DU PONT'S TRAILBLAZER WANTS TO GET OUT OF THE WOODS
Edgar S. Woolard Jr. faced an unusually tough crowd at Du Pont Co.'s annual meeting in the spring. In addition to shareholder complaints about the company's flagging profits, a group of environmental activists wearing white hazardous-material suits harangued him about the ozone layer. Unionists, cheered on by religious groups and the Reverend Jesse Jackson, attacked the company for hiring nonunion contractors. At one point, the normally genteel chief executive even cut Jackson short after he'd spoken a bit past his appointed time, riling the minister's backers. Obviously drained, Woolard confessed to reporters afterward: "I'm running out of gas fast."
That's not such a good sign, especially just one-third of the way into a 10-year term. But Woolard, 58, has been slogging through an uncommonly wearying stretch. After hitting all-time highs during his early tenure as CEO, sales and earnings plunged last year. Revenues shrank $1.35 billion, to $38.7 billion, while earnings skidded 39%, to $1.4 billion--the lowest level since 1985. Return on equity shriveled to 8.3%, a far cry from the average of 16% Woolard promised when taking over in 1989 (table).
This is not how it was supposed to be. When the genial former efficiency expert took office, he aimed to crank DuPont into overdrive on the strength of several promising high-growth businesses, some of which he had assembled as a rising Du Pont star in the mid-1980s. But then recession hit. Orders from DuPont's core customers suddenly dried up, and sales plummeted across the board, from chemicals to electronics to polymers such as Teflon.
SHRINKING PACK. Now, rather than blazing new trails for the Wilmington (Del.) company, Woolard has a much different objective: getting Du Pont out of the woods. He has been slashing millions in overhead and shaking up management. He has also been shrinking or spinning off the diverse businesses that he once figured would be engines of growth, such as electronics and pharmaceuticals. In their stead, Du Pont will now rely much more heavily on its old mainstay cyclical products such as fibers, chemicals, and polymers--businesses Woolard had been deemphasizing. "The world changes," he says. "I'm not the least bit frustrated or angry at all. I have to be realistic."
Analysts applaud Du Pont's reversal in strategy. "They are facing up to mistakes one by one and correcting them," says Robert S. Reitzes, a chemicals analyst at C.J. Lawrence Inc. While even Woolard says a full rebound may be a couple of years off, analysts figure DuPont may bounce back to about $2 billion in earnings this year on revenues of around $37 billion. Hoping for better days, investors have bid its stock up to around 52 from a 1989 low of under 29.
Still, Woolard has big worries. The U.S. economy, he complains, is flirting with a triple-dip recession, while Japan wrestles with the worst economic conditions in 20 years. "We think world economic growth for the next two to four years is going to be low," he grumbles. That makes relying on cyclical businesses all the more risky: Until the economy booms again, sales of Du Pont's cyclicals will be lucky to grow 4% to 8% a year.
Even so, problems elsewhere at DuPont left Woolard little choice but to depend on cyclicals. Its electronics products, such as films used in computer circuitry, lack much industry clout. They took a drubbing in the recession. Electronics sales this year should come in around $1.4 billion, or about 44% lower than mid-1980s projections. Woolard is scaling the business way back. In May, the company said it would sell off a $400 million-a-year electronic connectors unit. And on July 31, electronics chief Charles L. Henry announced he will step aside. Management of the unit will move to Japan--nearer to customers but far from Du Pont's top priorities.
RISKY BUSINESSES. Another much-touted growth vehicle, pharmaceuticals, got shifted aside last year as well. After more than 20 years of trying to make it in the drug business, Du Pont put its pharmaceuticals unit into a joint venture with Merck & Co. In return for 50% equity in the venture, which is known as Du Pont Merck Pharmaceutical Co., DuPont gets Merck's drug-development expertise as well as some cash and a few new drugs. Although sales grew 33% last year, to $795 million, Du Pont shouldn't see earnings for some time: For an undisclosed period, profits must go back into the venture.
Woolard's biggest disappointment has to be on the farm. A string of acquisitions in the 1980s made DuPont a major player in agricultural chemicals, but the payoff has been slight. The main problem these days is the fungicide Benlate, which has badly damaged some crops. DuPont has paid out or set aside $350 million for claims relating to Benlate. In the second quarter alone, Du Pont set aside $134 million, helping drive down its net income for the half by 19%, to $922 million. Without the charge, first-half profits fell 7%, matching industry results, while sales slipped 2.8%, to $18.96 billion. Now, Du Pont is pushing for safer new biopesticides.
Happily for Woolard, his cyclical businesses have held up reasonably well. Consider the $6 billion-a-year fibers business. The economic downturn could have brought severe pain to the unit, since it makes such consumer-sensitive products as nylon and yarn for clothes. But fiber sales slid less than half a percentage point last year, while operating profits sagged just 3%, to $416 million. The reasons: strong fashion interest in its Lycra spandex yarn and solid overseas growth. As a former "string man"--he once ran fibers--Woolard has high hopes for the unit, expecting it to hit $9 billion in annual sales by 1996.
Woolard's intense cost-cutting drive ought to help keep profit margins up. Since last summer, the company has cut or marked for cutting $700 million in overhead, mainly with early retirements. Woolard vows $1 billion will be out by yearend 1993. Employment, about 127,000, is down from 146,000 when Woolard took over. Plus, he's begun a five-year effort to add $2 billion in profits through productivity gains and job cuts. Says Woolard: "We cannot just grow ourselves out of these costs."
A reorganization of Du Pont's top management should make it a lot easier for him to make tough cost-cutting decisions. Late in 1990, with earnings declining for the first time since 1985, Woolard did away with the decades-old executive committee--a group of past and present top executives who guided Du Pont. He is now advised by operating executives from around the world, and he demands smarter decision-making lower down in the lean management scheme.
Eliminating the executive committee was only the beginning of Woolard's assault on bureaucracy. In the $5.6 billion polymers unit, nearly one of every four managerial or supervisory posts has been cut since 1989. Where as many as 11 layers of management once separated Woolard from a polymers salesperson, now there are seven. "We allow people to accept responsibility and run with it," boasts Senior Vice-President Archie W. Dunham. More change is coming: Since carmakers account for a big portion of its polymers sales, Woolard is combining the automotive and polymers units under one manager on Oct. 1.
SNAPPY SWIM FINS. The move should help Du Pont's salespeople work hand-in-hand with their automotive clients--something Du Pont is pushing them to do with customers both large and small. Eight-employee Bob Evans Designs Inc. of Santa Barbara, Calif., claims sales of its pricey swim fins have spurted 37% since Du Pont sent over some marketing consultants two years ago. They suggested more focused ads and a toll-free phone number. The gain for Du Pont: more sales of its specialty chemical Terathane, which puts snap in the fin.
While bolstering many older businesses, Woolard is cutting others that don't have "a distinctive leadership position" or don't contribute to other operations. These include Du Pont's acrylics products business, a six-year-old optical-disk joint venture with Philips, and half its interest in Consolidation Coal Co. Another candidate for sell-off may be its imaging division, which makes printing gear, though Woolard stands by it for now.
To really get the lead out, some critics argue Woolard should dump his Conoco oil unit. Nailed by the oil glut, earnings are off 64%, to $198 million, on flat first-half sales of $7.7 billion. "Investors would rather have a choice between chemicals and nonchemicals," says Reitzes of C. J. Lawrence. Woolard argues that Conoco, "a very strong contributor" last year, isn't going anywhere: "It has only been the last seven to eight months that our oil business has been struggling." In other words, it's a cyclical business. That's something Woolard has learned to live with.Joseph Weber in Wilmington, Del.