DuPont de Nemours, Inc.

Good day and welcome to the DuPont Second Quarter Earnings Call. Today's conference is being recorded, and at this time I would like to turn the conference over to Lori Koch. Please go ahead.

Good morning, everyone. Thank you for joining us for DuPont's Second 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 DuPont's website and through the link to our webcast. Joining me on the call today are Mark Doyle, Chief Executive Officer, Gene Desmond, our Chief Financial Officer, and Ed Breen, Executive Chair. Please read the forward-looking statement disclaimer contained in this slide. During our call, we will make forward-looking statements regarding our expectations or predictions about the 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, as modified by our first quarter Form 10-Q and current report, include detailed discussion of principal risks and uncertainties which may cause such differences. Unless otherwise specified, all historical financial measures presented today exclude significant items. We will also refer to non-GAAP measures. Our reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our press release and in the appendix of our slides. For your awareness, we have kept our prepared remarks to about 20 minutes in order to allow a full 30 minutes of Q&A and then end a little early so that you can join the Corteva call, which starts at 9 a.m. I'll now turn the call over to Mark.

Thanks, Lori, and good morning, everyone. Before we get started, I'd like to acknowledge the incredible accomplishments achieved by the entire DuPont organization that enabled the successful separation of Dow on April 1st and Corteva on June 1st. I'd like to thank everyone for all they did over the past three and a half years to execute our industry-defining transaction. I'd also like to specifically acknowledge Jim Fahey for his role in the integration of the Dow and DuPont electronics businesses. and his more than 25 years of service. As we announced this morning, John Kemp will succeed Jim as president of the E&I segment. Let's get started on the quarter on slide two. We delivered a strong quarter and navigated dynamic market conditions and select end markets by staying dedicated to our core principles of innovation-led growth and disciplined cost control. We significantly expanded both gross and operating EBITDA margins and grew pro forma adjusted EPS in the high single digits versus the year ago period. We also continued to drive returns on our innovation spend with key new wins across several high growth trends, including auto electrification, 5G, healthcare, water, and sustainable food sources. Looking closely at the numbers, total sales of $5.5 billion were down 3% on an organic basis as continued strength in safety and construction was more than offset by the well-documented weakness we and others are seeing in electronics and automotive end markets. Organic sales in our core segments were down by 1.7%. Regionally, organic sales were down 2% in the U.S. and Canada, down 3% in EMEA, down 4% in Asia Pacific, and up 1% in Latin America. The organic sales decline in the U.S. and Canada was primarily driven by lower sales in the non-core segment from weak polysilicon pricing impacting demand. Weakened automotive and electronics end markets continued to drive the declines in both Asia Pacific and EMEA. However, we did see sequential improvement in our China results with sales down 3% versus prior year in the second quarter versus 10% in the first quarter. The increases were realized across all of our core segments. One of the key bright spots in the quarter was a substantial improvement in gross margin, which was realized in all of our core segments. Gross margin improved more than 200 basis points as a result of our pricing discipline, plant productivity, and cost control. All-in, swift action in light of prolonged market weakness led us to outperform from an operating EBITDA perspective versus expectations, in spite of a weaker top line. Operating EBITDA of $1.4 billion was essentially flat with the prior year period, resulting in strong operating leverage and demonstrates our ability to deliver pricing and drive operating efficiencies amid challenging market conditions. Excluding currency, operating EBITDA in our core segments was up 6% on a year-over-year basis. We also delivered operating EBITDA margin improvement of 170 basis points versus the prior year and have delivered operating EBITDA margin improvement of greater than 300 basis points since the second quarter of 2017. Adjusted EPS, as shown on slide three, was up 9% on a pro forma basis versus prior year, driven by lower depreciation and amortization. The quarter also benefited from a $0.03 per share tailwind from a lower share count in line with the share repurchases we did as part of Dow DuPont and a priority that we will maintain as part of new DuPont evident in the $250 million in purchases that we have completed to date. Before I turn the call over to Gene to discuss the quarter in full detail, I'll provide an update to our full year guidance as well as our expectations for the third quarter on slide four. For the full year, we now expect organic sales to be slightly down versus the prior year. This change in expectation is a reflection of the prolonged weakness in our short cycle businesses, primarily automotive and semiconductors, causing both lower volumes and pricing headwinds as a result of the supply-demand imbalance. From an earnings perspective, we expect operating EBITDA to be on the low end of our previously stated range. We are targeting 80 million in cost actions in addition to the 30 million we took in the second quarter to mitigate the macro headwind from both price and volume in the second half. These new cost actions are biased towards the fourth quarter and include the benefit of a restructuring program authorized during the second quarter of up to $130 million. All in versus our previous guidance, we lowered our organic sales by approximately 300 basis points versus the previous midpoint, and lowered EBITDA by about 90 basis points versus the prior midpoint, which is a direct reflection of our ability to mitigate weak market conditions with levers that we can control. We are raising our pro forma adjusted EPS guidance range to 375 to 385 per share, reflecting the strong second quarter results, the net impact of our second half segment earnings revision, and updated DNA and tax rate assumptions. the latter of which is now expected to be at the high end of the range. For the third quarter, we expect organic sales to be down low single digits. From an earnings perspective, we expect our tight management of spend and strong productivity actions will again enable us to deliver strong operating leverage despite a lower top line. For the third quarter, we expect pro forma adjusted EPS to be in the range of 94 to 99 cents per share. In the appendix, we provide segment level commentary as well as some additional modeling guidance. Overall, I'm very pleased with how our team continues to navigate the market uncertainty by capitalizing fully on our competitive strengths and focusing on the levers within our control to deliver strong bottom line results. These actions will position us well as markets recover to capitalize on our improved cost structure and investments in innovation. I'll now turn the call over to Jean.