Good morning. My name is Sean, and I will be your conference operator today. At this time, I would like to welcome everyone to the DuPont Quarterly Investor Call. [Operator Instructions] To listen to the webcast, please go to www.dupont.com. Thank you. 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.
Karen A. Fletcher
Okay, thank you, John. Good morning, and welcome, everyone. With me this morning are Ellen Kullman, Chair and CEO; and Nick Fanandakis, EVP and CFO. The slides for today's call can be found on our website at dupont.com, along with the news release that was issued earlier today.
During the course of this conference call, we will make forward-looking statements, and I direct you to Slide 2 for our disclaimers. All statements that address expectations or projections about the future are forward-looking statements. Although they reflect our current expectations, these statements are not guarantees of future performance but involve a number of risk and assumptions. We urge you to review DuPont's SEC filings for a discussion of some of the factors that could cause actual results to differ materially.
We will also refer to non-GAAP measures and request that you please refer to the reconciliations to GAAP statements provided with the earnings news release and on our website. And finally, we've posted supplemental information on the website that we hope is helpful to your understanding of our company's performance.
It's now my pleasure to turn the call over to Ellen.
Ellen J. Kullman
Great. Thank you, Karen. Good morning, everyone. Let's turn to Slide 3 for highlights on our 2011 performance. Full year sales were up 20%, including 5 percentage points from the Danisco acquisition. Segments with the largest organic sales growth in 2011, net of acquisitions, were Performance Chemicals and Agriculture. Sales in developing markets were up 27%, and that represents 34% of company sales.
Market-driven science is critical to our success, and we expect to have about 30% of 2011 sales come from products that were introduced in the past 4 years, and we'll be finalizing that data in February.
Fixed cost and working capital productivity surpassed the targets we set for the year. Fixed cost productivity exceeded our target by $100 million, and working capital productivity beat the target by $200 million. Variable cost productivity programs, they also delivered comparable results.
DuPont delivered a record $3.93 per share in 2011 on an underlying basis, which is up 20% versus 2010, capping off a very strong year with broad-based contributions. We ended the year with $3.3 billion in free cash flow compared to $3.1 billion last year, an improvement of 8%.
During the fourth quarter, we faced several headwinds. When we updated our full year guidance on December 9, we pointed to market softness in electronics and customers' conservative year-end cash management with further destocking in polymer and industrial supply chain. We have also made clear that the photovoltaic inventory correction continued through the quarter. These factors combined to press volume down 10%. Despite these difficult conditions, underlying earnings were up in the fourth quarter when adjusted for the differences in tax rate year-over-year. Our earnings performance demonstrates an ability to execute extremely well in volatile and uncertain markets. It is our view that fourth quarter volume performance was strongly impacted by cash conservation and supply chain actions, and did not reflect broad macro conditions.
There was GDP growth in the quarter in most regions, with growth also projected for 2012. The good news is that caution in the fourth quarter means that many supply chain inventories are fit. We expect some conservatism to linger in the first quarter, with a rebound effect likely to come in the second quarter, and I'll provide a more detailed perspective on how we see the rebound effect playing out later on this call.
To further illustrate my point that fourth quarter volume was primarily a function of cash conservation and supply chain restocking rather than macro conditions, I'll share fourth quarter perspectives on key markets. Let's start with electronics, where continued destocking in PV was expected. As the channel corrects for significant overproduction in the first half of 2011, we expect destocking to be completed by midyear, perhaps sooner, with PV installations to be up about 10% in 2012. Remember, PV sales represent about 40% of the electronics segment. For consumer electronics, the seasonal decline in orders was more than expected, in part due to delays in launch timing for next generation smartphones and tablet PCs, coupled with some destocking and caution in the value chain through the quarter. Auto builds were essentially flat, with gains in the U.S. and Japan offset by declines in every other region. Our Performance Materials segment was affected by destocking in their supply chain, most notably in Europe and Asia Pacific. As expected, the titanium dioxide market experienced a pause, with volumes down and prices up year-over-year. For added perspective, our full year TiO2 volume was down modestly in 2011 versus a sold-out position in 2010, and expectations for volume growth in 2012. TiO2 demand, on average, tends to follow GDP, and with no major tranches of new capacity coming on in the next 24 months, we expect this market to remain strong, with solid fundamentals and healthy returns.
And speaking of strong market fundamentals, our ag businesses continue to deliver impressive results. Fourth quarter sales were up 8% on 3% volume growth. However, the real story is the Latin American summer season, which primarily spans our third and fourth quarters. So for the second half, the ag segment sales were up 23%, and underlying PTOI was up 43%. These outstanding results reflect a constant press of product lineup in Latin America, with industry-leading germplasm, coupled with more than 85% insect rate penetration in Brazil corn. Our Right Product, Right Acre approach is delivering strong sales, share gains and, most importantly, delighted customers.
Pulling this all together, we dealt with a wide range of market conditions at year-end. We remain close to our customers, often taking advantage of market positives to accelerate new product valuations.
So I'd like to highlight a few innovation achievements as we closed out the year. In the fourth quarter, we announced a licensing agreement with a major Asian manufacturer for OLED technology. This acknowledges that we have achieved a major milestone in demonstrating technology that enables large displays to be produced at significantly lower cost than competing technologies. And we're quickly moving into small-scale semi-works production where we would develop basic data and supply materials for prove out by interested partners.
