DuPont de Nemours, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unless noted, figures are in U.S. dollars; financial statement amounts are in millions.
Business context
Following the February 1, 2021 Nutrition & Biosciences (N&B) transaction, DuPont’s continuing business is its specialty-products operations, reported in Electronics & Industrial, Water & Protection, and Mobility & Materials. N&B is presented as discontinued operations; its cash flows remain included in the consolidated cash-flow statements. Segment comparisons were recast for a February 2021 reporting realignment.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $4,135 | $3,289 | $8,111 | $6,959 |
| Income (loss) from continuing operations, net of tax | $564 | $(2,389) | $1,105 | $(2,939) |
| Net income (loss) attributable to DuPont common stockholders | $478 | $(2,478) | $5,872 | $(3,094) |
| Diluted EPS | $0.90 | $(3.37) | $10.33 | $(4.20) |
| Operating EBITDA | $1,063 | $695 | $2,110 | $1,602 |
| Cash provided by operating activities | — | $818 | $1,520 |
Q2 cost of sales was 64% of sales, versus 70% a year earlier; the six-month comparison was 64% versus 66%. Operating EBITDA margin was approximately 25.7% for Q2 (21.1% prior year) and 26.0% for the first half (23.0% prior year).
First-half net income includes a $4.95 billion non-taxable gain on the N&B transaction; it is not a measure of recurring operating performance. Q2 net income includes a $77 million loss from discontinued operations. Continuing-operations diluted EPS was $1.04 in Q2 and $1.92 for the first half.
At June 30, cash and cash equivalents were $3.962 billion and total debt was $10.628 billion. Working capital was $6.552 billion and the current ratio was 2.66. DuPont had $3.975 billion available under committed credit facilities. First-half capital expenditures were $499 million; dividends paid were $319 million and common-stock repurchases were $1.143 billion.
Material changes versus the prior comparable period
- Q2 sales rose 26%; first-half sales rose 17%. Management attributed growth mainly to higher volume, with favorable currency and, particularly in Mobility & Materials, higher pricing. Demand improved across segments and regions compared with the pandemic-affected prior year.
- Q2 Operating EBITDA increased to $1.063 billion from $695 million. First-half EBITDA rose to $2.110 billion from $1.602 billion. Prior-year results included substantial goodwill impairments: $2.498 billion in Q2 and $3.031 billion for the first half.
- First-half operating cash flow fell to $818 million from $1.520 billion, primarily reflecting increased working-capital use and changes in net income and non-cash adjustments. The N&B business is included in cash flows for the comparative periods and January 2021.
- Total debt declined from $15.612 billion at year-end 2020, primarily after repayment of $3 billion in term loans and redemption of $2 billion of May 2020 notes, funded in part with the N&B transaction’s approximately $7.3 billion cash payment.
- Shares outstanding were reduced through the N&B exchange offer, which retired approximately 197.4 million DuPont shares. The company also completed its $2 billion repurchase program and had begun a new $1.5 billion program.
Outlook, management commentary, risks and unusual items
- Management stated that cash, operating cash generation, and access to debt markets should provide sufficient liquidity and flexibility. The filing provides no specific earnings or sales guidance for the remainder of 2021.
- Higher raw-material and logistics costs were cited as offsets to volume gains. Mobility & Materials also noted global supply constraints on key raw materials; Water & Protection cited logistics challenges affecting Water Solutions.
- On July 1, 2021, after quarter-end, DuPont completed its acquisition of Laird Performance Materials for approximately $2.4 billion, paid from existing cash. The filing had not yet determined the acquisition-date allocation of assets and liabilities.
- Sales of the Biomaterials and Clean Technologies businesses, and a proposed Chestnut Run labs transaction, were pending or expected; the first two divestitures were expected to generate approximately $750 million in aggregate pretax proceeds. Solamet was sold for approximately $190 million, generating a $140 million pretax gain in Q2.
- PFAS-related matters remain a significant contingency. DuPont recorded $131 million of liabilities under the Chemours/Corteva PFAS cost-sharing MOU at June 30; management said additional eligible costs and indemnifiable losses could exceed accruals and could significantly affect financial condition or cash flows. The MOU sets a $2 billion cap on DuPont and Corteva’s combined share of qualified spend under the arrangement. Separately, accrued environmental obligations totaled $203 million, and remediation costs could exceed the accrual.
- Other disclosed exposures include the pending Abbott appeal and numerous PFAS environmental and personal-injury claims. The company also recorded a $63 million discontinued-operations loss for the first half related to the Chemours/Corteva settlement matters. DuPont said there were no material changes to risk factors from its 2020 Form 10-K.
- COVID-19 effects remain uncertain. The filing identifies risks involving the pandemic, supply-chain and operating disruption, acquisition integration and expected benefits, tax treatment of transactions, and legacy liabilities and indemnification obligations. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Separate recurring continuing-operations results from the N&B transaction gain and other divestiture-related items; review the recast segment and discontinued-operations disclosures.
- Monitor whether sales growth and EBITDA gains persist as input, freight, and supply constraints evolve, and whether working capital converts into operating cash flow.
- Assess the Laird acquisition’s integration, financing and cash impact, and subsequent purchase-price allocation and performance disclosures.
- Track PFAS litigation, MOU escrow funding and potential liabilities beyond accrued amounts, along with environmental remediation exposures.
- Confirm execution and proceeds from pending divestitures, and the pace of share repurchases, dividends, and debt reduction.