Nicholas Fanandakis - Chief Financial Officer, Principal Accounting Officer and Executive Vice President
Ellen Kullman - Chairman, Chief Executive Officer and Member of Strategic Direction Committee
Karen Fletcher - Vice President of Investor Relations
Lucy Watson - Jefferies & Co.
EI DuPont de Nemours & Co. (DD) Q4 2010 Earnings Call January 25, 2011 9:00 AM ET
Welcome to the DuPont 2010 Fourth Quarter Earnings Call. My name is John, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to your host, Karen Fletcher. You may begin, Karen.
Thanks, John. Good morning and welcome, everyone, to our fourth quarter earnings call. With me this morning are Ellen Kullman, Chair and Chief Executive Officer; and Nick Fanandakis, Chief Financial Officer. 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 1 for our disclaimers. All statements that address expectations for 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 ask that you refer to the reconciliations to GAAP statements that are provided with our earnings news release and can be found 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.
It's now my pleasure to turn the call over to Ellen.
Great. Thank you, Karen, and good morning, everyone. The DuPont delivered a strong finish to a great year. And during the fourth quarter and throughout the year, we've been steadfastly focused on our 2010 directives with disciplined execution across the board. Our consistent focus on market-driven innovation, cost and capital productivity and differential allocation of resources delivered very strong results for the year. We will look back on 2010 as the year we benefited from recovery, created our own momentum and emerged as a stronger, well-positioned company.
We did it by building on the aggressive actions we took in response to the global financial crisis, and I'm not just talking about the restructuring and cost-cutting, I'm referring to the thoughtful, strategic choices that we made, specifically to prepare for global economic recovery and truly emerge a more agile and disciplined company.
To site just a few examples, we accelerated the implementation of DuPont production systems at our plant site. We redeployed employees on megaprojects to structurally reduce working capital, and we made tough choices on underperforming assets, and we had the fortitude not to cut our R&D spend.
Our 2010 results are summarized on Slide 2. So with that winded in a way that is consistent with our internal set of directives. We delivered sales growth of 21% with a wide variance by business reflecting how different markets were affected by the global financial crisis, and how our businesses responded.
We delivered strong topline growth in areas that were minimally affected by the global crisis such as production agriculture and photovoltaics. These businesses executed well with new product launches, share gains, improved margins and strong momentum as we head into 2011. We also delivered outstanding growth at certain businesses benefited from early recovery and restocking such as TiO2, electronics, parts of our chemical businesses and polymers. As an example, we were prepared when auto builds recovered more than twice as fast as expected last year.
Certain industrial markets were slower to recover as expected. Mid-cycle businesses, such as Nomex and Kevlar, started to rebound midyear. And while their recovery has been a bit more muted, we expect more to come in 2011. In the meantime, we continue to develop new applications for fine denier Kevlar in anticipation of the Cooper River plant startup, which will occur later this year.
Finally, construction markets remained weak throughout the year. While total company sales were up 21% for the year, sales in developing markets grew 27%. We delivered exceptionally strong performance in China and India. Sales in greater China, including Taiwan, were over $3.3 billion, increasing more than 50%. All of our segments contributed to this growth with especially strong results in Electronics and Communications and Performance Materials. Sales in India were up over 40% to $678 million with the biggest gains coming from our Performance Chemicals and Ag & Nutrition segments.
The backbone of our topline growth this year remains market-driven innovation. Our steadfast investment in R&D-driven recession allowed us to intensify our efforts in new product introductions. So we did it by staying close to our customers, and I mean that literally as well as figuratively. We partnered with customers to run product tests and commercial prove outs in their facilities. New product introductions were up 23% in 2010 on the heels of a 60% increase in 2009.
Moving on to costs, we delivered more than $650 million in fixed cost productivity and benefits from restructuring. We exceeded our original goal of $600 million. We're poised to deliver an additional $300 million of fixed cost productivity in 2011. Raw materials were up 6% last year, and our price increase more than covered higher costs with an impressive full year spread of $0.44, something we could only deliver because our customers recognize the value and competitive advantage that our products provide.
Finally, we ended the year with free cash flow of $3.1 billion. This was buoyed by working capital productivity improvements of over $700 million, well ahead of our $400 million goal. If 2010 was the year of emerging stronger, then 2011 will be the year of building on our momentum. And I'll come back with more thoughts on 2011 at the end of the call. First, Nick will review our financial performance in more detail. Nick?
Thanks, Ellen. Good morning, everybody. If this was a videoconference, you'd see me sitting here with all smiles. I'm sitting here that way because DuPont had a great quarter and a solid finish to the year. As the global economy recovers, we grow volume and price up in all major regions of the world. This quarter's performance continues to build on the strong foundation that we've laid over the past two years. You know, 2010 was a transformational year for the company as we began to replace pharmaceutical royalties with profitable growth from all other business units.
