DuPont de Nemours, Inc.

Please stand by as we're about to begin. Good day and welcome to the Dow-Dupont First Quarter Earnings Call. At this time I would like to turn the conference over to Lori Koch. Please go ahead ma'am.

Good morning everyone. Thank you for joining us for Dow-Dupont First Quarter 2019 Earnings Conference Call. We are making this call available to investors and media via Webcast. We have prepared slides to supplement our comments during this conference call. These slides are posted on the investor relations section of Dow-Dupont's website and through the link to our Webcast. Speaking on the call today are Ed Green, Chief Executive Officer, Jim Collins and Mark Doyle, Chief Operating Officers for Dow-Dupont's Agriculture and Specialty Products Division, and myself and Megan Britt, who will lead IR for Dupont and Corteva. In addition, Jean Desmond and Greg Friedman, CFO-elects for Dupont and Corteva, will join in the Q&A session. Please read the forward-looking statement disclaimer contained in the news release and slides. During our call, we will make forward-looking statements regarding our expectations or predictions of alpha future. Because these statements are based on current assumptions and factors that involve risk and uncertainty, our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K and Dupont's Form 10-K, as well as Corteva's Form 10, include detailed risks and uncertainties which may cause such differences. Also, we will comment on segment results on a divisional basis, so please take note of the divisional disclaimer in our earnings release and slides. Unless otherwise specified, all historical financial measures presented today exclude significant items. We will also refer to non-GAP measures. A reconciliation to the most directly comparable GAP financial measure and other associate disclosure are contained in our earnings release and on our website. Before I turn it over to Ed, I'd like to remind you that our comments will be primarily related to the future Dupont and Corteva companies. DAAL will be holding their own call starting at 9 a.m. this morning. I will now turn the call over to Ed.

Thanks, Lori, and good morning, everyone. Today we reported the final quarter results for DAAL-Dupont. Our teams aggressively managed the levers within their control to deliver results in line with our revised expectations. They addressed challenges including unprecedented bad weather, currency fluctuations, and macro factors driving difficult conditions in select markets. This demonstrates the ability of each of our businesses to respond effectively to challenges due to their market alignment, rigorous cost control, and emphasis on innovative products that enable disciplined pricing and margin expansion. Our teams also stayed focused on our longer-term goals and accomplished several important milestones in the quarter. We completed the first phase of our commitment to grade three transformative companies, each leaders in the markets they serve. As you know, we spun the DAAL business on April 1st, and they are off to a great start. And we're in the final phases of the separation of Dupont and Corteva. We have finalized all the board seats for both DAAL and Dupont and have one remaining spot to fill for Corteva. Their respective boards provide them with a strong and diverse set of members that will ensure a continued dedication to driving high returns. Over the next few weeks, we intend to complete the final milestones leading up to the June 1 separation, including filing the final Form 10 for Corteva and holding a shareholder meeting to approve a reverse split of DAAL-Dupont shares. Additionally, we completed the 3 billion share buyback program, bringing total share buyback under DAAL-Dupont to $7 billion. I am truly amazed when I think back of what has been accomplished and the value that stands to be created from these leading organizations. Each one has demonstrated a shareholder value mindset. I couldn't be more excited about the future of these three companies, and I look forward to their ability to continue to deliver against their commitments and drive shareholder returns. Moving to slide 3, I'll now touch on the first quarter results and my view of the macro environment before turning it over to Mark to discuss the results for new Dupont. For total DAAL-Dupont, we delivered revenue of $19.6 billion, down 9% versus prior year, an adjusted EPS of 84 cents, a -over-year decline of 25%, driven primarily by margin pressure and DAAL business weather-related impacts in Corteva and the effects of slowing auto and smartphone markets in Dupont, which more than offset the benefits of cost energies and pricing strain in Dupont and Corteva. We continue to have confidence that the global economy will grow in 2019, and we are at a slower pace than 2018. Regionally, we continue to keep an eye on all markets, but are keeping closer watch on China and Europe. China has started to stimulate, which should help increase their consumer spending and spur the recovery expected in the second half, in addition to an expected tariff resolution. We are also encouraged by the increase in consumer lending. Additionally, the large export market from Europe into China, any green shoot should induce favorable economic activity in Europe. In agriculture, we expect to overcome the weather-related effects of reduced planted acres, acreage shift, and continued delays in the start of the planting season through our focus on higher sales of new and high-value products, accelerated cost-energy delivery, and continuous productivity efforts. Each new company will be benchmarking against -in-class peers. After working closely with these teams over the past three years, I am confident you can expect them to manage aggressively to deliver against those targets. With that, I'll now turn it over to Mark.

