Dupont De Nemours, Inc. annual report, FY2022

Business context and reporting period

DuPont de Nemours, Inc. filed this Form 10-K for the fiscal year ended December 31, 2022. It is an annual report, not a standalone fourth-quarter report; the supplied filing text does not provide a clear standalone Q4 income statement. DuPont’s continuing operations principally comprise Electronics & Industrial and Water & Protection. The filing retrospectively presents the Mobility & Materials (M&M) and Nutrition & Biosciences businesses as discontinued operations where applicable.

Key financial metrics

Amounts below are in millions of dollars except per-share data and ratios.

Metric20222021
Net sales, continuing operations$13,017$12,566
Income from continuing operations, net of tax$1,061$1,207
Net income$5,917$6,515
Diluted EPS, continuing operations$2.02$2.16
Diluted EPS, total$11.75$11.89
Operating EBITDA (company-defined)$3,261$3,152
Cash provided by operating activities$588$2,281
Cash provided by (used for) investing activities$8,923$(2,401)
Cash used for financing activities$(7,667)$(6,507)
  • Gross margin was approximately 35% based on reported net sales and cost of sales; cost of sales was 65% of sales versus 63% in 2021. Operating EBITDA was approximately 25% of net sales.
  • At year-end, cash and cash equivalents were $3.662 billion and marketable securities were $1.302 billion. Total debt was $8.074 billion, implying net debt of about $3.1 billion using cash and marketable securities. Net working capital was $6.392 billion and the current ratio was 2.78:1.
  • Capital expenditures were $743 million. Operating cash flow less capital expenditures was approximately negative $155 million; reported cash flows include discontinued operations and should not be read as a continuing-operations-only measure.
  • Continuing-operations pretax income was $1.448 billion and the effective tax rate was 26.7%, compared with 16.4% in 2021. Interest expense was $492 million.

Material changes versus the prior comparable period

  • Net sales increased 4%, mainly from 7% higher local price and product mix and 1% higher volume, partly offset by 3% unfavorable currency and a 1% portfolio decline.
  • Electronics & Industrial sales rose 7% to $5.917 billion and Operating EBITDA rose 4% to $1.836 billion. Water & Protection sales rose 7% to $5.957 billion and Operating EBITDA rose 3% to $1.431 billion. Corporate & Other sales fell to $1.143 billion from $1.460 billion, and its Operating EBITDA was negative $6 million.
  • Continuing-operations income declined to $1.061 billion from $1.207 billion, while Operating EBITDA increased. Higher input, logistics and energy costs contributed to cost of sales rising to $8.402 billion.
  • Net income included $4.856 billion of income from discontinued operations, including a $5.024 billion after-tax gain on the M&M sale. The gain materially affects total earnings and EPS comparisons; continuing-operations diluted EPS was $2.02.
  • Cash from operations fell to $588 million, principally reflecting lower net income, working-capital cash use and transaction/separation expenses. Investing cash flow was positive largely because of M&M sale proceeds.

Outlook, management commentary, risks and unusual items

  • For 2023, management expected continued demand strength in water and auto adhesives and stable industrial demand, but lower first-half consumer-electronics and semiconductor volumes and construction-market weakness throughout the year. Management said the timing and extent of demand correction were uncertain.
  • Management expected 2023 capital expenditures of about $650 million. DuPont anticipated completing the Delrin divestiture by the end of 2023, subject to definitive agreements and closing conditions.
  • DuPont completed the sale of most of M&M to Celanese on November 1, 2022. It received $11.0 billion at closing, including cash transferred with the business and reimbursed at closing, resulting in approximately $10.5 billion net proceeds. The proceeds funded debt redemption and share repurchases. DuPont redeemed $2.5 billion of notes due 2023 and ended the year with no commercial paper outstanding.
  • The company authorized a new $5 billion share-repurchase program through June 30, 2024 and entered into ASR agreements for approximately $3.25 billion. Initial deliveries totaled 38.8 million shares; final settlement was expected in Q3 2023. The Board declared a 2023 first-quarter dividend of $0.36 per share.
  • The planned Rogers acquisition was terminated after required regulatory clearance was not obtained in time. DuPont paid a $162.5 million termination fee, included in 2022 acquisition, integration and separation costs.
  • Unusual items included $61 million of 2022 restructuring charges, a $94 million impairment of an equity-method investment, and a $59 million Employee Retention Credit benefit (with $52 million reflected in continuing-operations significant-item reporting). The filing also describes a $70 million discontinued-operations tax adjustment reflected in the reported statements.
  • PFAS exposures remain a material uncertainty. DuPont recorded $186 million of indemnification liabilities under the PFAS cost-sharing arrangement and $263 million of accrued environmental obligations, including $173 million related to the MOU. The filing says additional eligible PFAS costs and environmental remediation costs above accruals are reasonably possible; outcomes may affect cash flows and financial results.
  • Other principal risks include supply-chain and raw-material cost volatility, inflation, geopolitical and trade restrictions (including semiconductor-related China restrictions), foreign exchange, environmental regulation, legacy indemnities and tax treatment of portfolio transactions. One Water & Protection reporting unit had estimated fair value only about 10% above carrying value and goodwill could be at risk if assumptions weaken.
  • Management and the auditor concluded internal control over financial reporting was effective at December 31, 2022; the auditor issued an unqualified opinion on the financial statements and controls.

Most important facts for investors to verify

  • Separate recurring continuing-operations earnings and cash generation from discontinued operations and the $5.024 billion after-tax M&M sale gain.
  • Review cash-flow and working-capital trends: operating cash flow was $588 million, and cash-flow statements include discontinued operations.
  • Track Delrin sale timing and proceeds, as well as remaining transition, stranded-cost and reimbursement effects after the M&M divestiture.
  • Monitor PFAS litigation, remediation estimates, indemnification recoveries and the cost-sharing arrangement; compare future exposure with recorded liabilities.
  • Confirm final ASR settlement, remaining authorization, debt maturities and liquidity, and assess the cash returned to shareholders against capital and operating needs.
  • Assess whether 2023 market expectations and planned capital spending are supported by actual semiconductor, consumer-electronics, construction and water-market demand.