Business context and reporting period
DuPont de Nemours, Inc. reported unaudited results for the three months ended March 31, 2022. The company supplies technology-based materials and solutions. Results are presented with the Mobility & Materials businesses intended for divestiture classified as discontinued operations; comparative periods were retrospectively adjusted. Cash flows are not segregated for discontinued operations.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $3.274 billion | $3.017 billion |
| Income from continuing operations, net of tax | $232 million | $386 million |
| Diluted EPS from continuing operations | $0.42 | $0.64 |
| Net income attributable to DuPont common stockholders | $488 million | $5.394 billion |
| Operating EBITDA | $818 million | $803 million |
| Cash provided by operating activities | $209 million | $378 million |
| Capital expenditures | $251 million | $283 million |
Sales grew 9%, reflecting 6% higher local price and product mix, 3% volume growth, and 2% portfolio growth, partly offset by a 2% unfavorable currency effect. Cost of sales rose to $2.110 billion from $1.861 billion; it represented 64% of sales versus 62%, implying lower gross margin. Operating EBITDA margin was approximately 25.0%, compared with 26.6%.
Electronics & Industrial sales increased 18% to $1.536 billion and Operating EBITDA rose 9% to $476 million, supported by Laird PM and volume growth, partly offset by input and logistics costs. Water & Protection sales grew 8% to $1.429 billion, but Operating EBITDA fell 4% to $341 million as higher costs and product mix outweighed pricing. Corporate & Other sales declined to $309 million from $389 million and EBITDA was $1 million versus $12 million.
At March 31, cash and cash equivalents were $1.672 billion, total debt was $11.039 billion, and working capital on a continuing-operations basis was $2.881 billion, with a 1.76 current ratio. Long-term debt was $10.634 billion; short-term borrowings were $405 million. Operating cash flow declined mainly due to working-capital use and employee-related variable compensation. Cash, cash equivalents and restricted cash totaled $1.773 billion at quarter-end. Reported operating and investing cash flows include discontinued operations.
Material changes and unusual items
- Q1 2022 net income included $276 million from discontinued operations. In Q1 2021, discontinued operations included a $4.954 billion non-taxable gain on the N&B transaction; this makes headline net income comparisons unusually distorted.
- DuPont recorded $101 million of restructuring and asset-related charges, including a $94 million other-than-temporary impairment of an equity-method investment. The impairment reduced continuing-operations income before tax and generated a $29 million tax benefit.
- On February 17, DuPont agreed to sell a majority of its historic Mobility & Materials business to Celanese for $11 billion in cash, subject to customary adjustments, regulatory approvals and other closing conditions. Closing was expected around year-end 2022. The Delrin business was also slated for divestiture, but a definitive agreement had not been reached.
- The approximately $5.2 billion Rogers acquisition remained pending, with closing expected late Q2 or early Q3 2022, subject to approvals and customary conditions. A committed term loan facility is intended to fund the acquisition and is to be repaid upon completion of the in-scope M&M divestiture.
- Cash returned to shareholders included $169 million of dividends and $375 million of share repurchases. The 2021 $1.5 billion buyback program was completed; a new $1.0 billion authorization had no repurchases as of quarter-end.
Outlook, risks and contingencies
The filing does not provide a clear numerical full-year earnings or revenue guidance. Management stated that operating cash generation and access to debt capital markets were expected to provide sufficient liquidity. It expected the Celanese transaction to close around year-end 2022 and the Rogers acquisition in late Q2 or early Q3, subject to conditions. The company also expected approximately $65 million of additional pension and post-employment benefit contributions by year-end 2022.
Management cited strong end-market demand but ongoing supply-chain challenges, including COVID-related shutdowns in China, and higher raw-material, energy, freight and logistics costs. DuPont suspended operations in Russia and Belarus; those markets represented less than 1% of 2021 consolidated sales. The duration and financial effects of the Ukraine conflict and related disruptions remained uncertain.
Significant exposures include PFAS-related litigation and indemnification obligations, environmental remediation, and transaction execution and tax risks. The company had accrued $127 million for indemnified liabilities under the PFAS cost-sharing MOU and $208 million for probable environmental remediation and restoration. Management warned that additional PFAS and environmental costs could exceed accruals and materially affect financial condition or cash flows. The Celanese divestiture depends on regulatory clearances and other closing conditions; Delrin’s timing and outcome were uncertain. The company was in compliance with its debt financial covenant at quarter-end.
Important facts for investors to verify
- Progress, regulatory approvals, transaction adjustments and expected proceeds from the Celanese divestiture, and whether a definitive Delrin sale agreement is reached.
- Rogers acquisition closing, financing and the effect of the planned repayment of its term loan following the M&M divestiture.
- Underlying continuing-operations performance, including cost inflation, supply constraints, segment margins and stranded costs after the divestitures.
- PFAS and environmental claims, future eligible costs, escrow funding and the adequacy of recorded accruals.
- Cash conversion and liquidity, particularly working-capital trends, debt levels and the impact of shareholder returns and pending transactions.