DUPONT SHAREHOLDERS VENT
Byline: Scott Malone
WILMINGTON, Del. — Charles Holliday faced a tough audience at the Hotel DuPont on Wednesday.
Shareholders of the industrial giant, never reluctant to express their feelings, had a lot to say about DuPont’s recent laggard stock price, its 69.9 percent drop in 2000 earnings and its recent announcement of more than 5,000 impending layoffs.
Holliday, chairman and chief executive officer of the company, heard it all and acknowledged that results haven’t been great lately, but pointed out that the company is facing tough times.
“We’re dealing with a difficult economic environment,” he said. In particular, he added, things are looking bleak for the U.S. apparel manufacturing industry, a key market for DuPont’s fiber operations.
He said that the percentage of clothing bought in the U.S. and manufactured in this country dropped to 30 percent from 60 percent between 1995 and 2000, and predicted that it would drop to 15 percent by 2005.
“We do not believe this fundamental shift will reverse, and we will have to make some difficult decisions,” he said. About half of the company’s announced layoffs are coming from its polyester and nylon operations.
The layoffs were a sore point with many DuPont employees in the crowd. Walter Aerhart, a member of the International Brotherhood of DuPont Workers from the company’s Waynesboro, Va., plant complained that Holliday had been awarded a bonus larger than his base salary at a time when the company was cutting jobs.
“The executive board awarded Mr. Holliday a $1.7 million bonus,” he said. “Is anyone paying attention? What outstanding contributions is Charles Holliday making to DuPont?”
Holliday’s total compensation in 2000 was $2.8 million, off 2.1 percent from 1999.
In particular, Aerhart questioned the wisdom of the 1999 spinoff of the oil company Conoco. Just this week, Conoco reported first-quarter net income increased 64 percent, to $653 million, as revenues moved ahead 22 percent, to $10.6 billion.
Paul Hagen, an independent shareholder in the company, also challenged the Conoco decision. “This would seem to raise questions about your stewardship,” he told Holliday. “Your performance leaves much to be desired.”
For his part, Holliday contended that the move was right for DuPont over the long term, as it tries to focus on science-intensive businesses. “We believe that was the right decision,” he said. “We are a company that looks over the long term, not at any one year.”
Another shareholder, Brooke Lee, came to the ceo’s defense, saying: “I think you’ve done one heck of a job in very trying times.”
While rising energy prices and slowing consumer spending have taken their toll on most of DuPont’s operations, their pinch has perhaps been most painful at the company’s apparel and textile sciences operation. Steve McCracken, president of that unit, in an interview after the meeting explained the steps DuPont was taking to make its fiber businesses more competitive.
“If DuPont is going to maintain its presence in what a lot of people call+a sunset industry, it’s going to have to find a new way,” he said.
The apparel and textile sciences unit, which was formed by merging DuPont’s polyester specialty, nylon and spandex fiber operations, is changing its approach from production-driven to a market-driven model. As part of the change, McCracken said the unit is beginning to rely more heavily on outside production, and has begun buying polyester made to its specifications from other manufacturers. He said the company anticipates outsourcing some of its nylon production as well.
This is allowing it to phase out some of its less-efficient manufacturing assets, he explained. “We want to own assets that contribute to the advantage we have,” he said. “In five years’ time, we’ll still own assets producing over half our production, but it will be less than it is today.”
Many of the 2,000 jobs being cut from the company’s polyester and nylon operations are coming at the manufacturing level. However, McCracken said that there would also be cuts from the administrative and executive portions of his operation. That is needed to change the culture of the business, he said, noting that none of the cuts that are to come this quarter would be voluntary.
“We’re trying to upgrade the business,” he said.
Margin pressure throughout the fiber industry has become intense in recent years, with makers of polyester and nylon seeing their profits eaten away. Over the last two years, things have gotten particularly tight in the spandex market, where the building of many new factories has driven the price of generic spandex to as low as $3.50 a pound, from the double-digit-dollar figures it once commanded.
This has also hurt the margins of the branded Lycra business, McCracken acknowledged: “Our prices have gone down, but at not the same rate” as generic prices.
DuPont also makes generic spandex.
Despite the weak environment, DuPont is preparing to get a little more open about its fiber results, which until recently had been wrapped into other business segments. Starting in the second quarter, the company will break out results of its apparel and textile sciences unit.
McCracken admitted that it’s a touchy time to do so, saying that “business is less than spectacular right now.”
Still, he said he was confident that the spandex market will improve in the years ahead.
“This is not the polyester situation unfolding in Asia 10 years later,” he said.
DuPont shareholders approved the slate of directors and auditors recommended by the board, and voted down four proposals from independent shareholders. The defeated proposals covered political nonpartisanship, diversity in the workforce, revising the pension rules to benefit downsized workers and adopting a stricter international labor code.