DuPont Reports Fourth Quarter 2020 Results
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WILMINGTON, Del., February 9, 2021 - DuPont (NYSE: DD) today announced financial results for the fourth quarter 2020.
“The leading positions we hold in automotive, protective garments, residential construction, semiconductor, and smartphones markets enabled us to capitalize on positive momentum and deliver strong fourth quarter results with sequential volume improvement in all segments,” said Ed Breen, DuPont Executive Chairman and Chief Executive Officer. “Operating leverage and year-over-year operating EBITDA margin expansion in each of our core segments in the fourth quarter is a proof point in our teams’ commitment to execution. Throughout the year we have focused on positioning ourselves for growth through strategic investments, streamlining our overhead structure, improving working capital, and strengthening our balance sheet. This disciplined operating model served us well in 2020 and will be our roadmap for success in 2021.”
“In addition to delivering strong financial results during the quarter, our teams remained laser focused on closing out a number of our strategic priorities,” Breen continued. “Earlier this month, we completed the separation of our Nutrition & Biosciences business and have also signed agreements to divest our Clean Technologies and Solamet businesses(2). These actions unlock significant value for our stakeholders, generate substantial cash flow for the company, and focus our portfolio to three core business segments moving forward. We also made a joint announcement with Corteva and Chemours regarding an agreement to settle legal disputes originating from the 2015 spin-off of Chemours from E.I. du Pont and the pending personal injury claims in the Ohio multi-district litigation. This agreement provides a measure of security and certainty for us and our shareholders regarding any potential exposures related to these legacy matters.”
Fourth Quarter 2020 Results
Net sales totaled $5.3 billion, up 1 percent versus the year-ago period as reported and flat with the year-ago period on an organic(1) basis. The fifth consecutive quarter of year-over-year growth in Electronics & Imaging led by strength in both semiconductors and smartphone technologies, coupled with further recovery in automotive markets, more than offset continued weakness in oil & gas, aerospace and select industrial markets which led to declines in the Safety & Construction segment.
GAAP EPS from continuing operations totaled $0.37 on GAAP income from continuing operations of $279 million, versus GAAP EPS from continuing operations of $0.24 on GAAP income from continuing operations of $191 million in the year-ago period. The improvement is mostly attributable to the absence of a prior year net charge associated with a joint venture, a favorable income tax benefit and lower integration and separation costs partially offset by higher depreciation and amortization and lower segment earnings.
Operating EBITDA(1) was $1.3 billion, down 7 percent versus operating EBITDA(1) in the prior year. Stronger demand in Electronics & Imaging, Nutrition & Biosciences, and Transportation & Industrial as well as approximately $130 million of non-manufacturing cost reductions contributed to operating leverage and operating EBITDA margin expansion in each of our core segments versus the year-ago period. These improvements were more than offset by the absence of prior year discrete gains of approximately $160 million, primarily associated with customer settlements in the Non-Core segment. Adjusted EPS(1) was $0.95 in both the current and the year-ago period. Benefits associated with a lower base tax rate, lower interest expense, and a lower share count were offset by lower segment results.
Operating cash flow of $1.3 billion included improvements in working capital of more than $500 million in the quarter which was driven by improvements across accounts receivable, inventories and accounts payable. Capital expenditures of $272 million resulted in free cash flow(1) of $1.0 billion. For the year, operating cash flow of $4.1 billion and free cash flow of $2.9 billion were enabled by an improvement in working capital of approximately $850 million and capital expenditures of $1.0 billion. Strong cash flow generation throughout the year enabled a greater than $1.8 billion reduction in commercial paper balances to close 2020 with zero commercial paper outstanding.
Fourth Quarter 2020 Segment Highlights
Electronics & Imaging
Electronics & Imaging reported a record quarter with net sales of $1.0 billion, up 9 percent from the year-ago period. Organic sales were up 8 percent driven by a 10 percent growth in volume offset by a 2 percent decline in price. Currency was a 2 percent benefit while portfolio was a 1 percent headwind.
Sales gains were led by Interconnect Solutions as organic sales grew by double-digits, driven by higher material content in premium, next-generation smartphones. Semiconductor Technologies also delivered strong growth in the quarter as new technology ramps across logic and foundry delivered high-single digit volume growth versus the year-ago period. Within Image Solutions, high single-digit organic growth was led by strength in OLEDs for displays and inks for the consumer segment, partially offset by weakness in flexographic plates and inks for commercial and textile printing.
