Business News
Agriculture Leads DuPont to Solid Second Quarter Growth
Tuesday 22. July 2008 - Company Increases Lower End of 2008 Earnings Outlook Range
Highlights
— Second quarter 2008 earnings per share grew 13 percent to $1.18, up from $1.04 in the second quarter of 2007. Earnings benefited $.07 per share from a litigation settlement and a lower base tax rate.
— Sales increased 12 percent to $8.8 billion, reflecting 7 percent higher local selling prices, 5 percent currency benefit, 1 percent higher volumes and a 1 percent reduction from portfolio changes. Sales outside the United States grew 18 percent, while sales in the United States grew 5 percent despite weakness in housing and automotive markets.
— Local selling prices increased 7 percent, partially offsetting a 15 percent increase in energy, raw materials and freight costs in the second quarter.
— Agriculture & Nutrition sales grew 23 percent, reflecting strong global demand for the company’s corn, soybean and crop protection products.
— Fixed costs as a percentage of sales improved 200 basis points from the prior-year quarter, reflecting the company’s continued cost productivity improvement programs.
— DuPont (NYSE:DD) increased the lower end of its full year 2008 earnings outlook, narrowing the range to $3.45 to $3.55 per share.
“DuPont captured strong growth in agriculture and emerging markets and grew earnings despite accelerating raw material and energy costs in the second quarter. We are executing well in a challenging environment,” said DuPont Chairman and CEO Charles O. Holliday, Jr. “DuPont’s strategic transformation in recent years is enabling us to successfully adapt to the new reality of significantly higher commodity costs and we remain focused on achieving our 2010 accelerated growth plan.”
Global Consolidated Sales and Net Income
Consolidated net sales grew 12 percent to $8.8 billion. Sales outside the United States grew 18 percent and accounted for 60 percent of worldwide sales. Sales in emerging markets grew 23 percent. A summary of second quarter 2008 worldwide and regional sales performance is shown in the table below.
Three Months Ended
June 30, 2008 Percentage Change Due to:
Local
% Currency Currency
(dollars in billions) $ Change Price Effect Volume Portfolio
U.S. $3.5 5 9 – (4) –
Europe 2.7 18 4 12 3 (1)
Asia Pacific 1.5 18 5 4 11 (2)
Canada & Latin America 1.1 17 6 7 5 (1)
Total Consolidated Sales $8.8 12 7 5 1 (1)
Net income for the second quarter of 2008 was $1,078 million, or $1.18 per share. Second quarter 2007 net income was $972 million, or $1.04 per share.
Earnings Per Share
The table below shows the variances in second quarter 2008 earnings per share (EPS) versus second quarter 2007. The 13 percent increase in earnings per share reflects higher local prices, favorable currency impact, and volume growth outside the United States. These gains were partially offset by higher ingredient costs and increased spending for growth initiatives and capacity expansions.
EPS Analysis
EPS
2nd Quarter 2007 $1.04
Variances:
Local prices .42
Variable costs* (.51)
Volume .03
Fixed costs* (.04)
Currency .11
Pharmaceuticals .02
Tax rate** .03
Litigation settlement .04
Fewer shares .03
Lower interest expense .01
2nd Quarter 2008 $1.18
* Excludes volume and currency impact
** Includes $0.03 from a favorable tax settlement
Business Segment Performance
Segment sales and related variances versus the second quarter of 2007 are shown in the table below:
SEGMENT SALES* Three Months Ended Percentage Change
(Dollars in billions) June 30, 2008 Due to:
USD
$ % Change Price Volume Portfolio
Agriculture & Nutrition $2.5 23 15 9 (1)
Coatings & Color
Technologies 1.9 10 11 (1) –
Electronic & Communication
Technologies 1.1 10 7 1 2
Performance Materials 1.8 8 13 (5) –
Safety & Protection 1.6 8 9 2 (3)
* Segment sales include transfers
Segment pre-tax operating income (PTOI) was $1.7 billion, up 8 percent versus the second quarter 2007, as shown below:
PRE-TAX OPERATING INCOME
Three Months Ended
June 30, 2008
% Change vs.
(Dollars in millions) 2008 2007 2007
Agriculture & Nutrition $504 $428 18
Coatings & Color Technologies 247 226 9
Electronic & Communication
Technologies 170 176 (3)
Performance Materials 223 227 (2)
Safety & Protection 302 318 (5)
Total Growth Platforms 1,446 1,375 5
Pharmaceuticals 265 241 10
Other 1 (37) nm
Total Segments $1,712 $1,579 8
The following are business segment highlights comparing second quarter 2008 results to second quarter 2007.
Agriculture & Nutrition
— Sales increased $467 million, or 23 percent, to $2.5 billion, reflecting record seed revenue and strong global pricing actions across the platform.
— PTOI increased 18 percent to $504 million, driven by higher volumes and USD prices across all businesses, partially offset by growth investments, higher commodity prices, and a $52 million charge on open soybean contracts.
Coatings & Color Technologies
— Sales increased 10 percent to $1.9 billion. Higher USD selling price in all businesses and volume growth in emerging markets more than offset lower volumes in North America.
— PTOI increased 9 percent to $247 million. Sales growth and favorable currency offset the impact of weak auto and housing markets and higher raw material and transportation costs.
Electronic & Communication Technologies
— Sales grew 10 percent to $1.1 billion, led by price gains and favorable currency. Strong demand for photovoltaics, printed packaging, and refrigerants was partially offset by weakness in U.S. automotive electronics.
— PTOI was $170 million compared to $176 million in the prior-year quarter, which included a $25 million pre-tax inventory valuation benefit. Excluding this item, PTOI increased 13 percent, reflecting strong sales growth and cost productivity gains.
Performance Materials
— Sales grew 8 percent to $1.8 billion, driven by price gains, currency, and strong growth in Asia Pacific. Volumes outside Asia declined due to weakness in automotive markets and the impact of scheduled production outages.
— PTOI decreased 2 percent to $223 million as significantly higher ingredient costs and lower volumes offset the benefit of price increases.
Safety & Protection
— Sales grew 8 percent to $1.6 billion. Pricing gains, particularly in chemicals, favorable currency and broad-based volume growth in emerging markets was partially offset by lower volumes in the U.S. housing market.
— PTOI of $302 million was down 5 percent. Significant earnings growth in the chemical businesses was offset by less favorable product mix, lower volumes in U.S. housing, higher raw material costs, and higher fixed costs associated with growth investments.
Additional information on segment performance is available on the DuPont Investor Center website at www.dupont.com.
Outlook
The company increased the lower end of its full year 2008 earnings outlook, narrowing the range to $3.45 to $3.55 per share. The previous earnings outlook was a range of $3.40 to $3.55. First half 2008 earnings per share increased significantly versus prior year, principally reflecting strong growth in agriculture earnings, which are concentrated in the first half of the year. The company expects second half 2008 earnings per share to be modestly lower than last year due to the impact of higher energy and ingredient costs, lower demand in certain developed markets, lower income from asset sales, and a higher base tax rate. The company expects second half 2008 earnings per share to be about equally split between the third and fourth quarters.
“DuPont is executing extremely well in a tougher environment,” Holliday said. “We remain focused on achieving the growth objectives of our 2010 Acceleration Plan.”
Use of Non-GAAP Measures
Management believes that measures of income excluding significant items (“non-GAAP” information) are meaningful to investors because they provide insight with respect to ongoing operating results of the company. Such measurements are not recognized in accordance with generally accepted accounting principles (GAAP) and should not be viewed as an alternative to GAAP measures of performance. Reconciliations of non-GAAP measures to GAAP are provided in Schedule D.