On October 29, 2020 DuPont (NYSE: DD) reported financial results for the third quarter 2020 (Press release, DuPont, OCT 29, 2020, View Source [SID1234569458]).

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"Our team remains committed to emphasizing the safety and well-being of our employees, prioritizing the needs of our customers, and executing on a playbook that enables us to quickly respond to the changing environment" said Ed Breen, DuPont Executive Chairman and Chief Executive Officer. "This commitment is evident in the results we announced today. We delivered strong performance demonstrating the value our market-leading innovation and technology provides in key end-markets such as semiconductors, smartphones, water filtration, probiotics, and personal protective equipment. The actions we have taken to right-size our cost structure and generate significant cash flow are delivering results today and we intend to maintain this momentum as we move forward."

"In September, we completed the sale of our trichlorosilane business and our stake in the Hemlock Semiconductor joint venture and earlier this month we signed an agreement to sell the Biomaterials business," Breen continued. "Execution of these Non-Core divestitures and the continued progress towards the anticipated closing of the Nutrition & Biosciences transaction(1) in the first quarter 2021 exemplify our commitment to create both market-leading businesses and value for our shareholders."

Third Quarter 2020 Results

Net sales totaled $5.1 billion, down 6 percent versus the year-ago period on both an as reported and organic basis. Growth in Electronics & Imaging was more than offset by sales declines in the other segments primarily due to the impact of the global pandemic.

On a regional basis, organic sales increased 3 percent in Asia Pacific versus the year-ago period while the U.S. and Canada declined 10 percent, EMEA declined 15 percent, and Latin America declined 3 percent. China sales in our core segments improved 14 percent versus the third quarter 2019 and 10 percent sequentially from second quarter 2020.

GAAP EPS from continuing operations totaled $(0.11) on a GAAP loss from continuing operations of $(72) million, versus GAAP EPS from continuing operations of $0.49 on GAAP income from continuing operations of $372 million in the year-ago period. This decline is mostly attributable to non-cash impairment charges associated with Non-Core businesses, higher merger-related amortization expense and lower segment results, partially offset by gains associated with divestitures of Non-Core businesses.

Operating EBITDA(2) was $1.3 billion, down 7 percent versus operating EBITDA(2) in the prior year. The impact of lower demand, cost associated with idled facilities, and portfolio changes more than offset manufacturing productivity gains, approximately $150 million of non-manufacturing cost savings and strong demand in semiconductors, smartphones, water, Tyvek protective garments, and health & wellness. Adjusted EPS(2) decreased 8 percent to $0.88, compared with adjusted EPS(2) in the year-ago period of $0.96, primarily driven by lower segment results and a higher base tax rate partially offset by declines in interest expense, foreign exchange losses, and share count. A continued focus on cost control enabled operating EBITDA declines in-line with the decline in net sales on a percentage basis.

Operating cash flow of $1.3 billion included improvements in working capital of more than $300 million in the quarter which was driven by lower inventories. Capital expenditures of approximately $200 million resulted in free cash flow(2) of $1.1 billion. The sale of the trichlorosilane business and the Hemlock Semiconductor joint venture provided $550 million of additional pre-tax cash proceeds in the quarter. Proceeds from these sales as well as organic cashflow generation enabled a reduction in commercial paper balances to less than $400 million as of September 30, 2020; a reduction of $1.2 billion in the quarter.

(1)

Closing of transaction with IFF is subject to regulatory approval and customary closing conditions.

(2)

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.

Third Quarter 2020 Segment Highlights

Electronics & Imaging
Electronics & Imaging reported a record quarter with net sales of $1.0 billion, up 7 percent from the year-ago period. Organic sales were up 8 percent driven by a 9 percent growth in volume offset by a 1 percent decline in price. Currency was neutral and portfolio was a 1 percent headwind.