Rynaxypyr insecticide sales reached $580 million this year, with a strong finish in Latin America and Asia. For context, this means this product line represents about 20% of total sales in our crop protection business. We look forward to the launching of the next product in this family, Cyazypyr, in the later part of 2012.
We received regulatory approval last summer for the next wave of integrated and reduced refuge products, Optimum AcreMax and Optimum AcreMax XTRA, which will deliver significant value this year for our customers. And we look forward to the regulatory approval of AcreMax Extreme in the first half of 2012.
And last month, the Society of Plastics Engineers announced their award for Most Innovative Use of Plastic, and DuPont products were featured in 3 separate awards for Ford, Fiat and Toyota. Two of the innovative components featured renewably sourced material, including our bio-based Sorona polymer in the carpeting application.
Finally, for the 2011 year, DuPont was granted a total of 910 U.S. patents, the highest number for a single year in the company's history, and I'm extremely proud of our scientists who developed these proprietary innovations and of our marketers whose understanding of customers' unmet needs shaped these research and development programs.
So now, I'll turn the call over to Nick for a detailed review of the financial results of the quarter, and then I'll share my expectations for the year ahead. Nick?
Nicholas C. Fanandakis
Thank you, Ellen, and good morning, everyone. In spite of volatile market conditions, DuPont delivered a record year in 2011, with underlying earnings of $3.93 per share, which, as Ellen already mentioned, was a 20% improvement over 2010. Our exceptional performance continues to demonstrate our ability to successfully focus on innovation, productivity and differential management. Ellen's already given you a sense of the dynamic market conditions that we faced during the fourth quarter, so I'll go straight to the financial details of the quarter, which played out as expected and consistent with our updated guidance in December.
Let's start with Slide 4, which is a summary of earnings and sales results. Fourth quarter total segment PTOI increased over $100 million or 16%. Earnings per share were $0.35 on an underlying basis compared to $0.50 in the prior year. The decrease here was due to the significantly higher tax rate, which was a negative $0.23 per share impact year-over-year.
Consolidated net sales of $8.4 billion were up 14% versus the prior year. Local selling prices were up 14%, with double-digit increases in all regions, reflecting our continued strong discipline of pricing for value. The Danisco acquisition was the primary driver for the 10% benefit from portfolio changes. Volume was down 10%, primarily reflecting supply chain destocking that Ellen has already covered.
Now, let's turn to a corporate view of the fourth quarter, looking at earnings per share variance analysis on Slide 5. Starting with price and variable cost, the quarter showed a net benefit of $0.43 per share. This reflects the difference between price and variable cost, excluding the impact of currency and volume. Driven by our innovation and pricing discipline, we continue to successfully implement price increases, pricing our new products for the enhanced value that they deliver. On a full year basis, this spread was a positive $1.41 per share.
Excluding volume, currency and portfolio impacts, fourth quarter raw material, energy and freight costs were up 15% versus last year's fourth quarter. For the full year, we saw an increase of 13% over 2010, and this includes about 3 percentage points for metals, which, as you know, is passed through. As we indicated in December, we expect an increase of about 4% for the full year 2012.
Volume declines resulted in an earnings hurt of $0.20 per share. This excludes the impact of Danisco, which is shown separately. The decline in volume reflects decreases in all regions and all segments, except for Agriculture, reflecting the market environment that Ellen has previously discussed. On a full year basis, total company volume was up 1%, with ag volume up 10%.
Continuing with our variance analysis, let's now move to fixed cost. Excluding currency, volume and portfolio impacts, fixed cost reduced earnings by $0.17 per share, and this was primarily driven by actions in the fourth quarter to support growth, such as increased investments in ag, the new Kevlar plant at Cooper River, TiO2 capacity expansions along with R&D and specific marketing initiatives. These investments and the available capacity at some of our existing plants provide us with ample opportunity for growth and further penetration of the marketplace.
On a full year basis, fixed costs were 40% of sales versus 42% last year, well on our way to meeting our target of fixed costs being 39% of sales in 2012. Concurrent with the actions to support growth, we delivered more than $400 million of fixed cost savings in 2011. As we told you during Investor Day last month, we expect to deliver another $300 million of fixed-cost productivity in 2012. Year-over-year, currency was a benefit of $0.01 in the quarter and $0.17 on a full year basis.
Next, exchange gains and losses was a negative $0.04 variance in the quarter. Our goal continues to be to achieve 0 after-tax impact from our balance sheet hedging program. However, in the quarter, there was significant volatility in exchange rates and cost of coverage, which created a reduction in earnings. As is typical, the detailed reconciliation is shown on Schedule D in the earnings news release to depict the exact number our hedging program had on our earnings, as well as the effective tax rate.
Income tax on the EPS waterfall is a $0.23 headwind. This represents the difference between the base tax rate this quarter, which was 27.5%, versus a negative 14.9% in the fourth quarter of 2010. Our full year tax rate of 22% was higher than our expected full year tax rate of 21%, reflecting an unfavorable geographic mix of earnings in higher tax rate jurisdictions. This impact was recognized in the fourth quarter, resulting in a higher 27.5% rate. Conversely, in the fourth quarter of 2010, the full year tax rate was lower than expected because of 100% of the U.S. R&D tax credit which was recorded in the quarter, and it resulted in a negative 14.9% rate. The full year 2011 impact of the 22% tax rate versus our previous guidance of 21% is about a $0.05 per share headwind.
