DuPont's (DD) CEO Ed Breen on Q1 2016 Results - Earnings Call Transcript

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E. I. du Pont de Nemours and Company (DuPont) (NYSE:DD)

Q1 2016 Earnings Conference Call

April 26, 2016, 08:00 AM ET

Executives

Gregory R. Friedman - Vice President of Investor Relations

Edward D. Breen - Chair of the Board and Chief Executive Officer

Nicholas C. Fanandakis - Executive Vice President and Chief Financial Officer

James C. Collins - Executive Vice President of Agriculture segment

Analysts

David Begleiter - Deutsche Bank

Jeffrey Zekauskas - J.P. Morgan Securities Inc.

Don Carson - Susquehanna Financial Group, LLLP

Jonas Oxgaard - Sanford C. Bernstein & Co.

Frank Mitsch - Wells Fargo Securities, LLC

Vincent Andrews - Morgan Stanley & Co.

Steve Byrne - Bank of America Merrill Lynch

P.J. Juvekar - Citigroup

Sandy Klugman - Vertical Research Partners

Operator

Welcome to the DuPont First Quarter 2016 Conference Call. My name is John and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I'm going to now turn the call over to Greg Friedman, Vice President of Investor Relations. Greg, you may begin.

Gregory R. Friedman

Thank you, John. Good morning everyone and welcome. Thank you for joining us to cover DuPont’s first quarter 2016 performance. Joining me today are Ed Breen, Chair and CEO, Nick Fanandakis, Executive Vice President and CFO and Jim Collins, Executive Vice President responsible for our Agriculture segment.

The slides for today’s presentation and corresponding segment commentary can be found on our website along with our news release. During the course of this conference call, we will make forward-looking statements and I direct you to slide one 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 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. We request that you review the reconciliations to GAAP statements provided with our earnings news release and today’s slides, which are posted on our website.

Our agenda today, we’ll start with Ed providing his perspective on this morning’s then Nick will review our first quarter financial performance and 2016 guidance. Third, Jim will discuss our agriculture business. We will then take your questions.

With that introduction, it’s now my pleasure to turn the call over to Ed.

Edward D. Breen

Thank you, Greg and good morning everyone. I would like to share my perspective on the first quarter, then I’ll update you on our progress with our three critical initiatives as well as our plan merger equals with Dow. Overall, I was pleased with how the business performed in the first quarter. Despite continued challenges in the macroeconomic environment, we delivered operating earnings of $1.26 per share even with last year’s quarter.

Excluding $0.10 per share of negative currency, operating earnings rose 8%. Sales decline 2%, excluding currency reflecting the current environment. The weakening U.S. dollar gave us some relief. I don’t want to steal any thunder from Jim, but it’s worth saying a couple of things about Ag’s first quarter.

Much of the quarter’s strength was due to Ag. Solid execution in Ag, our largest segment enabled a strong start to the North American corn season. I’m also very pleased with our results in this Safrinha season as we delivered strong volume growth. Nick and Jim will comment more on all that in a moment.

Looking beyond Ag, as I mentioned most of our other segments performed well. One we’re calling out is Nutrition & Health, where we had broad based volume growth and significant operating margin expansion. Let me give you a couple of examples of new products are contributed to our growth N&H.

First, [Supero] (Ph) our new best-in-class protein isolated soy protein for dry-powdered beverages and second, our new long life Greek yogurts in China. Probiotics increased sales 30% as our productivity efforts have freed up capacity to respond to strong customer demand. I was pleased to see operating margins expand in four of our six segments including progress with our global cost savings and restructuring plan.

In some, most of our businesses exceeded our expectations for the quarter. We had a good start to the year. Yet planting is just beginning in the Northern Hemisphere and at this point it’s too early to call the Europe for Ag. There are still number of difficult macro variables and we want to see how those factors play out.

Now, let me give you an update on our progress with the three critical priorities, I outlined when I became CEO. As a reminder, we said, we were committed to shrinking our cost structure, improving our working capital performance and reducing our capital expenditures. We strongly believe we need to improve our performance in all three areas as we want the benchmark against best-in-class companies in all of our businesses. The encouraging part is the quality of a leadership including their desire to win, which has impress me about DuPont from the start.

The point of our global cost savings and restructuring plan is to strengthen the competitiveness of our business while reducing our cost by $1 billion on a run rate basis by year-end. Consistent with this target, we plan to show you a net year-over-year saving of $730 million for full-year 2016.

We made good progress with this objective in the first quarter, in fact we are exiting quarter down about $135 million in operating cost mainly in SG&A. One area where we’ve taken significant action is corporate cost. Already year-over-year we are down 44% on an operating earnings basis. I applaud the team for their hard work in getting us here.

This quarter puts us well on our way toward a $200 million year-over-year reductions in corporate cost. Also our global cost savings and restructuring plan is separate from an incremental to the cost synergies we expect to capture in connection with our planned merger of equals with Dow. The actions we have taken to abolish the Matrix organization have given our businesses full control of their P&Ls enabling faster decision making. The company is visibly moving at a faster clip.

