CTA-PB

Business Context and Reporting Period

Company: E. I. du Pont de Nemours and Company (DuPont)
Filing Type: Form 8-K (Current Report)
Reporting Period: Second Quarter ended June 30, 2009
Date of Report: July 21, 2009

DuPont reported consolidated financial results for the second quarter of 2009. The company operates in a challenging global economic environment characterized by a recession, which has significantly impacted sales volumes across most industrial segments. However, the Agriculture & Nutrition segment performed strongly, driven by seed sales.

Key Financial Metrics

Debt and Liquidity: Total borrowings (short-term and long-term) stood at approximately $10.36 billion ($2.80 billion short-term + $7.56 billion long-term) as of June 30, 2009. Cash and cash equivalents decreased to $2.16 billion from $3.65 billion at year-end 2008.

Material Changes vs. Prior Period

• Revenue Decline: Consolidated net sales fell 22% year-over-year to $6.86 billion. This was driven primarily by a 19% volume decline due to the global recession, partially offset by a 3% increase in local prices (largely from seed products) and a 5% negative currency impact.
• Earnings Decline: Net income dropped 61% to $417 million. Reported EPS was $0.46, down from $1.18 in Q2 2008. Excluding significant items, EPS was $0.61.
• Segment Performance:
  • Agriculture & Nutrition: Sales up 3% to $2.6 billion; Pre-tax operating income (PTOI) up 15% to $580 million. Driven by a 21% increase in seed sales and North American share gains.
  • Industrial Segments: Combined sales volumes for Coatings, Electronic, Performance Materials, and Safety & Protection were 25% below Q2 2008 levels. PTOI for these segments declined significantly due to weak demand in automotive, construction, and general industrial markets.
• Cost Reductions: Fixed cost reduction and productivity actions provided a $335 million benefit in the quarter, bringing year-to-date savings to $600 million against a full-year goal of $1 billion.
• Significant Items: The quarter included a net charge of $0.15 per share ($215 million pre-tax) primarily due to a $340 million restructuring charge, partially offset by adjustments related to Hurricane Ike and prior restructuring programs.

Guidance, Outlook, and Risks

• Earnings Outlook: DuPont reaffirmed its 2009 earnings outlook of $1.70 to $2.10 per share, excluding significant items. This anticipates continued weak demand in key markets outside of agriculture, with gradual improvement expected in the remainder of the year.
• Free Cash Flow: The full-year free cash flow outlook remains at $2.5 billion.
• Cost and Capital Discipline: The company expects to deliver a $1 billion working capital improvement over 2008 levels and will continue aggressive actions to reduce costs and capital expenditures.
• Risks and Contingencies:
  • Economic Conditions: Continued recessionary impact on global markets, particularly in automotive and construction.
  • Currency: Adverse impact from the strong U.S. dollar on international sales.
  • Restructuring: Execution risks associated with ongoing restructuring and productivity programs.
  • Weather/Events: Potential for severe weather events to cause business interruptions.

Investor Verification Checklist

• Verify the sustainability of the 21% seed sales growth and North American share gains in the Agriculture & Nutrition segment.
• Monitor the progress of the $1 billion full-year cost reduction goal, currently at $600 million YTD.
• Assess the impact of the strong U.S. dollar on future international revenue and margins.
• Review the trajectory of free cash flow generation, noting the YTD outflow of $674 million versus the $2.5 billion full-year target.
• Confirm the timeline for the expected "gradual improvement" in industrial demand as stated in management's outlook.