You think investors holding DuPont (DD) stock were unhappy with the CEO? DD stock surged more than 10% Tuesday after Ellen Kullman resigned — and that’s despite the chemicals giant cutting its forecast.
Chalk up another win for activist investor Nelson Peltz.
Kullman may have won a round with Peltz last spring when DuPont successfully kept his handpicked nominees off its Board of Directors, but the hedge fund titan just scored a TKO.
Peltz — who runs Trian fund Management and its 2.7% stake in DD stock — says DuPont’s conglomerate structure weighs on shares and destroys shareholder value.
Furthermore, there’s no single compelling reason to own DuPont stock, the activist contends, since DD is “neither a pure-play growth company, nor a cyclical recovery play nor a capital return story.”
CEOs usually loathe to breakup the companies over which they preside, and it’s not like DuPont has completely eschewed the shrink-to-grow strategy that’s currently in fashion. Over the summer, DD spun off its performance chemicals segment.
At the time, Kullman said the move advanced “DuPont’s transformation to a higher growth, higher value, global science and innovation company.”
But as far as Peltz, and an increasingly large block of other shareholders are concerned, DuPont still has a long way to go.
The market has been unhappy with DuPont’s performance and its reluctance to follow Peltz’s prescription for some time now. DD stock was off more than 25% for the year-to-date before the CEO — who is also chairman — stepped down.
Another crummy quarter sure wasn’t going to help her cause.
DuPont Earnings to Disappoint Yet Again
DuPont slashed its forecast for full-year operating profit to $2.75 a share from $3.10. To be fair, there’s not much Kullman can do about a stronger U.S. dollar or weak agricultural markets, but with DuPont set to report another ugly quarter, it was time for the CEO to go.
The board immediately tapped Edward Breen to be the interim CEO, leaving nothing vague about its eventual course of action. After all, Breen was the CEO who oversaw two breakups of Tyco International (TYC). On a conference call with analysts, Breen pledged to take a “deep dive into the details of [DD’s] cost structure and allocation of capital to ensure we deliver appropriate returns for shareholders.”
Even if Breen isn’t appointed full-time CEO, whomever the board picks is going to have a mandate to make dramatic changes. That’s all to the good.
There’s nothing in the macroeconomic picture that’s going to help DuPont’s fortunes or DuPont stock. Brazil alone is acting as a huge drag on results and is mired in recession — further cost cuts aren’t enough in such an environment.
Going all-in on the shrink-to-grow playbook is the best chance Dupont stock has to get back to generating at least OK returns. All of sudden, DD stock — a component of the Dow Jones Industrial Average — look like a much better bet.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