Next on the waterfall is Danisco, a benefit of $0.04 on an underlying basis. This includes earnings, additional interest and amortization expense associated with the acquired intangible assets, as well as some integration costs that were not included in our one-time items. On a full year reported basis, Danisco diluted earnings by $0.13 a share. This includes underlying results of $0.09, offset by significant items associated with the transaction and cost to achieve synergies of $0.22 per share. As we discussed during Investor Day, we are committed to achieving at least $130 million of cost synergies in 2012, which is a full year ahead of original expectation.
There's a graph depicting sales by geographic region on Slide 6. We delivered strong performance in developing markets, with sales up 14% in the quarter and 27% for the full year.
Turning now to balance sheet and cash on Slide 7. We ended the year with $3.3 billion of free cash flow versus the prior year of $3.1 billion. This outstanding performance is the result of strong sales and earnings throughout the year and equally strong commitment to productivity. At the end of 2011, on a 12-month trailing basis versus the end of 2010, we were able to increase net working capital turnover by about 7%, excluding the Danisco impact, reducing our working capital needs and delivering $500 million of productivity this year. Combining this with a more than $700 million of productivity in 2010, we have already surpassed our commitment to deliver $1 billion of working capital productivity between 2010 and 2012. And I'll reaffirm our commitment to deliver an additional $300 million in 2012.
We ended 2011 with a net debt of $8.5 billion, which is approximately $5 billion more than our position in December of 2010. This increase reflects $7 billion acquisition of Danisco, partially offset by exceptional free cash flow performance for the year.
I want to give a quick update on our pension contributions. Last week, we made the $500 million contribution to the principal U.S. pension plan we had communicated to you on Investor Day. Our strong balance sheet continues to serve us well. We value our A/A2 credit rating and work to maintain the associated metrics to support that. During 2011, we paid $1.5 billion in dividends, and yesterday, our Board of Directors approved our 430th 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, our market environment was a dynamic one, with agricultural and food markets continuing to be strong while we experienced destocking in several supply chains. In spite of these market conditions, we were able to deliver a double-digit increase in total segment underlying PTOI, which is a testament to our pricing discipline and productivity focus.
Turning now to 2012, we are reaffirming the guidance we gave at Investor Day of $4.20 to $4.40 per share, an increase of 7% to 12% from 2011. However, I'd like to provide you with an update on 2 of our financial assumptions, currency and the tax rate, that were a part of our guidance on Investor Day. Currency rates remain volatile, and at current rates, we expect the U.S. dollar to be about 6% stronger in 2012 versus our previous assumptions of 3%. The 6% stronger dollar translates to about a $0.25 per share headwind on a year-over-year basis or an additional $0.12 per share headwind versus our previous assumptions. For the first quarter, the stronger dollar is about $0.08 headwind versus prior year.
Turning to tax rate. We said in 2012 that the planned rate would be about 22%. We communicated this during Investor Day. We now expect the full year tax rate to be about 23%, which is a $0.05 per share headwind versus the previous guidance, reflecting unfavorable geographic mix of earnings in higher tax rate jurisdictions.
From a market perspective, our assumptions are essentially in line with what we shared with you during Investor Day. We expect to see some of the softness from the fourth quarter continuing in the first quarter, with the industrial markets rebounding further into 2012. For PV, we expect inventories to correct in the second quarter of 2012, followed by a rebound in manufacturing, with growth and installations of about 10% for the full year.
Consumer electronics, we'll see weak demand early in the year, with market recovery later in the year driven by smartphones and tablets, with good year-over-year growth in 2012. In TiO2, Agriculture and food, the fundamentals remain strong.
While acknowledging that the 2 updated financial assumptions do create downward pressure on the 2012 guidance, it's still very early in the year. Macro conditions remain volatile, including currency, and much could change between now and the end of this year. To combat these challenges, we remain focused on our disciplined processes around innovation, productivity and differential management. The businesses are staying close to the customers to better understand demand signals. We know what levers to pull to meet our customers' needs. DuPont's leadership teams remain confident in our business plans and our ability to execute against those plans. Therefore, we are reaffirming our previous 2012 guidance.
In summary, we had a record year in 2011 in terms of underlying earnings per share. You can once again see the strength of the result that our diversified portfolio delivered. As we transform our portfolio to its more market-driven innovation businesses and with reduced impact from cyclical businesses, you can expect us to continue to deliver superior results.
With that, I'm going to turn the call over to Karen to review the segment results. Karen?
Karen A. Fletcher
Thanks, Nick. We'll start with our segment review with Agriculture on Slide 8. Fourth quarter sales of $1.3 billion increased 8%, with volume gains of 3% and price gains of 5%. The seasonal PTOI loss of $116 million was lower than previous year losses due to increased sales. Fourth quarter does not reflect the majority of any single season since much of the impact of Latin America's summer season is captured in our third quarter results. Most of Brazil's Safrinha season is captured in our first quarter results, and most of northern hemisphere sales are captured in our first and second quarter results.