Let's just take a minute to review some of the great accomplishments that we've had versus our goals. Let's start with Slide 3, which is a summary of the earnings per share and sales results. Fourth quarter reported earnings per share were $0.40, which includes a $0.10 charge for onetime items. These items include a $0.13 per share charge relating to early extinguishment of debt and a charge of $0.03 per share for upfront license payment. These charges were offset by couple of benefits. We had a $0.04 benefit relating to the reversal of a tax valuation allowance and a $0.02 benefit per share for the partial reversal of prior year's restructuring charges.
Earnings per share on an underlying basis were $0.50 compared to $0.44 in the prior year. When you look at consolidated net sales, you see $7.4 billion, which was up 15% versus the prior year, comprised of 12% volume gains, 6% positive local price and 2% negative currency impact on a 1% reduction from some portfolio changes. Volume was up in all segments and in all major regions of the world. Local currency prices were also up in all regions, and this reflects our continued strong pricing discipline that we execute across all of our businesses.
Let's turn now to the segment review, and let's begin with Ag & Nutrition on Slide 4. Fourth quarter sales increased 13% to $1.5 billion with $117 million pretax seasonal losses. Sales were up in all businesses with robust volume growth in both Seed and Crop Protection. For the full year, our teams delivered 10% sales growth, 15% earnings growth and a 70 basis point PTOI margin expansion. These results were delivered despite competitive pressures across all markets as our disciplined business models and our intense focus on the growers prevailed. And I have to tell you, this momentum will continue into 2011.
Taking a closer look within this segment. Crop protection product sales for the quarter excluding the divested businesses impact, increased significantly on global demand for Rynaxypyr insect protection products and picoxystrobin fungicide products. Regionally, volume increases were broad-based with particular strength in Latin America, offsetting weaker prices across most regions. For the full year of 2010, crop protection product sales, excluding divested businesses impacted, were up moderately. Our volume increase was led by Rynaxypyr, which approached an impressive $400 million in global sales after just three years in the market.
U.S. dollar pricing remained relatively flat versus prior year. We outperformed the market based on the strength of our new products. The team executed their strategy, delivering increased sales, earnings and margins while making key pipeline advancements that provided for continued growth and profits for the future.
Moving onto Seeds. Fourth quarter sales of $582 million increased 25%, reflecting 12% volume growth across all regions, 10% increase in U.S. dollar prices and 3% favorable portfolio change. Volume growth reflects a strong start to the North American season for both corn and soybeans. In addition, Latin America corn and soybeans were up. Brazil soybean volume increases were due to the late start to their season as a result of some weather.
Both regional increases were partly offset by sales pattern shift to the first quarter in Europe. Price was flat to up and each region, attributable to lower validation of pioneer products and services. The earnings impact of higher sales and stronger equity contribution from China performance on Seed earnings were offset primarily by postseason activities as well as growth investments.
For the full year 2010, our Pioneer team delivered another year of mid-teens sales growth and high-teens earnings growth. Success was underpinned by increased acreage, share gains in North America, technology penetration in Brazil and success growing in China. Specifically, 2010 Seed sales were up 14% to $5.3 billion, reflecting both volume and U.S. dollar price contributions.
For Nutrition & Health, sales for the quarter and full year were slightly up on increased specialty protein offerings, offset by commodity crush [ph] business. We continue to drive step change performance through productivity along with application development and differentiated offerings targeted at improved health, wellness and safety.
Looking ahead for the first half of 2011 for the Ag & Nutrition segment, we expect to increase sales and earnings moderately. Key value drivers include seed and crop protection products; volume growth and net price improvements in Seed business, offset by slight currency headwinds; and growth investments weighted more heavily to the first half. The split of the quarters, one and two, will play out over the next few months, but our current assumptions are for growth to be split evenly between the quarters.
Now let's turn to Slide 5. Electronics & Communications segment. Sales of $773 million improved 33% compared to the same period last year with 24% from volume improvement and 9% higher prices. Pricing was primarily metal pass-through. Pretax earnings of $98 million up $37 million higher than the same period last year. Strong performance was led by Asia Pacific with 50% revenue growth followed by U.S. and Europe at 14% each. Photovoltaic sales in total, including sales in our other segments, were over $1.1 billion in 2010, which was more than double the 2009 results.
For the full year, the Electronics & Communications segment grew sales 44% and delivered PTOI margins of 16%, a significant improvement from 2009 margins. For the first quarter, instead of the normal seasonal decline, we expect sales into consumer electronics markets to be flat to slightly up. We continue to anticipate PV market growth around the 20% for this year. Electronics & Communications sales are expected to be substantially above prior year, including the impact of higher metal prices.