Operating EBITDA for the segment was $323 million, an increase of 10 percent from operating EBITDA of $293 million in the year-ago period, driven primarily by strong volume growth and continued productivity actions partially offset by the absence of a prior year gain.
Nutrition & Biosciences
Nutrition & Biosciences reported net sales of $1.5 billion, up 3 percent from the year-ago period. Organic sales increased 2 percent with gains in both price and volume. Currency was a 1 percent tailwind and portfolio was flat.
High-single digit organic growth in Food & Beverage was driven by broad-based pricing strength as well as volume gains in protein solutions on increased consumer demand for proteins, including plant-based solutions. The gains in Food & Beverage were partially offset by organic sales declines across Health & Biosciences and Pharma Solutions. Within Health & Biosciences, double-digit growth in both probiotics and home and personal care markets was more than offset by continued weakness in biorefinery and microbial control.
Operating EBITDA for the segment was $341 million, an increase of 8 percent from operating EBITDA of $317 million in the year-ago period. Continued cost productivity actions and favorable mix more than offset raw material cost increases and the impact of lower plant utilization resulting in planned efforts to reduce working capital during the quarter.
Transportation & Industrial
Transportation & Industrial reported net sales of $1.2 billion, up 1 percent from the year-ago period. Organic sales were down 1 percent as volume gains of 3 percent were more than offset by price declines of 4 percent. Currency was a 2 percent benefit and portfolio was neutral.
Organic sales gains in Healthcare & Specialty and Industrial & Consumer were led by mid-to-high single digit volume gains across each business. These gains were more than offset by year-over-year organic sales declines in Mobility Solutions, primarily from price headwinds. Sequentially, organic sales for the segment increased 11 percent versus 3Q 2020 as the global automotive market continued its recovery.
Operating EBITDA for the segment was $317 million, an increase of 14 percent from operating EBITDA of $277 million in the year-ago period, as higher volumes and savings from productivity actions more than offset price declines to deliver a 310 basis point improvement in operating EBITDA margins versus the year-ago period.
Safety & Construction
Safety & Construction reported net sales of $1.2 billion, down 2 percent from the year-ago period. Organic sales were down 6 percent with a 1 percent price improvement offset by a 7 percent decline in volume. Acquisitions in the Water Solutions business increased reported sales by 3 percent and currency was a 1 percent tailwind.
Organic sales gains in Shelter Solutions was more than offset by organic sales declines in Safety Solutions and Water Solutions. Continued recovery in residential construction and on-going strength in retail channels for do-it-yourself applications led to year-over-year volume growth in Shelter Solutions. Within Safety Solutions, demand for Tyvek® protective garments remained strong but was more than offset by soft demand for aramid fibers across aerospace, oil & gas and select industrial markets. Global demand across Water Solutions remains strong however temporary delays in orders associated with select capital projects resulted in volume declines in the quarter.
Operating EBITDA for the segment totaled $310 million, flat with operating EBITDA of $311 million in the year-ago period. Continued productivity actions as well as favorable pricing and product mix was offset by the impact of lower demand.
Non-Core reported net sales of $337 million, down 17 percent from the year-ago period driven by the divestiture of the trichlorosilane business. Organic sales were flat with the year-ago period.
Operating EBITDA for the segment was $19 million, a decrease of 91 percent from operating EBITDA of $216 million in the year-ago period. The year-over-year decline is attributable to the absence of a prior year gain associated with customer settlements in the Hemlock Semiconductor joint venture as well as the absence of the earnings associated with divested businesses.
First Quarter and Full Year 2021 Outlook
Beginning in the first quarter 2021, DuPont will reflect Nutrition & Biosciences as discontinued operations for the current and historical periods.
“For 2021, we expect net sales between $15.4 and $15.6 billion, an increase of 8 percent at the mid-point versus 2020 net sales of $14.3 billion and operating EBITDA between $3.83 and $3.93 billion, an increase of 13 percent at the mid-point versus 2020 operating EBITDA of $3.4 billion, reflecting anticipated solid top line growth and robust operating EBITDA margin expansion,” said Lori Koch, Chief Financial Officer of DuPont. “Our outlook for full year adjusted EPS is in the range of $3.30 to $3.45 per share, an increase of 68 percent at the mid-point versus 2020 adjusted EPS of $2.01 per share, reflecting the improvement in operating EBITDA, lower interest expense and the benefit of a lower share count.”