Our full year performance clearly shows the power of the businesses. Our teams delivered 17% sales growth with 10% volume gains, 6% higher price and 1% impact from portfolio. 30% earnings growth, coupled with industry-leading sales performance, translated into 19% PTOI margins for the segment. The combination of our global infrastructure and the businesses' ability to respond and win in every major market with an intense focus on the customer, demonstrate the power of our business model. This discipline of service and momentum of innovation are the foundation for growth in 2012 and beyond.
Taking a closer look within the segment, seed fourth quarter sales of $621 million increased 7% based on the close of an exceptional Latin America summer season. Latin America's sales in the second half were up more than 40%, driven by over 55% growth in Brazil's summer corn sales excluding currency, as our L.A. teams mobilized quickly and responded well to the increase in corn hectares. The quarter also captured improved sales in the Philippines and Indonesia, reflecting improved weather conditions and increased planting acres, with our teams capturing more than their share of that increase.
For the full year 2011, the Pioneer global team delivered another year of market wins, with growing sales, earnings and margin. The incremental contribution was well-balanced between North America and international growth as we predicted coming into 2011. Success was underpinned by new product penetration, increased acreage and share gains in North America, volume growth and value capture in Latin America and success growing in Europe and Asia. Specifically, 2011 seed sales were up 17% to $6.3 billion, reflecting both volume and price contributions.
In summary, the business delivered on all commitments, including its focus on investing for future growth, ending an outstanding year with the business stronger than ever. And importantly, here's an update on North America. The sales teams have been setting a historic pace as we work closely with customers during a very dynamic cycle. Our order book is ahead of last year, with our volumes tracking in line with growth objectives and the value proposition aligned with customer expectations. At the product level, our newest integrated and reduced refuge product offerings are being embraced. And confidence in our soybean performance and confidence in our soybean performance and disease packages are strong. Specifically, we anticipate about 60% of our triples will be converted to AcreMax 1 or AcreMax XTRA. In addition, we're releasing many new hybrids with our AQUAmax technology.
In soybeans, we have over 30 new varieties and about 60 new products from the last 2 years penetrating our lineup. And one final comment as we look forward to 2012, we anticipate AcreMax Extreme regulatory approval in the first half and will be testing this product this season, allowing thousands of farmers to see it in their local fields.
Turning to crop protection products. Sales for the quarter of $676 million grew 9%, reflecting growth across all major product lines in most regions, with the largest contribution for the quarter coming from strong performance in the U.S. and Latin America. All regions achieved double-digit sales growth in the second half, led by the excellent performance in the Latin American market. Importantly, these strong results reflect volume growth and net price gains.
For the full year 2011, crop protection sales of $2.9 billion grew 16%, including a 3% decline from divested businesses. Our volume increase was led by Rynaxypyr insecticide, which posted sales of about $580 million, growing over 45% in its fourth season with continued market share gains.
Our 2011 successes are many, including an insect control portfolio exceeding $1 billion in sales, continued growth of decosystrobe [ph] and fungicide, and the introduction of new proprietary herbicide blends for expanded weed control options for our customers. We continue to refresh and renew our crop protection portfolio by divesting older chemistries while accelerating our R&D pipeline advancements and new product launches.
This team continues to execute well with their strategy, which centers on market-driven innovation and game-changing new products. Looking ahead to the first half of 2012 for the Agriculture segment, we expect to increase sales moderately, with mid-single-digit earnings growth. Our assumptions center on strong operating performance in the businesses, delivering both volume growth and pricing gains, offset in part by the transient impacts of input cost increases, continued growth investments and, most notably, significant currency headwinds. The split between quarters hinges on the northern hemisphere season favoring March or April, and currently, that's hard to call. We assume growth investments and, more importantly, currency headwind will be more heavily weighted to the first quarter.
Now let's turn to Slide 9 in Electronics & Communications segment. Sales of $630 million declined 18% compared to the same period last year, with 33% lower volume offset by 15% higher prices, essentially metals pass-through. Pretax earnings of $42 million were $56 million lower than the same period last year due to inventory destocking in photovoltaics and softening in consumer electronics and plasma displays. Also included in this quarter's earnings is $20 million of licensing income from our partner in the development of advanced OLEDs.
As expected, PV sales were down in the quarter due to an excess of inventory in the supply chains. We believe these excess inventory levels will continue through the first half of 2012. We expect PV installations to grow at 10% this year, with a rebound in demand during the second half of the year.
For first quarter, E&C sales and earnings are expected to be substantially lower than prior year, driven by continued destocking in PV and softness in consumer electronics and strong first quarter comps. Excluding the fourth quarter licensing income, we expect segment PTOI to be up sequentially.
Now let's turn to Slide 10 in Industrial Biosciences. Segment sales of $289 million reflect a full quarter of Danisco's enzyme business and DuPont's commercial biomaterials business. We saw strong volume growth in enzymes, especially in animal feed, with new product launches. This segment had PTOI of $34 million this quarter, including $6 million amortization expense associated with the acquisition. For the first quarter, we expect sales and earnings to be in line with fourth quarter results. We continue to see good growth across these product lines and anticipate PTOI margin expansion for the full year.
Moving to Slide 11 in our Nutrition & Health segment. Sales of $806 million grew 138%, with the acquisition impact from the Danisco specialty food ingredients business. Earnings of $52 million reflected sales more than offsetting integration costs and includes $20 million amortization expense associated with the acquisition. In Solae, specialty soy products increased volume and price with the continued penetration into health-related products. Sales growth in specialty was offset by lower soy crushed feed sales, in line with the business objective to shift mix to higher value offerings. Earnings growth reflected a positive mix shift and productivity improvements.
