This summary is based on the second quarter fiscal 2008 earnings call conducted by EI DuPont de Nemours Co. (DD) on July 22, 2008.
Management:
VP of IR: Carl J. Lukach
Chairman and CEO: Charles O. Holliday, Jr.
EVP and CFO: Jeffrey L. Keefer
Group VP: James C. Borel
Key Investors Issues
- EPS were $1.18 a share compared to $1.04 a share last year.
- Net income was $1.08 billion, up from $972 million, earned in the same period last year.
- Sales reached $8.84 billion, up 12% from the prior year''s $7.86 billion.
Second Quarter Highlights
Earnings per share grew 13% to $1.18 versus prior year quarter.
- Consolidated net sales increased 12%, a positive 7% local price, 5% currency benefit, 1% increase in volume and a negative 1% due to portfolio changes.
- All segments increased sales by 8% or better. The standout was Agriculture & Nutrition posting 23% sales growth. These results were underpinned by strong global agriculture markets, price gains in crop protection products and seed holding corn share in North America and gaining share in other seed markets.
- The global sales distribution shows that 60% of sales were generated outside the U.S. U.S. sales were up 5% reflecting 9% price and 4% lower volume. The U.S. volume decline reflects lower volumes in all segments, except Ag & Nutrition.
- Sales in emerging markets continued strong and overall grew 23%. Sales in Latin America grew 19%, emerging Asia grew 23% and emerging Europe grew 27%.
- Growth in Latin America continues to be broad based, as all segments delivered solid growth.
- China sales grew 22%.
- Emerging Europe continued strong and the growth is broad based. The company had double-digit growth in Poland, Russia and Turkey.
The company achieved its 18th consecutive quarter of local price increases, which boosted earnings per share of 42 cents over last year, but not enough to cover the 51 cents impact from higher variable costs.
- The variable cost increased, adjusted for volume and currency, was 51 cents of earnings per share.
- Raw material, energy and transportation costs increased about $550 million or about 15%, which compares to 9% in the first quarter versus about 5% increase in all of 2007. The raw material increases are the result of a historic high oil and gas prices that also reflect agricultural commodity cost increases as well as tight supply for chemicals, such as sulfur, ammonia, caustic soda, coke, ore and methanol.
- In addition, variable costs and margins included a $52 million pre-tax charge on open soybean contracts.
- The company took a mark-to-market charge on open soybean contracts due to the recent run-up in soybean commodities prices.
The company is anticipating full year variable cost increases of about $2 billion pre-tax.
- Base tax rate was 22.7% versus 24.6% prior year quarter, generating 3 cents earnings per share benefit. The lower base tax rate primarily reflects one-time tax benefits and to a lesser extent, favorable geographic mix of earnings.
- The company expects the full year base tax rate to be about 25%, creating about 8 cents per share of headwind in the second half versus last year.
- The increase in fixed cost was 4 cents, excluding the impacts of currency and volume. This equates to about a $50 million pre-tax increase on a $3 billion base of fixed cost in the quarter. Fixed cost, as a percentage sales, improved by 200 basis points to 36.6%.
- Productivity programs delivered savings that largely offset inflation and growth investment. The company is on track to deliver $400 million of productivity programs in 2008, as one component of commitment to deliver $1.7 billion in fixed and variable savings between 2008 and 2010.
Strong sales performance increased accounts receivable levels, versus prior year resulting in higher net working capital at quarter end.
Capital spending is on track to be about $2 billion in 2008. This plan includes growth investments in a higher margin, higher return businesses.
- The company is raising the lower end and is narrowing full year earnings per share guidance, to a range of $3.45 to $3.55, or 5% to 8% growth in 2008. Having earned $2.49 per share in the first half, this equates with the second half guidance range of 96 cents per share to $1.06 per share, compared to $1.16 per share in last year''s second half.
- After adjusting for the absence of asset sales in last year''s second half of 4 cents and about 8 cents headwind from the higher tax rate, the company expects second half segment pre-tax operating income will be about equal to last year. This assumes lower volumes, higher ingredient costs and continued pricing of productivity gains.
Ag & Nutrition platform revenue increased $467 million, up 23% to $2.5 billion.
- The growth was across all units, with corn seed sales up 16%, soybean seed sales up 26%, crop protection sales up 21% and nutrition and health sales up 34%.
- The company expects that for the full year 2008, Pioneer seed sales will exceed $4 billion, compared to $3.3 billion last year, and platform sales will exceed $8 billion, compared to $6.8 billion last year.
- Earnings for the platform grew 18% to $504 million. This reflects strong sales growth across all products and regions, including both price and volume gains, partially offset by ongoing seed investments in R&D and sales and marketing as well as higher commodity prices.
- Growers are investing more in technology to protect their crops and maximize yields.
- For the first half, the company delivered 20% revenue and 20% earnings growth, well ahead of the 15% per year commitment.
- The company expects to deliver 20% PTOI growth for the full year 2008.
