DuPont Reports Second Quarter 2023 Results

Second Quarter 2023 Highlights

• Net Sales of $3.1 billion decreased 7%; organic sales decreased 4% versus year-ago period
• GAAP Income from continuing operations of $269 million; operating EBITDA of $738 million
• GAAP EPS from continuing operations of $0.55; adjusted EPS of $0.85
• Cash provided by operating activities from continuing operations of $400 million; adjusted free cash flow of $277 million

WILMINGTON, Del., Aug. 2, 2023 /PRNewswire/ -- DuPont (NYSE: DD) announced its financial results⁽¹⁾ for the second quarter ended June 30, 2023.

"We delivered second quarter revenue and operating EBITDA results ahead of our expectations with sequential revenue and earnings growth as well as margin improvement," said Ed Breen, DuPont Executive Chairman and Chief Executive Officer. "From an end-market view, we saw continued strength during the quarter in industrial end-markets where we continue to capitalize on strong customer relationships and a rich product portfolio. Our results continue to be impacted by the ongoing softness in consumer-driven businesses primarily within electronics, however, we did see sequential sales improvement in our Interconnect Solutions business during the second quarter."

"In addition to driving solid execution, we continue to advance our strategic priorities," Breen continued. "Yesterday we announced completion of the acquisition of Spectrum which aligns with our strategy of delivering innovative solutions to attractive end-markets with long-term secular growth trends. The business combination adds to our existing medical-related offerings and increases our revenue to high-growth healthcare markets to approximately 10 percent of our portfolio. Additionally, we are nearing completion of the $3.25 billion accelerated share repurchase transaction launched last November and we intend to complete our remaining share repurchase authorization through a new $2 billion ASR executed shortly thereafter."

Net sales

• Net sales decreased 7% as organic sales⁽²⁾ declined 4%, along with currency headwinds of 1% and unfavorable portfolio impact of 2%.
• Organic sales⁽²⁾ decline of 4% consisted of a 6% decrease in volume partially offset by a 2% increase in price.
• Lower volume resulted from decreased consumer electronics spending and channel inventory destocking, along with softness in construction end-markets, partially offset by continued strength in areas such as water, auto and in industrial end-markets such as aerospace and healthcare.
• Price increase reflects the carryover impact of actions taken in 2022 to offset broad-based cost inflation.
• 1% organic sales⁽²⁾ growth in Water & Protection; 12% organic sales⁽²⁾ declines in Electronics & Industrial; 9% organic sales⁽²⁾ growth in the retained businesses reported in Corporate.
• 4% organic sales⁽²⁾ growth in EMEA, 3% organic sales⁽²⁾ decline in U.S. & Canada and 8% organic sales⁽²⁾  decline in Asia Pacific.

GAAP Income/GAAP EPS from continuing operations

• GAAP income/GAAP EPS from continuing operations decreased as lower segment earnings and the absence of a gain on divestiture in the prior year more than offset lower net interest expense and the impact of a lower share count related to the $3.25 billion accelerated share repurchase transaction.

Operating EBITDA⁽²⁾

• Operating EBITDA⁽²⁾ decreased as volume declines and the impact of reduced production rates to better align inventory with demand were partially offset by net pricing benefits.

Adjusted EPS⁽²⁾

• Adjusted EPS⁽²⁾ decreased as lower segment earnings and foreign exchange losses more than offset lower net interest expense and the impact of a lower share count.

Cash provided by operating activities from continuing operations

• Cash provided by operating activities from continuing operations in the quarter of $400 million and capital expenditures of $123 million resulted in adjusted free cash flow⁽²⁾ of $277 million.

Net sales

• Net sales decreased 14% as organic sales⁽²⁾ declined 12%, along with currency headwinds of 1% and unfavorable portfolio impact of 1%.
• Organic sales⁽²⁾ decline of 12% reflects a decrease in volume.
• Semiconductor Technologies volume down 19% resulting from reduced semiconductor fab utilization rates due to weaker end-market demand and channel inventory destocking.
• Interconnect Solutions volume down 15% due to decreased consumer electronics spending and channel inventory destocking. However, reported sales increased 7% sequentially in the second quarter. 
• Industrial Solutions volume down 2% as ongoing strength in broad-based industrial markets was more than offset by lower demand in consumer-driven displays and advanced printing applications.

Operating EBITDA

• Operating EBITDA decreased due primarily to volume declines and reduced production rates to better align inventory with demand.

Net sales

• Net sales were flat as organic sales⁽²⁾ growth of 1% was offset by a 1% currency headwind.
• Organic sales⁽²⁾ growth of 1% reflects a 5% increase in price resulting from the carryover impact of broad-based actions taken in 2022 in response to cost inflation, mostly offset by a 4% decrease in volume driven by declines in Shelter Solutions.
• Water Solutions sales up mid-teens on an organic⁽²⁾ basis on continued strong demand for water technologies, along with carryover pricing. 
• Safety Solutions sales up mid-single digits on an organic⁽²⁾ basis on carryover pricing and volume strength in aerospace, automotive and healthcare end-markets.
• Shelter Solutions sales down 12% on an organic⁽²⁾ basis driven by continued demand softness in construction markets, including channel inventory destocking, slightly offset by carryover pricing.