Now on Slide 6, you'll see Performance Chemicals segment. Sales of $1.7 billion increased 26%, primarily due to 14% higher price and 13% higher volume. Both DTT and DC&F had greater than 20% sales growth this quarter. The sales growth was broad-based across all regions with Asia Pacific and North America serving as the largest contributors. The markets for titanium dioxide and industrial chemicals, grew with the global recovery and resulted in a PTOI of $315 million, which is a 51% increase year-over-year. The impact to the bottom line was further enhanced through the ongoing productivity initiatives such as DuPont Production Systems and DuPont Integrated Business management.
For the full year, Performance Chemicals sales were up 27%, principally on 18% volume and 10% price and crossing the billion-dollar PTOI mark for the first time. As we move into 2011, we see continued growth in the various markets where we participate. For the first quarter, sales will be up significantly. Sales to capacity continues to be tight for most of Performance Chemicals markets. And as a result, we will continue to focus on debottlenecking incremental capacity expansion to drive both earnings and productivity.
Now let's turn to Slide 7, Performance Coatings. Segment sales of $1 billion increased by 3% on stronger volume with local pricing gains offset by currency. Demand was driven by continued strengthening in heavy-duty truck markets in North America and Europe and growth in the global automotive market. PTOI was $71 million, essentially flat versus prior year. For the full year, Coating sales were up 11% on 9% volume, supported in part with global auto builds up 22%. Earnings were up 3x on sales and strong productivity results.
As we move into 2011, we expect global auto builds to be up about 5% with a 4% increase in the first quarter. For the first quarter, we expect sales to be up modestly year-over-year with essentially flat margins.
Turning now to Performance Materials on Slide 8. Sales were up 11% with 9% volume and 5% selling price increases, partially offset by some minor portfolio changes. Continued strength in the automotive, electronics and packaging markets helped drive the growth despite some supply chains destocking by our customers in order to manage their year-end inventory positions.
For the full year, Performance Materials had sales of $6.3 billion, a 32% increase over prior years and are $978 million, which is more than triple its earnings from a year ago. For the first quarter, we expect sales to be up modestly. Packaging and products demand remains stable, and as you heard with Performance Coatings, global auto builds continue to rise albeit at a much more modest pace. We also expect to benefit from some anticipated restocking in the supply chains.
On Slide 9, you see the Safety & Protection segment. Sales climbed 13% on improved volume with the standouts being Europe growing sales by 17% and Asia Pacific at a 19% rate. Strong demand from industrial markets was responsible for the growth and led to increased sales of Nomex and Tyvek. PTOI was $92 million, a decrease due to higher raw materials, higher spending aramids growth initiatives and an asset impairment that was partially offset by a separate gain on an asset sale.
Additionally, this quarter, we closed our acquisition of MECS, now a wholly-owned subsidiary of DuPont Sustainable Solutions. As you recall, MECS is the leading global provider of sulfuric acid process technology, increasing our addressable market in clean air and clean fuel offerings. DuPont Sustainable Solutions is now fully engaged in integrating and leveraging MECS's capabilities in the clean tech space.
For the full year 2010, Safety & Protection had sales of $3.4 billion, which is a 20% increase over prior year. Market dynamics improved as we move through the year for this mid-cycle business with notable strength in industrial and automotive markets. For the year, Safety & Protection earned $449 million. Looking at the first quarter of 2011, the market fundamentals remain healthy, particularly in industrial and in automotive. Sales are expected to be significantly higher with improved PTOI margins.
Now let's turn to the corporate view of the fourth quarter looking at the earnings per share variance analysis on Slide 10. Starting with price and variable costs, the quarter showed a net benefit of $0.06 per share. This reflects the difference between price and variable cost, excluding the impact of both currency and volume. Driven by our innovation and pricing discipline, we've been very proactive over the past year implementing price increases in the face of anticipated increases in variable costs. On a full-year basis, this spread is a positive $0.44 per share.
Excluding volume, currency and portfolio impacts, fourth quarter raw material, energy and freight costs were up versus last year fourth quarter, where many of our raw materials had reached a low point. For the full year, we saw an increase in our raws of 6% over 2009. As we look forward to 2011, we expect to see continued pressure on raw materials, energy and freight cost. And we're now forecasting an increase of about 4% to 5%.
Volume improvement resulted in an incremental earnings benefit of $0.21 per share compared to the same period, previous year. As I mentioned earlier, this benefit is broadly based across all segments and major regions with double-digit increases in Asia Pacific and Latin America. There is 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 $0.21 per share versus last year. These includes an $0.08 incremental non-cash pension charge, along with actions in the fourth quarter to support growth such as increased investment in CR&D and some specific marketing initiatives.
