DuPont, a science company that brings world-class, innovative products, materials, and services to the global marketplace, today announced third-quarter 2016 GAAP earnings of $0.01 per share and operating earnings2 of $0.34 per share. Prior year GAAP and operating earnings2 were $0.14 and $0.13 per share, respectively. Refer to Schedule B for details of significant items excluded from operating earnings per share.
Third-quarter 2016 sales totaled $4.9 billion, up 1 percent versus prior year as 3-percent volume growth more than offset 2-percent lower local price.
Free cash flow4 improvement of $1.3 billion year-to-date reflected improvements in working capital, lower tax payments, lower capital expenditures and the absence of Chemours cash outflows.
“This quarter we continued the strong momentum from the first half of the year. We increased segment operating earnings 40 percent, expanded operating margins in each reportable segment, reduced costs, grew volumes and improved free cash flow. As a result of our continued performance and progress against strategic initiatives, we are raising our operating earnings guidance for the year,” said Ed Breen, chairman and CEO of DuPont. “We also are making progress preparing for the merger with Dow. We developed an organizational design that fosters innovation and takes advantage of our market connections to drive growth. In addition, we have finalized plans to realize our cost synergies. We continue to work constructively with regulators in key jurisdictions to close the merger as soon as possible. In the event that regulators in those jurisdictions use their full allotted time, closing would be expected to occur in the first quarter of 2017. We expect the intended spins to occur about 18 months after closing.”
- GAAP1 earnings per share totaled $0.01 versus $0.14 in prior year. Operating earnings2 per share increased to $0.34 from $0.13 in prior year.
- Sales of $4.9 billion increased 1 percent. Volumes grew 3 percent on increased demand primarily in Performance Materials, Agriculture, Nutrition & Health, and Industrial Biosciences. Local prices declined by 2 percent.
- Total company gross margins expanded 45 basis points. GAAP (loss) from continuing operations before taxes was $(56) million, including charges of $(280) million related to an asset impairment and transaction costs. Prior year GAAP income of $227 million included a benefit of $147 million from insurance recoveries.
- Total segment pre-tax operating earnings2 of $607 million increased 40 percent. Total segment operating margins increased about 350 basis points, and operating margins expanded in all reportable segments.
- GAAP operating costs3 increased by 2 percent. Excluding significant items and non-operating pension/OPEB costs, operating costs2 declined by 14 percent versus prior year.
- Free cash flow4 improved by about $1.3 billion year-to-date primarily due to working capital improvements and lower capital expenditures.
- DuPont now expects full-year 2016 GAAP earnings to be about $2.71 per share, an increase of 30 percent from prior year. 2016 operating earnings2 are now expected to increase 17 percent versus prior year to $3.25 per share.
The following is a summary of business results for each of the company’s reportable segments comparing the third quarter with the prior year.
Agriculture – A seasonal operating loss of $189 million improved $21 million, or 10 percent, as cost savings, higher volumes and a $28 million benefit from currency were partially offset by lower local price and higher product costs. Increased seed volumes were partially offset by lower fungicide and insecticide volumes. Increased seed prices were more than offset by lower crop protection prices. Prior year operating earnings included a $27 million gain from asset sales and a $21 million benefit related to prior periods. Operating margins expanded by 230 basis points.
Electronics & Communications - Operating earnings of $108 million increased $4 million, or 4 percent, as cost savings more than offset lower demand, driven by declines in Tedlar® film and continued weakness in consumer electronics. Operating margins expanded by about 240 basis points.
Industrial Biosciences - Operating earnings of $78 million increased $17 million, or 28 percent, as increased demand in bioactives and biomaterials and cost savings more than offset lower volume in CleanTech. Demand in bioactives increased due to growth in home and personal care while strength in biomaterials reflected growth in the apparel market. Operating margins expanded by 360 basis points.
Nutrition & Health - Operating earnings of $135 million increased $33 million, or 32 percent, on continued broad-based volume growth led by probiotics, cultures and ingredient systems; cost savings; and lower product costs. Operating margins expanded by 380 basis points.
Performance Materials - Operating earnings of $371 million increased $54 million, or 17 percent. Cost savings, increased demand in automotive markets (primarily in China), and lower product costs more than offset a $14 million negative impact from currency, as well as the absence of a $16 million net benefit from a joint venture in the prior year. Operating margins expanded by about 350 basis points.
Protection Solutions - Operating earnings of $162 million increased $16 million, or 11 percent, driven by cost savings and increased volumes. Volume growth was driven by increased demand in Tyvek® protective materials and surfaces, primarily in North America. Operating margins expanded by 225 basis points.
The company now expects full-year 2016 GAAP earnings to be about $2.71 per share, an increase of 30 percent from prior year. Full-year 2016 operating earnings2 are now expected to increase 17 percent versus prior year to $3.25 per share, up from our previously communicated range of $3.15 - $3.20 per share. The estimated headwind from a higher base tax rate is now expected to be about $0.07 per share. The company continues to expect a benefit of $0.64 per share from the 2016 global cost savings and restructuring plan and a headwind from currency of about $0.15 per share. The company’s full-year 2016 GAAP earnings include an expected charge of about $0.37 per share for transaction costs associated with the planned merger with Dow.
DuPont will hold a conference call and webcast on Tuesday, Oct. 25, 2016, at 8:00 AM EDT to discuss this news release. The webcast and additional presentation materials can be accessed by visiting the company’s investor website (Events & Presentations) at www.investors.dupont.com. A replay of the conference call webcast will be available for 90 days by calling 1-630-652-3042, Passcode 6102133#. For additional information see the investor center at http://www.dupont.com.
Use of Non-GAAP Measures
This earnings release includes information that does not conform to U.S. generally accepted accounting principles (GAAP) and are considered non-GAAP measures. These measures include the company’s consolidated results and earnings per share on an operating earnings basis, which excludes significant items and non-operating pension and other postretirement employee benefit costs (operating earnings and operating EPS), total segment pre-tax operating earnings, operating costs and corporate expenses on an operating earnings basis. Management uses these measures internally for planning, forecasting and evaluating the performance of the company’s segments, including allocating resources and evaluating incentive compensation. From a liquidity perspective, management uses free cash flow, which is defined as cash provided/used by operating activities less purchases of property, plant and equipment. Free cash flow is useful to investors and management to evaluate the company’s cash flow and financial performance, and is an integral financial measure used in the company’s financial planning process. Management believes that these non-GAAP measurements are meaningful to investors as they provide insight with respect to ongoing operating results of the company and provide a more useful comparison of year-over-year results. These non-GAAP measurements supplement our GAAP disclosures and should not be viewed as an alternative to GAAP measures of performance. Reconciliations of non-GAAP measures to GAAP are provided in schedules A, C and D. Details of significant items are provided in schedule B.