DuPont Plans To Increase Its Ethylene Copolymer Production To Tap The Growth In Food Packaging Demand

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DuPont (NYSE:DD) recently announced plans to increase its packaging and industrial materials production capacity. The company plans to invest more than a $100 million in expanding the production of the fast-growing ethylene copolymer products. These products primarily cater to the food packaging market, which is expected to grow strongly in the coming years. DuPont plans to tap this growth opportunity by increasing the capacity to produce products such as Surlyn and Nucrel that are used in food packaging applications. [1]

DuPont generates annual sales revenue of around $36 billion by supplying high-performance materials and chemicals, electronic materials, high-performance coatings and agricultural products to industries and consumers worldwide. Most of the products manufactured by DuPont are used as raw materials by other industries, making it a predominantly B2B (business-to-business) based company with the exception of the agriculture and nutrition divisions. Its consolidated adjusted EBITDA margin stood at around 20% last year. We currently have a $72/share price estimate for DuPont, which is 17.9x our 2014 full-year adjusted diluted EPS estimate for $4.02 for the company.

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The global food packaging demand has been growing steadily over the past few years because of the rising sales of convenience foods like ready-made and easy meals, and snacks, which are gaining popularity among time-strapped consumers. [2] Moreover, the rising middle class in China, India, Brazil and other emerging markets is also driving the demand for food packaging materials higher. According to Ken Research, the global food packaging market grew at 2.5% CAGR between 2008 and 2013 and is expected to grow at 3.1% CAGR between 2013 and 2018. [3] Visiongain expects the global food packaging market to be worth almost $258 billion by the end of this year. [4]

DuPont’s Performance Materials division deals in several food packaging materials. The division that contributes almost 18% to DuPont’s total sales revenue, derives 11% of its sales from the food packaging market. Some of the key food packaging materials sold by DuPont include Surlyn, which is used in seafood and meat packaging among other applications, and Nucrel, which is used in liquid packaging pouches. Apart from these, DuPont also sells Elvalo and Elvax ethylene copolymers that are also used in food packaging applications. The company is planning to increase the production of all these products due to their continuing strong demand. It primarily faces competition from The Dow Chemical Company (NYSE:DOW), Exxon Mobil (NYSE:XOM) and BASF SE (NYSE:BASFY) in the food packaging market. We currently expect DuPont’s ethylene copolymer sales revenue, which stood at $1.62 billion last year, to grow to around $2.33 billion by the end of our forecast period, implying a CAGR of more than 4.5%.

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Notes:
  1. DuPont Announces Plans to Increase Packaging & Industrial Polymers Capacity, dupont.com []
  2. Convenience, It’s What’s For Dinner Tonight, nielsen.com []
  3. Global Food and Beverages Consumer Packaging Market Outlook to 2018, kenresearch.com []
  4. The Global Food Packaging Market, visiongain.com []