On a full-year basis, our fixed costs are 42% of sales versus 46% last year. So you can see we're well on our way to meeting our target of fixed costs being 39% of sales in 2012. Concurrent with taking actions to support growth, DuPont delivered more than $650 million of fixed cost savings, ahead of our commitment to deliver $400 million in fixed cost productivity and $200 million in incremental restructuring benefits for the full year.
As we told you during our Investor Day last month, we'll deliver yet another $300 million of fixed cost productivity in 2011. In addition to the productivity and growth, we expect our full year 2011 incremental non-cash pension expense to be $60 million pretax, which is about $140 million lower than we had previously communicated, reflecting favorable movements in both the discount rates and the asset returns.
For the fourth quarter, currency was a headwind of $0.03. And for the first quarter, we expect a similar year-over-year headwind. The other category on the waterfall shows a negative $0.08 variance. Reduced pharmaceutical earnings were at $0.14 negative impact. Fourth quarter Pharma earnings were $87 million, about in line with our expectations and $160 million below prior year. Our full-year 2011 estimate for Pharma pretax earnings is about $200 million or approximately $290 million less than what we realized in 2010.
The last points on the earnings-per-share waterfall chart is the fourth quarter 2010 tax base rate, which was an $0.11 benefit versus prior year. The base tax rate this quarter was a negative 14.9% versus a positive 16.3% in the fourth quarter of 2009. We have two primary drivers for the negative tax rate in the quarter. The first is a lower-than-expected full-year tax rate, reflecting a more favorable geographic mix of earnings in low-tax jurisdictions outside of U.S.; the full benefit of which was realized in the quarter.
The change in our total year expected tax rate must be adjusted in the fourth quarter, hence the incremental lower rate is applied to full year's earnings. Secondly, the U.S. tax law changes, including the R&D tax credit, were all recorded during this quarter. For those of you who used our prior guidance of 23% full-year tax rate for 2010, we estimate the difference between that tax rate and our actual full-year base tax rate of 18.8% results in about the $0.18 per share benefit range.
In light of the favorable geographic mix of earnings and U.S. R&D tax credit, we are lowering our guidance for our 2011 base tax rate from 22% to 23% to a new range of 20% to 21%.
Let's turn now to the balance sheet and cash that's shown on Slide 12. We ended the year with $3.1 billion of free cash flow versus our goal of greater than $1.7 billion. This outstanding performance is a result of strong sales in earnings throughout the year and equally strong commitment to productivity. Keep in mind, this includes a previously unforecasted $500 million voluntary contribution to our principal U.S. pension plan that was made in September.
During 2010, we paid $1.5 billion in dividends and end of the year with a net debt of $3.5 billion, $1.4 billion less than our position in December of 2009. As you recall, we committed to $1 billion of working capital productivity over a three-year period beginning in 2010. Based on net working capital levels, we delivered more than $700 million of that in the 2010 year. Here again, we have a process around working capital productivity to ensure that we continue to deliver on these commitments. And I’ll reaffirm to you our commitment to deliver an additional $300 million in 2011.
Regarding dividends, yesterday, our Board of Directors approved our 426 consecutive quarterly dividend. Our long-held strategy has been to maintain a strong balance sheet and return excess cash to shareholders unless the opportunity to invest for growth is compelling. In summary, for the fourth quarter, the year-over-year volume growth that started out in the fourth quarter of 2009 continued and expanded throughout 2010. This, along with our pricing discipline and productivity focus, delivered strong quarterly results as well as for the full year.
Turning to the first quarter of 2011, we expect the recovery that we've seen in our businesses to continue but in 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. In addition, we expect continued growth in our Ag & Nutrition segment. For our full-year 2011 outlook, DuPont leadership team 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 $3.30 to $3.60 per share to a new range of $3.45 to $3.75 per share. This, of course, excludes the impact of the planned initial acquisition, which could reduce 2011 earnings by $0.30 to $0.45 per share on a reported basis. The driver for the increase in our guidance is our lower tax rate, driven by increased earnings in lower tax jurisdictions outside of the U.S., and reduced non-cash pension expense. These benefits are partially offset by an increased share count.
We ended 2010 with 932 million shares outstanding on a fully diluted basis versus our original estimate during the Investor Day of 915 million shares or about 2% additional shares, representing a $0.06 per share headwind in 2011. This increase in guidance is based on our confidence and our continued ability to deliver results.
On Slide 13, looking strictly at segment pretax operating income, excluding significant items, we saw 39% growth in 2010. And if you exclude Pharma, our growth was nearly 80%. As I said in the start, we have a plan for 2010, and we executed against that plan. First, we put our innovation to work and grew our businesses across the globe. Second, we drove productivity to expand our margins. And third, we delivered strong cash performance and reduced net debt by $1.4 billion. We executed extremely well this year and we expect continued positive results in 2011. Now I'll turn it back over to Ellen.
