DuPont Reports Third-Quarter 2016 Results
Total Company Sales Grew on 3-Percent Volume Improvement
Operating Margins Expanded in all Reportable Segments
Increases Full-Year 2016 Operating Earnings Guidance
· GAAP1 earnings per share totaled $0.01 versus $0.14 in prior year. Operating earnings2 per share increased to $0.34 from $0.13 in prior year.
· Sales of $4.9 billion increased 1 percent. Volumes grew 3 percent on increased demand primarily in Performance Materials, Agriculture, Nutrition & Health, and Industrial Biosciences. Local prices declined by 2 percent.
· Total company gross margins expanded 45 basis points. GAAP (loss) from continuing operations before taxes was $(56) million, including charges of $(280) million related to an asset impairment and transaction costs. Prior year GAAP income of $227 million included a benefit of $147 million from insurance recoveries.
· Total segment pre-tax operating earnings2 of $607 million increased 40 percent. Total segment operating margins increased about 350 basis points, and operating margins expanded in all reportable segments.
· GAAP operating costs3 increased by 2 percent. Excluding significant items and non-operating pension/OPEB costs, operating costs2 declined by 14 percent versus prior year.
· Free cash flow4 improved by about $1.3 billion year-to-date primarily due to working capital improvements and lower capital expenditures.
· DuPont now expects full-year 2016 GAAP earnings to be about $2.71 per share, an increase of 30 percent from prior year. 2016 operating earnings2 are now expected to increase 17 percent versus prior year to $3.25 per share.
WILMINGTON, Del., Oct. 25, 2016 – DuPont (NYSE: DD), a science company that brings world-class, innovative products, materials, and services to the global marketplace, today announced third-quarter 2016 GAAP earnings of $0.01 per share and operating earnings2 of $0.34 per share. Prior year GAAP and operating earnings2 were $0.14 and $0.13 per share, respectively. Refer to Schedule B for details of significant items excluded from operating earnings per share.
Third-quarter 2016 sales totaled $4.9 billion, up 1 percent versus prior year as 3-percent volume growth more than offset 2-percent lower local price.
Free cash flow4 improvement of $1.3 billion year-to-date reflected improvements in working capital, lower tax payments, lower capital expenditures and the absence of Chemours cash outflows.
“This quarter we continued the strong momentum from the first half of the year. We increased segment operating earnings 40 percent, expanded operating margins in each reportable segment, reduced costs, grew volumes and improved free cash flow. As a result of our continued performance and progress against strategic initiatives, we are raising our operating earnings guidance for the year,” said Ed Breen, chairman and CEO of DuPont. “We also are making progress preparing for the merger with Dow. We developed an organizational design that fosters innovation and takes advantage of our market connections to drive growth. In addition, we have finalized plans to realize our cost synergies. We continue to work constructively with regulators in key jurisdictions to close the merger as soon as possible. In the event that regulators in those jurisdictions use their full allotted time, closing would be expected to occur in the first quarter of 2017. We expect the intended spins to occur about 18 months after closing.”
The following is a summary of business results for each of the company’s reportable segments comparing the third quarter with the prior year.
Agriculture – A seasonal operating loss of $189 million improved $21 million, or 10 percent, as cost savings, higher volumes and a $28 million benefit from currency were partially offset by lower local price and higher product costs. Increased seed volumes were partially offset by lower fungicide and insecticide volumes. Increased seed prices were more than offset by lower crop protection prices. Prior year operating earnings included a $27 million gain from asset sales and a $21 million benefit related to prior periods. Operating margins expanded by 230 basis points.
Electronics & Communications - Operating earnings of $108 million increased $4 million, or 4 percent, as cost savings more than offset lower demand, driven by declines in Tedlar® film and continued weakness in consumer electronics. Operating margins expanded by about 240 basis points.
Industrial Biosciences - Operating earnings of $78 million increased $17 million, or 28 percent, as increased demand in bioactives and biomaterials and cost savings more than offset lower volume in CleanTech. Demand in bioactives increased due to growth in home and personal care while strength in biomaterials reflected growth in the apparel market. Operating margins expanded by 360 basis points.
Nutrition & Health - Operating earnings of $135 million increased $33 million, or 32 percent, on continued broad-based volume growth led by probiotics, cultures and ingredient systems; cost savings; and lower product costs. Operating margins expanded by 380 basis points.
Performance Materials - Operating earnings of $371 million increased $54 million, or 17 percent. Cost savings, increased demand in automotive markets (primarily in China), and lower product costs more than offset a $14 million negative impact from currency, as well as the absence of a $16 million net benefit from a joint venture in the prior year. Operating margins expanded by about 350 basis points.
Protection Solutions - Operating earnings of $162 million increased $16 million, or 11 percent, driven by cost savings and increased volumes. Volume growth was driven by increased demand in Tyvek® protective materials and surfaces, primarily in North America. Operating margins expanded by 225 basis points.
The company now expects full-year 2016 GAAP earnings to be about $2.71 per share, an increase of 30 percent from prior year. Full-year 2016 operating earnings2 are now expected to increase 17 percent versus prior year to $3.25 per share, up from our previously communicated range of $3.15 - $3.20 per share. The estimated headwind from a higher base tax rate is now expected to be about $0.07 per share. The company continues to expect a benefit of $0.64 per share from the 2016 global cost savings and restructuring plan and a headwind from currency of about $0.15 per share. The company’s full-year 2016 GAAP earnings include an expected charge of about $0.37 per share for transaction costs associated with the planned merger with Dow.
DuPont will hold a conference call and webcast on Tuesday, Oct. 25, 2016, at 8:00 AM EDT to discuss this news release. The webcast and additional presentation materials can be accessed by visiting the company’s investor website (Events & Presentations) at www.investors.dupont.com. A replay of the conference call webcast will be available for 90 days by calling 1-630-652-3042, Passcode 6102133#. For additional information see the investor center at http://www.dupont.com.
