Good morning. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the DuPont 2010 Third Quarter Investor Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Karen Fletcher, Vice President of Investor Relations. Karen, you may begin your conference.
Thank you, John. Good morning, and welcome. With me this morning are Ellen Kullman, Chair and CEO; and Nick Fanandakis, 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.
Please turn to Slide 1. During the course of this conference call, we will make forward-looking statements. 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 risks 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 our earnings news release and on our website. And finally, we've posted supplemental information on our website that we hope is helpful to your understanding of our company's performance.
Now it's my pleasure to turn the call over to Ellen Kullman.
Thanks, Karen, and good morning, everyone. Once again, I'm very pleased with what our team has accomplished, to help frame a strong underlying performance in the quarter, look at the segment results, excluding Pharmaceutical royalty income. On that basis, segment pretax operating income went from $491 million to $652 million, an increase of 33%. Driving these results with the same priorities I've shared with you before our playbook working and the disciplined execution of our business plans is paying dividends in more ways than one. Our consistent focus on market-driven product innovation, pricing discipline, emerging markets and ongoing productivity are delivering very strong results.
Slide 2 recaps DuPont's 2010 directives. I shared these directives with you last quarter and I used them consistently when talking with employees around the world. Business-specific goals are drawn from these corporate targets and ultimately, every employee recognizes and is rewarded for what they do to react to changing markets or customer demands and how they contribute to the overall success of the company.
While our directives are clear and our managing processes are sound, we must contend with dynamic market and competitive situations, so let me share some perspectives on key markets this quarter. I'll start with once related to Safety & Protection. We expected industrial market to continue to strengthen resulting in a rebound in mid-cycle businesses. This certainly played out during the quarter. Nomex sales were up more than 80% with growth driven by infrastructure spending and increase protection of workers, particularly in transportation, oil and gas, power generation and distribution.
Mid-cycle businesses are indeed starting to rebound and we're ready. We're also working on new applications for our finer denier Kevlar offering in anticipation of Cooper River plant expansion. One example is Kevlar XP, which offers lighter weight, more comfort and superior ballistic protection. Last week, we announced the launch of yet another application for Kevlar XP, this one for Hard Armor needs in the military, law enforcement and homeland security.
Of course, another key market for Safety & Protection is construction which continues to be soft. New housing starts in the U.S. are expected to be up less than 10% in 2010 compared to a very weak bottoming out last year. Commercial markets also remain soft.
Moving to Electronics, I hope you had the chance to hear directly from Dave Miller, the President of our Electronics & Communications business, when he provided an update for investors last month. You can go to our website for Dave's charts and an audio replay of that webcast. In short, Dave confirmed that photovoltaic markets remain extremely strong with healthy demand in consumer electronic and printing markets as well. Our customers demand high-performing products and a constant stream of innovation is critical to our continued success. The fantastic year we're having in this segment is a result of an R&D pipeline that is highly productive and a business team with very clear priorities, which are directly tied to our company's directives.
Moving to automotive markets. Global light vehicle builds were up 8% over third quarter of 2009. Performance Coatings and Performance Polymers benefited from continued recovery in these markets. Customer reaction and acceptance of Performance Polymers Zytel PLUS offering has been really positive with a number of adoptions since its launch in March. This product offers exceptional performance under extended exposure to heat and chemicals and is an important new offering in lightweighting of vehicles.
Turning to Ag & Nutrition, North American farm incomes will be up as expected with increases in both crop receipts and livestock. Long-term fundamentals are also playing out as expected, with increased demand for agricultural productivity where science can make substantial contributions.
In response to market demands, we will stay close to our growers. We are working with them every day, meeting their needs with products they trust and a value proposition that is optimized to their farms. In addition, we're executing against our multi-year strategy by investing in our pipeline to ensure we deliver value-added solutions, both near term and long term. We also continue to invest strategically in our route to market and other critical functions in this increasingly complex market space. Our teams are organized and highly energized from their successes in the 2010 season.
One important growth investment we announced in the quarter was our intent to acquire a majority share of South Africa's Pannar Seed business. We're working to close that transaction by early next year.
On a related topic of growth in emerging markets, our long-term strategy here continues to pay off for DuPont. I expect full year sales to increase from 8 [indiscernible] to $10 billion in 2010. Now we've stated our expectations for 14% compound annual growth in emerging markets long term and this year's growth is well above that pace. And while we benefited from some restocking, it's clear that we're winning in the marketplace. Years of hard work provided us with a strong foundation that we're operating from today. We've enhanced our offerings through local technology labs, local product and application development and a streamlined organization that makes decision-making faster and more market-centric.
