EIDP, Inc. 2021 Third-Quarter Form 10-Q Summary
Business Context and Reporting Period
E. I. du Pont de Nemours and Company (EID) is a wholly owned subsidiary of Corteva, Inc. and continues to file periodic reports. This combined Form 10-Q covers the quarter and nine months ended September 30, 2021. EID’s operations comprise Corteva’s Seed and Crop Protection segments. EID’s standalone results differ primarily because of preferred stock and a related-party loan payable to Corteva.
Key Financial Metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Net sales | $2.371 billion, versus $1.863 billion | $12.176 billion, versus $11.010 billion |
| Income from continuing operations after tax | $27 million, versus $(404) million | $1.637 billion, versus $595 million |
| Net income attributable to EID | $24 million, versus $(404) million | $1.578 billion, versus $585 million |
| Income from continuing operations before tax | $(3) million, versus $(526) million | $2.062 billion, versus $663 million |
| Cost of goods sold | $1.558 billion, or 66% of sales | $6.988 billion, or 57% of sales |
| Research and development | $297 million, or 13% of sales | $871 million, or 7% of sales |
| SG&A | $672 million, or 28% of sales | $2.403 billion, or 20% of sales |
| Segment operating EBITDA | $(11) million, versus $(152) million | $2.420 billion, versus $1.932 billion |
Third-quarter sales increased 27%, driven by 17% volume growth, 7% price improvement and a 3% favorable currency impact. Nine-month sales increased 11%, driven by 6% volume growth, 3% price improvement and a 2% favorable currency impact.
Seed sales increased 41% in the quarter and 8% year to date; Crop Protection sales increased 22% in the quarter and 15% year to date. Nine-month segment operating EBITDA margins improved by more than 240 basis points in Seed and more than 230 basis points in Crop Protection, according to management.
Reported earnings benefited materially from non-operating pension and other post-employment benefit credits of $315 million in the quarter and $941 million year to date, included in other income. The nine-month result also included a $47 million equity securities mark-to-market gain. The third-quarter effective tax rate was unusual at 1,000% for EID because of a $30 million tax benefit on a $3 million pretax loss; the nine-month rate was 20.6%.
Cash Flow, Debt and Liquidity
- Cash used in operating activities was $838 million for the nine months, compared with $1.283 billion used in the prior-year period.
- Cash used in investing activities was $201 million, including $413 million of capital expenditures.
- Cash provided by financing activities was $384 million, compared with $2.741 billion in 2020.
- Cash, cash equivalents and marketable securities totaled $2.882 billion at September 30, 2021, down from $3.795 billion at December 31, 2020.
- Total EID debt was $4.916 billion, consisting primarily of $1.101 billion of long-term debt, $2.443 billion of long-term related-party debt and $1.372 billion of short-term borrowings and finance lease obligations.
- The $2.443 billion related-party loan from Corteva matures in 2024 and carried a 1.52% interest rate at quarter-end.
- EID reported approximately $6.4 billion of unused committed and uncommitted credit lines at September 30, 2021. Corteva was in compliance with its total-debt-to-total-capitalization covenant, which cannot exceed 0.60.
Management expects liquidity from operating cash flows, commercial paper, credit facilities, capital markets, factoring and the receivable repurchase facility to fund operations, seasonal working capital, capital expenditures and benefit obligations.
Material Changes Versus the Prior Comparable Period
- Profitability improved substantially from the 2020 third-quarter loss, reflecting higher sales, stronger pricing and volume, favorable currency, lower bad-debt expense and productivity actions.
- Higher input costs, freight, logistics and other supply-chain constraints continued to pressure margins.
- Restructuring and asset-related charges declined to $26 million in the quarter from $49 million and to $261 million year to date from $298 million. The 2021 charges included $124 million of non-cash accelerated prepaid royalty amortization and $127 million related to the 2021 restructuring actions.
- The company authorized a new $1.5 billion share repurchase program. During the quarter, Corteva repurchased $200 million of stock in total under its programs; the prior $1 billion program was completed during the quarter. EID itself has no publicly traded common equity repurchase program.
- Cash declined while short-term borrowings increased, primarily reflecting seasonal working-capital needs and capital expenditures.
- Accumulated other comprehensive loss increased to $3.645 billion from $2.890 billion at year-end, primarily reflecting currency translation and benefit-plan adjustments.
Guidance, Outlook and Unusual Items
- Corteva raised its 2021 net sales outlook to $15.5 billion-$15.7 billion and operating earnings per share outlook to $2.05-$2.15. It affirmed operating EBITDA guidance of $2.5 billion-$2.6 billion.
- Full-year capital expenditures are expected to be $600 million-$650 million.
- Management expects at least $900 million of 2021 share repurchases and approximately $70 million of annualized savings from the 2021 restructuring actions by 2023.
- COVID-19 recovery, inflation, raw-material availability, transportation and logistics constraints, commodity prices, currency movements and weather remain significant operating variables.
- Discontinued-operations charges were $4 million in the quarter and $59 million year to date, principally related to PFAS environmental remediation and settlements involving legacy operations.
- Under the Chemours memorandum of understanding, Chemours, DuPont and Corteva share certain future PFAS costs. Corteva and DuPont’s combined share is subject to a $2 billion limit for specified qualified expenses and escrow contributions, with additional allocation mechanics under the separation agreements.
- At September 30, 2021, environmental accruals totaled $454 million, with potential exposure above accrued amounts estimated at $586 million. Management states that additional losses could be material but cannot currently be estimated beyond accrued amounts.
- EID and the former Dow AgroSciences business face chlorpyrifos litigation, PFAS and PFOA claims, environmental proceedings, and a DOJ prosecution related to the 2014 La Porte, Texas release; the La Porte trial was scheduled for March 2022.
- Charles Victor Magro became Corteva’s CEO on November 1, 2021, creating an identified transition risk.
Most Important Facts for Investors to Verify
- Confirm that EID standalone debt includes the $2.443 billion related-party loan to Corteva and reconcile it to Corteva’s consolidated debt.
- Assess the sustainability of earnings excluding pension and OPEB credits, tax benefits, equity mark-to-market gains and other significant items.
- Monitor whether pricing and productivity actions continue to offset inflation, raw-material costs, freight and logistics pressures.
- Evaluate operating cash conversion, given $838 million of operating cash use despite $1.578 billion of nine-month net income.
- Review PFAS, environmental, chlorpyrifos and La Porte litigation exposures, including potential liabilities exceeding recorded accruals.
- Compare actual 2021 results with the updated sales, operating EPS, EBITDA and capital-expenditure outlook.
- Verify the timing and remaining availability of the $1 billion receivable repurchase facility, which expires in December 2021.