DuPont de Nemours, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unless noted, financial amounts are in millions of U.S. dollars. Following the February 1, 2021 N&B transaction, Nutrition & Biosciences (N&B) is reported as discontinued operations; cash flows were not separated and include N&B activity for the periods presented.
Business context and performance
DuPont’s continuing operations comprise Electronics & Industrial, Water & Protection, and Mobility & Materials. Following the N&B transaction, the company realigned its segments and reporting structure, with comparative segment figures recast.
- Net sales were $3,976, up 8% from $3,670. Volume rose 7% and currency contributed 3%; portfolio and other changes reduced sales 2%, while local price and product mix were flat.
- Sales increased in Electronics & Industrial to $1,300 (+17%), Water & Protection to $1,328 (+4%), and Mobility & Materials to $1,215 (+11%). Asia Pacific sales rose 23%; U.S. & Canada sales declined 9%.
- Income from continuing operations was $541, compared with a loss of $550. Diluted continuing-operations EPS was $0.89 versus a loss of $0.75.
- Net income was $5,398, including $4,857 from discontinued operations. The latter primarily reflects a $4,954 non-taxable gain on the N&B transaction; it should not be viewed as recurring operating earnings. Diluted total EPS was $8.90.
- Operating EBITDA, the company’s segment performance measure, was $1,047 versus $907. Segment EBITDA was $436 for Electronics & Industrial, $355 for Water & Protection, and $278 for Mobility & Materials. Operating EBITDA was about 26% of sales, compared with about 25% a year earlier.
- Cost of sales was $2,512, or 63% of sales, unchanged as a share of sales year over year. R&D was $156 (4% of sales) and SG&A was $456 (11%); both declined from the prior-year quarter.
Cash flow, liquidity and debt
- Operating cash flow was $378 versus $718. Management attributed the decrease primarily to greater use of cash for net working capital and lower net income after noncash adjustments. Capital expenditures were $283; operating cash flow less capital expenditures was $95.
- Investing cash outflow was $2,260, including $2,001 of investment purchases. Financing cash outflow was $2,458, including $3,000 of long-term debt repayments, $500 of share repurchases, and $161 of dividends. Cash-flow figures include N&B activity and are not directly comparable to continuing-operations results.
- At March 31, cash, cash equivalents and marketable securities totaled $6,385, versus $2,544 at year-end. Total debt was $12,622, down from $15,612, mainly after repayment of $3,000 in term loans. The resulting cash-and-securities less debt amount was approximately $6,237 of net debt.
- Working capital was $6,873 and the current ratio was 2.21:1; management’s working-capital presentation excludes N&B discontinued-operation assets and liabilities. Available committed credit was $3,978 of $4,000, and the company reported compliance with its debt financial covenant.
- The company planned to redeem the $2,000 May 2020 Notes on May 13, 2021 using N&B transaction proceeds. The Laird Performance Materials acquisition, announced in March for $2.3 billion, was expected to close in Q3 2021 subject to approvals and was to be funded from existing cash.
Material changes, outlook and risks
- The N&B transaction brought DuPont an approximately $7.3 billion one-time cash payment and reduced DuPont shares outstanding by approximately 197.4 million through the exchange offer. DuPont repaid its $3 billion term loans; the company also planned the May Notes redemption.
- Q1 2020 included significant charges and gains that make reported comparisons unusual: $533 of goodwill impairment, $270 of long-lived-asset impairment, $398 of restructuring and asset-related charges, and $123 of integration and separation costs. Q1 2021 had $2 of restructuring charges and $6 of integration and separation costs. The prior-year period also included a $197 gain on the sale of Compound Semiconductor Solutions.
- Management expected cash, cash generated from operations, and access to debt markets to provide sufficient liquidity. No specific full-year revenue or earnings guidance is provided in the filing text.
- Divestitures of Clean Technologies and Solamet were expected to close in the second half of 2021 and, together with Biomaterials, were expected to generate about $920 of pretax cash proceeds. A proposed sale of part of the Chestnut Run campus was subject to a non-binding letter of intent.
- Key exposures include PFAS litigation and environmental matters. DuPont reported $62 of liabilities related to the PFAS cost-sharing arrangement and said additional eligible costs were reasonably possible but not estimable. Environmental remediation accruals were $82; reasonably possible costs could be up to $172 above that accrual.
- Other risks include the Laird acquisition’s closing and integration, the expected tax treatment of the N&B transaction, legacy liabilities and indemnifications, COVID-19 uncertainty, and potential tax exposure if specified transaction steps fail to qualify for tax-free treatment. Management said there were no material changes to the risk factors in its 2020 Form 10-K.
Important facts for investors to verify
- Separate continuing-operations performance from the large, nonrecurring N&B transaction gain; review continuing-operations results and cash generation alongside total net income.
- Assess cash-flow comparability, since reported cash flows include N&B activity while N&B is classified as discontinued operations in the income statement.
- Track the May Notes redemption, the Laird acquisition’s approval, funding and closing, and progress on planned business divestitures.
- Monitor PFAS cost-sharing obligations, litigation developments, environmental exposures and the possible tax consequences of the N&B transaction.
- Review segment trends, particularly strong Electronics & Industrial growth and Mobility & Materials supply constraints, as well as the planned share repurchases and dividend.