“We also expect a strong first quarter of 2021 with net sales between $3.75 and $3.85 billion, an increase of 4 percent at the mid-point versus 1Q 2020 net sales of $3.7 billion, operating EBITDA between $950 and $970 million, an increase of 6 percent at the mid-point versus 1Q 2020 operating EBITDA of $907 million, and adjusted EPS in the range of $0.75 to $0.77 per share, an increase of 58 percent at the mid-point versus 1Q 2020 adjusted EPS of $0.48 per share,” Koch stated.
(1) Adjusted EPS, operating EBITDA and free cash flow are non-GAAP measures. See page 7 for further discussion. Reconciliation to the most directly comparable GAAP measure, including details of significant items begins on page 13 of this communication.
(2) Subject to regulatory approval and other customary closing conditions.
The Company will host a live webcast of its fourth quarter earnings conference call with investors to discuss its results and business outlook today at 8:00 a.m. ET. The slide presentation that accompanies the conference call will be posted on the DuPont’s Investor Relations Events and Presentations page. A replay of the webcast also will be available on the DuPont’s Investor Relations Events and Presentations page following the live event.
DuPont (NYSE: DD) is a global innovation leader with technology-based materials and solutions that help transform industries and everyday life. Our employees apply diverse science and expertise to help customers advance their best ideas and deliver essential innovations in key markets including electronics, transportation, construction, water, healthcare and worker safety. More information about the company, its businesses and solutions can be found at www.dupont.com. Investors can access information included on the Investor Relations section of the website at www.investors.dupont.com.
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DuPontTM and all products, unless otherwise noted, denoted with TM, SM or ® are trademarks, service marks or registered trademarks of affiliates of DuPont de Nemours, Inc.
Cautionary Statement Regarding Forward Looking Statements
This communication contains "forward-looking statements" within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In this context, forward-looking statements often address expected future business and financial performance and financial condition, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "target," and similar expressions and variations or negatives of these words.
On April 1, 2019, the company completed the separation of its materials science business into a separate and independent public company by way of a pro rata dividend-in-kind of all the then outstanding stock of Dow Inc. (the “Dow Distribution”). The company completed the separation of its agriculture business into a separate and independent public company on June 1, 2019, by way of a pro rata dividend-in-kind of all the then outstanding stock of Corteva, Inc. (the “Corteva Distribution” and together with the Dow Distribution, the “DWDP Distributions”).
On February 1, 2021 the Company completed the divestiture of the Nutrition & Biosciences (“N&B”) business to International Flavors & Fragrance Inc. (“IFF”) in a Reverse Morris Trust transaction (the “N&B Transaction”) that resulting in IFF issuing shares to DuPont stockholders.
Forward-looking statements address matters that are, to varying degrees, uncertain and subject to risks,uncertainties and assumptions, many of which that are beyond DuPont's control, that could cause actual results to differ materially from those expressed in any forward-looking statements. Forward-looking statements do not guarantee future results. Some of the important factors that could cause DuPont's actual results to differ materially from those projected in any such forward-looking statements include, but are not limited to: (i) ability to achieve anticipated tax treatments in connection with the N&B Transaction or the DWDP Distributions; (ii) changes in relevant tax and other laws; (iii) indemnification of certain legacy liabilities of E. I. du Pont de Nemours and Company ("EID") in connection with the Corteva Distribution; (iv) risks and costs related to the DWDP Distributions and the N&B Transaction and potential liability arising from fraudulent conveyance and similar laws; (v) risks and costs related to the performance under and impact of the cost sharing arrangement by and between DuPont, Corteva, Inc. and The Chemours Company related to future eligible PFAS costs; (vi) failure to effectively manage acquisitions, divestitures, alliances, joint ventures and other portfolio changes, including meeting conditions under the Letter Agreement entered in connection with the Corteva Distribution, related to the transfer of certain levels of assets and businesses; (vii) uncertainty as to the long-term value of DuPont common stock; (viii) potential inability or reduced access to the capital markets or increased cost of borrowings, including as a result of a credit rating downgrade; (ix) risks and uncertainties related to the novel coronavirus (COVID-19) and the responses thereto (such as voluntary and in some cases, mandatory quarantines as well as shut downs and other restrictions on travel and commercial, social and other activities) on DuPont’s business, results of operations, access to sources of liquidity and financial condition which depend on highly uncertain and unpredictable future developments, including, but not limited to, the duration and spread of the COVID-19 outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions resume; and x) other risks to DuPont's business, operations and results of operations discussed in DuPont’s annual report on Form 10-K for the year ended December 31, 2019 and its subsequent reports on Form 10-Q and Form 8-K. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on DuPont’s consolidated financial condition, results of operations, credit rating or liquidity. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. DuPont assumes no obligation to publicly provide revisions or updates to any forward-looking statements whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws.
