NEW YORK — Expecting modest revenue growth in the years ahead, DuPont Textiles & Interiors plans to rely on cost cutting and efficiency as the key to raising its profits.
This story first appeared in the June 18, 2002 issue of WWD. Subscribe Today.
In a briefing Thursday with investors — whom DuPont is courting as it aims to spin off the DTI unit next year, if possible through an initial public offering — DuPont executive vice president and chief operating officer Richard Goodmanson and group vice presidents Steve McCracken and George MacCormack said they’re hoping to achieve annual sales growth of 2 to 3 percent for the business.
The company sees spandex as offering the best growth prospects of its apparel portfolio, while it is less optimistic about the nylon and polyester businesses. McCracken showed a chart projecting that DTI’s spandex business in the years ahead would grow at a rate of about 3 percent faster than the economy as a whole, while nylon textile fibers would lag the economy by 2 percent and polyester would trail it by 3 percent.
He added that he expects DTI to benefit from a pickup in the world economy.
“Right now, we’re seeing some economic recovery across our business,” he said. “I don’t know how long that will last, but we’re seeing it today. I think that will drive slightly above normal growth in the short term.”
Goodmanson said one of the key things DTI management has been working on since the company revealed in February its intention to spin off the unit has been determining on what businesses to stake its future and how to run them profitably.
“We have to figure out where we want to grow, where we want to reduce our presence and what needs to be fixed,” he said.
He showed a chart listing nylon textile fibers and polyester filament as businesses on which DTI aims to decrease its reliance. It aims to increase its presence in spandex and other stretch products.
In nonapparel businesses, the company intends to beef up its North American flooring business, as well as sales of specialty textile products for uses including airbags, while it aims to maintain its current position in businesses such as nylon tire cord and chemicals.
MacCormack said the company has decided that many of its polyester and nylon plants, which are primarily located in major industrialized countries with higher wages, including the U.S. and Western Europe, are not sufficiently competitive on a cost basis with developing-world manufacturers, such as China.
“We see the great majority of our assets as globally competitive,” he said. “We have some nylon and polyester assets which are regionally competitive with other assets in the developed markets, but are globally uncompetitive.”
Despite that assessment, DTI isn’t moving to close all its nylon plants. Company executives contend that they’re able to produce caprolactam, a major nylon ingredient, at a competitive price. So they’re looking at ways to cut nylon-plant running costs.
As reported, DTI in April said it planned to lay off about 2,000 workers, closing a Niagara Falls, N.Y., facility that made a basic component of spandex and some of its spandex production in Waynesboro, Va. The first round of layoffs will take effect next month, according to McCormack. He added that he expects about two-thirds of the workers due to be laid off to be removed from DTI’s payroll by the end of the year, with the remaining workers out of the company by the end of June 2003.
“We decided, after looking very deeply, not to shut down a lot of our nylon assets, but to keep them running, to lower our costs and extend the life of the business,”said McCormack. “We see ourselves targeting next year’s cash fixed costs at $2.2 billion, down $300 million from this year.”
That savings will come through the layoffs and facility closings already disclosed, planned improvements in efficiency and reduced materials costs, and through a streamlining of the support services at the division, which encompasses parts of three previous DuPont divisions.
In terms of developing future plant sites, Goodmanson said DTI would have an eye on China.
“The world is moving wholesale to China because of the cost of manufacturing,” in many industries and particularly apparel, he said. “Last year’s economy basically accelerated that particular trend.”
As reported, DTI aims to increase its production of spandex in Lianyungang and Shanghai, and also aims to up its nylon presence in China in the coming years.
McCracken said that DTI’s high tech, recently constructed spandex facilities in China are highly cost efficient, but added, “The China market is booming for spandex and what a lot of people don’t understand is even though it is a low-cost export market, more than half of the spandex is being consumed by Chinese consumers.”
The upcoming plant expansions in China, which will increase DTI’s production capacity in that nation by 10,000 tons, are expected to have operating costs 40 percent less than DuPont’s oldest spandex plants, he added.
Cost efficiency is particularly important in the spandex business since price competition has been intense for that fiber in recent years, a result of a surge in investment in new spandex plants in the Far East in the late Nineties.
“We expect some slowdown of the price declines in spandex,” McCracken said. “We’re implementing price increases in Asia in generic spandex.”
DuPont markets lower-priced spandex under the Elaspan name and higher-priced spandex under the Lycra name. Lycra customers also have access to a range of other ancillary services from the Wilmington, Del.-based company. McCracken showed a chart showing that he expects the price gap between Elaspan and Lycra to narrow, as Elaspan prices firm up and Lycra prices continue in a “modest decline.” The chart also projected that Elaspan would grow to represent a larger chunk of the unit’s spandex business over time.
McCracken added that DTI is looking into ways to license more of its fiber technologies to Asian producers and has already done so in China with its Coolmax, Comforel and Thermolite polyester variants.
He said the company aims to sell technology to companies “who want to put in the capital to go into that low-growth area” and noted that since such deals require essentially no up-front investment by DuPont “the return on invested capital is nice.”
The company is exploring similar alliances with small nylon producers in China, he said, and “the Asians are very interested.”
The DTI unit currently employs 20,500 workers, with 14,300 of those on DuPont’s payroll at 6,200 at affiliates. Its $6.48 billion in revenues break out into $2 billion from apparel, $2.2 billion from interiors and industrial and $2.3 billion from intermediate chemical components.
Spandex is the unit’s largest apparel fiber business, with total spandex products racking up $1.37 billion in sales last year. Nylon textile fibers represented about $594 million in sales and polyester textile fibers and resins brought in a similar amount as nylon textile fibers.
As reported, DuPont earlier this year disclosed that DTI in 2001 would have reported $70 million in aftertax operating income.
McCracken said much of DTI’s current focus is for ways to better use its existing brands, including Lycra and Teflon. He said the unit is working to move from DuPont’s classic manufacturing model to a more marketing-driven business.
“We want to get more and more equity and value out of the entire portfolio, rather than look at individual brands within individual businesses,” he said. “Brands are promises and trust marks and things you go to for innovation and value.”
In addition to making greater use of the Teflon brand in the apparel arena, he said DTI is starting to use its Lycra name on products for the home furnishings market.
While the DTI executives stress to investors and the media that the unit’s eventual separation from DuPont will be dictated by a number of factors beyond the company’s control — mainly how interested investors are in IPO’s next year — Goodmanson said the unit has an internal deadline for operating independently within DuPont.
“The timeline is to have the business operating as if it was a separate entity by Jan. 1 next year,” he said.