DuPont de Nemours, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unless noted, amounts are in millions of dollars. Results reflect continuing operations after Nutrition & Biosciences (N&B) was presented as discontinued operations; cash flows were not separated for N&B.
Business context and reporting period
DuPont’s continuing businesses were reported in Electronics & Industrial, Water & Protection, and Mobility & Materials. Segment results were retrospectively recast for a February 2021 reporting realignment. DuPont completed the $2.404 billion Laird Performance Materials acquisition on July 1, 2021.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $4,271 | $3,629 | $12,382 | $10,588 |
| Income (loss) from continuing operations, net of tax | $433 | $86 | $1,538 | $(2,853) |
| Net income (loss) attributable to DuPont common stockholders | $391 | $(79) | $6,263 | $(3,173) |
| Diluted EPS, continuing operations | $0.80 | $0.11 | $2.73 | $(3.90) |
| Cash provided by operating activities | Not separately presented for the quarter | $1,660 | $2,794 |
- Q3 sales increased 18% year over year, reflecting 10% volume growth, 6% higher local price/product mix, 1% favorable currency, and 1% portfolio/other. Nine-month sales increased 17%.
- Cost of sales was 65% of sales in Q3 versus 67% a year earlier; for the nine-month period it was 64% versus 66%.
- Operating EBITDA, DuPont’s segment performance measure, was $1,087 in Q3 versus $906; nine-month EBITDA was $3,197 versus $2,508. As a share of sales, these figures equate to approximately 25.5% versus 25.0% for Q3 and 25.8% versus 23.7% year to date.
- Nine-month net income includes a $4,940 non-taxable gain on the N&B transaction. Continuing-operations income is a more useful indicator of ongoing earnings for that period.
Segments and changes versus prior period
- Electronics & Industrial: Q3 sales of $1,467, up 21%; Operating EBITDA of $475, up 13%. Sales benefited from Laird PM, semiconductor demand, and volume growth; automotive supply constraints and higher input and logistics costs were offsets.
- Water & Protection: Q3 sales of $1,397, up 12%; Operating EBITDA of $353, up 12%. Volume growth and market recovery were partly offset by raw-material and logistics inflation.
- Mobility & Materials: Q3 sales of $1,298, up 30%; Operating EBITDA of $280 versus $160. Pricing actions, volume recovery, and the absence of prior-year COVID-related plant-idling charges supported results.
- Sales growth was broad-based, but comparisons reflect pandemic-related plant idling in 2020. Prior-year results also included substantial goodwill and asset impairments: $3,214 of goodwill impairment and $800 of restructuring and asset-related charges for the first nine months of 2020, versus none and $13, respectively, in 2021.
Cash, debt, and liquidity
- At September 30, cash and cash equivalents were $1,670; total debt was approximately $10,630, down from $15,612 at year-end 2020. Cash less debt implies net debt of approximately $8,960.
- Working capital was $4,276 and the current ratio was 2.01, compared with $4,733 and 2.31 at year-end 2020. Available committed credit facilities were $3,977 of $4,000.
- Nine-month operating cash flow was $1,660, down from $2,794, primarily due to increased cash use for working capital. Investing cash outflow was $2,727, including the Laird PM acquisition; financing cash outflow was $5,921, including debt repayments and share repurchases.
- Capital expenditures were $707 for the first nine months. DuPont repurchased $1,643 of shares and paid $476 in dividends. The quarterly dividend was $0.30 per share.
- Management said cash, operating cash generation, and access to debt markets should provide sufficient liquidity and financial flexibility. DuPont was in compliance with its credit-facility financial covenant at quarter-end.
Outlook, management commentary, and key risks
- No formal earnings guidance is provided in the supplied filing text. Management cited continued semiconductor chip shortages into Q4 and higher raw-material and freight costs; price increases were used in Mobility & Materials to offset inflation.
- On November 2, after quarter-end, DuPont announced a planned cash acquisition of Rogers Corporation for about $5.2 billion, expected to close in Q2 2022 subject to approvals and customary conditions. A $5.2 billion bridge commitment was arranged, with other financing intended before closing.
- Also on November 2, DuPont announced a divestiture process for a substantial portion of Mobility & Materials, principally Engineering Polymers and Performance Resins. The process and any definitive transaction remain subject to Board approval.
- PFAS-related litigation and environmental obligations remain significant uncertainties. DuPont had accrued $135 for eligible PFAS costs under the MOU at September 30 and reported $210 of total environmental-related liabilities. Management said additional eligible PFAS costs and indemnifiable losses above accruals are reasonably possible and could significantly affect financial condition or cash flows.
- Other risks include COVID-19 and supply-chain disruption, integration and expected benefits from Laird PM, the Rogers transaction’s approvals and financing, divestiture execution, and tax treatment of transactions. DuPont also reported $210 of accrued environmental-related liabilities and noted reasonably possible remediation costs above accruals.
- In October 2021, DuPont approved targeted restructuring actions expected to cost up to $75, mostly in Q4. It also expected approximately $46 of additional pension contributions by year-end.
Most important facts for investors to verify
- Separate the $4.940 billion N&B transaction gain from recurring continuing-operations earnings, and account for N&B’s discontinued-operations presentation when comparing periods.
- Assess whether volume growth and pricing can offset continued raw-material, freight, and semiconductor supply constraints, and whether segment EBITDA gains persist.
- Review cash conversion and working-capital trends; reported cash flows include N&B activity and are not directly isolated to continuing operations.
- Track PFAS claims, escrow funding, indemnification arrangements, and potential environmental costs beyond recorded accruals.
- Monitor the financing, approvals, timing, and integration implications of the Rogers acquisition, alongside the outcome of the Mobility & Materials divestiture process.