EIDP, Inc. Form 10-Q Summary
Reporting period: Three months ended March 31, 2014. The filing covers E. I. du Pont de Nemours and Company and its consolidated subsidiaries. Results exclude the divested Performance Coatings business from continuing operations.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Net sales | $10.128 billion | $10.408 billion | Down 3% |
| Income from continuing operations | $1.445 billion | $1.387 billion | Up 4% |
| Net income attributable to DuPont | $1.439 billion | $3.348 billion | Prior year included discontinued-operations gain |
| Diluted EPS from continuing operations | $1.54 | $1.47 | Up $0.07 |
| Diluted total EPS | $1.54 | $3.58 | Prior year included Performance Coatings gain |
| Segment PTOI | $2.248 billion | $2.241 billion | Essentially flat |
| Cash used in operating activities | $2.421 billion | $2.667 billion | Improved by $246 million |
| Capital expenditures | $320 million | $321 million | Essentially flat |
| Cash, equivalents and marketable securities | $3.849 billion | $9.086 billion at Dec. 31, 2013 | Down $5.237 billion |
| Total debt | $11.317 billion | $12.462 billion at Dec. 31, 2013 | Down $1.145 billion |
Continuing-operations net margin was approximately 14.3%, compared with approximately 13.3% in the prior-year quarter. Cost of goods sold was approximately 59% of sales in both periods. SG&A was 9% of sales and research and development was 5% of sales in both periods. The effective tax rate declined to 19.8% from 21.8%.
Cash declined primarily because of $2.4 billion of operating cash use, $2.5 billion of financing cash use, including debt reduction, dividends and share repurchases, and $0.2 billion of investing cash use. The company paid $420 million in dividends and spent $1.061 billion on common-stock repurchases.
Material changes versus the prior comparable period
- Sales declined 3%, reflecting 1% lower volume, 1% lower selling prices and a 1% adverse currency effect. EMEA sales increased 8%, while U.S. and Canada sales declined 8% and Latin America declined 10%.
- Segment PTOI was broadly stable because improvement in five of seven segments offset declines in Agriculture and Performance Chemicals.
- Agriculture sales fell 6% and PTOI fell 3%, primarily because of earlier seed shipments, lower planted area and lower herbicide volumes. Management stated that approximately $100 million of PTOI shifted from the first quarter of 2014 to the fourth quarter of 2013 because of shipment timing.
- Performance Chemicals PTOI fell 20%, mainly because of lower fluoroproduct prices, higher raw-material and energy costs, and lower titanium dioxide prices.
- Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Materials, and Safety & Protection reported higher PTOI, led by volume growth, productivity and improved product mix.
- Income from continuing operations increased despite lower sales, supported by lower pension and other postretirement costs, lower interest expense, lower taxes and reduced operating expenses.
- First-quarter 2013 included a $1.968 billion after-tax gain from the Performance Coatings divestiture, making total net income and total EPS comparisons substantially less meaningful.
Guidance, outlook, commentary and unusual items
- DuPont intends to separate Performance Chemicals through a U.S. tax-free spin-off, targeted for approximately mid-2015. The company recorded $16 million of separation costs in the quarter and expects approximately $170 million of such costs in full-year 2014, or approximately $0.13 per share, with additional costs expected in 2015.
- Management estimated that adverse first-quarter weather reduced results by approximately $0.07 per share through increased operating costs and lost sales.
- The company authorized a $5 billion share-repurchase plan and stated that it expected to repurchase $2 billion during 2014. A $1 billion accelerated share repurchase agreement began in February 2014 and is expected to be completed in the second quarter.
- Venezuelan foreign-exchange accounting remains uncertain. Using the SICAD 1 or SICAD 2 rates instead of the official rate at March 31, 2014 would have produced an estimated after-tax charge of approximately $20 million or $50 million, respectively.
- Imprelis claims resulted in cumulative charges of $1.175 billion. Accruals were $426 million at March 31, 2014; insurance recoveries received to date were $73 million. Individual opt-out claims remain pending.
- PFOA matters included $15 million of accrued liabilities, an obligation to fund up to $235 million for medical monitoring, 104 multidistrict lawsuits, and approximately 900 newly filed West Virginia lawsuits that had not yet been served. Potential losses beyond recorded amounts could not be reasonably estimated.
- Environmental remediation liabilities totaled $467 million. Management estimated that potential liability could be as much as three times the accrued amount under adverse circumstances, with payments potentially extending over 15 to 20 years.
- The company had $563 million of guaranteed obligations for customers, suppliers and equity affiliates. Certain indemnification obligations are generally unlimited.
- Management stated that there were no material changes to the risk factors disclosed in the 2013 Form 10-K. Principal risks include raw-material and energy prices, foreign exchange, global economic conditions, litigation and environmental matters, regulation, product stewardship, business disruptions, cybersecurity, intellectual property and execution of the planned separation.
Important facts for investors to verify
- Whether Performance Chemicals separation costs and timing remain consistent with the stated mid-2015 target and 2014 cost estimate.
- The final share count and settlement price under the $1 billion accelerated share repurchase agreement.
- Cash generation and liquidity after seasonal Agriculture working-capital demands, dividends, repurchases and debt maturities.
- Progress and ultimate cost of Imprelis claims, insurance recoveries, PFOA litigation and medical monitoring obligations.
- Potential financial effects of Venezuelan currency restrictions and exchange-rate changes.
- Performance Chemicals pricing and margin trends, Agriculture shipment timing, weather effects and global volume growth.
- Unresolved environmental proceedings and whether remediation liabilities could materially exceed recorded accruals.