The Rising Influence of Rising Affluence

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DuPont CEO Move: Beware Bad Global Chemistry

Investors celebrating the retirement of DuPont chief Ellen Kullman should consider why she ended up leaving.

http://www.wsj.com/articles/dupont-ceo-move-beware-bad-global-chemistry-1444148118


Investors are cheering DuPont’s announcement that its chief executive is retiring and that the chemical giant will step up its cost-cutting plan. But the applause may not last.

Late Monday, the company said Ellen Kullman, who in May prevailed in a drawn-out proxy battle with activist investor Nelson Peltz’s Trian Fund Management, will leave the company. DuPont also said it now aims to cut $1.3 billion in costs by the end of 2016—a year earlier than earlier planned—-and will further cut costs thereafter.

DuPont’s stock surged on the news. Investors are excited about the prospect for change, including the possibility Mr. Peltz’s plan to split DuPont into two companies will be revisited.


Consider, though, why Ms. Kullman’s fortunes turned so swiftly. The company now expects to earn $2.75 a share this year, versus a projection of $3.10 in late July. DuPont blamed that mainly on the deep recession in Brazil, which last year accounted for about 7% of sales. The deep slide in Brazil’s currency—the real is down more than 30% against the dollar this year—isn’t only cutting into the dollar amount of DuPont’s sales, it is encouraging Brazilian farmers to grow soybeans for export. That will hurt DuPont’s corn-seed sales.

Brazil, which is in the midst of its corn-planting season, is what is hurting DuPont now. But it isn’t the only troubled place in which it does business. The Asia-Pacific region, which has the slowing Chinese economy at its epicenter, accounted for 22% of sales last year.


Moreover, global weakness will only intensify competition in parts of the world, like the U.S., that have been relatively unscathed, putting downward pressure on prices. DuPont’s rivals won’t be standing still as it tries to navigate the global squall.

Perhaps Ms. Kullman’s departure will pave the way for DuPont to become a more efficient, shareholder-friendly set of businesses. But long-term value creation will depend on the business environment it operates in showing signs of turning the corner.