Great. Thank you, Nick. Last month at our Investor Day, we shared our plans for continued strong growth. We raised the performance targets on our businesses, and we detailed our financial assumptions and growth targets for 2011. And two weeks ago, DuPont cemented its position as the leader industrial biotechnology with our announcement to acquire Danisco. Both companies are working hard to drive through the legal and regulatory milestones to close the transaction. Today, we are right where we expected to be in this process, having received approval from the data financial authority and launched a tender offer for Danisco shares last week.
We continue to expect the close of the transaction early in the second quarter subject, of course, to the regulatory reviews. I'd like to update you on our integration effort. I've selected Jim Collins, as the integration leader for our planned acquisition. You know Jim from his stellar leadership of the Crop Protection business. What you may not know is that Jim has been part of several previous integration teams including Pioneer, Griffin LLC and Protein Technologies International, that now known as Soleil[ph] . And Jim brings an excellent track record of delivering results, and his passion and knowledge on the food and biotech areas makes him the right person for the job. Now as we committed to you during our Danisco announcement, we will keep you updated on our progress in this tender. And during the integration, and Jim will be a key part of this growth story.
As we move through the process in Denmark, we will keep you posted. And I do want to underscore one important point. We won a competitive process with a full and fair price, giving Danisco shareholders an attractive premium for their investment that also reflects in the future value, we believe, this combined company can deliver for our own investors. My commitment to you is that we will stay disciplined throughout the tender offer process and the integration and keep you apprised when we achieve key milestones.
Of course, we've known Danisco and Genencor as our partners for the past decade, and one key personality trait our company share is our commitment to science and innovation. For DuPont, science and innovation are the engines that drive our growth and what sets us apart from our peers, and whether it's product introduction that drives higher value and higher margins, or whether it's manufacturing excellent or proprietary technology that contribute to our low-cost position, science and innovation remain critical to our success at DuPont.
When I talk about science and innovation at DuPont, I'd like give samples of how they translate into commercial success. The examples I'll share with you have the distinction of having just won a DuPont Excellence Award, that's a very prestigious recognition within the company. One of our Excellence Awards was earned by a team from Crop Protection, which launched a program in 2009 called PrecisionPac. Now PrecisionPac is a dispensing system designed by DuPont and provided to retailers so they can customize both the formulation in a very precise amount to [indiscernible] herbicides to meet individual grower needs. The system design had to make some formidable challenges both in its precision and its safe handling of the component.
Retailers had to be trained and serviced in a different way, and in the end this was a very successful program. It was well-designed and well executed. Retailers were delighted to offer custom solution to their growers. And we saw sales growth against generic competition who could not follow with solutions tailored to the individual grower needs.
Another Excellence Awards comes from our Electronic & Communications business. It was approached back in 2008 to develop a new black [indiscernible] for using copper lace for printed flexible circuit to be used by our auto OEM, who was interested in an all-black cylinder to complement this sleek designs. The conventional film is amber in color. So our multi-functional team came together and developed a product and delighted this OEM customer, but it didn't stop there. They leveraged this new material and applications for smartphones, notebooks and tablet PCs. And these are just two of our excellent award winners, and there are many, many other outstanding examples of excellence in science and innovation when the an awards ceremony here in Wilmington last week where we honored all the winners.
I want to close by reiterating that I expect 2011 to be a year for DuPont to build on our hard-earned momentum. When we designed the accountability structure that we put in place starting in 2009, one of my priorities was to have the flexibility to accommodate potential acquisitions. Meaning that our organizational and reporting structure needed to enable our businesses to stay focused on delivering results, while an integration team went about its work. And now our people have more than a full year under their belts and this accountability structure and the structure has worked the way we planned. And we welcome the integration task that we have ahead of us, and we will stay focused on fulfilling our directives for 2011 day-by-day and quarter-by-quarter.
We have another exciting year ahead of us, and we have the resources, the growth plans, the disciplined processes and market momentum. In summary, the focus is on execution, and I expect the same executional excellence from my leadership team this year as they demonstrated in 2010. And with that, I'm happy to take your questions.
[Operator Instructions] And we do have a question from Frank Mitsch from BB&T Capital.
I noticed on the cash flow statement there was a $637 million cash outlay for businesses, net of cash. I believe that was all in the fourth quarter. Was that all Ag-related, and can you talk a little bit about what sort of performance metrics we could expect out of that investment, i.e., in terms of addition to topline and bottomline?
Frank, that's for the acquisitions. And if you look at the components of that, there's two pieces, it's MECS, the acquisition for MECS and the acquisitions that we had in PROaccess.
So we should expect some benefits in Safety & Protection on the Ag side in terms of top and bottom line for 2011?