The acquired businesses of health and protection and enablers grew, on a pro forma basis, about 4%, as pricing gains were offset in part by lower volumes due to destocking.
Moving to the outlook. The segment is on track for the full benefit of planned cost synergies to positively contribute to 2012 performance. The benefit will mount throughout the year, reflecting the implementation schedule. Specifically, for the first quarter, we expect sales of the combined segment in the range of $800 million to $850 million, with portfolio impact as well as organic growth from all segments. Earnings growth on higher sales and cost synergies, coupled with the sales improvements, will reflect sequential improvement in margins in the range of mid- to high-single digits, inclusive of amortization.
Now on Slide 12, Performance Chemicals. Sales of $1.9 billion increased 12%, primarily due to higher selling prices. Both businesses in this segment demonstrated double-digit sales increases overall, with the most strength from North America. As we shared last quarter, TiO2 markets paused with fiscal tightening in China and Eurozone concerns, leading to substantial short-term demand decline and destocking in the value chains. Even with this expected softness, the segment delivered PTOI of $433 million, a 37% increase versus last year due to enhanced pricing in TiO2 and fluoropolymers and continued emphasis on fixed cost productivity.
For 2012, we expect global demand growth and see signs of strengthening, first in North American markets. Leading indicators point to an improving TiO2 outlook, with North American order patterns consistent with recovery to a more typical seasonal demand profile across 2 quarters.
Additionally, fluoropolymers demand remains strong. As a result, first quarter sales are expected to be up modestly and PTOI up substantially. With 8 decades experience in this industry, our confidence in TiO2 demand fundamentals remains intact, and we are proceeding with the TiO2 capacity expansion as announced.
Now let's turn to Slide 13 and Performance Coatings. Segment sales of $1.1 billion increased by 8% on 10% stronger pricing, offsetting 2% lower volume. The segment had price increases in all of its major market segments to offset the higher cost of raw materials. Auto builds were flat to down in all regions except North America, where builds were up 17%. And there was strong demand in the heavy-duty truck market.
PTOI of $58 million decreased $13 million, primarily due to mix impact and a $7 million settlement. For the first quarter, we expect segment sales to be up modestly year-over-year, with earnings up significantly. Auto builds are forecast to be up 2% in the first quarter, with full year builds expected to be up about 4% globally. This segment is driving actions in all product lines to offset higher raw material costs, with continued productivity to improve margins.
Turning now to Performance Materials on Slide 14. Sales were up 1% based on 14% selling price increase, offsetting a destocking-led drop in volume. While underlying automotive markets were growing, value-chain destocking was most evident in Europe and appeared to finish in North America. Electronics was soft while packaging markets were stable.
Absent the one-time $31 million benefit last year, PTOI was down $24 million or about 14% on lower volume. For the first quarter, we expect sales down modestly as price increases essentially mitigate softer volume and PTOI down substantially on volumes, driven mostly by a weaker Europe and conservative channel inventory management. Global auto builds are expected to grow at 2% and packaging demand remain stable.
On Slide 15, we'll cover the Safety & Protection segment. Sales climbed 10% on a combination of pricing and portfolio change, partially offset by 2% lower volume. Sales grew in all regions, led by Asia Pacific at 22%. PTOI was $94 million, essentially flat versus last year as portfolio change and selling price offset softer volumes and higher raw material costs. Additionally, the prior year included a net charge of $11 million for one-time items.
For the first quarter, market fundamentals remain noisy for our advanced material offerings, with some improvement in North American demand and continued growth in Latin America. We see improvement in law enforcement and fiberoptic cable markets, as our Kevlar XP and Kevlar AP continue to be well received in the market. Our consulting and CleanTech offerings continue to see moderate demand up globally. Overall, sales are expected to be up modestly and PTOI down moderately.
And now, I'll turn the call back to Ellen.
Ellen J. Kullman
Great. Thank you, Karen. So as we look ahead to 2012, we expect modest sales growth and reaffirmed our earnings outlook for 7% to 12% growth. After a challenging fourth quarter, we anticipate conditions will improve in many of our industrial businesses as the year plays out.
Our growth outlook varies by region and by business. We see Asia demand recovering from the slowdown we saw on the fourth quarter. We continue to expect slow, sequential recovery in the U.S. and weak demand in many European markets. We're poised for a very strong year ahead in Agriculture. Our order books for seeds is at a historic pace, it's ahead of last year and consistent with our expectations for strong underlying growth. In crop protection, product expansions will contribute to 2012 results.
We have an important milestone with the initial launch of Cyazypyr in the second half, which, over time, when coupled with Rynaxypyr, we expect to hit $1 billion in sales. With respect to TiO2, we expect markets to tighten by midyear, with the North American economy supporting a coating season comparable to last year, along with restocking of the value chain in Asia. For the full year, we expect TiO2 sales volume to meet or exceed 2011 levels.
Our expectation for company volume in the first quarter are cautious. We expect volumes for many of our industrial businesses to be up sequentially versus the fourth quarter but down year-over-year against strong comps in the first quarter of 2011. At this point, many of our supply chain inventories are low, and we expect demand to pick up slowly, starting late in the first quarter or early in the second quarter.