Productivity is also a critical to the company's success and I am pleased to report that we're tracking ahead of our $600 million combined goal for fixed cost productivity and restructuring savings in 2010. We will continue to roll out DuPont Production System's across plant sites. Three years ago, we started with the largest sites and picked a lot of the low-hanging fruit. Our Wuppertal plant in Germany was the first pilot for DPS and I was there this August to personally witness the different DPS continues to make today.
Midsized facilities are actively adopting DPS. For example, the Ulsan site in Korea launched DPS this quarter. There was a kickoff ceremony and our team's highly energized and ready to step up to some aggressive goals at that site. Their energy, their sense of urgency, their appetite to deliver impressive results are representative of what's happening around the company.
So now I'll turn the call over to Nick to review our financial performance, and then I'll come back and close with some comments on our outlook. Nick?
Thank you, Ellen, and good morning, everyone. I'm pleased to report that in the third quarter, DuPont continued to deliver very strong results. As the global economy recovers, we drove volume and price up in all regions of the world. This quarter's performance continues to build on the strong foundation we have laid since recovery began. 2010 has been and will continue to be a typical year for the company, as we replaced Pharmaceutical royalties with profitable growth from all other business units. By any measure, the third quarter was strong with every business and region contributing to the success in the quarter.
Now I'd like to review the details of the quarter, pointing out some of the accomplishments versus goals. And we'll start with Slide 3, which is a summary of earnings per share and sales results. Earnings per share were $0.40 compared to $0.45 in the prior year. However, it's important to note that when you exclude Pharmaceuticals, underlying segment pretax earnings were up 33%. Consolidated net sales of $7 billion were up 17% versus the prior year, comprised of 14% volume gains, 5% positive local price, 1% negative currency impact and 1% reduction from portfolio changes. Volume was up in all business segments and in all regions of the world. Local currency prices were also up in all regions, reflecting our continued strong pricing discipline.
Let's turn to the segment reviews and begin with Ag & Nutrition on Slide 4. You see third quarter sales grew 2% to $1.3 billion, as Latin America and Asia-Pacific increases were somewhat muted by the impact of Crop Protection-divested businesses. This seasonal pretax earnings loss of $181 million reflects increased sales offset by growth investment and divested businesses impact. Year-to-date, Ag & Nutrition segment delivered sales growth of 9% and improved earnings by 15%.
Focusing on individual businesses and starting with Crop Protection, industry estimates suggest a turn in the environment with third quarter market volume slightly up. Our sales were flat as increased demand for Rynaxypyr insecticide and picoxystrobin fungicides were offset by portfolio changes and to a lesser extent, slightly lower prices. Excluding the business sale, revenues were up modestly due to the growth in our new products. From a regional perspective, volume gains were broad-based, but Asia-Pacific stood out with 14% volume growth. We held price firm in all regions, with the exception of Latin America where prices were down, reflecting generic competition, particularly in the area of fungicides.
During the third quarter, we received EPA registration for a number of new products containing our next-generation active ingredient, which is focused on land management weed control. Commensurate with hitting important milestones such as achieving regulatory approvals, we made strategic investments in the quarter supporting future growth opportunities.
Moving to Nutrition & Health. Sales were up slightly and earnings down substantially. The business experienced slower-than-expected growth in higher end protein business. The business is making progress in productivity and breaking into new higher value end use markets, which is the cornerstone to our long-term growth plans.
Finally, moving to the Seed business, sales were $496 million, up 5%, underpinned by 3% U.S. dollar price gains and 2% volume growth.
First, I'll lay out Latin America industry backdrop for the 2010, 2011 planting season, which plays out in the third and fourth quarter. Industry expectations are for a late start to the soybean season, a market where we have a fast growing presence. In corn, expectations are for Brazil to decrease their summer corn hectares. Backed by leading sales force and solid product line up, we are confident in our expectation to grow sales with continued Bt corn technology penetration in share gain in our second brands with the growth weighted to the fourth quarter.
Year-to-date, seed sales of $4.8 billion improved 13% and was matched with significant earnings growth. Top line growth primarily reflects the success in North America underpinned by higher mix of value-added products and share gains in corn, soybeans and canola. During quarter three, USDA firm their 2010 acreage estimate by crop, and we finalized all transactions for the season, allowing us to update our share estimates. Our North American corn share is 35%, gaining about three points over 2009 and our North American soybean share is 31%, gaining about five points over 2009. Share data is not yet final, and it won't be until the last USDA 2010 acreage update in January, but we expect these numbers to remain very solid.