Effective August 31, 2017, E. I. du Pont de Nemours and Company ("EID") and The Dow Chemical Company ("TDCC") each merged with subsidiaries of DowDuPont Inc. (n/k/a "DuPont”) and, as a result, EID and TDCC became subsidiaries of the Company. On April 1, 2019, the Company completed the separation of the materials science business through the spin-off of Dow Inc., (“Dow”) including Dow’s subsidiary TDCC (the “Dow Distribution”). On June 1, 2019, the Company completed the separation of the agriculture business through the spin-off of Corteva, Inc. (“Corteva”) including Corteva’s subsidiary EID, (the “Corteva Distribution and together with the Dow Distribution, the “DWDP Distributions”).
Following the Corteva Distribution, DuPont holds the specialty products business as continuing operations. The results of operations of DuPont for the 2019 interim periods presented reflect the historical financial results of Dow and Corteva as discontinued operations, as applicable. The cash flows related to Dow and Corteva have not been segregated and are included in the Consolidated Statements of Cash Flows for the applicable periods.
On February 1, 2021 the Company completed the divestiture of the Nutrition & Biosciences (“N&B”) business to International Flavors & Fragrance Inc. (“IFF”) in a Reverse Morris Trust transaction (the “N&B Transaction”) that resulting in IFF issuing shares to DuPont stockholders. The results of the N&B business are included in the continuing operations of DuPont for all periods presented herein, unless otherwise noted.
The unaudited pro forma Consolidated Statements of Operations (discussed in the following section) included herein include costs previously allocated to the materials science and agriculture businesses that did not meet the definition of expenses related to discontinued operations in accordance with Financial Accounting Standards Codification 205, "Presentation of Financial Statements" ("ASC 205") and thus are reflected in the Company's results of continuing operations. A significant portion of these costs relate to TDCC and consist of leveraged services provided through service centers, as well as other corporate overhead costs related to information technology, finance, manufacturing, research & development, sales & marketing, supply chain, human resources, sourcing & logistics, legal and communications, public affairs & government affairs functions. These costs are no longer incurred by the Company following the DWDP Distributions.
Unaudited Pro Forma Financial Information
In order to provide the most meaningful comparison of results of operations and results by segment, supplemental unaudited pro forma financial information has been included in the following financial schedules. The unaudited pro forma financial information (the “pro forma financial statements”) is derived from DuPont’s Consolidated Financial Statements and accompanying notes, adjusted to give effect to certain events directly attributable to the DWDP Distributions and DWDP Financings (as defined below). In contemplation of the DWDP Distributions and to achieve the respective credit profiles of each of DuPont, Dow, and Corteva, in the fourth quarter of 2018, DowDuPont consummated a public underwritten offer of eight series of senior unsecured notes (the “2018 Senior Notes”) in the aggregate principal amount of $12.7 billion and entered into a term loan agreement consisting of two term loan facilities (the “Term Loan Facilities”) in the aggregate principal amount of $3.0 billion. In May 2019, the funds from the Term Loan Facilities were drawn, along with the issuance of approximately $1.4 billion in commercial paper (the “Funding CP Issuance” together with the 2018 Senior Notes and Term Loan Facilities, the “DWDP Financings”). The net proceeds from the DWDP Financings together with cash from operations were used to fund cash contributions to Dow and Corteva, and DowDuPont’s $3.0 billion share repurchase program which was completed in the first quarter of 2019 (the “Share Repurchase Program”).
The pro forma financial statements were prepared in accordance with Article 11 of Regulation S-X. The historical consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the DWDP Distributions and the DWDP Financings (collectively the "DWDP Transactions"), (2) factually supportable and (3) with respect to the Consolidated Statements of Operations, expected to have a continuing impact on the results. The unaudited pro forma Statements of Operations for the year ended December 31, 2019 give effect to the pro forma events as if they had been consummated on January 1, 2018. There were no pro forma adjustments for the three or twelve months ended December 31, 2020 and for the three months ended December 31, 2019.
Restructuring or integration activities or other costs following the DWDP Distributions that may be incurred to achieve cost or growth synergies of DuPont are not reflected. The pro forma financial statements provide shareholders with summary financial information and historical data that is on a basis consistent with how DuPont reports current financial information.
