DuPont's agriculture segment sales down 11% in Q4 2015

Fourth-quarter Agriculture sales of DuPont were 11 percent lower as 6 percent higher local prices were more than offset by a 16 percent negative currency impact. The segment had a 1 percent negative impact from portfolio actions. Seed sales were 2 percent higher, and crop protection sales were down 24 percent versus last year.

An operating loss of $54 million resulted in $188 million lower operating earnings as increases in local price and cost reductions and continued productivity improvements were more than offset by a $139 million negative currency impact and about a $30 million negative impact from the continued shutdown of the LaPorte manufacturing facility. Prior year results benefitted from a timing impact from performance-based compensation adjustments and $36 million in gains from portfolio actions. Excluding the impact of currency, the segment would have reported operating earnings of $85 million.

Greg Friedman, Vice President of Investor Relations, commented the sales performance as below in the DuPont Fourth Quarter 2015 Conference Call:

In our Agriculture segment, fourth-quarter sales are largely driven by the summer and Safrinha seasons in Latin America and the beginning of shipments to customers in the northern hemisphere in advance of the 2016 planting season. Continued challenging conditions in agriculture markets were compounded by strong currency headwinds, particularly from a weaker Brazilian Real.

Higher corn seed volumes from a strong start to the North America season and a shift in seasonal timing in Brazil (which benefited the fourth quarter versus the third quarter) were offset by lower crop protection volumes. Low expected insect pressure, the adoption of insect-protected soybean varieties, higher inventories and a challenging macro environment have softened the demand for insect control products, where we have a strong market position. Insect control volumes continue to be impacted by the shutdown of the LaPorte manufacturing facility.

An operating loss of $54 million resulted in $188 million lower operating earnings as increases in local price and cost reductions and continued productivity were more than offset by a $139 million negative currency impact and about a $30 million negative impact from the continued shutdown of the LaPorte manufacturing facility. Prior-year results benefitted from a timing impact from performance-based compensation adjustments and $36 million in gains from portfolio actions. Excluding the impact of currency, the segment would have reported operating earnings of $85 million.

For the full year, sales decreased 13 percent as higher local prices were more than offset by a 9 percent negative impact of currency, and lower seed and crop protection volumes. Operating earnings were 30 percent lower as the decrease in sales as partially offset by cost reductions and productivity improvements. Excluding the impact of currency, the segment would have reported about 5 percent lower operating earnings.

Outlook

Farmer net returns for row crops continue to trend down as land and rent prices have lagged the transition to lower commodity prices while grain stocks remain at elevated levels. We expect the economic environment in the agriculture sector to remain challenged with commodity prices at the low end of normal until demand accelerates or there is a disruption in global production. Volatile currency markets will also continue to present headwinds given the size of our businesses in Europe and Latin America. As farmers look to relative economics between crop alternatives, we expect a slight year-over-year uptick in Brazil Safrinha and North America corn area, provided weather cooperates during planting. Our order book in North America suggests a modest improvement in corn demand at the expense of soybeans in a highly competitive seed market. In crop protection, continued weak demand for foliar-applied insecticides in Brazil and elevated distributor inventories will continue to present challenges.

For the first half of 2016, which reflects the majority of the northern hemisphere season, we expect Agriculture segment sales to be mid-single digits percent lower with operating earnings low-teens percent below 2015 as local price gains and the benefit of cost actions are more than offset by lower insecticide and soybean volumes and currency. Our volume forecast includes a continued impact from the shutdown of the LaPorte manufacturing facility. Volumes will be more challenged in the first quarter due to the strong start in North America corn seed, which benefited the fourth quarter of 2015 and a larger first-quarter impact in Brazil crop protection. We expect first quarter sales to be about ten percent lower and operating earnings in the low-twenty percent range below 2015.

For the full year we expect sales to be down mid-single digits percent and operating earnings about flat as local price gains and cost actions are offset by currency headwinds and lower volumes. Excluding the impact of currency, we would expect operating earnings to be up about 10 percent.

While markets remain challenging, we are confident in the long-term growth in demand for agricultural products and in our pipeline of new genetics, unique trait combinations and innovative crop protection solutions coming from our focused investments in R&D. We are taking disciplined actions to streamline our cost structure and further focus our investments on the highest growth opportunities, building upon the work we began back in 2014. These actions better position DuPont Agriculture for the current challenging environment and will allow us to emerge stronger when markets improve.

In Brazil we have successfully launched Leptra®corn hybrids for the Safrinha season. Production plans for Leptra®are on track for one of the fastest technology ramp-ups in Pioneer history in the summer season. In North America, we held corn market share in 2015 during one of the most competitive sales seasons in recent history. Our two newest classes of genetics demonstrated strong harvest performance and are expected to comprise over half of our North America corn sales volume in 2016. Qrome™ corn products continue to progress well toward commercialization. We will expand testing this coming summer in our IMPACT™ trials, as we await final import approvals in key markets. While we did lose between one and two points of North America market share in soybeans, we are very excited about the improved yield performance growers experienced last fall from our newest classes of T Series soybean. T Series will represent about 80 percent of 2016 soybean volume as we continue meaningful progress in our soybean transition. We also have a strong portfolio of herbicide options for soybean growers, including varieties tolerant to glyphosate, glufosinate, and our proprietary BOLT™ technology; we also are currently taking pre-orders for Roundup Ready 2 Xtend™ technology, pending regulatory approvals. In crop protection we continue to receive registrations of Cyazypyr® insecticide in additional countries and are preparing for new launches of Zorvec™ fungicide and Pyraxalt™ insecticide for rice, pending regulatory approvals. Finally, while Rynaxypyr® sales declined in 2015 in Latin America, it remains the foundation of our insect-control lineup with good growth opportunities in additional crops and countries and from the expansion of seed treatment offerings like Lumivia® in corn.