Metrics That Matter: Chemical Companies

Dow and DuPont completed their merger on Friday. The Dow/DuPont company is now a reality. The new company is now a $150 Billion company, overseen by the former DuPont Chief Ececutive, Ed Breen. (For perspective, this is 2X the size of P&G in 2015.) The intention is to break the company into three parts--agriculture, material science, and speciality products--over the next 18 months. Here are some orbit charts to understand the current state of the two companies. Note that Dow has better inventory turns while DuPont has slightly better margins. Also note the strong deteriation in inventory turns of DuPont.

Figure 1. Dow and Dupont Orbit Chart Performand at the Intersection of Operating Margins and Inventory Turns

For reference for the same period, the orbit chart of the chemical industry (averages) are shown in Figure 2.

Figure 2. Orbit Chart of Industry Averages for the Chemical Industry for the Period of 2006-2016

The industry profited by the improvement in oil prices. The decline in inventory is due to the slow down in demand of downstream customers, longer transit times in ocean transport, and increases in complexity.
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