Use of Non-GAAP Measures
This earnings release includes information that does not conform to U.S. generally accepted accounting principles (GAAP) and are considered non-GAAP measures. These measures include the company’s consolidated results and earnings per share on an operating earnings basis, which excludes significant items and non-operating pension and other postretirement employee benefit costs (operating earnings and operating EPS), total segment pre-tax operating earnings, operating costs and corporate expenses on an operating earnings basis. Management uses these measures internally for planning, forecasting and evaluating the performance of the company’s segments, including allocating resources and evaluating incentive compensation. From a liquidity perspective, management uses free cash flow, which is defined as cash provided/used by operating activities less purchases of property, plant and equipment. Free cash flow is useful to investors and management to evaluate the company’s cash flow and financial performance, and is an integral financial measure used in the company’s financial planning process. Management believes that these non-GAAP measurements are meaningful to investors as they provide insight with respect to ongoing operating results of the company and provide a more useful comparison of year-over-year results. These non-GAAP measurements supplement our GAAP disclosures and should not be viewed as an alternative to GAAP measures of performance. Reconciliations of non-GAAP measures to GAAP are provided in schedules A, C and D. Details of significant items are provided in schedule B.
DuPont (NYSE: DD) has been bringing world-class science and engineering to the global marketplace in the form of innovative products, materials, and services since 1802. The company believes that by collaborating with customers, governments, NGOs, and thought leaders we can help find solutions to such global challenges as providing enough healthy food for people everywhere, decreasing dependence on fossil fuels, and protecting life and the environment. For additional information about DuPont and its commitment to inclusive innovation, please visit http://www.dupont.com.
Forward-Looking Statements: This communication contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In this context, forward-looking statements often address expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” similar expressions, and variations or negatives of these words.
Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the consummation of the proposed transaction and the anticipated benefits thereof. Forward-looking statements are not guarantees of future performance and are based on certain assumptions and expectations of future events which may not be realized. Forward-looking statements also involve risks and uncertainties, many of which are beyond the company’s control. Some of the important factors that could cause the company’s actual results to differ materially from those projected in any such forward-looking statements are: fluctuations in energy and raw material prices; failure to develop and market new products and optimally manage product life cycles; ability to respond to market acceptance, rules, regulations and policies affecting products based on biotechnology and, in general, for products for the agriculture industry; outcome of significant litigation and environmental matters, including realization of associated indemnification assets, if any; failure to appropriately manage process safety and product stewardship issues; changes in laws and regulations or political conditions; global economic and capital markets conditions, such as inflation, interest and currency exchange rates; business or supply disruptions; security threats, such as acts of sabotage, terrorism or war, natural disasters and weather events and patterns which could affect demand as well as availability of products for the agriculture industry; ability to protect and enforce the company’s intellectual property rights; successful integration of acquired businesses and separation of underperforming or non-strategic assets or businesses; and risks related to the agreement entered on December 11, 2015, with The Dow Chemical Company pursuant to which the companies have agreed to effect an all-stock merger of equals, including the completion of the proposed transaction on anticipated terms and timing, the ability to fully and timely realize the expected benefits of the proposed transaction and risks related to the intended business separations contemplated to occur after the completion of the proposed transaction. Important risk factors relating to the proposed transaction and intended business separations include, but are not limited to, (i) the completion of the proposed transaction on anticipated terms and timing, including obtaining regulatory approvals, anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the new combined company’s operations and other conditions to the completion of the merger, (ii) the ability of Dow and DuPont to integrate the business successfully and to achieve anticipated synergies, risks and costs and pursuit and/or implementation of the potential separations, including anticipated timing, any changes to the configuration of businesses included in the potential separation if implemented, (iii) the intended separation of the agriculture, material science and specialty products businesses of the combined company post-mergers in one or more tax efficient transactions on anticipated terms and timing, including a number of conditions which could delay, prevent or otherwise adversely affect the proposed transactions, including possible issues or delays in obtaining required regulatory approvals or clearances, disruptions in the financial markets or other potential barriers, (iv) potential litigation relating to the proposed transaction that could be instituted against Dow, DuPont or their respective directors, (v) the risk that disruptions from the proposed transaction will harm Dow’s or DuPont’s business, including current plans and operations, (vi) the ability of Dow or DuPont to retain and hire key personnel, (vii) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger, (viii) uncertainty as to the long-term value of DowDuPont common stock, (ix) continued availability of capital and financing and rating agency actions, (x) legislative, regulatory and economic developments, (xi) potential business uncertainty, including changes to existing business relationships, during the pendency of the merger that could affect Dow’s and/or DuPont’s financial performance, (xii) certain restrictions during the pendency of the merger that may impact Dow’s or DuPont’s ability to pursue certain business opportunities or strategic transactions and (xiii) unpredictability and severity of catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities, as well as management’s response to any of the aforementioned factors. These risks, as well as other risks associated with the proposed merger, are more fully discussed in the joint proxy statement/prospectus included in the registration statement on Form S-4 declared effective by the SEC on June 9, 2016 (File No. 333-209869), as last amended, (the “Registration Statement”) in connection with the proposed merger. While the list of factors presented here is, and the list of factors presented in the Registration Statement are, considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on Dow’s or DuPont’s consolidated financial condition, results of operations, credit rating or liquidity. Neither Dow nor DuPont assumes any obligation to publicly provide revisions or updates to any forward-looking statements regarding the proposed transaction and intended business separations, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws. The company undertakes no duty to publicly revise or update any forward-looking statements as a result of future developments, or new information or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws.
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