DuPont (NYSE:DD), the chemical major, is looking to sell off its auto-paint division along with a smaller powder coatings unit.  The sale of these divisions is expected to fetch the company $3-4 billion. DuPont competes with other chemical manufacturing majors like Dow Chemical Company (NYSE: DOW) and Bayer AG (BAY:GR). We currently have a Trefis price estimate of $59 for DuPont’s Stock, around 11% above the current market price.
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DuPont has been providing auto industry with paint solutions right since its inception in earlier 1900’s. According to the company’s website, it provided General Motors in the 1920’s with a spray painting solution, cutting down the time of painting a car from weeks to under six hours.
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In 1999, the company doubled its auto paint business and became the industry leader by acquiring Herberts from Germany’s Hoechst AG for $1.9 billion. However, currently the automotive and industrial division of the company is going through a crisis. Its operating margin is ~8% ( including pension and other items) which is the lowest among all of divisions and half of the next highest one (16% of Electronics and Communication materials). Since these margins are almost half of the corporate average, selling this division will improve the portfolio of the company.
The automotive and industrial coatings division of the company accounted for nearly 12 percent of DuPont’s $31.5 billion in revenue last year and 5.1 percent of operating income. Coatings for refinishing vehicles accounted for almost $1.7 billion of sales last year. New-car coatings sales totaled $1.2 billion while sales of powder and liquid coatings were about $950 million.
The company had initially said that it hopes to boost the margins of this division to around 10% in 2012. Performance coatings are expected to account for 10 percent of sales and 5 percent of earnings next year as the weak automotive sector continues to pressure margins.
The company was hoping to improve division’s productivity and cash flow rather than focusing on revenue growth. However, it seems that the company has decided that it will be better off focusing on its high growth areas which are aligned with global macro trends rather than trying to revive this failing business. The company is focusing on food additives and agriculture improving products to feed the growing global population.Notes: