DuPont sees better 2nd half as write-down, weaker global markets take toll

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DuPont reported a loss for the second quarter but raised its full-year earnings guidance. Earnings came in above estimates. However, shares dropped 3.6 percent on Friday as concerns mount on Wall Street over trade disputes and weaker global markets.

The company that was spun off from DowDuPont earlier this year was buffeted by weaker markets in China and elsewhere, a strong U.S. dollar and a “goodwill” write-down of the value of its business.

“In the face of weaker than expected market conditions, our teams delivered on our bottom-line commitments by driving both cost and pricing actions resulting in operating EBITDA(earnings before interest, taxes, depreciation, and amortization) margin improvement of 170 basis points in the quarter,” stated Marc Doyle, CEO.

“We also improved gross margin by more than 200 basis points with gains in each of our core segments,” Doyle continued. “We delivered these results by continuing to realize the benefits from our cost synergy initiatives, enacting new productivity programs in the face of challenged end markets, and driving higher pricing based on the value-added solutions we deliver.

Doyle continued, “We saw strength in probiotics, water, safety, aerospace and healthcare end markets where we were able to capitalize on our strong customer relationships and innovative solutions. However, our portfolio is diverse, and our top-line results were impacted by the on-going softness in our short-cycle businesses.”

“Our team is delivering operating leverage through our financial results which allows us today to raise our full-year pro forma adjusted EPS guidance despite expectations of a softer top line,” said Jeanmarie Desmond, chief financial officer of DuPont. “We now expect full-year organic sales to be slightly down versus prior year consistent with our expectation that soft demand in our short-cycle businesses extends into the second half. In addition to actions we took in the second quarter, we are taking new cost actions in the second half to mitigate our expected top-line headwinds.”

Net sales for the quarter totaled $5.5 billion, down 7 percent versus the same quarter last year.

Net sales were down 3 percent with 2 percent higher pricing being more than offset by 5 percent lower volumes. Currency and portfolio adjustmentsdecreased sales by 3 percent and 1 percent, respectively.

The GAAP (generally accepted accounting principles loss from continuing operations totaled $1.1 billion versus pro forma loss from continuing operations of $11 million from the second quarter of last year.

Operating EBITDAwas $1.4 billion, virtually unchanged from the second quarter a year ago. Operating EBITDA margins improved 1.7 percent to 26 percent driven by cost-cutting and higher local price.

Results were affected by a goodwill impairment charges of $1.57 per share and an income tax charge of $0.22 per share, partially offset by the absence of costs historically allocated to Dow and Corteva of $0.35 per share. Goodwill impairment is a reduction in the book value of the company.

“Our results show our readiness to respond to continuously evolving market conditions,” said Ed Breen, executive chairman of DuPont. “We drove productivity actions, significantly improved our margins and began executing immediately on a share repurchase program. This performance-based mindset and commitment to shareholder value starting at the Board level and through each of our businesses is critical as we move forward.”

Electronics & Imaging reported net sales of $858 million, down 7 percent from the year-ago, with sales down five percent and currency headwinds of 2 percent. Operating EBITDA was down 15 percent from a year ago.

Nutrition & Biosciences reported net sales of $1.6 billion, down 4 percent from the year-ago period, thanks in part to currency headwinds. Operating EBITDA for the segment was $391 million, an increase of 2 percent from the second quarter of last year.

Transportation & Industrial reported net sales of $1.3 billion, down 10 percent from the year-ago period. Organic sales were down 7 percent with a 5 percent price improvement more than offset by a 12 percent volume decline. Volumes declined 12 percent due to lower auto production,primarily for the China market, weak electronics demand and continued de-stocking in both the automotive and electronics channels. Operating EBITDA for the segment was $357 million, a decrease of 11 percent from a year ago.

Safety & Construction reported net sales of $1.3 billion, down 2 percent from the year-ago period. Organic sales increased 5 percent with a 4 percent price improvement and a 1 percent volume gain. The December 2018 divestiture of the European Styrofoam business reduced sales by 4 percent. Currencytranslation from a strong U.S. dollar was a 3 percent negative. Operating EBITDA for the segment totaled $382 million, an increase of 29 percent from pro forma operating EBITDA of $296 million in the year-ago period. The earnings growth was led by strength in the Water and Safety Solutions businesses driven by local price gains, cost synergies, and productivity improvements.

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