EIDP, Inc. (E. I. du Pont de Nemours and Company) — Q1 2022 Form 10-Q Summary
Reporting period: Three months ended March 31, 2022, compared with the three months ended March 31, 2021. The filing is a combined report for Corteva, Inc. and EIDP. Corteva owns 100% of EIDP; EIDP’s standalone results principally differ because of preferred stock and a related-party loan from Corteva.
Business Context
EIDP’s operations are reported through Corteva’s two agricultural segments: Seed and Crop Protection. EIDP filed in a reduced disclosure format and cross-references most of its notes to Corteva’s interim financial statements.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $4.601 billion | $4.178 billion | Up 10% |
| Income from continuing operations after tax | $570 million | $602 million | Down 5% |
| Net income attributable to EIDP | $559 million | $591 million | Down 5% |
| Operating EBITDA | $1.060 billion | $938 million | Up 13% |
| Cost of goods sold | $2.724 billion | $2.420 billion | Up 13% |
| Operating cash flow | $(2.727) billion | $(1.946) billion | Greater seasonal use of cash |
| Capital expenditures | $179 million | $137 million | Up $42 million |
| Cash, cash equivalents and marketable securities | $2.321 billion | $2.518 billion | Down $197 million year over year |
| Total debt, including related-party debt | $3.997 billion | $5.364 billion | Down $1.367 billion year over year |
Margins: Gross margin was approximately 40.8% in Q1 2022 versus 42.1% in Q1 2021, reflecting higher input, freight and logistics costs. Operating EBITDA margin was approximately 23.0% versus 22.4%. The effective tax rate was 17.3% versus 22.4%.
Segment performance: Seed sales increased 1% to $2.524 billion, while segment operating EBITDA declined 8% to $569 million. Crop Protection sales increased 23% to $2.077 billion, and segment operating EBITDA increased 53% to $491 million, with a 460-basis-point margin improvement.
Liquidity, Debt and Capital Allocation
- Operating cash flow was negative due principally to seasonal working-capital investment, including a $2.372 billion increase in receivables and higher inventories.
- EIDP reported $1.018 billion of short-term borrowings and $1.154 billion of long-term debt. Its separate balance sheet also included $1.825 billion of long-term debt owed to Corteva under a related-party loan, compared with $2.162 billion at December 31, 2021.
- Approximately $6.6 billion of committed and uncommitted unused credit lines were available at March 31, 2022, in addition to a $500 million receivables repurchase facility. No borrowings were outstanding under that facility at quarter-end.
- The company stated that liquidity was adequate for operations, seasonal working capital, capital expenditures, dividends, share repurchases and pension obligations. It was in compliance with the applicable debt covenant requiring total indebtedness to total capitalization not to exceed 0.60.
- Corteva repurchased approximately 4.6 million shares for $235 million and paid $102 million of common dividends during the quarter. EIDP paid approximately $2 million of preferred dividends.
Material Changes Versus the Prior Comparable Period
- Sales growth reflected a 9% price increase and 7% volume increase, partially offset by a 6% unfavorable currency impact.
- Profit after tax declined despite higher sales and Operating EBITDA, primarily because Q1 2021 included substantially higher other income, particularly non-operating pension and other post-employment benefit credits.
- Other income declined to $17 million from $337 million. The quarter also included $47 million of net foreign-exchange losses, compared with $35 million of losses in Q1 2021.
- Restructuring and asset-related charges declined to $5 million from $100 million. Management indicated that the 2021 restructuring actions were substantially complete and no additional material charges were expected.
- Net cash used in operating activities increased by $781 million, reflecting higher receivables, inventories and changes in deferred revenue.
- Cash and marketable securities decreased from $4.545 billion at December 31, 2021 to $2.321 billion at March 31, 2022, while debt increased from $1.117 billion at the Corteva consolidated level to $2.172 billion to fund seasonal working capital and capital expenditures.
Guidance, Outlook and Management Commentary
- Full-year 2022 guidance was affirmed for net sales of $16.7 billion to $17.0 billion and Operating EBITDA of $2.8 billion to $3.0 billion.
- Operating earnings per share guidance was adjusted to $2.35 to $2.55, reflecting a lower expected average share count. This is a Corteva measure and is not an EIDP standalone EPS measure.
- The company expects approximately $102 million of non-cash accelerated prepaid royalty amortization charges during 2022.
- In April 2022, Corteva announced its withdrawal from Russia and plans to stop production and business activities there. Russia represented approximately 2% of annual net sales, and expected charges were estimated at $25 million to $75 million.
- Management cited inflation, supply-chain and logistics constraints, higher raw-material costs, currency volatility, COVID-19 effects, weather and the Russia-Ukraine conflict as continuing sources of uncertainty.
Risks, Contingencies and Unusual Items
- Legacy PFAS, PFOA, PFOS and GenX litigation and environmental matters remain significant contingencies. Management stated that liabilities could exceed accrued amounts and that potential excess losses generally could not be estimated.
- At March 31, 2022, environmental accruals totaled $459 million, with potential exposure above accrued amounts of $582 million; these figures include matters subject to indemnification and cost-sharing arrangements.
- The company recorded a $17 million estimated Lorsban-related settlement expense in Q1 2022. Pending chlorpyrifos litigation continues.
- The MOU with Chemours and DuPont provides for cost sharing and escrow funding for certain future legacy PFAS liabilities. The company recorded $4 million in discontinued-operations charges related to the MOU during the quarter.
- A New Jersey request sought a remediation funding source exceeding $900 million for the former Chambers Works facility. The filing states that Chemours accepted indemnity and defense for the matter while reserving certain rights.
- Other matters include the Ohio PFAS class-certification proceedings, approximately 2,350 aqueous firefighting-foam cases, natural-resource claims, Fayetteville Works litigation and regulatory proceedings related to the La Porte and Sabine facilities.
- Argentina remains a hyper-inflationary economy for accounting purposes. A further 10% deterioration in the official peso-to-U.S.-dollar exchange rate as of March 31, 2022 would have reduced the value of net monetary assets and negatively affected pretax earnings by approximately $15 million.
- The company reported effective disclosure controls and procedures for both Corteva and EIDP, with no material changes in internal control over financial reporting during the quarter.
Facts Investors Should Verify
- Reconcile EIDP standalone debt, including the $1.825 billion related-party loan, with Corteva’s consolidated debt presentation.
- Assess whether seasonal working-capital outflows and the sharp decline in cash and securities are consistent with expected agricultural-cycle cash generation.
- Monitor whether pricing continues to offset inflation, freight and raw-material costs, particularly in Crop Protection.
- Review the assumptions, indemnification limits and future funding requirements associated with PFAS, environmental and other legacy liabilities.
- Evaluate the financial impact and timing of the Russia withdrawal charges and any broader supply-chain or currency effects.
- Compare full-year guidance with subsequent quarterly sales, Operating EBITDA, cash flow and share-repurchase activity.