Thanks, Ed. Turning to slide four, heading into the quarter, we spoke about the weakness we were seeing in about 25% of our portfolio, primarily encompassing our auto and smart phone businesses. In general, these markets performed as we expected. The rest of our portfolio in total was also aligned with expectations with stronger results in our industrial businesses within safety and construction, offsetting weakness in North America energy markets, negatively impacting our industrial biosciences business. All in, I'm pleased with how the businesses are navigating this period of soft demand and inventory de-stocking in a few of our end markets, with a commitment to staying focused on the levers within our control, specifically price, aggressive cost management, as well as plant productivity actions which are starting to show up in our results. Our emphasis on value-added innovation supported continued disciplined pricing actions. Together with our diverse portfolio, this enabled us to meet our sales commitment for the quarter and exceed our expectations on earnings, driving a 3% increase in the quarter, excluding currency. We continued to deliver on our synergy plans to enable sustained earnings growth and strong operating leverage. As anticipated, we did see raw material and freight cost headwinds in the quarter, primarily from escalation in 2018, which we were mostly able to offset with pricing gains. These actions enabled us to expand gross margins by 20 basis points and operating EBITDA margins by 90 basis points, bringing our operating EBITDA margin to 30% for the quarter. Turning now to the segments on slide five, let me begin with electronics and imaging. Organic sales declined 6%, driven primarily by soft smartphone demand and de-stocking, which impacted both interconnect solutions and semiconductor technologies, and by lower sales and photovoltaics. In total, smartphones comprise approximately 25% of the E&I sales, and while we sell to all smartphone providers, our portfolio is more exposed to premium models, which are anticipated to have declined in the high teens for the quarter. We continue to expect a rebound in the second half, driven by the seasonal introduction of new models with upgraded features and offerings, including higher penetration of OLED screens and initial models with 5G capability, both benefiting our sales. We anticipate lapping the PV weakness this quarter, resulting from the May 2018 reduction of China FIT incentives. Photovoltaic sales comprise approximately 15% of the segment. A bright spot in the portfolio continues to be display technologies, which again posted double-digit volume growth, driven by strong demand in China for OLED materials. Operating EBITDA for the segment decreased 3% from the year-ago period, as the gain on an asset sale and cost synergies were more than offset by lower volumes, higher raw material and freight costs, and lower equity affiliate income. Moving to nutrition and biosciences, organic sales were flat, as the 2% gain in local price was offset by volume declines of 2%. Our nutrition and health business continues to perform well, with organic growth in line with our medium-term expectations of 3 to 5%. This portfolio of businesses in the food and beverage, health, and pharma end markets addresses several strong mega trends, including healthy living as well as a growing and aging population. Our probiotics expansion is complete, with the additional capacity now online, which will support the double-digit probiotics growth we expect for the year. Demand for our industrial biosciences products was down in the quarter, primarily driven by a challenging North America energy market, impacting both bioethanol, enzyme sales, and microbial control, which comprise approximately 25% of IB sales. Operating EBITDA for the segment was down 7% versus prior year, as cost synergies, higher local price, and increased volume in N and H was more than offset by lower IB volumes, higher raw material costs, and currency headwinds. Within transportation and advanced polymers, organic sales were down 2% from the year-ago period, with growth in the U.S. and Canada and EMEA being more than offset by declines in Asia Pacific, primarily in China. We continue to feel the effects of lower auto builds and inventory de-stocking, and expect a similar environment in 2Q. Beyond automotive, segment sales were also impacted by weakness in the electronics space, which accounts for nearly 20% of TNAP's revenue. Despite our expectations of sequential flat volumes in 2Q, we anticipate a stronger recovery will take place in the second half of the year. Lower inventory levels and an expected tariff resolution paired with China stimulus packages are potential catalysts to reignite growth. Looking ahead, we continue to be excited about the longer-term growth opportunity from light weighting and the electrification of vehicles, and our portfolio is well positioned to deliver the second half growth as markets recover. I continue to be very pleased with the pricing strength in our TNAP portfolio, which has enabled