It's been a phenomenal year. And most importantly, we're excited about our growers and what they're seeing during the harvest, which is now about 80% complete. They're seeing consistent high yielding product performance and very strong results from our new hybrids we introduced in 2010. Significant number of growers also see AcreMax 1 demonstration plus and they're, too, they're seeing the performance is meeting grower expectations giving us confidence with the success of our 1 million unit commercial launch in 2011.
Bringing this altogether with the solid performance year-to-date and consistent value proposition, we had furthered our relationship with our growers, creating an even stronger position for which to launch our 2011 season.
Underpinning our success is a multi-year investment strategy underway since about 2007 focused on breathing, biotechnology, sales force training, agronomic and technical support, local distribution and other critical functions. For example, we expect R&D to be up one percentage point of sales. All of these investments support our ability to be the leader in this attractive market over the long term.
Looking now to the full year segment outlook. We anticipate high single digits sales growth and low to mid-teens earnings growth. This is underpinned by the following fourth quarter expectations: Crop Protection volume gains with the continued soft price environment; European feed sales favoring first quarter versus fourth quarter; North American early start to the seed season; growth from technology penetration in Brazil summer season, as well as growth in the early stages of the Sabrina [ph] season.
Now let's turn to Slide 5 in Electronics & Communications segment. Sales of $703 million improved 30% compared to the same period last year, with 24% volume improvement and 6% higher prices, primarily representing metals pass-through. Pretax earnings of $126 million are $49 million better than the same period last year. This is due to broad-based demand increases in all products in all regions, showing double-digit sales growth led by Asia at 38%. Photovoltaic sales continue very strong, growing more than 80%, while non-photovoltaic sales grew 12%. With strong revenue and improved productivity, margins in this business exceeded pre-recessionary levels.
For the fourth quarter, excluding PV, we see a normal seasonal decline in demand. Sales are expected to be significantly above prior year. The business continues to make productivity and supply chain improvements, as well as investments to reduce capacity constraints in the face of strong global demand. This includes a planned partial shutdown of facility sometime in the fourth quarter to support a previously announced capacity expansion.
On Slide 6, the Performance Chemicals segment reported sales of $1.7 billion, an increase of 26% based on 15% volume, 12% price and 1% reduction due to portfolio change. Sales growth was broad-based across the globe, with double-digit increases in all regions led by Asia-Pacific and North America. Titanium dioxide for polymers and industrial chemicals drove much of the increase in revenue. PTOI was $292 million, an increase of $85 million or 41%, with volume and price contributing about equally to these results.
Moving to the outlook for the fourth quarter. Sales are expected to be up moderately year-over-year. Markets continue to be tight with demand exceeding supply from many product lines, including titanium dioxide. Raw material costs, which continue to trend upwards will look to be offset with price increases. We will also continue to drive Dupont's Production Systems to increase production rates in debottlenecking in order to maximize our ability to serve our customers.
Now let's turn to Slide 7 in Performance Coatings. Segment sales of $937 million increased 6%. Sales increased as a result of 5% stronger volumes and 1% pricing gains. Demand was driven by strong rebound in the heavy-duty truck markets in North America and Europe and continued recovery in the global automotive market. PTOI was $64 million, up $6 million and this improvement was primarily led by the increased volume. For the full year, we now expect global auto builds to be about 20% up, which is an increase from our prior estimate of 17% and in line with the stronger volumes we have seen year-to-date. Builds were up about 8% in the third quarter.
Looking ahead to the fourth quarter for Performance Coatings, we expect sales to be down modestly year-over-year, driven mostly by a stronger U.S. dollar versus prior year. The rate of improvement in global auto builds will turn 1% negative after strong growth year-to-date. With its focus on productivity, this business has made margin improvements and we continue to expect Performance Coatings to be near pre-recessionary margin levels despite the significantly lower volume.
Turning now to Performance Materials on Slide 8. This segment delivered sales of $1.6 billion and growth of 21%, driven by 19% volume and 4% price. Automotive, electronics and packaging grow strong volume recovery with all regions showing double-digit growth. PTOI was $281 million, an improvement of $51 million or 22% enabled by volume and price improvement along with continued productivity. The improvement over prior year includes the absence of a $24 million benefit from insurance recovery proceeds, which was received in the third quarter of 2009.
As we look to the fourth quarter here, year-over-year auto builds look to be slightly down while some restocking is continuing to take place. Overall, we expect continued year-over-year improvement in revenue and earnings, but with some sequential softening.
Raw material costs appear to be stabilizing, although higher on a year-on-year basis. We also intend to take a number of scheduled plant maintenance shutdowns this quarter, which we postponed from earlier this year when demand was at its greatest.
