DuPont's agriculture segment sales down 4% in Q1 2016

The first quarter Agriculture sales of DuPont was 4 percent lower as 2 percent higher local price and product mix were more than offset by a 5 percent negative currency impact and 1 percent lower volumes.

Operating earnings of $1,101 million decreased $37 million, or 3 percent, as local price and product mix gains and cost savings were more than offset by an $83 million negative currency impact, lower volumes and about a $40 million negative impact from the shutdown of the La Porte manufacturing facility primarily due to lost sales and inventory write-offs. Increased corn seed volume was more than offset by lower insecticide and soybean volumes. Excluding the impact of currency, operating earnings increased by 4 percent.

In Agriculture, the first quarter is primarily driven by the completion of the Safrinha corn season in Brazil and the beginning of the season in the northern hemisphere, with the cutoff between March and April falling at a critical time for shipping products to our customers.

Agriculture markets are as expected, with farmers facing challenging economic conditions and seed and crop protection suppliers having abundant inventories globally. DuPont is not seeing anything significantly different in market conditions from what they provided earlier this year.

Seed sales were up 1 percent and crop protection sales were down 18 percent versus last year. The results demonstrated strong execution in the first quarter in challenging market conditions. First quarter results were better than anticipated when they provided guidance in January, primarily due to higher corn area in North America, earlier timing of shipments to customers consistent with the strong start they had in the fourth quarter of 2015, and stronger sunflower sales in Europe based on the performance of newest products. Currency, while still a significant headwind compared to last year, was also a little better than anticipated.

DuPont was able to deliver 2 percent higher prices across the segment in this highly competitive market environment. In seeds, a stronger mix of Pioneer’s newest corn hybrids resulted in higher net corn price globally and importantly in North America. In crop protection, DuPont took decisive actions to mitigate a stronger U.S. dollar in Latin America and Eastern Europe, and, in fact, local pricing fully offset the impact of currency in Latin America.

Corn seed volumes were higher than the prior year from increased sales in North America where the order book and the recent USDA report indicate higher expected corn acres this year, and in Brazil’s Safrinha season. Farmer economics for corn, while tight, generally are more favorable than for soybeans in North America. Increases in corn and sunflower volume were more than offset by lower insecticide sales in Latin America and to third parties, including the impact from the shutdown of the LaPorte manufacturing facility, and from lower soybean seed volumes. Most of the decline in insecticide volumes can be tied to low pest pressure, high industry inventories and the impact of insect protected soybean varieties in Brazil.

Turning to our pipeline, as planned, DuPont made its first sales of Zorvec™ for disease control in Korea, Australia and China in the first quarter. They expect Zorvec™ to be very competitive in the $2 billion market for blight and downy mildew control offering potato, grape and vegetable growers consistent, long-lasting control with a favorable environmental profile. DuPont successfully launched Leptra® corn hybrids in Brazil in the Safrinha season and initial indications of performance are good. Leptra®’s strong value proposition is also allowing to recapture price. Strong customer interest and an aggressive seed production plan have DuPont well-positioned to ramp-up Leptra® to as much as a third of volume in the upcoming summer season, in one of the fastest technology introductions in Pioneer history. In North America soybeans, DuPont is currently introducing varieties with Roundup Ready 2 Xtend™ technology in a limited launch. Lastly, DuPont recently announced the intention to commercialize its first corn hybrids, developed through the application of CRISPR-Cas advanced breeding technology, within five years. While this is a first step, the initial CRISPR-Cas offering allows DuPont to lay a solid foundation for success for future products developed with this important innovation in plant breeding.

Outlook

DuPont now anticipate results for the year to be a little stronger than what it shared in January, primarily due to the recent weakening of the dollar against many global currencies, including the Real, and from higher corn planted area. This will be partially offset by the shift of a portion of fourth quarter 2016 seed sales to first quarter 2017. This is the result of enhancements DuPont is making to Pioneer business as it transition to an agency-based route-to-market in the southern U.S., working with retail agents, similar to the advantaged approach it takes in the Midwest. Additionally, DuPont will have some unplanned costs from the write-off and disposal of in-process inventory and to dismantle the facility as a result of recent decision regarding the LaPorte insecticide unit.

For the second quarter it expects sales to be down low-single digits percent as currency remains a headwind. Seasonal timing benefits realized through March from a strong start are expected to be offset in the second quarter. Volume gains in corn seed and in crop protection are expected to be offset by lower sales of soybean seed in the second quarter. Operating earnings are anticipated to be about flat as cost savings are offset by the negative impact of currency.

For the full year DuPont expects sales to be down low-single digits percent as local price and product mix gains are more than offset by the negative impact of currency. Higher corn seed volumes are expected to be offset by lower insecticide and soybean seed volumes. Operating earnings are anticipated to be up mid-single digits percent as cost savings and local price gains more than offset the negative impact of currency leading to improved operating margins. Excluding the impact of currency, DuPont would expect operating earnings to be up low-teens percent.