DuPont, a leading chemical company, has reported an 8% decrease in net sales in the recent quarter. This decrease was primarily due to a 3% decline in organic sales, along with 3% currency headwinds and a 2% unfavorable portfolio impact.
The decline in organic sales was largely due to a 7% decrease in volume, which was partially offset by a 4% increase in price. The lower volume was driven by decreased consumer electronics spending and channel inventory destocking, along with softness in construction end-markets. However, the company continued to see strength in areas such as water, auto adhesives, and in industrial end-markets such as aerospace and healthcare.
Water & Protection Grows While Electronics & Industrial Declines
The company’s Water & Protection segment saw a 4% organic sales growth, while Electronics & Industrial segment declined by 13%. The retained businesses reported in Corporate saw a 6% organic sales growth. DuPont’s performance in different regions also varied, with EMEA reporting a 5% organic sales growth, U.S. & Canada reporting a 1% organic sales growth, and Asia Pacific reporting a 10% organic sales decline.
GAAP Income/GAAP EPS Increases Despite Lower Segment Earnings
Despite lower segment earnings, DuPont’s GAAP income/GAAP EPS from continuing operations increased due to the absence of an asset impairment charge related to an equity method investment recorded in the prior year, lower net interest expense, and the impact of a lower share count related to the company’s accelerated share repurchase program.
Operating EBITDA Decreases Due to Inflationary Cost Pressure
DuPont’s operating EBITDA decreased primarily due to volume declines as pricing and disciplined cost control were offset by inflationary cost pressure related primarily to higher raw material costs, along with currency headwinds. The company’s adjusted EPS increased due to lower net interest expense and the impact of a lower share count related to the company’s accelerated share repurchase program, despite lower segment earnings and a higher tax rate.
Operating Cash Flow and Adjusted Free Cash Flow
DuPont’s operating cash flow in the quarter was $343 million, and capital expenditures were $241 million, resulting in an adjusted free cash flow of $102 million. However, adjusted free cash flow in the quarter includes headwinds of about $75 million for transaction costs related to the M&M Divestitures.
“We delivered earnings in line with our expectations for the first quarter of 2023 which reflects our team’s continued strong execution despite a lower volume environment in electronics and construction-related end markets,” said Ed Breen, DuPont Executive Chairman and Chief Executive Officer.
“While sales within Semiconductor Technologies and Interconnect Solutions were down during the quarter as expected, Industrial Solutions, as well as the Water & Protection segment, delivered organic sales growth and we saw continued robust demand within our auto adhesives portfolio. Our businesses are well-equipped to leverage leading market positions and accelerate growth when consumer-driven, short-cycle electronics end markets recover.”
“Today we also announced a definitive agreement to acquire Spectrum Plastics Group(3), a leading manufacturer of critical components and devices primarily into medical end-markets for highly complex, mission-critical applications,” Breen continued. “This intended acquisition adds to DuPont’s industrial technologies growth pillar and strengthens our existing position in stable and fast-growing healthcare end-markets. We expect this deal to add substantial shareholder value over time through both growth and clear synergies with our existing medical-related products.”
Outlook
“I am pleased with our team’s focus on execution as we start the year in an environment of select volume pressure with lower volumes in electronics and construction,” said Lori Koch, Chief Financial Officer of DuPont. “We continue to expect ongoing strength throughout the year in areas such as water, automotive, aerospace, and healthcare. Within electronics markets, we continue to see weakness and channel inventory destocking in the near term.”
“Based on recent customer feedback and third-party market forecasts within electronics, we expect customer utilization rates to bottom relatively near-term and to improve during the third quarter, which is about a quarter later than previously expected,” Koch continued. “Due to the delay in electronics recovery, we are adjusting the high-end of our existing guidance ranges for full-year net sales, operating EBITDA, and adjusted EPS. For the second quarter of 2023, we expect similar results to the first quarter as overall market conditions are anticipated to be generally the same.”