Dupont De Nemours, Inc. quarterly report, Q2 FY2022

DuPont de Nemours, Inc. — Q2 2022 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2022. Unless noted otherwise, financial amounts are in millions of U.S. dollars. The filing presents the businesses planned for divestiture as discontinued operations; continuing-operations figures are therefore the clearest basis for comparing ongoing results.

Financial results and position

Metric	Q2 2022	Q2 2021	Six months 2022	Six months 2021
Net sales, continuing operations	$3,322	$3,104	$6,596	$6,121
Income from continuing operations, net of tax	$365	$395	$597	$781
Diluted EPS, continuing operations	$0.71	$0.73	$1.12	$1.37
Operating EBITDA	$829	$780	$1,647	$1,583
Cash provided by operating activities	—	$295	$818

Q2 revenue increased 7% year over year, driven mainly by an 8% increase in local price and product mix; volume rose 1%, while currency reduced sales by 3%. For the first half, revenue rose 8%.
Cost of sales was 65% of sales in both Q2 and the first half of 2022, compared with 63% and 62%, respectively, in the prior-year periods. Management cited higher raw-material and logistics costs, as well as increased sales volume.
Q2 continuing income declined despite higher sales and Operating EBITDA. Six-month continuing income also fell; the filing cites higher costs, a $94 million equity-method investment impairment, and prior-year comparison effects including divestiture gains and tax benefits.
Reported net income attributable to DuPont common stockholders was $787 million in Q2 and $1,275 million for the first half. These totals include discontinued operations: $430 million and $706 million, respectively. The 2021 first-half comparison included a $4,950 million nontaxable gain from the N&B transaction, making total net income comparisons especially non-comparable.
Q2 segment results: Electronics & Industrial sales were $1,527 million and Operating EBITDA $480 million; Water & Protection sales were $1,497 million and Operating EBITDA $348 million. Corporate & Other recorded $298 million of sales and $1 million of Operating EBITDA.
At June 30, cash and cash equivalents were $1,439 million; total debt was $11,286 million, including $661 million of short-term borrowings and $10,625 million of long-term debt. Working capital on a continuing-operations basis was $2,097 million, with a 1.51:1 current ratio, versus $3,121 million and 1.89:1 at year-end 2021.
Operating cash flow for the first half was $295 million, down from $818 million. Investing activities used $90 million and financing activities used $674 million. Cash, cash equivalents and restricted cash totaled $1,529 million at period-end.
Committed credit facilities totaled $3.5 billion, of which $3.488 billion was available at June 30. DuPont said it expected cash, operating cash generation and capital-market access to provide adequate liquidity, and reported compliance with its debt covenant.

Material changes and unusual items

DuPont agreed to sell a majority of its historic Mobility & Materials businesses to Celanese for $11 billion in cash, subject to customary adjustments, regulatory approvals and other closing conditions. The company expected closing around year-end 2022. The businesses were classified as discontinued operations.
The board approved a proposed Delrin business divestiture, but a definitive agreement had not been announced in the filing. The company anticipated a closing within a year.
The company completed the Biomaterials sale in May for approximately $240 million and recorded a $26 million pretax gain. Q2 sundry income also included a $37 million gain related to a Water & Protection land-use-right sale. Prior-year Q2 sundry income included a $140 million asset-sale gain.
Discontinued-operations results included a substantial tax benefit related to internal restructurings associated with the M&M divestitures: $428 million for Q2 and $667 million for the first half. This is a material contributor to reported discontinued-operations income and is not a recurring operating measure.
DuPont repurchased 7.6 million shares for $500 million under its $1 billion 2022 buyback authorization by June 30. It declared a third-quarter dividend of $0.33 per share. Management anticipated completing the buyback program during 2022.
In July 2022, after quarter-end, DuPont drew $600 million on a revolving facility to facilitate internal restructuring related to the M&M divestiture and expected to repay it by year-end. The Rogers acquisition, valued at approximately $5.2 billion, was expected to close in Q3 2022 subject to approvals; its committed term loan was intended to fund the acquisition.

Outlook, commentary and risks

Management said end-market demand remained strong in Q2 but cited inflationary input costs and supply-chain challenges, including COVID-related lockdowns in China. It said it could not predict the full effect of macroeconomic conditions on results or financial condition.
DuPont exited substantially all operations in Russia during Q2; Russian sales had been less than 1% of 2021 consolidated sales. The company cited potential continuing effects of the war in Ukraine on supply chains, logistics, raw-material and energy costs.
PFAS-related exposure is a significant contingency. DuPont had accrued $186 million under the cost-sharing MOU at June 30, including amounts associated with remediation at Chemours’ Fayetteville site. It also reported $261 million of total accrued environmental obligations and stated that additional costs above accruals were reasonably possible. The MOU cost-sharing arrangement is subject to stated limits and terms.
The Celanese transaction and proposed Delrin sale carry completion, regulatory, tax, separation-cost and business-disruption risks. The filing also identifies risks from supply constraints, inflation, geopolitical events, and the possibility of further asset impairments if cash-flow expectations are not met.
No numerical full-year operating guidance is provided in the supplied filing text. Management’s statements about liquidity and anticipated transaction timing are expectations, not guarantees.

Investor verification priorities

Track progress, regulatory approvals, closing conditions and final proceeds for the Celanese divestiture, and whether DuPont enters a definitive Delrin sale agreement.
Separate continuing-operations performance from discontinued operations; assess the effect of restructuring-related tax benefits and other nonrecurring gains on reported earnings.
Monitor working-capital use, operating cash flow, input-cost recovery, segment margins and the ongoing effects of supply-chain, currency and geopolitical pressures.
Review PFAS and environmental claims, accrual assumptions, potential costs above recorded liabilities, and the effect of EPA and NC DEQ developments.
Verify the timing and financing of the Rogers acquisition, the post-quarter $600 million draw and repayment, debt levels, buybacks and dividend payments.