Breen's 'busy weekend': DuPont CEO juggles deals, cuts

After another disappointing earnings report, master corporate carver and kingmaker Edward Breen -- CEO of the DuPont Co., among his other jobs -- took questions Tuesday morning from stock analysts in advance of DuPont's planned merger with Dow Chemical Co. and their proposed split into 3 companies: materials (mostly Michigan-based Dow), mixed specialty products (mostly Wilmington-based DuPont) and farm pesticide and seed sales (with headquarters to be announced, maybe in the Midwest, where both companies have labs.) 

"Hey Ed, I know you were busy this weekend also, with Johnson Controls-Tyco." cracked Wells Fargo Advisors analyst Frank Mitsch, citing Monday's $20 billion sale announcement by Tyco International, which Breen chairs, to Johnson Controls (see my story here) . "But you've also been busy (upsizing DuPont) cost reductions: 2016 goes from $700 million to $730 million; run rate (yearly savings), was $900 million, to a billion.

"That's after one month -- you rolled those numbers out one month ago. And you and Andrew (Liveris, the Dow boss) rolled out a $3 billion number a month ago in terms of synergies for combined entities." So, will that keep going up, too? Mitsch asked. -- DuPont's "$1B cost reduction is separate from the Dow DuPont $3 billion," Breen replied evenly. "We're moving as fast as we can. We did identify more."

Breen confirmed that he "personally" cancelled DuPont's $1B "One DuPont" SAP software update by Accenture last fall -- a story I broke here -- because he saw a "huge opportunity" to substitute Dow's SAP (which Dow picked up when it bought Philadelphia's Rohm and Haas) to meet DuPont's goal: firing redundant supply-chain purchasing, sales, shared-services and IT workers. (He acted before Dow-DuPont talks were public.)

A lot of warehouse workers and leases are doomed, too: "We're doing a lot of heavy lifting," Breen said. "We have hundreds of warehouses around the world, and we don't need that when we come together."

DuPont's 2016 capital expenditures will total "$1.1 billion. That is down from about $1.4 billion and $1.5 billion in previous years... Our 2016 plan is more inline with our depreciation and amortization."

DuPont will cut $200 million in corporate expenses, added CFO Nicholas Fanandakis. Cash flow and debt are both down, following the Chemours spin-off, but share buybacks will continue.

Breen promised more details in a merger transaction report after DuPont's annual report next month. He noted he and Liveris have already set up a dozen teams to integrate the companies after the merger: "legal, sourcing, logistics, supply chain, HR, finance, IT, facilities." All planning for "seamless business operations on Day One after the merger." And looking for more buildings to close.

Breen promised speedy decisions on teams to run the three successor companies. Some from Dow, some from DuPont -- and some from outside: "The best athletes we can get."

Citigroup analyst PJ Jukevar asked Breen for more detail on research and development cuts. DuPont says it spent $1.9 billion on R&D last year but will spend around $1.65 billion this year, a quarter-billion-dollar reduction.

Breen sought to put the smaller effort in context: The lower, new total is about as much as DuPont has been spending, on average (in current dollars, not counting the decline in purchasing power due to inflation, a spokesman clarified) for R&D spending over the past 15 years.

The average was more like $1.45 billion in the 2000s, after DuPont sold off Concoco; "and then there was a little bit of a ramp-up" after 2010, Breen said. That corresponds to DuPont's added investments in seed, enzyme and other ag and bio businesses under CEO Ellen Kullman, which her successor is, roughly, undoing..

The new number "is exactly about where we're going to be as we move forward," Breen concluded. "We're at a very heavy, robust level. We're still one of the highest R&D companies in the world."