us to minimize the earnings impact of the market-driven volume declines we have been experiencing. Local price increased 7% and improved in all regions, led by Asia Pacific and the EMEA. Operating EBITDA for the segment was down 5%, as higher local price and cost synergies were more than offset by lower volume, higher raw material costs, and currency headwinds. Safety and construction organic sales for the quarter increased 8%, driven equally by local price gains and higher volumes on broad-based demand. Volume gains of 4% were driven by continued strength across industrial, life and personal protection, and medical and market. These gains resulted in stronger growth in the water solutions business, Tyvek protective garments, and Kevlar high-strength materials, which more than offset continued softness in North America residential construction demand. Volume increased in all regions. This was the fourth consecutive quarter of mid- to -single-digit organic growth for the business. Over this same period, the safety and construction segment has improved operating EBITDA margins nearly 400 basis points, driven by strong volume and price growth on the top line, synergy delivery, manufacturing productivity, as well as portfolio actions, which alone have lifted the operating EBITDA margins of the segment by nearly 100 basis points. Operating EBITDA for the segment was up 16% from the year-ago period, as cost synergies higher local price and increased volumes more than offset raw material and currency headwinds. Moving to slide six, we have been very transparent about our intent to divest about 10% of our current portfolio and have made great progress already on that front. This aspect of our commitment to aggressive portfolio management allows us to remain focused on aligning our portfolio with attractive high-growth market opportunities. Consistent with this, today we are announcing the creation of a new external non-core reporting segment, which will include the following businesses, photovoltaics and advanced materials, including the Hemlock Joint Venture, clean technologies, bio materials, the DuPont-Tasian Films Joint Venture, and sustainable solutions. As you may recall, sustainable solutions and Tasian Films were previously identified for sale. We will consider the full range of strategic options for these businesses with the best interests of shareholders and key stakeholders in mind. We're confident that this new structure will enable us to intensify the impact of our innovation on growth, while also bringing more visibility to the underlying performance of our core businesses. This new segment accounts for about $2 billion of revenue and half a billion of operating EBITDA in 2019. For financial reporting purposes, the new segment will be effective as of Q2 2019, and pro forma financial information will be available in June. Turning to slide seven, earlier Ed provided a perspective on our view of macroeconomic conditions for the balance of the year. Let me give some additional color on what that means for our second quarter and full year guidance. For the coming quarter, we expect market conditions to be consistent with what we saw in the first quarter. However, we have now started to laugh at the price increases we've been driving in TNAP, and therefore don't expect as favorable pricing year over year in that segment. For specialty products in the quarter, we expect net sales and operating EBITDA each to be down mid-single digits and low single digits excluding currency and portfolio impact, a result similar to the first quarter if you exclude the asset sale within the E&I segment. When we entered the year, we expected the impact of inventory destocking in the auto and smartphone markets to play out over the first half. Given this dynamic and our commitment to delivering strong earnings leverage on sales, we've taken an aggressive stance to controlling our spending. This enabled stronger operating EBITDA performance as compared to our top-line results in the first quarter. We expect the same for the second quarter. This internal commitment to cost control will set us up well when our end markets rebound. Turning to the second half, third-party market data for auto builds and smartphone sales continues to point to a rebound, resulting in global auto build growth of 4 percent and global smartphone shipments of up 2 percent. We believe we're well positioned to capitalize on this recovery, and today we're confirming our full year guidance of up 2 to 3 percent for organic top-line growth and up 3 to 5 percent for adjusted operating EBITDA. In the appendix, we're providing segment-level sales and operating EBITDA guidance. It's important to note that this guidance is on an as-is division-level reporting basis and does not reflect our standalone reporting structure, including the new non-core segment or the additional costs that we intend to include in the segments as a standalone company. We'll provide more details of our 2019 standalone guidance in June shortly after the separation of Corteva. With that, I'll turn it over to Jim.