On Slide 9, you see the Safety & Protection segment. Sales here jumped an impressive 30% to reach $871 million for the quarter, due to the higher volumes of aramid and non-woven products in a recovering marketplace. We saw demand strengthening in industrial, public sector and automotive markets with all regions achieving greater than 20% volume growth. PTOI was $134 million, an improvement of $76 million from higher volumes and the absence of a $26 million asset impairment charge that was recorded in the prior year. PTOI margin improved as well on these strong volumes.
Looking to the fourth quarter, we expect the overall pace of recovery to slow and the comps to get much tougher, although we see continued favorable demand in the industrial markets. Sales should be up significantly year-over-year and we also expect upward pressure in raw material costs.
Now let's turn to a corporate view of the third quarter, looking at earnings per share variance analysis on Slide 10. Starting with price and variable costs, the quarter showed a net zero impact. This reflects the difference between price and variable costs, excluding the impact of currency and volume. Driven by our innovation and pricing discipline, we've been very proactive over the past year in implementing price increases in the face of anticipated increases in our variable costs and on a year-to-date basis, this spread is a positive $0.39 per share.
Excluding volume, currency and portfolio impacts, third quarter raw material, energy and freight costs were up versus last year's third quarter when many raw materials had reached their low point. We are now estimating these costs will also be up moderately in the fourth quarter, with expectations for a full year increase of 5% to 6% over 2009. This is greater than our previous estimate of about 3% driven by higher-than-expected price increases for many of our key raw materials and increased freight cost, along with more rapid recognition in the costing, partially attributed to the improved working capital productivity.
Volume improvement resulted in incremental earnings benefit of $0.31 per share compared to the same period previous year. As I mentioned earlier, this benefit is broadly based across all businesses and all regions, and was particularly strong in Asia-Pacific, which was up 23%. There's a graph depicting sales by geographic region shown on Slide 11.
Continuing with the variance analysis, let's move to fixed cost. Excluding currency volume and portfolio impacts, fixed cost reduced earnings by $0.18 per share versus last year. This includes an $0.08 incremental non-cash pension charge, along with actions in the third quarter to support growth such as increased investments in our R&D and specific marketing initiatives. On a year-to-date basis, our fixed costs are 40% of sales. I expect this to be about 41% at the full year basis versus 46% last year, well on our way to beating our commitment in fixed cost being 39% of sales in 2012.
Concurrent with actions taken to support growth, we estimate that DuPont has realized more than $500 million year-to-date due to our fixed cost reduction programs, including restructuring benefits. This puts us well on track towards our commitment to deliver a combined $600 million, including $400 million of fixed cost productivity and $200 million of incremental restructuring benefits for the full year. We are committed to continue to deliver on these savings.
Clearly, with volumes rebounding so strongly, we're adding back resources to support this volume growth but we remain firm in our resolve to do so thoughtfully and only when higher volumes dictate the need. Year-over-year, currency was a headwind of $0.02. We expect similar year-over-year headwind in the fourth quarter.
The other category on the waterfall shows a negative $0.10 variance. Reduced Pharmaceutical earnings were $0.13 negative impact. Third quarter farmer earnings were $111 million, about in line with our expectations, but $155 million below prior year. Our full year 2010 estimate for farmer pretax earnings is about $480 million.
The last point on the EPS waterfall is our third quarter 2010 base tax rate, which was 24% versus 18% in the third quarter 2009, creating a $0.06 negative impact. Looking forward, we estimate the full year 2010 base tax rate to be about 23%.
I want to highlight the difference between our third quarter base tax rate of 24.1% and the effective tax rate of a negative 11.8%. The difference in rate is caused by taxes generated from our balance sheet hedging program we refer to as exchange gains and losses or EG&L. When the tax benefit of EG&L is matched with the pretax loss of $160 million, the quarter-over-quarter impact on exchange gains and loss is about $0.01 benefit, and is included in the other category of the waterfall. We provided more detail on Schedule D to show you the exact impact of our hedging program and on our effective tax rate.
Let's turn now to the balance sheet and cash on Slide 12. Third quarter free cash flow was an inflow of $60 million. Strong earnings were partially offset by CapEx spending and voluntary $500 million contribution to the principal U.S. pension plan. My goal continues to be to deliver about $1.7 billion in free cash flow for this year. Keep in mind this includes a previously unforecasted $500 million voluntary contribution to our principal U.S. pension plan in September of this year, netted against about $200 million reduction in our capital expenditure forecast.
