate than the last time, where the free cash flow was positive $1.1 billion.
  • Return on Invested Capital (ROIC): For 2022 ROIC was 8.1%, down from 10.5% in 2021 due to impact of acquisitions. The ROIC including goodwill is 5%.
  • Capital Expenditures: in 2022 the company spent $609 million, while their depreciation was $628 million. This means that Dupont is maintaining the level of fixed assets while also growing.
  • Leverage: Net debt to adjusted Ebitda is around 2.6x. The long term debt is ~14 billion, while their net debt is around 7.8 billion. The company has taken on more debt in recent years, mainly because of their multiple acquisitions.
  • Shareholder Returns: DuPont has a long history of dividend payments to the shareholders and also actively repurchases its own stock. This signals the management’s intent to give some part of the value back to the shareholders.
  • Acquisitions and Divestitures: DuPont has been fairly acquisitive in recent years. For instance, it purchased Spectrum for a total consideration of $5.2 billion in August 2022. This also had a huge impact on goodwill, which currently sits at about $10 billion. Dupont also sold some parts of its business in the recent times.
  • Share Repurchase program: In 2022 Dupont repurchased 25 million shares for an average price of $67.65. It also approved a new share repurchase program with an authorization of up to $3 billion in December 2022.

Financials indicate a company with good revenue and cash flow stability, although they need to carefully monitor the impact of interest rates. The acquisitions in the last two years have been done at very high prices, and Dupont has been increasing debt.

Moat Assessment

DuPont possesses some competitive advantages, but overall it does not have a wide moat. Its moat can be described as a narrow moat, which may or may not survive over the next 10 to 20 years.

  • Intangible Assets: DuPont has a lot of patents and licenses, however they can be challenged by other entities. They also have high R&D budgets that can lead to new products and increase its value. Its brands like Kevlar are important for their protection segment.
  • Cost Advantages: Dupont has an advantage in scale due to their size, and may be able to lower its costs as they grow. However, the cost advantages in the chemical industry are easily copyable, and many other giants also benefit from scale.
  • Switching Costs: Customers are unlikely to switch from the company if the switching cost is high enough to protect the pricing power of DuPont.
  • Network Effect: The company doesn’t enjoy any network effect.

Given these factors, I am giving the company a moat of 2 / 5. There are some competitive advantages, but those are not very durable.

Risks to the Moat

Several risks could impact DuPont’s moat:

  • Technological Disruption: Competitors may introduce superior and innovative technologies that could threaten DuPont.
  • Competitive Pressures: Intense competition from other companies.
  • Raw Material Costs: Rising prices in raw materials and energy could squeeze profits and diminish its price power.
  • Acquisition Strategy: Overpaying for acquisitions, and being unable to effectively integrate them could negatively affect the financial profile of the company.
  • Regulatory Changes: Regulatory hurdles and restrictions regarding the chemical industry could create issues for the company.
  • Economic Downturn: Recessions and economic downturns can lead to decreased demand, which will greatly affect DuPont as they are heavily dependent on the markets.

Even though Dupont has many strengths and a global profile, they are not immune to market pressures and outside impacts. Any major changes in the world’s economy can severely affect the company.

Business Resilience

DuPont has proven to be relatively resilient due to its global profile, having a presence in many different economies, and having a diverse set of end users. Also their broad product portfolio gives some amount of protection. However, the company is not completely immune to downturns and can still take a hit in hard times. The company has faced difficulties in the recent quarters, in terms of income and free cash flow generation. They need to focus on improving their profitability, and paying down some of their debt. Also, while DuPont benefits from their wide moat, it’s worth considering that the value it creates can also be subject to short-term and volatile market reactions.

Understandability Rating

I am giving Dupont an understandability of 3 / 5. Even though its business may not be very simple at first glance, a more thorough research reveals it to be a fairly understandable company. It is not a business that everyone will instantly understand, and some time needs to be given in understanding the dynamics of the chemical industry, which also has its ups and downs. So, this company is moderately complex.

Balance Sheet Health Rating

I am giving DuPont a balance sheet rating of 3 / 5. Dupont has a good amount of current assets that it can use to fulfill its short term obligations. Also, it generates good cash flow from its operations, which also increase the financial health of the company. However, the main downside is the long-term debt which is around 14 billion, which it has taken on due to acquisitions. But the company can also use its free cash flows to pay down the debt.

conclusion

While the company is strong, there are some risks to watch out for, so as an intelligent investor, one should always be vigilant and research more into the company. It is important to consider, though, that the value creation can be subject to changes in the market conditions.