The pro forma financial statements are presented for informational purposes only, and do not purport to represent what DuPont's results of operations or financial position would have been had the DWDP Transactions occurred on the dates indicated, nor do they purport to project the results of operations or financial position for any future period or as of any future date.
Non-GAAP Financial Measures
This earnings release includes information that does not conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are considered non-GAAP measures. Management uses these measures internally for planning, forecasting and evaluating the performance of the Company, including allocating resources. DuPont’s management believes these non-GAAP financial measures are useful to investors because they provide additional information related to the ongoing performance of DuPont to offer a more meaningful comparison related to future results of operations. These non-GAAP financial measures supplement disclosures prepared in accordance with U.S. GAAP, and should not be viewed as an alternative to U.S. GAAP. Furthermore, such non-GAAP measures may not be consistent with similar measures provided or used by other companies. Reconciliations for these non-GAAP measures to U.S. GAAP are provided in the Selected Financial Information and Non-GAAP Measures starting on page 13 and on the Investors section of the Company's website. Non-GAAP measures included in this release are defined below. The Company has not provided forward-looking U.S. GAAP financial measures or a reconciliation of forward-looking non-GAAP financial measures to the most comparable U.S. GAAP financial measures on a forward-looking basis because the Company is unable to predict with reasonable certainty the ultimate outcome of certain future events. These events include, among others, the impact of portfolio changes, including asset sales, mergers, acquisitions, and divestitures; contingent liabilities related to litigation, environmental and indemnifications matters; impairments and discrete tax items. These items are uncertain, depend on various factors, and could have a material impact on U.S. GAAP results for the guidance period.
Pro forma adjusted earnings per common share from continuing operations - diluted ("Pro forma adjusted EPS"), is defined as pro forma earnings per common share from continuing operations - diluted, excluding the after-tax impact of significant items, after-tax impact of amortization expense associated with intangibles acquired as part of the DWDP Merger, after-tax impact of non-operating pension / other post employment benefits (“OPEB”) benefits / charges and the after-tax impact of costs historically allocated to the materials science and agriculture businesses that did not meet the criteria to be recorded as discontinued operations. Adjusted earnings per common share from continuing operations - diluted ("Adjusted EPS"), is defined as earnings per common share from continuing operations - diluted, excluding the after-tax impact of significant items, after-tax impact of amortization expense associated with intangibles acquired as part of the DWDP Merger and the after-tax impact of non-operating pension / OPEB benefits / charges. Although amortization of EID intangibles acquired as part of the DWDP Merger is excluded from these non-GAAP measures, management believes it is important for investors to understand that such intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in amortization of additional intangible assets. Management estimates amortization expense in 2021 associated with intangibles acquired as part of the DWDP Merger to be approximately $490 million on a pre-tax basis, or approximately $0.70 per share.
Pro forma operating EBITDA, is defined as earnings (i.e. pro forma income (loss) from continuing operations before income taxes) before interest, depreciation, amortization, non-operating pension / OPEB benefits / charges, and foreign exchange gains / losses, excluding the impact of costs historically allocated to the materials science and agriculture businesses that did not meet the criteria to be recorded as discontinued operations and adjusted to exclude significant items. Operating EBITDA, is defined as earnings (i.e. income (loss) from continuing operations before income taxes) before interest, depreciation, amortization, non-operating pension / OPEB benefits / charges, and foreign exchange gains / losses, adjusted to exclude significant items. Operating EBITDA margin is calculated as operating EBITDA divided by net sales.
Significant items are items that arise outside the ordinary course of the Company’s business that management believes may cause misinterpretation of underlying business performance, both historical and future, based on a combination of some or all of the item’s size, unusual nature and infrequent occurrence. Management classifies as significant items certain costs and expenses associated with integration and separation activities related to transformational acquisitions and divestitures as they are considered unrelated to ongoing business performance.
Organic Sales is defined as net sales excluding the impacts of currency and portfolio.
Free cash flow is defined as cash provided by/used for operating activities less capital expenditures. As a result, free cash flow represents cash that is available to the Company, after investing in its asset base, to fund obligations using the Company's primary source of liquidity, cash provided by operating activities. Management believes free cash flow, even though it may be defined differently from other companies, is useful to investors, analysts and others to evaluate the Company's cash flow and financial performance, and it is an integral measure used in the Company's financial planning process.