EIDP, Inc. (DuPont) 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2015, compared with the same period of 2014. DuPont operated across Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Chemicals, Performance Materials, and Safety & Protection. Management expected to separate Performance Chemicals into The Chemours Company through a tax-free spin-off targeted for July 1, 2015, subject to customary conditions and Board approval.
Key financial metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net sales | $9,172 million | $10,128 million | Down 9% |
| Other income, net | $198 million | $17 million | Up $181 million |
| Income before taxes | $1,601 million | $1,802 million | Down 11% |
| Net income attributable to DuPont | $1,031 million | $1,439 million | Down 28% |
| Diluted EPS | $1.13 | $1.54 | Down $0.41 |
| Dividends per share | $0.47 | $0.45 | Up $0.02 |
| Cash used in operating activities | $2,123 million | $2,421 million | Improved by $298 million |
| Capital expenditures | $565 million | $320 million | Up $245 million |
| Cash, cash equivalents and marketable securities | $3,747 million | $7,034 million at Dec. 31, 2014 | Down $3,287 million |
| Total debt | $10,384 million | $10,694 million at Dec. 31, 2014 | Down $310 million |
Net income margin was approximately 11.3%, compared with 14.3% in the prior-year quarter. Segment pre-tax operating income was $1,941 million, down 14%, including an approximately $300 million negative currency impact. The consolidated effective tax rate increased to 35.4% from 19.8%.
At March 31, 2015, current assets were $19,319 million and current liabilities were $10,732 million, implying current assets of approximately 1.8 times current liabilities. Cash declined primarily because of seasonal working-capital needs. Debt consisted of $1,621 million of short-term borrowings and capital lease obligations and $8,763 million of long-term borrowings and capital lease obligations.
Material changes versus the prior comparable period
- Sales declined 9%, driven by a 6% negative currency effect, a 2% portfolio impact, and 1% lower volume. Local price and product mix were approximately flat.
- Developing-market sales declined 15% to $2.6 billion, including a 10% currency impact and 5% lower volume.
- Agriculture sales declined 10% and PTOI declined 19% to $1,174 million, mainly from currency, lower volumes, reduced insecticide demand, and shipment timing.
- Performance Chemicals sales declined 14% and PTOI declined 37% to $129 million, reflecting lower titanium dioxide prices and volumes, currency, and portfolio changes.
- Performance Materials PTOI increased 12% to $327 million, while Electronics & Communications PTOI increased 13% to $85 million and Safety & Protection PTOI increased 5% to $184 million.
- Other income benefited from foreign-exchange contract gains and other items. The quarter included $64 million of net exchange gains, compared with a $96 million net exchange loss in Q1 2014.
- SG&A declined to $1,312 million from $1,436 million, primarily due to operating-model redesign savings and lower commissions. R&D declined to $499 million from $518 million.
- Interest expense declined to $84 million from $103 million because of lower average borrowings.
- Cash used for financing declined to $851 million from $2,469 million, primarily due to lower share repurchases and increased short-term borrowings, partly offset by higher debt repayments.
Guidance, outlook, commentary, risks and unusual items
- Management increased expected negative currency impact for 2015 from approximately $0.60 to $0.80 per share, with the largest effect expected in Agriculture during the first half of the year.
- Operating-model redesign savings improved Q1 earnings by approximately $0.10 per share. Management expected total 2015 savings of $0.40 per share, approximately $1 billion of run-rate savings by Q4 2015, and $1.3 billion by 2017.
- Performance Chemicals separation costs were $81 million in Q1 2015 versus $16 million in Q1 2014. Total 2015 separation costs were estimated at approximately $350 million.
- DuPont anticipated receiving approximately $4 billion of dividend proceeds from Chemours before separation, subject to Chemours financing, final credit ratings, and business conditions. It intended to return substantially all of the proceeds through share repurchases over 12 to 18 months.
- Unusual charges included a $38 million pre-tax impairment, primarily related to a European wheat-based ethanol venture, and a $3 million charge from remeasuring Venezuelan monetary assets after changing to the SIMADI exchange rate.
- Imprelis claims remained subject to approximately 37 pending lawsuits. DuPont had a $231 million accrual and $25 million of insurance receivables related to the matter; insurance recovery timing and outcome remained uncertain.
- PFOA matters included approximately 3,500 personal-injury lawsuits, about 600 more than at year-end 2014, with the first individual MDL trial scheduled for September 2015. The company had a $14 million accrual, but stated that potential additional losses could not reasonably be estimated.
- Environmental liabilities accrued were $482 million. Management stated that potential liability could be as much as $1.1 billion above the accrued amount under adverse circumstances, with payments potentially extending 15 to 20 years.
- Other risks include currency, energy and raw-material prices, global economic conditions, litigation and environmental matters, process safety, regulatory changes, supply disruptions, cybersecurity, intellectual property, and execution of the Chemours separation.
- The company reported effective disclosure controls and procedures and no material change in internal control over financial reporting.
Important facts for investors to verify
- Completion timing and final terms of the Chemours separation, including the expected $4 billion dividend and related Chemours debt financing.
- Actual currency effects, Agriculture performance, and whether projected redesign savings offset currency and operating headwinds.
- Cash generation and liquidity after seasonal working-capital use, debt maturities, capital expenditures, dividends, and planned share repurchases.
- Final 2015 separation and restructuring costs and their effect on reported earnings.
- Developments in PFOA, Imprelis, environmental, product-liability, and other litigation exposures, including insurance recoveries.
- Whether the elevated effective tax rate persists and how foreign-exchange hedging gains and related tax treatment affect future earnings.