DuPont (DD, Financial) has reported its board’s approval to changes in the planned corporate governance structure for Chemours, its chemicals unit that it is spinning off. Chemours had previously been put under pressure by Trian Fund Management LP who was making moves for seats on the board of DuPont. Nelson Peltz’s is Trian Fund Management LP’s co-founder and has been riveting to shake up the company, making moves to further split the company into two companies, one completely focusing on agriculture and nutrition and the other on industrial materials.
Last Monday, DuPont announced at a regulatory filing that the changes approved by the board would initialize the lowering of the threshold for shareholders to call a special meeting from 35% to 25% at the spun-off chemical business unit which would be named Chemours Co.
Amid concerns of the proxy war, Du Pont has managed to show decent numbers and seems to be on a growth mode. Let’s dig in deeper to find out the facts which are testimony to the fact that the company is in the growing phase.
DuPont’s plan of action
In six weeks the annual shareholders meeting will take place. Going by Trian’s response to Chemours’ governance changes, a stark indication is there for all to see that a fight is brewing. Trian feels the DuPont board implemented weak policies and ineffective antitakeover measures in its announced plan for Chemours. DuPont made a decision to make limiting changes to Chemours’ provisions in a response to the changes being suggested by Trian, as well as a stockholder lawsuit might follow.
Despite trouble in the boardroom, DuPont has been able to remain profitable and reputable according to its brand name and shareholder confidence. The recent quarter’s net income growth largely exceeded the S&P 500 and the Chemicals industry sectors. In fact, net income jumped by a whopping 269.2% in the current quarter to $683 million, from $185 million reported a year earlier. DuPont’s debt-to-equity ratio is low at 0.80, much lesser than the industry average. This illustrates quite a successful effort in the managing of debt levels by the company. Short-term cash problems are not an issue currently for DuPont as their quick ratio is being maintained adequately at 1.03.
In a great financial position
DuPont has initialized a strategy of reducing its cost structure, making the transition towards bigger growth businesses. This seems to be working well for the chemicals manufacturers. Trian’s involvement in DuPont looks positive with expectations surrounding shareholders' returns looking strong and in high numbers. This should remain the case as long as DuPont can manage its debt while boosting its short-term returns. DuPont’s net sales for the latest quarter hit $7.38 billion, a 5% decrease from the year ago quarter. While being faced with a harsh operating background including ongoing weakness in the agribusiness sector and varying effects from the dollar, DuPont has recorded higher volumes and margins across most of their divisions this quarter.
The chemical giant’s other major investors, Fidelity Investments, would like DuPont and Trian Fund Management LP reach an agreement in the midst of a volatile and detrimental proxy war.
Parting thoughts
DuPont is being rated a BUY rating at the moment due to converging positive investment methods that can help this stock perform at a much higher level. DuPont’s strengths are visible in many areas like an increase in stock price between now and this time last year. They have also recording impressive growth in earnings numbers on a per share basis as well as a rise in their total net income. A broadly solid financial position with manageable debt levels combined with manageable valuation levels makes DuPont a good stock to invest in at this juncture.