Thanks, Mark. Turning to slide 8, net sales decreased 11 percent as lower volume and unfavorable currency more than offset local price improvement. First quarter volumes was impacted by severe weather-related conditions in significant growing regions in the United States. March flooding in the Midwestern U.S. and generally cool, wet conditions in the region overall disrupted farming operations, delaying U.S. seed deliveries in the second quarter and preventing early season crop protection applications. Daily U.S. seed deliveries for late March into April are illustrated in the chart in the bottom right-hand corner. As we reported in the April 18th announcement, less than 50 percent of the planned seed deliveries in the last five days of the quarter occurred, resulting in a greater than anticipated weather impact on the first quarter performance. Now, this chart also shows that U.S. corn seed deliveries are now back on track with the 2018 pace. And remember, our business model of direct delivery to farmers means we recognize most of our revenue when we deliver to the grower, not when shipped to a retailer or distributor like our competitors. Operating EBITDA decreased 25 percent for the quarter, driven by the weather-related volume declines, higher input costs, and currency headwinds, which more than offset cost synergies. So turning to slide nine, you can clearly see the effect of weather on the U.S. corn belt. However, you can also see that we are driving growth elsewhere. Our teams in Europe, Middle East, and Africa delivered organic growth of 8 percent, showing growth in both crop protection and seeds. Crop protection new products such as Jorvec fungicides, Aralex herbicides, are being well received by farmers in the region, coupled with strong growth in other insecticides such as the spinosans and isoplast. Our seed business also drove strong corn volumes across the region. Latin America delivered organic growth of 7 percent, led by crop protection. Seed volumes in Latin America were lower due to the early start to the soffrinia season, moving seed sales from the first quarter of 2019 into the fourth quarter of 2018. However, we are seeing our market share grow as a result of the introduction of our new Bravant seed brand into the retail channel, as well as the growth in our direct channel. Crop protection in Latin America delivered growth of 12 percent and organic growth of 23 percent, led by insecticides. Asia Pacific delivered organic growth of 14 percent. Strong growth in seed was coupled with crop protection solutions. Insecticides like spinosans and paraxals. Warm weather also enabled seed growth with strong corn sales in Asia Pacific in the first quarter. Now outside of the corn belt within the United States, we continue to expect growth. For example, we executed a change in route to market in the Pacific Northwest from just retail and distribution to add our direct to farmer model. This shifted seed deliveries into the second quarter, but we expect to drive overall volume growth for the half. Our brand rationalization implementation is also on plan, with customer retention rates higher than we anticipated. With a more focused brand approach throughout the U.S., we are poised for growth. We expect much of the first quarter volumes to shift into the second quarter. The USDA planted area expectations indicate that corn will be up 4 percent. However, this estimate preceded the most significant weather events, and we could see some reductions. Our guidance also accounts for an expected compressed planting window, so there is a risk that that acreage will shift into less profitable crops, including shorter maturity corn. Turning to slide 10, these challenges will result in a lower first half with our operating EBITDA guidance 3 to 5 percent lower than the same period last year. However, with solid growth in the other areas of the United States as well as Canada, coupled with the growth we are seeing in Europe, Latin America, and Asia Pacific, we expect to exceed our original expectations for sales in the second half. In addition, we are accelerating synergies and have taken incremental productivity actions to reduce costs. This gives me confidence to maintain our full year guidance of about $2.8 billion. We are delivering on everything we can control and anticipating and reacting quickly to market conditions outside of our control. We continue to execute on our plan to create shareholder value. We will continue to talk more about our plan, including instilling a culture of continuous productivity, continuing to drive towards a best in class cost structure. Now, proof points that our strategy is working include, first, we are delivering innovative market-driven solutions proven by strong demand for our insecticides in Asia Pacific and the execution of our enlist licensing agreements. Next, we are delivering above market growth as illustrated by our market share gains in corn in Latin America. And third, we are delivering above market growth through our unique routes to market, delivering our innovative solutions to expanded, unique channels with our pioneer brand as well as our new Bravant brand. I can feel the excitement in our team to launch Corteva Agriscience on June 1, a pure play for the independent ag company. Corteva is well positioned to drive above market growth through its industry-leading product pipeline and its rigorous approach to innovation and operating discipline. So I'll now turn it over to Megan to open up the Q&A.