Operating EBITDA

• Operating EBITDA increased as net pricing benefits and disciplined cost control were partially offset by lower volumes.

"As we look at the current demand environment, we continue to expect fairly steady demand in most of our industrial-based end-markets within the E&I and W&P segments, although we expect sales moderation in our Water Solutions business due to slower demand in China," said Lori Koch, Chief Financial Officer of DuPont. "Within electronics markets, we saw sequential sales improvement in our Interconnect Solutions business during the second quarter with mid-single digit sequential sales lift expected in the third quarter. In Semiconductor Technologies, we assume sales in the second half of 2023 will improve slightly after setting an expected bottom in the second quarter. Our third quarter and revised 2023 full year guidance reflects these assumptions, as well as the estimated contribution from Spectrum beginning August 1."

Conference Call
The Company will host a live webcast of its second quarter earnings conference call with investors to discuss its results and business outlook beginning 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.

About DuPont
DuPont (NYSE: DD) is a global innovation leader with technology-based materials and solutions that help transform industries and everyday life. Our employees apply diverse science and expertise to help customers advance their best ideas and deliver essential innovations in key markets including electronics, transportation, construction, water, healthcare and worker safety. More information about the company, its businesses and solutions can be found at www.dupont.com. Investors can access information included on the Investor Relations section of the website at investors.dupont.com.

DuPont^TM 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.

Overview
Beginning in the second quarter of 2023, the Company has segregated the cash flows from discontinued operations from the cash flows from continuing operations in accordance with ASC 230, Statement of Cash Flows. The interim Consolidated Statements of Cash Flows have been recast for all periods to reflect the change in presentation.

On November 1, 2022, DuPont completed the divestiture, previously announced on February 18, 2022, of the majority of the historical Mobility & Materials segment, including the Engineering Polymers business line and select product lines within the Advanced Solutions and Performance Resins business lines (the "M&M Divestiture"), to Celanese Corporation ("Celanese"). The Company also announced on February 18, 2022, that its Board of Directors has approved the divestiture of the Delrin® acetal homopolymer (H-POM) business. In addition to the entry into definitive agreements, the Company anticipates that the closing of the sale of Delrin® would be subject to regulatory approvals and other customary closing conditions, (the "Delrin® Divestiture" and together with the M&M Divestiture, the "M&M Divestitures").

The financial position of DuPont as of June 30, 2023 and December 31, 2022 presents the assets and liabilities of the Delrin® Divestiture as discontinued operations. The results of operations for the three and six months ended June 30, 2023 present the financial results of the Delrin® Divestiture as discontinued operations. In the comparative periods, the results of operations for both the M&M Divestiture and the Delrin® Divestiture are presented as discontinued operations. For the six months ended June 30, 2023, the interim Consolidated Statements of Cash Flows present the cash flows of the Delrin® Divestiture as discontinued operations. The interim Consolidated Statements of Cash Flows for the six months ended June 30, 2022, present the cash flows from the M&M Divestitures as discontinued operations.  Unless otherwise indicated, the discussion of results, including the financial measures further discussed below, refer only to DuPont's Continuing Operations and do not include discussion of balances or activity of the M&M Divestitures.

Cautionary Statement Regarding Forward Looking Statements 
This communication contains "forward-looking statements" within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In this context, forward-looking statements often address expected future business and financial performance and financial condition, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "target," and similar expressions and variations or negatives of these words.

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) the possibility that the Company may fail to realize the anticipated benefits of the $5 billion share repurchase program announced on November 8, 2022 and that the program may be suspended, discontinued or not completed prior to its termination on June 30, 2024; (ii) risks and uncertainties related to the settlement agreement concerning PFAS liabilities reached June 2023 with plaintiff water utilities by Chemours, Corteva, EIDP and DuPont, including timing of court approval and the level of opt-outs from the settlement (iii) risks and costs related to each of the parties respective performance under and the impact of the arrangement to share future eligible PFAS costs by and between DuPont, Corteva and Chemours, including the outcome of any pending or future litigation related to PFAS or PFOA, including personal injury claims and natural resource damages claims; the extent and cost of ongoing remediation obligations and potential future remediation obligations; changes in laws and regulations applicable to PFAS chemicals; (iv) ability to achieve anticipated tax treatments in connection with mergers, acquisitions, divestitures and other portfolio changes actions and impact of changes in relevant tax and other laws; (v) indemnification of certain legacy liabilities; (vi) failure to timely close on anticipated terms (or at all), realize expected benefits and effectively manage and achieve anticipated synergies and operational efficiencies in connection with mergers, acquisitions, divestitures and other portfolio changes; (vii) risks and uncertainties, including increased costs and the ability to obtain raw materials and meet customer needs, related to operational and supply chain impacts or disruptions, which may result from, among other events, pandemics and responsive actions; timing and recovery from demand declines in consumer-facing markets, including in China; and geo-political and weather related events; (viii) ability to offset increases in cost of inputs, including raw materials, energy and logistics; (ix) risks from continuing or expanding trade disputes or restrictions, including on exports to China of U.S.-regulated products and technology impacting the semiconductor business; (x) risks, including ability to achieve, and costs associated with DuPont's sustainability strategy including the actual conduct of the company's activities and results thereof, and the development, implementation, achievement or continuation of any goal, program, policy or initiative discussed or expected; and (xi) other risks to DuPont's business, operations; each as further discussed in DuPont's most recent annual report and subsequent current and periodic reports filed with the U.S. Securities and Exchange Commission. 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.