And you had sales in Greater China of 50% for the whole year, which is obviously eye-popping results because you've been involved in that region for a long, long time. What are the key businesses there and how sustainable is that level of growth? What should we be expecting in 2011 out of that area?
So I mean, we had a great year in Greater China. As we really focused on electronics and things like phones and photovoltaic showed great growth. Automotive sales in 2010 or builds in 2010 in China were a very -- contributed greatly to our results. And kind[ph] of two markets were strong and hit record highs in sales. A lot of that underpinning is their domestic consumption, which is on the rise in China. And although as a country, their GDP was probably 10-ish percent last year, it's going to moderate but only to 9% this year. So a very modest moderation as we continue to focus. For instance, auto build, China were up 10%, they're predicted to be the same. So we do think we have momentum in China. We have positioned ourselves very well in some key segments, and I think you'll continue to see us making progress in that area.
And we have a question from Laurence Alexander from Jefferies.
Lucy Watson - Jefferies & Co.
This is Lucy Watson on for Laurence today. It sounds like you are expecting pricing to at least keep pace with the materials in Performance Chemicals and Performance Materials, but it could potentially fall short in Performance Coatings and Safety & Protection again in Q1. Just wondering, I guess in general, which raw materials will represent the largest challenge this year? And then more broadly, what's embedded in your 2011 outlook full pricing versus the raw materials and freight up 4% to 5%?
So the raw materials situation is somewhat dynamic. Right now, we're saying that is going to be 4% to 5% increase. When you look at the major components of that, metals is certainly going to continue to be a major component of the raw material increase. And as I mentioned in the dialogue there, that's really a pass through for us on our Electronics segment. Some other raw materials that they're going to be seeing some increases that we're forecasting are things like ethane, HMD, [ph] acid, chlorine, some of our solvents or some of our pigments. Those are the areas where we see raw materials continuing to rise throughout the year. When you look at our ability to price that in the marketplace, obviously that's going to vary from business to business. But if you look at, for instance, some of those things I mentioned relating to our TiO2 business, the market remains extremely tight in that area. And the other things I'll mention, Lucy, is the work we've done around pricing for value throughout the Corporation over the last several years really serves as well in environments such as that.
Lucy Watson - Jefferies & Co.
Will MECS and PROaccess, will those acquisitions be accretive in 2011?
For both of those acquisitions are already in the numbers that we have given you. So that's the first point I want to make. And those acquisitions will be accretive in 2011.
And our next question is from P.J. Juvekar from Citi.
Just a couple of questions on Ag. You mentioned the strong start of the North American season. How much did you see prepayments go up this year so far? And then, with corn and bean prices up, but at the same time your competitor is lowering prices on certain seeds, in light of all that, how do you see pricing shaking out of this season?
So we are really pleased with our progress, so far, on our North America order book. The volume’s up. It's in line with our goals, and AcreMax 1 is outpacing our goals. And I think that we're very, very focused on that. People ended the year and the farming community -- with commodity prices, with some cash, we had a great end-of-the-year with collections and that saw a positive trend. So we think that, that bodes well for the season. People are going to want to protect their yield, because that yield is going to be very -- it will have a great return for them. So our gross strategies are in place with great products like Acre, our PROaccess, really right in the midst of it right now. But we're very focused on it and very positive. I'm pleased with how we started the season.
And with the Latin American season behind us, do you think you gained share there?
Yes. I think Latin America has turned out to be a pretty good season for us. We're really pleased with where that ended up.
Our next question is from Mark Connelly from CLSA.
Two things. First, when we look at the $500 million voluntary contribution, can you give us a sense, Nick, of how that's going to affect your fixed cost progression? Is that going to be significant part of improvement. And then just a follow-up question is on OLEDs. We haven't heard you talk a lot about that lately. We hear a lot from [indiscernible] about the technology. I was wondering if you can give us a sense of how much that can contribute in ENC?
Let me take the pension question that you asked. So when we made that voluntary contribution of $500 billion this year, and obviously that contribution, with the return that we had this year on our assets, played into the reduction that I already communicated to you now from our original estimates of a $200 million year-over-year increase in non-cash pension expense, down to the number of the $60 million that we're now seeing for 2011. So that contribution and the return of that contribution plays into those numbers.
As far as OS [ph] go, we are continuing to be very bullish on the technology. We've met significant milestones. We're working with partners around the world to not only demonstrate the technology but to continue to make progress there. And you'll be hearing more about that as we progress through those discussions.
Our next question is from Paul Mann from Morgan Stanley.
In your Ag & Nutrition slide, you talked about continued pricing pressure and core protection sales, can you just talk about how much pricing pressure you kind of expect and what products and what markets, what regions you expect that pricing pressure to be in, please?