As you recall, we committed to $1 billion working capital productivity over the next three years. Based on networking capital levels, we are on track to deliver $400 million of that in 2010. Again, we have a process around working capital productivity to ensure that we deliver on these commitments.
Regarding dividends, just last week, our Board of Directors approved our 425th consecutive dividend. Our long-held strategy has been to maintain a strong balance sheet and return excess cash to our shareholders, unless the opportunity to invest for growth is compelling.
In summary, for the third quarter, the year-over-year volume growth that started in the fourth quarter of 2009 continued and expanded in the third quarter. This, along with our pricing discipline and productivity focus, delivered very strong results in the quarter.
Turning now to the fourth quarter 2010. We expect the recovery that we've seen in our businesses to continue but at a more moderate pace than we've experienced to date. As you heard described earlier, we continue to see strong demand globally across many of our businesses, tempered by seasonality, scheduled plant shutdowns and expected year end inventory management by our customers.
Based on our current outlook, excluding significant items, we expect to earn about $0.30 per share in fourth quarter 2010 versus the $0.44 we earned in the fourth quarter '09. For perspective, Pharmaceutical earnings will be down about $0.13 per share versus prior year, with the added headwind of $0.08 non-cash pension charge. What you have is a strong underlying performance with segment pretax operating income, excluding Pharmaceuticals up about 18%.
For our full year 2010 outlook, DuPont leadership remains steadfast and confident in our business plans and our ability to execute against those plans. We are raising our guidance from a range of $2.90 to $3.05 per share to about $3.10 per share, excluding significant items. We do expect fourth quarter results to include a one-time charge of about $0.13 per share, associated with the early extinguishment of debt as part of our plan to refinance higher cost debt.
This increase in guidance is based on strong performance year-to-date and confidence in our continued ability to deliver results as we finish the year. This updated guidance puts our underlying earnings per share greater than 50% above 2009 results. We now expect to deliver revenue growth of greater than 15% versus the corporate directive we began 2010 with, which targeted greater than a 10% revenue growth for the year.
On Slide 13, looking strictly at pretax segment operating income, excluding significant items, we anticipate 40% growth. And if you exclude Pharma, our growth is nearly 80%. As I said in the start, we have a plan for 2010 and we're executing on that plan, which is in short, grow our businesses across the globe and expand our margins. We're delivering this year and we look forward to continued positive results in the fourth quarter.
Now I'll turn it back over to Ellen.
Great. Thanks, Nick. The outlook of about $3.10 earnings per share, excluding items is our best estimate of how we'll end this year. It's not meant to project pinpoint accuracy, but rather give you our collective view of the most likely market scenarios, productivity results, customer actions, particularly with respect to inventory management as we approach year end.
We're in the midst of our 2011 execution reviews with each of our business units. We will share the business plans and targets at our Investor Event on December 9. In the meantime, I want to reemphasize that you should continue to expect DuPont to demonstrate the same focus and concentration on executing our playbook that we've done year-to-date. I want to particularly highlight three important things you can expect us to deliver: first, you should expect us to leverage and build upon our advantages in science and technology. This means introducing new products that raise the bar of performance and are recognized and valued by our customers. Our R&D investments are biased towards the megatrends and you should expect those investments to pay off with above trend-line growth and profitability in these areas.
We also exploit technology in our operations, particularly where we can reduce cost for debottleneck processes to keep up with growing markets. Second, you should expect us to leverage and build upon our global footprint in a way that consistently starts with the customer. We intend to capitalize on our strength in developed markets, where we have a strong and long-term customer partnerships and understand what it takes to win in these markets. We will continue to establish critical partnerships to solve complex problems related to the megatrends, whether it's increasing a farmer's yield or helping an automaker improve the efficiency of a new vehicle.
In addition, on constantly challenging our teams to be more responsive to local markets, particularly in the developing world. We continue to invest in our sales force, R&D centers and application laboratories in critical growth markets around the world. And finally, you should expect us to anticipate changes in our markets and competitive situations and respond by adjusting the levers we can control. We demonstrated that over the past couple of years in recessionary, recovery and high-growth environment.
For example, we accelerated productivity programs and were more judicious with CapEx spend as markets turned down. On the other hand, we've added incremental capacity in invested resources to support growing markets. We will continue to stay close to customers and respond to changing needs in an agile and innovative manner.
And finally, my personal commitment to you is that we will provide updates and prove points along the way, so you can measure progress towards our stated business and financial targets. Karen, back to you.
Okay. Thanks, Ellen. John, let's open the line up for questions.
[Operator Instructions] And our first question comes from David Begleiter from Deutsche Bank.
