DuPont Reports First Quarter 2021 Results
WILMINGTON, Del., May 4, 2021 /PRNewswire/ -- DuPont (NYSE: DD) today announced financial results for the first quarter 2021.
"As we emerge from the COVID-19 pandemic, the leading positions we hold in semiconductor, smartphones, automotive, water filtration, and residential construction end-markets enabled us to deliver strong first quarter results ahead of expectations with organic sales growth in all three reporting segments," said Ed Breen, DuPont Executive Chairman and Chief Executive Officer. "We delivered these results despite headwinds associated with escalating raw material and logistics costs and global supply constraints of key raw materials. Our teams have worked closely with our suppliers and customers to help mitigate the impact incurred as a result of these industry challenges."
"In addition to delivering solid financial results, we advanced a number of strategic priorities," Breen continued. "During the first quarter, we completed the separation of our Nutrition & Biosciences business via a tax-free split and signed agreements to divest our Clean Technologies and Solamet® businesses(2) and expect all three transactions will deliver approximately $8 billion in gross proceeds. Additionally, we announced a definitive agreement to acquire Laird Performance Materials(2) which complements our Electronics & Industrial segment. The planned acquisition of Laird Performance Materials is part of our strategy of growing as a global innovation leader through targeted M&A. We also executed $500 million of share repurchases under our existing program and have approximately $500 million repurchase authorization remaining which we intend to complete by June 1. Also, as previously announced, our Board of Directors authorized a new $1.5 billion share buyback program which expires on June 30, 2022. Finally, we de-levered our balance sheet during the quarter by paying down our $3 billion term loan and we will redeem the $2 billion May 2020 bonds later this month. These actions, combined with our dividend policy, further illustrate our commitment to a balanced capital allocation approach."
First Quarter 2021 Results
Net sales totaled $4.0 billion, up 8 percent versus the year-ago period as reported and up 7 percent versus the year-ago period on an organic(1) basis. Sales were up on an as reported and organic basis in all three segments led by double-digit growth in Electronics & Industrial on continued strength in both semiconductors and smartphone technologies, high single-digit organic growth in Mobility & Materials on further recovery in automotive and industrial markets, and strong demand in Water & Protection for water filtration technologies. On a regional basis, organic sales growth was led by Asia Pacific more than offsetting declines in US & Canada and EMEA.
GAAP EPS from continuing operations totaled $0.89 on GAAP income from continuing operations of $541 million, versus GAAP EPS from continuing operations of $(0.75) on a GAAP loss from continuing operations of $(550) million in the year-ago period. The improvement is attributable to the absence of prior year goodwill and asset impairment charges, significantly less integration and separation costs, a significantly lower share count, higher segment earnings, and a lower tax rate, partially offset by the absence of a prior year gain related to a divestiture.
Operating EBITDA(1) was $1.05 billion, up 15 percent versus operating EBITDA(1) in the prior year. Strong demand in Electronics & Industrial and Mobility & Materials as well as benefits from prior year cost initiatives contributed to 160 basis points of operating EBITDA margin expansion and 1.9 times operating EBITDA leverage. Adjusted EPS(1) was $0.91, up 90% versus adjusted EPS(1) in the year-ago period due to a significantly lower share count, higher segment results and benefits associated with a lower base tax rate and lower interest expense.
Operating cash flow for the quarter was $378 million and included working capital headwinds of about $300 million led by higher accounts receivable balances on increased sales. Capital expenditures of $283 million resulted in free cash flow(1) of $95 million.
During the first quarter 2021, DuPont completed the previously announced separation of its Nutrition & Biosciences business (the "N&B Business") in a Reverse Morris Trust transaction, in which Nutrition & Biosciences, Inc. ("N&B") was merged with a subsidiary of International Flavors and Fragrances Inc. ("IFF"). In connection with closing of the IFF transaction and the related exchange offer, DuPont accepted and retired 197.4 million shares of DuPont common stock.
First Quarter 2021 Segment Highlights
Electronics & Industrial
Volume gains were led by Semiconductor Technologies where new technology ramps in advanced nodes within logic and foundry along with robust demand for memory in servers and data centers delivered double-digit growth versus the year-ago period. Interconnect Solutions also delivered double-digit growth, driven by higher material content in premium, next-generation smartphones. Within Industrial Solutions, double-digit volume gains in display materials and healthcare more than offset continued weakness in aerospace and flexographic printing.