As always, with the diversed nature of the Crop Protection Chemical business, it really depends on what you're talking about. All regions are price pressures; it's a very competitive market. We've been very fortunate with our new product introduction, things like the picoxystrobin and Rynaxypyr have done very well in the market as there's a real movement towards products that are more of the case shift have less impact on the environment. And so in 2011, commodity pricing in the Crop Protection market may be increasing. But we see it as a market that's going to be enhanced by the fact that the farmer wants to protect yields, and it's going to be using everything he can to get the most out of his acres this year.
Next question is from David Begleiter from Deutsche Bank.
Ellen, on TiO2, can you comment on the current price increase, how it's going? And your expectation for full-year pricing in TiO2?
So TiO2 had a great year last year, as did the entire Performance Chemicals segment with their revenues up, the segment revenues were up 26% and both sides of it had strong revenue growth. We see that as a market that continues to be tight with capacity utilizations above 90% and with no real major expansions on the horizon. So it's a classic commodity chemical market when capacity utilization is high, prices tend to rise. We don't tend to comment on any individual price increase. That tends to be something that we get into with our customers very dearly because of the relationships in the long-term we have there. So the market dynamics are right where they were, as we discussed this in December, and we continue to play that out.
Next question is from Mark Gulley from Soleil Securities.
Can you comment on market share movements in seed soy and seed corn both for '10 and what you would just make for '11? And then finally, with respect to the nonrecurring charges for Danisco, Nick, can you kind of separate out the nonrecurring charges or ongoing charges for Danisco for '11?
Yes. In 2010, North America, the soy share increase was five points, corn was three points, of course that includes PROaccess. This year, it really is going to depend on what the acres turn out to be. I mean, all the crops now are fighting for acres and the USDA brought out some indications on where they think corn is going to be. But the final answer is unclear. But we're very happy with our progression in the marketplace and our position in the marketplace with our current products, and we'll see how that plays out over the season. Nick, you want to talk about the second question?
So, Mark, when you look at the $0.30 to $0.45 per share, let's just try to break it out into the components. There's obviously a component there relating to the $3 billion of debt. So the interest expense associated with that, that's obviously going to be an ongoing sort of charge and you can calculate that as easy as I can on $3 billion what an average interest rate would be right now. When you look at purchase accounting rules, that are going to influence this, obviously that's where the range starts to come into play because that's where the uncertainty is. But for talking purposes, I think you can think about the write up of PP&E, that type of thing, as ongoing. And then the onetime sort of charges relating to that $0.30 to $0.45, that would be the cost associated with executing our synergies. And we said our synergies is $130 million, so think about cost associated with that, almost like 1x sort of number. And then the other one, which is going to represent a lion's proportion of that, is the inventory piece. And you've got to write up that inventory, and that's going to be a onetime effect as well because you're going to be able to cost that out over the current year and then after that, you'll get into a normal cost of goods sold sort of recording situation. And that's where the variance, Mark, is going to be really unknown. I got to wait and see when we close what that inventory level is and how much we have to write up. But that also would be sort of a onetime event.
Next question is from Don Carson from Susquehanna.
At Danisco, you're adding a high-growth, high-margin business comparable to what you have now. But looking at Performance Coatings, your flat year-over-year in the quarter. Even at the Investor Day, you're still only targeting 10% to 12% margins by 2015. So certainly that's the lowest growth, the lowest margin business you have. What's the future of that business in DuPont because it does seem to drag down the overall sales growth and margins for the company?
Don, as you know, we put a new leader in Performance Coatings in the fourth quarter of this year. John McCool and a team that is continued to be focused on strong operational leverage and continued focus on productivity. And we take a look at each one of the segments there individually and assess our strength versus others and continue to drive towards the numbers that we presented in December. We believe this is a segment that can be a strong cash contributor to the company. And at the end of the day, they have their mission. They have their goals, and we're driving them to contribute there that great market position and refinish in some of the industrial segment. So I think this is an area with the investment we've made in the restructuring and the new leadership team, let's see where they get.
Next question is from Kevin McCarthy from Bank of America.
So for 2010, your volumes came in at 17%, running more than triple where global GDP is likely to come in. In that context, could you comment on your global growth assumptions embedded in your outlook of $3.45 to $3.75 in EPS at a macro level and then more importantly, what kind of multiplier or premium would you anticipate for DuPont, specifically next year?