David Begleiter - Deutsche Bank AG
Ellen, can you comment on TiO2, just how tight is the market? What was your pricing up year-over-year and why you expect pricing to rise in Q4 and 2011?
TiO2 continues to perform very well in the marketplace that high-quality pigment and penetration that we've had in Asia-Pacific has produced the strong results you see. It is very tight market. And that tight market, given that it is a commodity chemical, does influence price and allow price to move. That is a very competitive environment, and so the exact amount will depend on exactly the actions of our competitors. But I do think there's positive momentum there and that you can see those results coming through the end of this year and into next year.
David Begleiter - Deutsche Bank AG
Would you expect double-digit price increases in TiO2 for next year as well?
I think that's a little hard to predict right now. I think I defer that to our December event when we're going to put 2011 in great context for you.
Our next question comes from Bob Koort from Goldman Sachs.
Robert Koort - Goldman Sachs Group Inc.
Just following on Dave a little bit, but when the division was almost 40% of earnings this quarter maybe it deserves closer inspection. I guess I'm a little struck by the volume record volumes in that TiO2 business given how terrible the domestic housing market is. So did you guys ship more than usual out of the U.S. or did you produce more than usual in Asia? How were you able to tap that kind of demand strength when the U.S. market still seems pretty lukewarm?
I think Bob, there were number of years we've been globalizing that business. And so although our assets tend to be along the Gulf Coast or in Tennessee, the majority of our assets plus Guanyin in Taiwan, we shipped globally out of these very efficiently. And so this has been a pattern that's been changing over the long course. It's just not been a 2010 kind of pattern. We've had great penetration into Asia-Pacific, as they've really increased their use of pigment in a wide variety of markets, especially the high-quality pigment like we produce. And so this isn't just a 2010 issue. It really is a long-term issue.
Robert Koort - Goldman Sachs Group Inc.
[indiscernible] Chinese project stands and then also your sourcing of raw materials, is there any chance that, that becomes an issue going forward given how tight the markets are?
Yes, so in China, there's really no update on that project. We continue to work locally with the government to obtain the business license to enable us to construct the plant. And so we continue to drive that. In terms of raws, you see some of that coming through in our results this year, this quarter with chlorine and things like that. We obviously, having the position we have in the marketplace and the relationship we have with the value chain, have strong relationships in the key raw materials that are enabler for us, and so we remain confident in that area.
Our next question comes from Mark Gulley from Soleil Securities.
Mark Gulley - Soleil Securities Group, Inc.
I guess my first question is this. If I take a look at some of the business leading and lagging, once it tend to be lagging would include the Coatings and perhaps the Performance Materials business. Ellen, can you comment a little bit about how you think they're going to proceed as they try to catch up with the other divisions that are doing better?
Yes, so if you talk about the Coatings division, we have gotten back to pre-recession margins, so it kind of the place to start from to then continue to improve. Our volumes are below pre-recession levels, so we still have operating leverage in that business that we can take advantage of as we move forward. So that is a lagging business from that standpoint and we continue to drive productivity, continue to drive our relationships in the marketplace to be able to get that operating leverage going forward. You also mentioned Performance Materials. I don't see that as lagging. Their margins have returned now. I think their volumes are still below pre-recession levels, but with the restructuring we've done and the focus we have on operating leverage, I think those teams have really done a great job at capturing a lot of value for our company coming through this year.
Mark Gulley - Soleil Securities Group, Inc.
Then a financial question for Nick. Can you give us any help with respect to what kind of interest expense savings you might enjoy reify you talked about in your prepared remarks?
Yes, so as you know, we announced we issued $2 billion of additional debt and we got very attractive rates averaging about 3.5%. We retired about $1.3 billion of debt early, which had rates in the greater than 5%. So on an ongoing basis from an interest expense standpoint, when you look at those two pieces, it's about flat. Interest expense will be about the same as it has been, put on $2 billion of debt versus the $1.3 billion that was in place before.
Our next question comes from Kevin McCarthy from Bank of America.
It's good to see the larger share gain estimates in corn and soybeans and pioneer. I understand the harvest is only 80%, but based on what you've seen so far, would you comment on the performance of your seeds in 2010 relative to competition, as well as implications for share trends next year?