Operating EBITDA for the segment was $436 million, an increase of 33 percent from operating EBITDA of $327 million in the year-ago period, driven primarily by strong volume growth and a gain on an asset divestiture.
Water & Protection
Sales gains were led by Water Solutions with double-digit volume growth reflecting strong demand for our reverse osmosis and ultrafiltration technologies. Ongoing strength in residential construction and retail channels for do-it-yourself applications resulted in volume growth in Shelter Solutions versus the year-ago period. Within Safety Solutions, strengthening demand for aramid fibers in industrial and automotive end markets was more than offset by continued weakness in aerospace resulting in low-single digit volume declines.
Operating EBITDA for the segment totaled $355 million, relatively flat with operating EBITDA of $357 million in the year-ago period as sales gains and cost productivity actions were offset by higher manufacturing and supply chain costs.
Mobility & Materials
Double-digit growth in Performance Resins and Advanced Solutions was attributable to the continued recovery of the global automotive market as well as strong demand for specialty pastes used in consumer electronics. Demand within Engineering Polymers was strong; however, global supply constraints in key raw materials resulted in low-single digit volume declines. We expect to recover this volume as the raw material constraints are alleviated.
Operating EBITDA for the segment was $278 million, an increase of 29 percent from operating EBITDA of $215 million in the year-ago period, as higher volumes and savings from productivity actions delivered a 320 basis point improvement in operating EBITDA margins versus the year-ago period.
Second Quarter and Full Year 2021 Outlook
"With a strong start to the year, positive trends continuing in our key end-markets and confidence in our team's ability to navigate through global supply constraints, we are raising our guidance for the year for net sales, operating EBITDA and adjusted EPS," said Lori Koch, Chief Financial Officer of DuPont. "For full year 2021, we now estimate net sales to be between $15.7 billion and $15.9 billion and operating EBITDA between $3.98 billion and $4.08 billion. Our outlook for full year adjusted EPS is now in the range of $3.60 to $3.75 per share, an increase of $0.30 per share from our previous estimates."
"We also expect similar top-line trends continuing from first quarter into the second quarter coupled with slight escalation in raw materials and logistics costs. We expect second quarter of 2021 results to be up significantly versus the second quarter of last year with net sales estimated between $3.925 billion and $4.025 billion, operating EBITDA between $990 million and $1,010 million, and adjusted EPS between $0.93 and $0.95 per share."
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
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 The Dow Chemical Company (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 E. I. du Pont de Nemours and Company ("EID"), (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 resulted in IFF issuing shares to DuPont stockholders.
On March 8, 2021, DuPont announced entry into a definitive agreement to acquire the Laird Performance Materials business, subject to regulatory approval and customary closing conditions, (the "proposed Laird PM Acquisition").
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 are not guarantees of 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 expectations regarding the timing, completion, integration, and accounting and tax treatments related to the proposed Laird PM Acquisition; (ii) the ability to achieve expected benefits, synergies and operating efficiencies in connection with the proposed Laird PM Acquisition within the expected time frames or at all or to successfully integrate the Laird Performance Materials business; (iii) ability to achieve anticipated tax treatments in connection with the N&B Transaction or the DWDP Distributions; (iv) changes in relevant tax and other laws; (v) indemnification of certain legacy liabilities of EID in connection with the Corteva Distribution; (vi) risks and costs related to the performance under and impact of the cost sharing arrangement by and between DuPont, Corteva and The Chemours Company related to future eligible PFAS costs; (vii) 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; (viii) uncertainty as to the long-term value of DuPont common stock; (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; each as further discussed in detail in and results of operations as discussed in DuPont's annual report on Form 10-K for the year ended December 31, 2020 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 or supply chain 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 (the "DWDP Merger"). 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").
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 operations of DuPont for all periods presented reflect the historical financial results of N&B as discontinued operations, as applicable. The cash flows related to N&B have not been segregated and are included in the Consolidated Statements of Cash Flows for the applicable periods. On February 1, 2021, the Company announced changes to its management and reporting structure. As a result of these changes segments were renamed and underlying businesses were realigned. Financial results contained within this earnings release reflect the new reporting structure for all periods presented.
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 11 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.
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 / other post employment benefits ("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 $480 million on a pre-tax basis, or approximately $0.70 per share.
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. Operating EBITDA leverage is calculated as the year-over-year percentage change in operating EBITDA divided by the year-over-year percentage change in 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.
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