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A Look at DuPont’s Historical Free Cash Flow

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Reduction in free cash flow

DuPont (DD) reported a drastic reduction in its free cash flow (or FCF), from $3.1 billion in 2010 to $1.7 billion in 2014. This was due to lower operating cash flow (or OCF) and increased capital expenditure.

DuPont’s OCF for 2014 fell to $3.7 billion from $4.6 billion in 2010, primarily on account of lower earnings. The company’s net profit fell to $2.8 billion in 2014 as compared to $3.5 billion in 2010. DuPont’s capex rose from $1.5 billion in 2010 to $2.0 billion in 2014.

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Better liquidity

DuPont’s liquidity improved from $9.4 billion in 2010 to $12.0 billion in 2014. The rise in liquidity was driven by a significant increase in an unused revolver amount, from $2.6 billion in 2010 to $4.9 billion in 2014. DD’s cash and cash equivalents also rose marginally to $7.0 billion in 2014 as compared to $6.8 billion in 2010.

Free cash flow comparison

DuPont has generated FCF of $1.7 billion in the last 12 months. Its closest peers Dow Chemical Company (DOW), LyondellBasell (LYB), and Monsanto Company (MON) have reported relatively higher FCFs than DuPont. DOW’s, LYB’s, and MON’s FCFs were $4.0 billion, $5.3 billion, and $2.0 billion, respectively, for the last 12 months.

With lower FCF, DuPont has a lower FCF yield of 2.8% compared to DOW’s 6.5%, LYB’s 11.5%, and MON’s 5%.

Investors can get exposure to the chemical industry through investment in individual stocks or through ETFs such as the iShares US Basic Materials ETF (IYM). The combined holdings of DD, DOW, LYB, and MON form 36.5% of IYM’s portfolio.

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