Thank you, Jim. With that, let's move on to your questions. First, I would like to remind you that our forward-looking statements apply to both our preparator marks and the following Q&A. Operator, please provide the Q&A instructions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. Our first question is from Vincent Andrews with Morgan Stanley.

Thank you, and good morning, everyone. Ed or Mark, could you clarify within DuPont what your expectations are in the second half in terms of a tariff resolution and how reliant your forecast is on the timing of that, as well as improvement in the Chinese economy, spilling out of the US economy, and the Chinese economy? Spilling over into improvement in the EU economy, just some fence posts around what's in the back half number so that we can follow along would be helpful.

Yeah, Vincent, by the way, just a few points, things that we've been watching. Tariff obviously would be nice to resolve that, which would play out very nicely over the next few years for us in China, because I'm a big believer that consumer confidence was hit pretty bad by that issue. That was one of the issues. But we've been tracking the areas that we were weak in our portfolio with smartphones and auto builds, mainly China-related, which is about 20 percent of the portfolio. And we've been tracking the inventory levels all very closely through the OEMs and all that in China, and we've seen a pretty drastic drop in inventory levels in China, almost back to normal levels, not quite yet, but almost there. So we've been going through this de-stocking phase, and we're seeing that normalized to where it should be. So I think that will play out still through the second quarter. It will still be kind of flat. We should, as we're exiting the second quarter, I would think by what we're seeing from an inventory standpoint, that will pick up. And by the way, I don't look at all third parties and believe the data, but it looks like auto builds will grow in the second half globally a little bit, and smartphones will grow a couple percent also. The interesting thing when you look at our European numbers, just to give you another data point, the weakness that we have in Europe is almost all related to the weakness in China. So as China improves, I think our numbers specifically in Germany and all because of autos and all that will also improve. So that's the data points we're looking at. If the tariffs resolve, I think consumer confidence builds. But, you know, look, the other things in China I think are important. I think they eased up on some lending standards over the last few months. It looks like there might be a stimulus just related to auto that is coming along, you know, in the near future. And obviously there's been a lot of stimulus besides the lending standards being. So I think a lot of things have happened. We're going to start seeing it in the second half of the year, and we'll get, you know, some recovery there. Pass that, by the way, just to give you a perspective. You know, 75 percent of our portfolio is just running along just like it has the last few years. All the industrial businesses performed well. You can see it in our S&C numbers. Nutrition and health performed exactly where we thought it would. So it's really this isolated issue to China. And the green shoots look like they're now there. And tariffs will certainly help that.

And, Jim, if I could ask you on African swine flu, you know, maybe it's too early for there to be a material impact. But how do you see that playing out for Corteva over the coming quarters and next year?

Yeah, great, Vincent. We are watching that very, very closely. You know, in addition to some of the trade issues you were asking, Ed, about clearly, you know, the flow of grain and anything that affects demand for that grain will put downward pressure on commodity prices. So, you know, anything that will cause this glut of soybeans to take maybe more than one or two years to accelerate will kind of pull back on soy prices. For us, you know, we'll watch it. We'll see what it will have an effect on corn prices and longer term, 2020 plus, you know, it could be a little bit positive for us as we see some acres shift out of soy and move back towards corn. So, yeah, we're watching that. I think for the U.S. hog producer, you're already seeing a response in hog prices as global demand for hog shipments, meat shipments is going up. And that could help at an at-farm level. A lot of the growers we deal with are integrated growers that are producing corn and beans. They have either whole hog or cattle operations. And so, you know, anything that could help net farm income would be a positive for the U.S. grower. And we don't see much of an impact in China as a lot of the feed for those animals is imported from either Latin America or U.S.

Thanks so much.

Our next question comes from with JPMorgan Joseph Kakas.