One exception where destocking continues in the first quarter is photovoltaics. We're seeing some positive signs that production will pick up again by midyear and expect PV installations to grow about 10% this year.
At today's exchange rates, currency will be a headwind for our businesses, and Nick mentioned this. We have the entire year ahead of us to manage contingency to compensate.
We'll continue to be disciplined in our execution, whether it's in the advancement of one of our R&D pipelines, a customer collaboration at one of our innovation centers or a productivity initiative. We are well positioned for recovery in growth through differentiated offerings and a global footprint. And we look ahead with confidence in our ability to execute well and deliver growth in 2012.
Karen, back to you.
Karen A. Fletcher
Okay, John. Let's open up the lines for questions.
[Operator Instructions] Our first question comes from Laurence Alexander from Jefferies.
Laurence Alexander - Jefferies & Company, Inc., Research Division
I guess, could you give a little bit more detail on your views on end-market trends for 2012, particularly for construction-related end markets, perhaps breaking it down by region?
Ellen J. Kullman
Yes, construction was a disappointment in '11, being about flat with 2010 from a start standpoint, so -- I'm talking U.S., initially. So we're -- although if you talk to people in the marketplace, they'll tell you that the starts are going to grow this year in the U.S. maybe about 10%. I'm being very cautious about that. So I don't see very big changes from a U.S. standpoint. If you really take a look at Europe, commercial has been holding up a little bit there, but that really has -- is offering, really, no great hope in 2012. We do believe there'll be a rebound in infrastructure investment in Asia, so we'll see some positive signs out of Asia. But by and large, as I add up the world, we're not expecting much of a volume increase from construction for 2012.
Our next question comes from John McNulty from Credit Suisse.
This is actually Alina Khaykin in for John. Just a quick question on pharma. You saw a big pickup sequentially in earnings. How should we think about that business for 2012?
Ellen J. Kullman
Nick, you want to take pharma?
Nicholas C. Fanandakis
Sure. So as you mentioned, pharma was at about $290 million for the year. In 2012, we're anticipating pharma to contribute about $50 million of pretax earnings. When you think about what's going on from the patent side, Japan comes off in December -- came off December in 2011. And that's nearly half of the pharma impact that we saw this year. So you can see the reason for the decline going down to $50 million is because of Japan that came off in December. And Canada's going to be coming off this month. So between the 2 of those, that's the primary reason for going down to the $50 million we anticipate in '12.
Our next question comes from Jeff Zekauskas from JPMorgan.
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
I have a 2-part question. Ellen, when you describe TiO2, sometimes you say it's a commodity business and sometimes, the profitability is good and sometimes the profitability is bad, and that's the way it always is. Yet, your TiO2 expansion is probably your largest capital project. So can you explain why you expect to get very good returns on capital from that investment when you describe it as a quality business -- as a commodity business? And then secondly, can you talk about pricing in photovoltaics, excluding metals pass-through?
Ellen J. Kullman
Sure. The first part of the question, I would maybe upgrade your language, Jeff. I would suggest that it's a good business at the depth of it, and it's a fantastic business at the peak. And over the cycle, we get very strong segment returns for this business. And that's driven by our competitive advantage from our manufacturing process technology. And as you see, it isn't just a great cash generator for us. So when you have a pure cyclical commodity and at the depths of the cycle, you're still making a great return for the company, it is worthy of investment. And so that's where it hits. The other thing is we haven't put a new line, a major line into that business. The last one that opened up was in Kuan Yin in Taiwan, and that was 1994, maybe. And so it's been a while and -- from that standpoint. On PV, we've seen, obviously, the metal pass-through. If you take that away, it's all about the efficiency of the cell and what it delivers. We were seeing PV module prices come down as commensurate with the increases in efficiency in the modules themselves. And that's when you saw some of the support from some of the governments kind of go away. The economics largely remain the same. The margins are holding. And I do believe it's because things like army Solamet paste, which offers higher efficiency, enables that equation to work.
Our next question comes from Mark Gulley from Ticonderoga.
Mark R. Gulley - Ticonderoga Securities LLC, Research Division
You had a great year in Latin America this year given the higher planted acres and good trends, but how do you think growers are going to react to the drought conditions that they're experiencing as they approach harvest? How will that affect your results the next growing season?
Ellen J. Kullman
Well, thank you for the recognition of the great season that we had last year, especially in Latin America, where we made great progress. Are you talking about North America planting, Mark, or are you talking about Latin America? Oh, you're talking about the drought. Must be Latin America then because you're silent. I think that we've seen great penetration with -- especially in Brazil corn. Depending on what they have, obviously, our product position will adjust accordingly. And I think if you look at North American planting, they're going to take that into consideration. We have the new AQUAmax technology out in 2012. We're very excited about what that means. It looks like it's about a 5-bushel per unit positive on the impact. So we're very excited about that. But the current corn soy prices these days does favor corn. So there's a lot that's going on in the marketplace and a lot to take into account. With our product portfolio, that Right Product, Right Acre and what we've done, I think that if there is drought in the region, we'll be able to handle it.
Our next question comes from David Begleiter from Deutsche Bank.
David L. Begleiter - Deutsche Bank AG, Research Division
Ellen, on TiO2, you mentioned volume as being flat to up this year. What are your expectations for pricing and, more importantly, earnings? Will it be up year-over-year, flat or down?