Sure. So 80% complete are the numbers we have. Now our data collection at our customer trials is about 60% complete. So we got a lot of information, but we got more coming in and we'll share that as we get through the early part of November and obviously spend a lot of time on this in the December Investor Event. So our growers saw solid high-yielding performance, and I think that we're very pleased with what we have seen. We're on track with our strategy. We continue to lead in doubles, triples continue to line up with competition. At AcreMax 1, it's in line with our Herculex extra trials, no yield loss there and the convenience on the below-the-ground insects. And we are performing the competition there. So we're on plan with AcreMax 1 and Nick mentioned the 1 million units going into next year. So I think from a corn standpoint, we're very pleased with our progress. In soy, what we're seeing at a Y series, farmers have thrilled. This year, the value proposition is working and we're only 60% penetrated in Y series in 2010, so we got more room to go there next year. And so I think that we're very, very pleased. And Rynaxypyr, you look at the crop protection side. It's just tremendous, the gains we're getting there and really noble product, and with plain view coming in, as Nick mentioned, I think that's more opportunity for us. So I think coming through our pipeline looks good. We got good momentum coming out of '10 and going into '11 and we're on track. So we're very pleased with our results there.
Just as a quick follow-up if I may, how large was the earnings drag associated with the Nutrition and Health piece of the segment on a year-over-year basis?
Earnings, I think it's about, I don't think it's any bigger or smaller. I think it's about the same as what has been.
Our next question comes from Don Carson from Susquehanna.
Donald Carson - Susquehanna Financial Group, LLLP
Just to continue on the Ag theme, Ellen, you had some good share gains, you're number one in the soy now, you kind of tied for first in corn but you had a bit of a holiday from competition given your competitor had some pricing performance issues. So as they've cut prices aggressively, what's your outlook for share next year? And it does look like we're going to have fresh record [ph] corn acreage once again. Is there going to be a seed availability issue and is this strong planting outlook positive for your pricing realizations?
Well, Don, I respectfully say, I didn't really feel there was a holiday from competition. I think competition is very strong certainly and things come and go but I view this as a very competitive area. I think as we look out next year, I think we've got good momentum going for us. I think that the issue of availability I don't see. I see what our forecast and where we are. I think that we're very happy given what we're seeing in terms of the projections on acreage and things like that. And I think it's based on our direct-to-market view. I think we spend a lot of time with the growers, really focusing on what the value proposition is. I think there's a lot of noise out there around what competitors will and won't do. But it's our direct engagement with the customer on the total value proposition that I think is an enabler for us in this area. So I think that the time will tell, we'll certainly get into a lot more detail on this as we see the exact results that come out of all of our trials. But I think right product, right acre is working, and I think it's a differentiator for us.
Donald Carson - Susquehanna Financial Group, LLLP
Any comments on the pricing outlook, because obviously corn prices have firm considerably but your competitor also significantly cut their list prices on some of their new products? What's your expectation for pricing next year in seed?
Yes, I think that based on the value proposition and yield increases, I think pricing will be up. I think the exact nature of it is going to depend on how the whole season plays out, so we've got a lot of time to focus on that.
Our next question comes from Edward Yang from Oppenheimer.
Edward Yang - Oppenheimer & Co. Inc.
Your slide on Performance Materials mentions restocking slowing and some inventory monitoring the inventory situation. We'd like to appreciate some color on that. And also maybe an accounting question for Nick, D&A was down sequentially and it was down year-over-year. What led to that? And are you still on track to spend about $1.6 billion in CapEx this year?
Let me start with the CapEx question. We have been saying original expectation was about $1.6 billion. We're going to be lower than that. We're going to be in the range of about $1.4 billion for the year. As you start to gear back up on that capital spend, that engine just takes a little bit longer, but we are now at that kind of rate. But I expect this year to be about $200 million less than I originally forecasted. As for the D&A, really is around asset sales that occurred in small divestitures and the purchase accounting relating to that. And your first question, Ed, was around what again?
Edward Yang - Oppenheimer & Co. Inc.
Just a moment, I'll reopen...
Nick, I think his question was around some comments about restocking for Performance Materials and if you could give some color on that.
Yes, I think if you look at Performance Materials and you got to look at their position in the supply chain and where they service industries such as the Automotive segment, and really, we don't see the level of holiday time that was originally projected, so we continue to see some volume increases in that regard. But as we said, we're not going to have the same level of year-over-year increase in Automotive that we saw in quarter three, which was significantly up versus what we're going to see in quarter four, 8% year-over-year for global in quarter three and about down 1% in quarter four.
Our next question comes from P.J. Juvekar from Citi.
P.J. Juvekar - Citigroup Inc
Good question as an overall company. You mentioned that you're still benefiting from some inventory builds in end markets. Where do you think inventories are in different end markets? Can you just give us a flavor whether we're coming through the end of it or you're going to see auto declines of up 1% or auto build declines of 1% in 4Q? Just give us some flavor about where do you see inventories in end market?