So let me talk about the assumptions that are in our -- current thinking, around 2011. We had talked to you about sales for 2011 being about $33 billion to $34 billion. That thinking has not changed. So the change that I've given you in the range of EPS, sales are still around at $33 billion to $34 billion. We talked about raw material price increases going up about 4% to 5%. And as I mentioned, that's a pretty dynamic thing. But right now, that's our best thinking. That's net of our productivity gains that we would have in that area. We continue to drive productivity, both fixed and working capital productivity. And our thinking right now in our model has at $300 million of fixed cost productivity and about $300 million of working capital productivity. So when you talk about some of the changes that have occurred now in the new guidance, one is around the tax rate changes and that's going from the 22% to 23% down to the 20% to 21%. And I would think about that as the underlying performance of the business. So when you look at our geographic sales base and where we're operating, what we're saying is, on an ongoing basis, the 20% to 21% rate is more reflective of our underlying businesses and where they are participating around the world. The pension adjustment, as I mentioned, went from $200 million down to $60 million increase year-over-year. Take all that together and you add on top of that the outstanding shares that I mentioned going up, it puts you at the range we are now forecasting at the 345 to 375 range.
Kevin, let me take you on a walk around the world around the topline and just give you some perspective on that, because I think you're interested in that as well. In the U.S., GDP is going to be the same in '11 as it was in '10. The biggest change in the U.S, from our perspective, is going to be the automotive industry. Whereas in 2010, I think, U.S. and Canada were up over 30% overnight and '11, it was only, I guess, 11%. So we're going to see a moderating growth in the automotive, still. And so our growth rate that we saw in the U.S. for the year, which was well under the double digits is going to be probably more in the high single-digit numbers and the like of that. So the U.S., I think, is going to continue to have some strength because of 10% automotive growth as well as good Ag season in that. Europe is going to have a mix recovery pictures. So we think that it's going to be continued, a little bit stronger, maybe 2.5 GDP in Germany, and there's a strong export market. We're not expecting much out of automotive there. Eastern Europe's going to come back more strongly, probably -- well, actually moderating there. So I think Europe is going to be a mixed picture as we go forward. Asia Pacific is going to be an area of strength for us between where automotive is, between where photovoltaics are and electronics are, and things like TiO2 and an increasing Ag position there. That Europe we're going to see, kind of growth rate, it may not be reflective of last year like 50% in China but they're going to be very, very strong. In Latin America, I think you're going to see there that all the automotive is not going to drive Ag outside our business there, Ag & Nutrition will. And so I think, you are going to see some well above-GDP growth in Latin America. GDP in Latin America is about 4% in 2011 is what our estimates are. So I think that our position in Ag, our position in TiO2, photovoltaics and the recovery in Safety & Protection are going to bode well for our volume 2011.
Will take one more question then we'll turn it back to Ellen.
The last question is from Jeffrey Zekauskus from JP Morgan.
Your free cash flow is $3.1 billion but on a sequential basis, your accrued liabilities and payables went up by $2 billion? So what's the free cash flow estimate that you have for 2011? And your share has creeped up from 909 to 929 year-over-year, are you going to let it continue to creep up or will you do something about it?
So I haven't provided a free cash flow number for 2011 but let's just talk directionally about what we're seeing right now, Jeff. What you saw in 2010 was tremendous productivity gains coupled with the earnings increase that we showed, and you saw that reflected in the free cash flow results. Keep in mind that those free cash flow results were inclusive of a $500 million pension contribution that was not in the original target number that I provided to you. So the performance in the area of working capital productivity, I believe, was just tremendous this year. When you look at our working capital turns within the company, and you see the improvement we had at the current sales rate, it's is like a 13% improvement there, which equates to over $700 million of working capital productivity gains, so tremendous improvements in those areas. Second part of your question, Jeff, what question...
Share creep, from 909 to 929, will you do anything about that or would you just let it creep up?
At this point in time, I don't have plans to do any kind of a share buyback. When you look at the reason for the increase here is, obviously, around the executive compensation piece. And when you look at that about over the past 10-year period, we actually are about 13% ahead in the way of buybacks versus shares that were issued in relation to that. So what's your question about 10 million shares -- we're ahead of the game on a share-per-share basis there. So at this point in time, I don't have any plans to have any share buyback. Is not done on a one-for-one basis.
Okay, that's the last question we have time for. I just want give Ellen a chance for closing.
Thanks, Karen. There has been a number of questions on 2011 and our outlook, and we see tremendous opportunity going forward given our diversed portfolio, given our broad geographic footprint, with markets that are in various stages of growth and recovery, 2010 was all about execution and delivering on our commitments. And we provided updates throughout the year, and you consistently heard me talk about three themes: Number one, the power of DuPont innovation; Second, productivity as a way of life with a disciplined managing process in place and third, differential portfolio of management with resources going to the highest growth of opportunity and accountability for results. So my point is, we executed well in 2010, and you should expect the same from us in 2011. And we look forward to updating you as the year unfolds. Thank you for joining us today.
Thank you, ladies and gentlemen. This concludes today's teleconference. Thank you for participating. You may all disconnect.
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