Thanks very much. The specialty products company will be a new company in June and you've got four primary segments. So, if you had acquisitions that were equally attractive, but you could only do one, you know, in which division would you do it? That is, what's the essence of specialty products or which two divisions are the essence of it and which ones are more peripheral?

Yeah. Hi, Jeff. It's Mark. I'll take that one and Ed can follow on. I mean, you know, for us with respect to M&A, I mean, we've said that we want to be real cautious with respect to ROIC. And we're looking for at most sort of bolt-on strategic acquisitions. So, it's really about the strategic connection to the growth themes that really cut across the portfolio. You know, spaces like microbiome, probiotics, automotive electrification, you know, those types of heavy growth, sort of secular growth areas would be where we'd be looking for bolt-on capabilities. It's not so much one or the other of the reporting segments that we tend to follow on. But I'd say the bottom line is, you know, we're looking to be making really good investment decisions with respect to our cash. And so, you know, it would have to be a really nice deal in terms of strategic fit and financial returns for us to jump.

Yeah. I mean, the only thing I would add to that, and Mark, you know, that we're looking, where's the secular growth trends, as Mark said? And we're looking at that more than we are which business it would be. You know, we want the higher growth area. But what I would add with Mark and I and Gene and the team have been really looking at is when we do an acquisition, we really want the returns to work on the cost synergies we would get on the deal, even though we're strategically buying it for the growth and secular opportunity. And the growth part of it would be our, you know, truly upside to the modeling we would do when we present it to our board of directors. So I'm a big believer, make the numbers work on the cost synergies that are totally within our control. And, you know, we'll get the upside by doing the right thing strategically

on the growth side.

And as a reminder, please limit your questions to one question. We'll move to our next caller, David Feglitter with Deutsche Bank.

Thank you. Good morning. Ed, on the non-course segment, what is the timeline for realizing the value of these businesses and how would you expect the user proceeds from any asset sales that might occur here?

Well, look, I make a couple points on it. And number one, we're not in any fire sale mode here. We're going to take our time. We're going to do the right thing for our shareholders. These are good assets. I would say if I just gave you one word, the way I feel about it, they're more volatile assets than I would want in our portfolio. So Mark and the team have really gone through that. That's not the only reason, by the way, but I, you know, they are really volatile, but they're great businesses for someone to own. So we want to get the right price out of them. I hope we make a lot of progress over the next year, but I'll give you one example. It's not totally clean to just do it all right away. And one of them would be the Hemlock JV, just to give you an example, because we have partners there. So we've got to work our way through some, you know, interesting issues there. But, you know, we will move expeditiously, but get the right price and make sure we take our time so that, you know, nothing has to happen overnight. But I would add what's key to it is these businesses are going to actually have more focus on them because we put a very senior, talented gentleman, John Kemp, in charge of them with the right finance leaders and all, going to really focus on driving up the returns of these businesses during this interim period. So I'm really happy we've got that focus on these businesses.

And I guess in terms of proceeds, I would say we would really be in line with our financial policy. So, you know, we've talked about that before. We're going to fund internal investments. We'll do both on M&A, where it makes sense, and otherwise we're going to return cash to shareholders.

Yeah, we're not going to sit on cash for long periods of time if we have it.

Our next question comes from Steve Byrne with Bank of America.

Hi, thank you. So it's just, what was the 2018 EBITDA of that $2 billion of sales that's now in Encore? And perhaps, Mark, you could comment on whether you're seeing any traction yet on the revenue side or market share side in your segments from having a much more diverse product portfolio now than you had as a legacy DuPont platform.

Yeah, thanks, Steve. Just to answer the question on the earnings, it was about $700 round about last year. And the delta there is really the Hemlock equity earnings and the big settlement that we had last year and the Hemlock JV. And so that's where we get to about $500 this year. In terms of traction on the revenue side, we are continuing to drive the growth synergies that we talked about a couple of times now across the portfolio. And I'd say it's a little early to quantify it, but I do think it's making a material difference. We ran into the downturn here in the automotive and electronics markets, and I think we mitigated a lot of that because, as Ed said earlier, the rest of the portfolio has continued to perform well. And so versus maybe previous market downturns, I think we're managing the cycles a little bit better now. But hopefully we'll tell you a little bit more about some of the areas of new growth as we go forward. I think

also, Steve, just to Mark's point, we're very focused on the things we can control in the P&L. And I think this quarter with basically zero organic growth, we had plus three on price, minus three on volume, so we kind of came out zero on organic. We had the leverage we wanted through the P&L. By the way, our gross margins were up 20 basis points. Our EBITDA margins were up 90 basis points. So I think as a management team, they did a nice job performing in a little bit of a tougher revenue environment, which we know we're going to come out of here in another

quarter.

