10-QPeriod: Q1 FY2019

EIDP, Inc. Quarterly Report for Q1 Ended Mar 31, 2019

Filed May 8, 2019For Securities:CTA-PBCTA-PA

Summary

E.I. du Pont de Nemours and Company (EIDP) reported net income of $89 million for the three months ended March 31, 2019, a significant improvement from a net loss of $221 million in the same period of 2018. This turnaround was driven by increased net sales, although the company experienced a decline in overall revenue from $6.7 billion to $6.3 billion year-over-year. The company is actively undergoing significant structural changes, having completed the separation of its materials science business into Dow Inc. on April 1, 2019, and preparing for the separation of its agriculture business into Corteva, Inc. on June 1, 2019. These separation activities are contributing to substantial integration and separation costs. Despite the ongoing restructuring, the company's financial position remains robust, with significant assets and equity, and it has taken steps to manage its debt, including the redemption of $1.53 billion in notes and the termination of its $3 billion term loan facility in April and May 2019, respectively.

Financial Highlights

42 data points
Beta

Revenue

$6.29B

32.6% Gross Margin

Net Income

$85.00M

1.4% Net Margin

Total Assets

$101.84B

Cash & Equivalents

$4.28B

Free Cash Flow

-$1.42B

Financial Statements
Beta
Revenue$6.29B
Cost of Revenue$4.24B
Gross Profit$2.05B
R&D Expenses$355.00M
SG&A Expenses$970.00M
Net Income$85.00M

Key Highlights

  • 1Net income improved to $89 million from a net loss of $221 million in the prior year's quarter.
  • 2Net sales decreased to $6.3 billion from $6.7 billion year-over-year, primarily due to volume declines in agriculture and transportation/advanced polymers, partially offset by local pricing gains.
  • 3The company completed the separation of its materials science business (Dow Inc.) on April 1, 2019, and is preparing to separate its agriculture business (Corteva, Inc.) on June 1, 2019.
  • 4Integration and separation costs were significant at $405 million for the quarter, up from $255 million in the prior year, reflecting ongoing restructuring efforts.
  • 5Total debt increased to $9.5 billion from $8.0 billion, primarily due to increased borrowings to fund seasonal working capital, capital expenditures, and distributions to DowDuPont.
  • 6The company redeemed $1.53 billion of outstanding notes in April 2019 and terminated its $3 billion term loan facility in May 2019.
  • 7Significant goodwill remains on the balance sheet, with $40.6 billion reported, primarily attributed to the agriculture and nutrition & health reporting units.

Frequently Asked Questions

The primary driver for the significant improvement in net income from a loss of $221 million to a profit of $89 million is a combination of factors including reduced cost of goods sold, partially due to lower amortization of inventory step-up, and a favorable tax benefit of $102 million related to an internal legal entity restructuring associated with the Intended Business Separations. The company also benefited from a gain on the sale of assets in the electronics and imaging product line.

The ongoing business separations, specifically the separation of the materials science business and the upcoming separation of the agriculture business, are leading to substantial 'Integration and separation costs.' These costs were $405 million in the current quarter, an increase from $255 million in the prior year, indicating significant expenses related to financial advisory, IT, legal, and consulting fees associated with preparing for these structural changes. While these separations are strategic for the company's future, they are a notable expense in the current reporting period.

The company has actively managed its debt. Total debt increased to $9.5 billion at March 31, 2019, from $8.0 billion at the end of 2018, largely due to increased borrowings to support working capital and capital expenditures. However, subsequent to the quarter, on April 22, 2019, the company redeemed $1.53 billion of outstanding notes and on May 2, 2019, terminated its $3 billion term loan facility, demonstrating a proactive approach to debt management amidst significant corporate changes.

The company reports substantial intangible assets, totaling $25.7 billion at March 31, 2019. A significant portion, $11.1 billion, is not subject to amortization, including substantial amounts for Germplasm ($6.3 billion) and Trademarks/trade names ($4.7 billion). The intangible assets subject to amortization, such as customer-related intangibles and developed technology, generate significant annual amortization expenses, which were $320 million in the quarter. These assets represent a significant portion of the company's value and future earnings potential.