Ellen J. Kullman
Yes, I think that we're going to see, sequentially, improvements in volume, led by North America. I think the fundamentals there will speak to a environment that will allow us to continue some of the momentum we've seen, maybe go sideways a little bit. But I don't think that there's going to be a negative repercussion there. So Investor Day, we talked about Performance Chemicals margins, near-term projected at 22% to 24%. Maybe in '12, they'll be flat between that volume and price trade-off. But I think it will depend on how the year plays out. As lunar new year completes and Asia gets back to work in a few weeks, I think we're going to see a lot about what's going to happen, not only in TiO2 but in other industries as well.
Our next question comes from Bob Koort from Goldman Sachs.
Robert Koort - Goldman Sachs Group Inc., Research Division
Ellen, I thought I heard you say -- or maybe it was Karen in the prepared remarks -- mid-single digit earnings growth in ag. I guess that seems a little below your trend line targets, and I would guess acres are up, your new products are up, prices are up. So why isn't the growth a little bit more robust?
Ellen J. Kullman
I think if you take a look at the current currency projections, especially in the first half of the year where we do a majority of our business, that that's entirely reflective of that currency -- our operating, if you look at a local currency basis, our operating results are going to be absolutely solid. So we'll be sharing more on that as we go out, but we wanted to give you the current look. Volume's going to be up, price is going to be up, currency is going to be a headwind.
Our next question comes from Don Carson from Susquehanna Financial.
Donald Carson - Susquehanna Financial Group, LLLP, Research Division
Ellen, a question on Latin America, where you had very strong growth. Last year, in Latin -- 2010, Latin America was 17% of your sales. Just wondering what that grew to this year, what percentage it is of your PTOI and, more importantly, what did it contribute to growth and how do you see that going forward?
Ellen J. Kullman
Boy, we did have a tremendous run in Latin America. If you look at our seed business, our market shares, 2010 season was 27%, and while the hectares are fine, we're positive that we're going to see some growth there. But we'll wait until the hectares come in to really -- to look at that. Latin America itself, ag was up 40%, and our total sales for the company were up 17%. So you can see the real impact that Agriculture has had on Latin America. So we're very bullish on it. I think, really, exporting our Right Product, Right Acre or hectare strategy to Latin America, I think getting very close to the customers down there has been a huge benefit in our penetration. We've seen it in Brazil, we've seen it in Argentina, and I think we'll continue to -- Latin America will continue to be a very important sector for us.
Our next question comes from Duffy Fischer from Barclays Capital.
Duffy Fischer - Barclays Capital, Research Division
Just to go back to the guidance for this year kind of relative to what you originally thought, you talked about $0.17 of headwind. Has there actually been stuff since that original guidance that has been a tailwind for you? And then how should we think about share count and the pension effect within that guidance for this year?
Ellen J. Kullman
Nicholas C. Fanandakis
So a lot of things are moving, and that's why I say even with those headwinds that we talked about, Duffy, it'd be too soon in the year to make any kind of a change in our guidance on our outlook. So that's why we're reaffirming. When you think about the pension piece, we had talked to you about $250 million of headwinds year-over-year in 2012 versus that in '11. That's going to be about where it's coming out, maybe just slightly better than that. But on a cents per share basis, it's going to hold about the same. On a dilution basis, on an EPS basis, number of shares, I think the work we've been doing in that area is pretty evident in the fourth quarter. We bought back $0.25 million first quarter of '11, we bought back another $0.25 million in the third quarter. Another quarter -- so if you look over a period of time there, we brought -- bought back close to $1 billion worth of shares, which is looking to control the dilution over that 18-month period. And we'll continue to -- that practice as we go forward. As you know, we have plans in place that have already been authorized by the board, $2 billion in the newest, which was authorized in 2011, and we still have $100 million from the prior plan available to us. So we'll continue to do buybacks to deal with dilution from a compensation perspective that might occur.
Our next question comes from Andy Cash from UBS.
Andrew W. Cash - UBS Investment Bank, Research Division
Yes, just a couple of quick questions here. First of all, in corn seed, what is your expectation for the cost of producing corn seed in 2012 versus what it was in 2011? And then secondly, back over to TiO2, Ellen, it sounds like you're looking forward to sort of a flat gross profit margin in TiO2. I'm just curious if you're getting any pushback on some of your price increases for the first quarter.
Ellen J. Kullman
Nick, why don't you take the input cost of that question?
Nicholas C. Fanandakis
Sure. So Andy, when you look at input costs on ag and you look at the fact that the commodity market and the dynamics that we've seen there, the '11 cost impact on '12 sales is going to be there. It's going to be a higher cost for us. Couple that with weather problems that occurred in 2011, again, that would impact 2012 costs. However, the work we do around the innovation, the value we're bringing to the marketplace, we believe, will allow us to maintain our plan and the growth that we're projecting from an earnings perspective. And so we feel very confident around our pricing capabilities relation to that increase in cost that we're anticipating in 2012.
Ellen J. Kullman
Yes, on TiO2, the market fundamentals are supportive in the environment. We don't normally talk about price payment, but I'll just give you an example, though, of the mood in the marketplace, is that customers who historically only purchase on a quarterly basis are now looking for long-term relationships and security of supply. And I think that in itself gives -- reinforces the market fundamentals that I've been talking about.