And from Bernstein, we'll hear from Jonas Ockard.

Morning, guys. Good morning, Jonas. So in Q4 earnings, you guided the specialty earnings down mid-single digits, or mid-single percent. Now you have flat. So my math says that's about a $50 million improvement, what you used to think. Most of the other companies in the space, they've reported that the quarter seemed to improve in March, which seems to fit with your experience here. But you're leaving the annual guidance unchanged, and second guidance is, well, same as first. So how should I align these two? It feels like opposite statements.

Well, Jonas, let me just high level. I mean, we beat the number that we guided to by literally $25 million. I think you guys on average were a little – the gap was a little bit bigger, $70 million, $80 million, or somewhere in that zip code, and it's on a $6 billion base. So there's no reason for us to change anything at this point in time. We feel like we had a solid quarter again relative to the revenue softness that we had. And we'll see how we perform through the second quarter. We did guide flat, and we're expecting to see signs as we go through the second quarter that we'll start to see some orders on the smartphone side and on the auto side start to pick up to help us in the third and fourth quarter again. We're tracking inventory levels. We're watching all that. So I mean, I hate to say this to me as a rounding error at this point in time, and I wouldn't change the guidance that we gave for the year.

And next we'll hear from Christopher Parkinson with Credit Space.

Thank you. So just as a tangent to Jess' question, what are the two to three other primary platforms you plan to organically invest in? Can you just re-brief us on the key secular themes that you find particularly attractive? And then obviously you've already added probiotic capacity and some other subcomponents of N and H or N and B, excuse me. But what are the other key opportunities which fit your future targeted profile in these businesses? Thanks.

Yes, Mark, I'll take that, Chris. I mean, there's a couple of big themes. The big themes are, as you said, sort of probiotics, microbiome. We've talked about pretty well in terms of the investments we've made there. And we're looking at both capital investments, significant R&D investments. We announced a partnership with Lanza around the HMO space, which is a prebiotic. We're continuing to make some minority equity investments and startups. We've got some university partnerships. We talked about last quarter, so a lot of activity around that whole space. Auto electrification, I'd say the broader space of smart everything, smart homes, as an example, smart cities. Industrial electrification is a big area which connects a couple of our industrial businesses. In fact, it kind of connects TNAP with ENI and with SNC. And we're making there both capital investments and products. We announced this past quarter an investment in Kapton capacity, which is playing into 5G, which is the connectivity space. And we're making a significant R&D investment. We announced the opening of another innovation center last quarter, too, in that space. And then the only other area I'd mention is we do like the medical devices, healthcare space. And it's smaller for us in terms of the total revenue impact. If you think of probiotics, microbiome as several hundred million dollars, and if you think of the auto electrification as closing in on a billion, health and medical is less than half a billion. But we see that as an attractive space. Maybe one more thing I'll mention also is our water segment, which is reverse osmosis membranes and ion exchange resins and microfiltration. And that segment was up about mid-teens here in the first quarter. We've made a number of incremental capacity expansions there. And so we're doubling down there on our production capability around the world. We had opened up the new RO facility in Saudi Arabia in Sadar last year. And we're seeing really good long-term growth dynamics in the whole water sort of environmental cleanup space. So those are some of the biggest themes.

And next from Citi, we'll hear from PJ Duvicar.

Yes, hi. Good morning.

Morning, PJ.

You know, your seed pricing was flat in the U.S. and was up everywhere else. And that was better than last couple of years when your competitors were going for market share. So can you tell us what has happened to sort of the competitive dynamic on price versus volume in seeds? Thank you.