Non-GAAP Financial Measures
Unless otherwise indicated, all financial metrics presented reflect continuing operations only.

This communication 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 12 and in the Reconciliation to Non-GAAP Measures on the Investors section of the Company's website. Non-GAAP measures included in this communication 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.

Indirect costs, such as those related to corporate and shared service functions previously allocated to the M&M Divestitures, do not meet the criteria for discontinued operations and remain reported within continuing operations. A portion of these indirect costs include costs related to activities the Company is performing post-closing of the M&M Divestiture or will perform post-close of the Delrin Divestiture and for which it is/will be reimbursed ("Future Reimbursable Indirect Costs"). Future Reimbursable Indirect Costs are reported within continuing operations but are excluded from operating EBITDA as defined below. The remaining portion of these indirect costs is not subject to future reimbursement ("Stranded Costs"). Stranded Costs are reported within continuing operations in Corporate & Other and are included within Operating EBITDA.

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 of intangibles, the after-tax impact of non-operating pension / other post employment benefits ("OPEB") credits / costs and Future Reimbursable Indirect Costs. Management estimates amortization expense in 2023 associated with intangibles to be about $605 million on a pre-tax basis, or approximately $1.00 per share.

The Company's measure of profit/loss for segment reporting purposes is Operating EBITDA as this is the manner in which the Company's chief operating decision maker ("CODM") assesses performance and allocates resources. The Company defines Operating EBITDA as earnings (i.e., "Income from continuing operations before income taxes") before interest, depreciation, amortization, non-operating pension / OPEB benefits / charges, and foreign exchange gains / losses, excluding Future Reimbursable Indirect Costs, and adjusted for significant items. Reconciliations of these measures are provided on the following pages.

Operating EBITDA Margin is defined as Operating EBITDA divided by 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.

Adjusted free cash flow is defined as cash provided by/used for operating activities from continuing operations less capital expenditures and excluding the impact of cash inflows/outflows that are unusual in nature and/or infrequent in occurrence that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business liquidity. As a result, adjusted 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 from continuing operations. Management believes adjusted 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. 

Beginning in the second quarter of 2023, the Company has segregated the cash flows from discontinued operations from the cash flows from continuing operations in accordance with ASC 230, Statement of Cash Flows. In connection with this change, the Company updated the definition of adjusted free cash flow to include only activities from continuing operations. The Company believes that excluding cash flows from discontinued operations provides the Company's investors with better visibility into the underlying businesses cash generation for ongoing businesses. Adjusted free cash flows has been recast for all periods to reflect the change in definition.

Previously, in connection with its earnings release for the third quarter of 2022, the Company updated the definition of adjusted free cash flow to exclude the impact of cash inflows/outflows that are of a certain magnitude, unusual in nature and/or infrequent in occurrence that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business liquidity. The change was driven by the estimated tax payments associated with the M&M Divestiture which meet the magnitude criterion, were unusual in nature and infrequent in occurrence and were not related to the Company's ordinary course of business or underlying business liquidity. The Company believes that excluding items of this nature provides the Company's investors with better understanding of and enables them to compare our underlying business liquidity from period to period. Similar adjustments to the 2021 measures of adjusted free cash flow were not necessary. Following the change to adjusted free cash flow from continuing operations, noted above, adjustments to exclude the impact of cash inflows/outflows that are unusual in nature and/or infrequent in occurrence that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business liquidity will be adjusted to the extent they relate to continuing operations. Management notes that for the three and six month periods ended June 30, 2023 and 2022, respectively, there were no exclusions for items that are unusual in nature and/or infrequent in occurrence.

Adjusted free cash flow conversion is defined as adjusted free cash flow from continuing operations divided by net income from continuing operations adjusted to exclude the after-tax impact of noncash impairment charges, gains or losses on divestitures and amortization expense of intangibles.

SOURCE DuPont