Sales gains were led by Semiconductor Technologies as new technology ramps across logic and foundry delivered high-single digit organic growth versus the year-ago period. Interconnect Solutions organic sales also increased high-single digits, despite an overall decline in the global smartphone market, driven by higher material content in premium, next-generation smartphones. Within Image Solutions, mid single-digit organic growth was led by strength in OLEDs for displays and ink for the consumer segment, partially offset by weakness in flexographic plates and textile inks.

Operating EBITDA for the segment was $357 million, an increase of 12 percent from operating EBITDA of $320 million in the year-ago period, driven primarily by strong volume growth and continued productivity actions.

Nutrition & Biosciences
Nutrition & Biosciences reported net sales of $1.5 billion, down 4 percent from the year-ago period on both an as reported and organic basis driven by lower volumes. Price, currency and portfolio impacts were each neutral versus third quarter 2019.

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. Pricing gains in Food & Beverage were more than offset by weaker demand primarily in emulsifiers, sweeteners, and cellulosics driven by declines in food service and lower consumer demand for mints and chewing gums in travel and convenience stores. Pharma Solutions sales were flat with the prior year.

Operating EBITDA for the segment was $379 million, an increase of 7 percent from operating EBITDA of $354 million in the year-ago period. Continued productivity actions and favorable product mix more than offset the impact of lower volumes leading to a 260 basis point improvement in operating EBITDA margins versus the year-ago period.

Transportation & Industrial
Transportation & Industrial reported net sales of $1.0 billion, down 14 percent from the year-ago period. Organic sales were down 14 percent with volume down 9 percent and price lower by 5 percent. Currency and portfolio impacts were both neutral versus third quarter 2019.

Volume declined 9 percent due to lower auto builds. Although a significant improvement versus second quarter performance the global auto market continues its recovery from steep declines in the first half of the year. The impact of COVID-19 on other key industrial markets, in addition to automotive, contributed to volume declines across Mobility Solutions, Industrial & Consumer, and Healthcare & Specialty. Strong demand for differentiated, high performance seals in semiconductor manufacturing lifted Kalrez revenues high-teens percent.

Operating EBITDA for the segment was $242 million, a decrease of 21 percent from operating EBITDA of $306 million in the year-ago period, as savings from productivity actions were more than offset by volume declines, lower price, and the impact of temporarily idled facilities.

Safety & Construction
Safety & Construction reported net sales of $1.2 billion, down 6 percent from the year-ago period. Organic sales were down 9 percent with a 1 percent price improvement offset by a 10 percent decline in volume. Acquisitions in the Water Solutions business increased reported sales by 3 percent. Currency was neutral.

Continued broad-based demand across Water Solutions was more than offset by declines in both Safety Solutions and 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 as a result of COVID-19. Similarly, within Shelter Solutions, growth in residential construction and retail channels for do-it-yourself applications was more than offset by weak commercial construction.

Operating EBITDA for the segment totaled $324 million, a decrease of 8 percent from operating EBITDA of $352 million in the year-ago period. Continued productivity actions as well as favorable product mix was more than offset by lower volumes and the impact of temporarily idled facilities.

Non-Core
Non-Core reported net sales of $331 million, down 23 percent from the year-ago period. Organic sales were down 13 percent driven by 18 percent volume declines and offset by 5 percent pricing gains. The September 2019 divestiture of the DuPont Sustainable Solutions business and the September 2020 divestiture of the trichlorosilane business reduced sales by 10 percent. Currency was neutral.

Operating EBITDA for the segment was $14 million, a decrease of 85 percent from operating EBITDA of $94 million in the year-ago period. The absence of a prior year gain on the sale of DuPont Sustainable Solutions, lower volumes and the impact of the trichlorosilane and Hemlock Semiconductor divestitures in September 2020 more than offset cost productivity.

Outlook

"With a continued focus on execution, we anticipate a fourth quarter underscored by additional cash generation and operating leverage across our core segments driven by additional cost savings," said Lori Koch, Chief Financial Officer of DuPont. "We expect to deliver full-year 2020 adjusted EPS(2) in the range of $3.17 to $3.21 on net sales of $20.1 billion to $20.2 billion."

Conference Call
The Company will host a live webcast of its third 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.