Our next question comes from Kevin McCarthy from Bank of America Merrill Lynch.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
A couple of quick questions on Asia. Your volume pressure there was more pronounced than it was in Europe and the U.S. Was destocking more acute in Asia in your judgment? And then looking ahead to 1Q, I recognize it's sometimes difficult with Chinese new year, but would you elaborate on what you're seeing in terms of your order books across your key product lines to start the year in Asia?
Ellen J. Kullman
Yes, Kevin. Thanks for the question. If you take a look at Asia Pacific, it's really a tale of what we've been seeing in Electronics & Communications and in TiO2 and polymers. So, I mean, those 3 businesses really saw tremendous destocking in the fourth quarter, and we've talked about that. Ag & Nutrition & Health continued to have very strong quarters in Asia Pacific. And we're -- we, like everyone else, are kind of waiting to see what happens after the Chinese new year, which started yesterday, I guess. Sequentially, if you take a look at GDP in China, for instance, it's gone from 9% to 8%, 8% still pretty good if you look around the world. If you look at auto builds in 2012, they're going to have a slow start to the year, probably down in the first quarter, but all in all, auto builds for the year in China are going to be up 7%. And then -- so we do see that it's going to probably, because of the lunar new year, because of the uncertainty in the supply chain -- we're starting with very little inventory, though, in most of these areas. And so I think that bodes well to an improving picture, but sequentially, I think you'll see that play out month-by-month.
Our next question comes from Mike Ritzenthaler from Piper Jaffray.
Mike J. Ritzenthaler - Piper Jaffray Companies, Research Division
Just back on Agriculture purchases. My question is around can we get some sort of qualitative review of the extent of the prepays that we'll see in the first half of '12? And I guess in -- some of the growers we've spoken to in both Brazil and North America have mentioned seed charges in the U.S. It seems like that might be more noise than anything else, isolated to a few newer lead hybrids. But in Brazil, we've heard that some growers have had to buy seed from Pioneer's competitors just to get the summer crop in the ground. And I was wondering if this is an artifact of whether -- or where products are in the launch cycle, pricing, maybe pricing would be a little more aggressive or some other factor.
Ellen J. Kullman
So our order book's ahead of last year, and it's really aligned with our growth targets, prepays versus whatever, I don't have that breakdown. But I think it's been really -- the best predicter that we have of the season is that order book, and it's full. In Brazil, our corn sales were up 55%, x currency. So we had a very, very strong season. So whether some people maybe -- I don't know. But we had a phenomenally strong season, a tremendous position there. So we here -- I don't think we have any issues with supply. We've gone out. Our direct-to-farmer model enables us to be very specific with what the needs are. And Nick talked about the winter production and things like that we're doing to assure that we have adequate supply. So we think that the season will work through just great.
Our next question comes from Mark Connelly from CLSA.
Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division
So when you guided down on December 9, it seemed like the big reason was destocking. But as we look at the results, it doesn't feel like destocking hurt you as much in the quarter and that it's mostly stuff like taxes. I'm just curious if you think that's fair and how the last 3 weeks of December actually played out versus your own expectations.
Ellen J. Kullman
Well, I think that part of -- I did think it was destocking in markets. If you look at our volume number alone, down 10%, that was what changed appreciably from when we talked about -- talked to you at the end of the third quarter to the December timeframe, so -- but it wasn't macros. I mean, our economist will tell you that the GDP growth is there, but the supply chains are destocking. It's -- conservatism just reigned. And so we came out in December, gave you the best knowledge of what we thought would happen. Yes, tax certainly was an issue, but we understood that. We understood that we got the R&D credit, 100% of it in the fourth quarter in '10, and we've been accruing that all year in 2011. So the mix of business was a little different, so maybe that was a couple of cents off from a tax rate impact. But all in all, I would suggest the reason we did come out and talk to you in December was volume.
Our next question comes from P.J. Juvekar from Citi.
Karen A. Fletcher
John, I think -- why don't we just take one more question?
Our last question comes from Frank Mitsch from Wells Fargo.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
Six weeks ago, you guys were talking about the full year outlook for 2012, and you were looking at auto builds to be up 6%. And then in the presentation today, you're looking at auto builds to be up 4%. I'm wondering if you can talk about where geographically -- or why that change was made. It seems like a rather large change. And then on the topic of autos, I was wondering if you could offer any comments with respect to where Performance Coatings -- where you think Performance Coatings fits into your portfolio in the future?
Ellen J. Kullman
So global builds were reduced from 6% to 4% in the last 6 weeks. A lot of that came out of Europe, where Europe is expected to -- build to be down 8% for the year and down even more than that in the first quarter, down 11% in the first quarter. And so, yes, there a little bit of changes, but I think the majority of the impact was really the outlook around Europe. And China was down maybe, I don't know, 8%, 9% to 7%, but it's still noisy. And this is all third-party data, and they update it monthly. And we've looked at that versus our book of business, so. Second question was around coatings. I think that they finished the year well. Our pricing in terms of the products that we're delivering and the differentiation, the pricing was well seen. We had a little volume decline in the fourth quarter based on some refinish destocking that we've seen. But all in all, I think they had a solid year. Their productivity plans continue to deliver on those, and I think that they're in an improving environment. So they're gaining some momentum.
So thank you, all. Great to talk to you today, and we look forward to catching up with you soon.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
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