Yeah, thanks, PJ. So you're right, focusing that pricing first on North America and particularly the U.S. You know, it just really starts with just a tough farm environment. We've talked about low net farm income. And, you know, we're out pricing our products for the value that they deliver, but we're also responsive to the market environment that we're out there pricing into. So we went out with kind of a flat pricing card. And, you know, as always, in any competitive market, you know, there's lots of challenges and it's a lot of competition out there. But we feel good about where we're sitting right now today, and that's kind of showing up in our results. Now, we see a mix effect as our new products really do drive a higher mix where we are pricing for that extra yield and sharing some of that back with the grower. At the same time, you do have these competitive challenges. You highlighted the rest of the world in places like Latin America and Asia. We've done a real nice job of pricing out ahead of the currency effects that we see in those markets. So we essentially covered currency in Asia and we about covered it in Latin America. So I feel good about the way the teams are executing there. You know, the euro was just such a huge drag. We weren't really able to catch that at this point because a lot of the other competitors are pricing in local currency there as well. But, you know, you step back from that, we feel good about share in all of these markets. And so, yeah, I think you've called it pretty well. It's pretty isolated, flattish in North America. It's mostly seed and it's related to the market that we're operating in.

And our next question comes from Frank Mitch with Ferium Research.

Hey, good morning, folks. Mr. Collins, long time no see. As I look at, I like the slide number eight, you know, and you show us how the corn seeds are tracking right on top of 2018 for 2Q. And if I look at your first half guidance, you know, there is an expectation that sales and EBITDA are going to grow kind of in single digits, maybe even a little bit better on the EBITDA side. So corn seed is kind of in line with 2018. How should we think about the drivers to get to the increase year over year for Corteva?

Yeah, Frank, thanks. So you're right. As we're kind of projecting out through the full year, that second half already had a pretty strong plan. You know, we had about $200 million of, greater than $200 million of EBITDA growth already baked into that plan. And that's that new product pipeline that we've been talking about, but also the synergy flow through. And, you know, things like Aralex cereal herbicides had a great start globally. Brasaria and Asian soy rust in Brazil and Zorbeck fungicides both continue to just be stellar. And then as we're now really beginning to see the effects of both isoclasts on the insecticides and Lumicina on seed treatment. So as we think about now that new view of the second half, the new guidance really only adds about $80 million of additional EBITDA. And that's partly due to this pipeline again coming in even better than we had in the original plan. And that's a couple of additional star players. Rinscore in rice, which is a heavy second half Asia Pacific piece. And Paraxel, which is that brown planhopper product that we've been talking about. You know, it's really showing now nice growth ahead of the plan. And that's a very Asia Pacific rice oriented product. And then we're seeing some pricing opportunities. We have a few products that are incredibly high demand. And really, you know, we're having trouble supplying all the demand for those. So we're taking a fresh look at the pricing there for the value that we're delivering. And then, you know, some of our synergies that we've been really looking at finding a way to accelerate those synergies out of 2020 into the second half of 2019. And that's helping contribute to that upside in EBITDA. And then finally, I'll just say, look, you know, in these market environments, you know, we're always looking for ways to take additional productivity actions and kind of just tighten up the shift. In light of the markets that our customers are operating in and just be right with that. So you add all those things together, I'm actually quite, I feel really good about the plan that we've laid out to add this additional and close that gap and be able to confirm, you know, about the $2.8 billion full year that we're talking about.

We'll take our final question from John Roberts with UBS.

Thank you. Back on the Hemlock Semiconductor JV, do you expect any one-time income later in 2019? And does the JV have any put-call divorce clauses to allow you to either buy out your partners or force them to buy you out if they won't sell?

Well, this is Mark. Let me take the first one. Yeah, we do expect another one-timer. We've got it built into the full year outlook. Not exactly sure at this point when it will land, but it'll be in the second half. And then in terms of the clauses around the JV definitive agreement, we're going to have to get back to you on that one.

Okay. Okay, with that, I think we're going to end. Thank you, everyone, for joining our call. We appreciate your interest in Dow DuPont. For your reference, a copy of our transcript will be posted on Dow DuPont's website. This concludes our call.

And this concludes today's conference. Thank you for your participation. You may now disconnect.