So in the comment on inventory builds, it's been stance but it's been there, especially in places like Performance Materials where they are third tier, so the funnel has to be filled. We don't see it as much for instance in Coatings, which is first tier and direct with the automotive maker. We believe people are going to be conservative with inventories coming through the end of the year. At the end of the day for all of us, cash still remains to be a focus area, and we think that the people are going to be cautious and are going to make decisions right for them. So we're not anticipating an increase in inventories. As a matter of fact, we're anticipating the people will be very moderating with them as they exit the year.
Our next question comes from Laurence Alexander from Jefferies.
Lucy Watson - Jefferies & Co.
This is Lucy Watson on for Laurence this morning. I guess going back to Rynaxypyr, with your expectation of sales exceeding $300 million this year, does that reset the bar or should we consider 2010 as a peak year?
No, I'd suggest I have that conversation with the president of that unit, and that's just great, great performance by our guys. And I think the bar is going to get reset there as we go through these execution reviews in the next couple of weeks.
Our next question comes from Mark Connelly from CLSA.
Mark Connelly - Credit Suisse
When I look at photovoltaics, the performance obviously has been excellent. As we see all the new polysilicon capacity coming online in the next couple of years, do you worry about the impact on the module market if we start to see inflation in the underlying raw materials?
I think that cost have come down with capacity increases in the module market. I think we've seen that in the last year. I think that's been an enabler as some of the movement in feed and tariffs and things like that in different countries to enable there still to be a value proposition for the installation of these. We're focused on innovation on our materials that go into these markets to provide higher efficiency and to really help them create the payback and the return on the modules. There are still a way to go there but we see constantly company is reaching out to us, engaging around the efficiency equation and how to create more in that space. So I still think there's a way to go there.
We have a question from Frank Mitsch from BB&T Capital Markets.
Frank Mitsch - BB&T Capital Markets
Ellen, you were talking during the discussion about the fourth quarter progressing in a more moderate pace. Now your volumes were up 21% in the second quarter, up 14% in the third quarter, obviously, 14% is still extremely strong. Are you just looking at the pace of business moderating in terms of being more difficult comps, or do you believe that the absolute level of business absent seasonality has been moderating as well?
I think it's the comps and I think it's the seasonality. And I think that that's what we have to take into account as we look at the fourth quarter.
Our next question comes from Jeff Zekauskas from JPMorgan.
Jeffrey Zekauskas - JP Morgan Chase & Co
Maybe this is a question for Nick. Your SG&A expense had been running up about $100 million per quarter for the first two quarters. And in this quarter, it was basically flat or up $10 million. Why was that? What was the change in this quarter relative to the previous quarters? And can you also say what the change in your raw materials was sequentially?
So when you look at SG&A, let me take a step back. When we look at how we're going to spend our investment dollars, whether that be R&D, sales and marketing, et cetera, we have a rigorous process we go through around portfolio of initiatives. And we went through that and decided there were going to be certain strategic areas that we were going to focus on in sales and marketing initiatives. And a lot of that work was done in that first half of the year. Areas such as in Pioneer, for example. And so that's what you're seeing there, Jeff. As far as the second part on raw material costs, sorry. When you look at the raw material costs, keep in mind a couple of things, Jeff. Keep in mind, first, that we're looking and comparing this against an all-time low point in the third quarter of 2009. When you look at the first half, we said we are about 1% increase year-over-year. We're seeing 5% to 6% for the full year increased. So what you're seeing here is with the productivity work that we've been doing around our working capital, some of these price increases are coming through, are getting through our inventory much quicker and getting to the earnings at a faster, faster rate as a result of that working capital productivity and the growth that we're seeing. Fourth quarter, we're seeing somewhere around similar year-over-year sort of increases and probably slightly less. But as I say for the full year, it'll be 5% to 6% year-over-year increase in raws.
This concludes the Q&A portion of the conference call. I will now turn the call back over to Ms. Kullman for closing remarks.
Great. Thank you. And I want to close with a comment I made last quarter, and that comment was that we will continue to earn your expect and confidence with each quarter. Today's results reflect strong market positions, robust R&D pipelines, ongoing productivity and disciplined execution. And now our focus is on the fourth quarter and equally as important, position our businesses for continuing success in 2011. So I look forward to seeing many of you at our Investor Event on December 9 in Wilmington. You'll hear from the top leaders of the company, including the presidents of our 13 businesses, and we'll share details of our 2011 plans, as well as expectations for long-term growth and profitability. So thank you all for joining us on today's call, and I look forward to talking to you soon.
This concludes today's DuPont 2010 Third Quarter Investor Call. You may now disconnect your lines at this time, and have a wonderful day.
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