EI DuPont de Nemours & Co. (DD)
Q4 2011 Earnings Call
January 24, 2012 9:00 am ET
Karen A. Fletcher - Vice President of Investor Relations
Ellen J. Kullman - Chairman, Chief Executive Officer and Chairman of Strategic Direction Committee
Nicholas C. Fanandakis - Chief Financial Officer, Principal Accounting Officer and Executive Vice President
David L. Begleiter - Deutsche Bank AG, Research Division
Robert Koort - Goldman Sachs Group Inc., Research Division
Laurence Alexander - Jefferies & Company, Inc., Research Division
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
Mike J. Ritzenthaler - Piper Jaffray Companies, Research Division
Donald Carson - Susquehanna Financial Group, LLLP, Research Division
Mark R. Gulley - Ticonderoga Securities LLC, Research Division
Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division
Andrew W. Cash - UBS Investment Bank, Research Division
Duffy Fischer - Barclays Capital, Research Division
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
Previous Statements by DD
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Karen A. Fletcher
Okay, thank you, John. Good morning, and welcome, everyone. With me this morning are Ellen Kullman, Chair and CEO; and Nick Fanandakis, EVP and CFO. The slides for today's call can be found on our website at dupont.com, along with the news release that was issued earlier today.
During the course of this conference call, we will make forward-looking statements, and I direct you to Slide 2 for our disclaimers. All statements that address expectations or projections about the future are forward-looking statements. Although they reflect our current expectations, these statements are not guarantees of future performance but involve a number of risk and assumptions. We urge you to review DuPont's SEC filings for a discussion of some of the factors that could cause actual results to differ materially.
We will also refer to non-GAAP measures and request that you please refer to the reconciliations to GAAP statements provided with the earnings news release and on our website. And finally, we've posted supplemental information on the website that we hope is helpful to your understanding of our company's performance.
It's now my pleasure to turn the call over to Ellen.
Ellen J. Kullman
Great. Thank you, Karen. Good morning, everyone. Let's turn to Slide 3 for highlights on our 2011 performance. Full year sales were up 20%, including 5 percentage points from the Danisco acquisition. Segments with the largest organic sales growth in 2011, net of acquisitions, were Performance Chemicals and Agriculture. Sales in developing markets were up 27%, and that represents 34% of company sales.
Market-driven science is critical to our success, and we expect to have about 30% of 2011 sales come from products that were introduced in the past 4 years, and we'll be finalizing that data in February.
Fixed cost and working capital productivity surpassed the targets we set for the year. Fixed cost productivity exceeded our target by $100 million, and working capital productivity beat the target by $200 million. Variable cost productivity programs, they also delivered comparable results.
DuPont delivered a record $3.93 per share in 2011 on an underlying basis, which is up 20% versus 2010, capping off a very strong year with broad-based contributions. We ended the year with $3.3 billion in free cash flow compared to $3.1 billion last year, an improvement of 8%.
During the fourth quarter, we faced several headwinds. When we updated our full year guidance on December 9, we pointed to market softness in electronics and customers' conservative year-end cash management with further destocking in polymer and industrial supply chain. We have also made clear that the photovoltaic inventory correction continued through the quarter. These factors combined to press volume down 10%. Despite these difficult conditions, underlying earnings were up in the fourth quarter when adjusted for the differences in tax rate year-over-year. Our earnings performance demonstrates an ability to execute extremely well in volatile and uncertain markets. It is our view that fourth quarter volume performance was strongly impacted by cash conservation and supply chain actions, and did not reflect broad macro conditions.
There was GDP growth in the quarter in most regions, with growth also projected for 2012. The good news is that caution in the fourth quarter means that many supply chain inventories are fit. We expect some conservatism to linger in the first quarter, with a rebound effect likely to come in the second quarter, and I'll provide a more detailed perspective on how we see the rebound effect playing out later on this call.
To further illustrate my point that fourth quarter volume was primarily a function of cash conservation and supply chain restocking rather than macro conditions, I'll share fourth quarter perspectives on key markets. Let's start with electronics, where continued destocking in PV was expected. As the channel corrects for significant overproduction in the first half of 2011, we expect destocking to be completed by midyear, perhaps sooner, with PV installations to be up about 10% in 2012. Remember, PV sales represent about 40% of the electronics segment. For consumer electronics, the seasonal decline in orders was more than expected, in part due to delays in launch timing for next generation smartphones and tablet PCs, coupled with some destocking and caution in the value chain through the quarter. Auto builds were essentially flat, with gains in the U.S. and Japan offset by declines in every other region. Our Performance Materials segment was affected by destocking in their supply chain, most notably in Europe and Asia Pacific. As expected, the titanium dioxide market experienced a pause, with volumes down and prices up year-over-year. For added perspective, our full year TiO2 volume was down modestly in 2011 versus a sold-out position in 2010, and expectations for volume growth in 2012. TiO2 demand, on average, tends to follow GDP, and with no major tranches of new capacity coming on in the next 24 months, we expect this market to remain strong, with solid fundamentals and healthy returns.