Dupont De Nemours, Inc. quarterly report, Q1 FY2023

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DuPont de Nemours, Inc. — Q1 2023 Form 10-Q

Reporting period: Three months ended March 31, 2023; filed May 3, 2023. Unless noted, amounts are in U.S. dollars and millions. Results are unaudited. The company reports Electronics & Industrial and Water & Protection as its principal segments.

Financial performance

MetricQ1 2023Q1 2022Change
Net sales$3,018$3,274Down 8%
Income from continuing operations, net of tax$273$232Up 18%
Net income attributable to DuPont common stockholders$257$488Down 47%
Diluted EPS$0.56$0.95Down 41%
Operating EBITDA$714$818Down 13%
Cash provided by operating activities$343$209Up $134
Capital expenditures$241$251Down $10

Continuing-operations diluted EPS was $0.58, versus $0.42 a year earlier. The effective tax rate on continuing operations was 23.3%, compared with 16.8%. Net income and total EPS comparisons are substantially affected by discontinued operations: Q1 2022 included $276 million of discontinued-operations income, while Q1 2023 recorded an $8 million loss.

Cost of sales was $1,983, or 66% of sales, versus $2,110, or 64% of sales. Lower sales volume and currency reduced costs, partly offset by higher raw-material costs. Operating cash flow increased primarily from working-capital movements, including cash released from receivables, inventory, and other assets and liabilities; accounts payable movements partly offset the benefit. Operating cash flow less capital expenditures was approximately $102 million.

Segments and material changes

  • Electronics & Industrial: Sales of $1,296, down 16%; Operating EBITDA of $362, down 24%. Sales volume fell 15%, reflecting weaker consumer-electronics demand, channel inventory destocking, slower recovery in China, and lower semiconductor fab utilization.
  • Water & Protection: Sales of $1,449, up 1%; Operating EBITDA of $344, up 1%. Pricing and product mix increased 6%, offset in part by currency and a 2% volume decline, including weakness in construction markets.
  • Corporate & Other: Sales of $273 versus $309; Operating EBITDA was $8 versus $1. The prior-year comparison included Biomaterials, divested in May 2022.
  • Across the company, sales volume declined 7%, currency reduced sales by 3%, and portfolio and other changes reduced sales by 2%; local pricing and product mix increased 4%. Asia Pacific sales declined 16%; sales attributed to China were $525 versus $707.

Continuing-operations income improved despite lower sales, with lower restructuring charges, lower interest expense, and higher sundry income contributing. Restructuring and asset-related charges were $14 versus $101; the 2022 quarter included a $94 million equity-investment impairment. Interest expense fell to $95 from $120, primarily after redemption of $2.5 billion of notes in November 2022. Sundry income was $29 versus $3, including $46 million of interest income and $20 million of foreign-exchange losses in 2023.

Liquidity, debt, and capital allocation

  • At March 31, cash and cash equivalents were $3,525 and marketable securities were $1,319, totaling $4,844; cash, cash equivalents, and marketable securities were $4,964 at year-end 2022. The company also reported $104 of restricted cash.
  • Total debt was approximately $8,107, including $300 of short-term borrowings and $7,807 of long-term debt. Cash and marketable securities exceeded reported debt by approximately $3.3 billion.
  • Working capital on a continuing-operations basis was $6,612; current ratio was 3.02:1, versus 2.78:1 at December 31, 2022. Unused uncommitted bank credit lines were approximately $674; no commercial paper was outstanding.
  • Management said cash, operating cash generation, and access to debt markets were expected to provide sufficient liquidity, while noting uncertainty around macroeconomic impacts. The company was in compliance with its debt covenant at quarter-end.
  • The quarterly dividend was $0.36 per share, paid March 15; a second-quarter dividend of $0.36 was declared. No common shares were repurchased in Q1. Approximately $2 billion remained authorized under the $5 billion repurchase program, which expires June 30, 2024. A previously funded $650 million ASR balance was expected to settle in Q3 2023.

Outlook, risks, contingencies, and unusual items

  • The filing provides no numeric company-wide sales or earnings guidance. Management reported continued inflationary pressure and demand declines in consumer-facing markets, including China, and said the duration and extent of these effects were uncertain.
  • The majority of the historical Mobility & Materials business was sold to Celanese in November 2022. Delrin was classified as discontinued operations and held for sale; DuPont anticipated closing its sale by the end of 2023. Q1 2023 discontinued-operations results principally reflect Delrin, while the prior-year period reflects the broader M&M businesses, limiting comparability.
  • On May 2, 2023, after quarter-end, DuPont announced a definitive agreement to acquire Spectrum Plastics Group for $1.75 billion, or $1.72 billion net of certain tax attributes. It expected closing by the end of Q3 2023, subject to approvals, and planned to fund the purchase from existing cash.
  • PFAS and environmental matters: DuPont reported $184 million of liabilities accrued under the PFAS cost-sharing MOU and $297 million of total environmental-related liabilities. Management said additional eligible PFAS and indemnification costs above accrued amounts were reasonably possible and could significantly affect financial condition or cash flows when incurred. The company could not reasonably estimate a possible loss or range for potential resolution of water-provider cases in mediation. The MOU’s qualified-spend sharing arrangement is capped at $4 billion in aggregate, with DuPont and Corteva’s combined share capped at $2 billion, subject to the agreement’s terms.
  • Other notable exposures include indemnification obligations associated with divestitures and legacy liabilities. Goodwill of $5.6 billion in one Water & Protection reporting unit was identified as sensitive to assumptions; adverse performance or macroeconomic changes could put it at risk of impairment.
  • The company expected approximately $55 million of additional pension and other post-employment plan contributions by year-end 2023. The 2022 restructuring program was expected to be substantially complete by year-end 2023.

Most important facts for investors to verify

  • Whether electronics and semiconductor demand—particularly in China—stabilizes, and whether Water & Protection pricing continues to offset costs and weaker volumes.
  • How much of the reported earnings and cash-flow performance is recurring, given the discontinued-operations, divestiture, restructuring, tax, and working-capital effects.
  • Developments in PFAS litigation, mediation, environmental remediation, and indemnification liabilities, including potential amounts beyond recorded accruals.
  • Completion and terms of the Delrin divestiture and Spectrum acquisition, including the effects on liquidity, debt, and future segment results.
  • Progress on the remaining share-repurchase authorization and ASR settlement, alongside the company’s liquidity and investment-grade credit profile.