Turning to working capital, earlier we set goals for improvements by business for 2016. In the first quarter, we launched a companywide project to improve working capital, we see opportunity in inventory first and foremost, but also in payable and receivables. Our first quarter results reflect our focus on working capital and capital spending resulting in a $300 million improvement in free cash flow year-over-year excluding Chemours.

We continue to expect to deliver improvements in working capital over the medium term. That said, this year’s working capital performance will reflect pressure from our cost reductions program including severance payments, which are necessary to support our long-term objectives. Our capital spending in 2016 is expected to total $1.1 billion down from $1.4 billion last year excluding Chemours. That’s a decline of 21%.

We spent about $360 million of CapEx in the first quarter and we reviewed each and every dollar before we spend it with a close eye on expected returns. Our first quarter CapEx spend is 14% below last year, again excluding [indiscernible]. As we work towards our planned merger with Dow and intended separations for three highly focused independent businesses, I’m pleased with the progress that teams are making. We achieved a number of milestones towards closing the merger in recent weeks.

On March 1, we filed our initial Form S-4 full registration statement and recently filed the first amendment. That process is proceeding along smoothly. The Form S-4 will become effective after we complete the review process with the SEC, which we currently anticipate will be no later than the end of the second quarter. The special stockholders meeting for both companies shareholders to vote on the merger will take place thereafter.

We also have submitted key regulatory filings related to the merger in the major jurisdictions where we operate. We always expected a thorough review process and we are working closely with regulators and all the relevant jurisdictions to complete that process. We continue to expect to complete the merger in the second half of 2016, subject to shareholder and regulatory approval.

Integration planning is well underway. We have formed a joint integration management office. Dow and DuPont are working directly together on plans to execute the merger, capture synergies and prepare for the intended business separations. The team is working diligently to develop execution ready plans to ensure we can quickly integrate the merger, capture our anticipated cost and revenue synergies and begin to operate as independent business units as soon as possible after the merger closes.

In coordination between with the joint integration management office, each of the three businesses is working to identify and plan for the right operating structure for their specific needs. Another important point I would like to make is our synergy targets for the combined company remain on track. We have 27 teams focused on different categories of cost and they are very clear about the goal is.

Our confident in the targets we established in December has done nothing but go up. After diving into the details, we continue to believe there will be at least $3 billion in cost and $1 billion in growth synergies on a run rate basis. We have benchmarked cost against industry peer alongside McKenzie and they have confirmed that the $3 billion is achievable. We continue to expect to capture $1.3 billion in Ag, $1.5 billion in Material Science and $300 million in Specialty Product cost synergies.

Now I would like to ask Nick to take us through the financials and outlook in more detail.

Nicholas C. Fanandakis

Thank you Ed. Let’s start with the details of the first quarter on Slide 3. Operating earnings of a $1.26 per share were even with prior year and up 8% year-over-year when adjusted for currency. Solid execution in a tough macro environment particularly on cost savings and a strong start to the North American corn season in Ag positively impacted the quarter.

Excluding currency, consolidated net sales for the quarter declines 2%. Local pricing gains in Ag and industrial bioscience and volume growth in Nutrition & Health were more than offset by declines in most of the remaining segments. Currency continued to negatively impact sales by an additional four percentage points in the quarter.

I would like to highlight where we’ve seen some positives from a regional perspective particularly in our developing markets, which represented above 30% of our first quarter sales. In the quarter, sales in developing markets were up 5% year-over-year excluding currency. The volume growth was primarily driven by Agriculture and Nutrition & Health in Europe and Asia Pacific principally China. Local pricing gains in Latin America and Europe were a result of mix enrichments and actions to offset currency primarily within Agriculture.

Turning to Slide 4, consistent with prior quarters currency was a significant headwind to segment results. Segment results when you exclude currency were up $0.02 per share in the quarter on cost savings, local price and product mix gains in agriculture and industrial biosciences and volume growth in Nutrition & Health.

Lower corporate expenses and interest contributed $0.05 to earnings in the quarter. Corporate expenses on an operating earnings basis were 44% lower than the prior year as a result of our 2016 cost savings program.

A lower share count benefitted the quarter by $0.05. In 2015, we completed a $2 billion accelerated share repurchase program using proceeds from the Chemours separation and we’re seeing the full benefit of this program here. A decrease in net after tax exchange losses contributed $0.02 to earnings in the quarter. A higher tax rate reduced operating EPS by $0.04 in the quarter due to our geographic mix of earnings.

Let’s turn to the first quarter segment operating earnings analysis on Slide 5. Operating earnings growth in Nutrition & Health, Industrial Biosciences and Protection Solutions was more than offset by declines in the other segments. Nutrition & Health increased on a broad base volume growth and cost savings, which more than offset the negative currency that they saw. Operating margins in this segment improved 240 basis points and have grown year-over-year for 11 consecutive quarters.

Growth in Industrial Biosciences reflected pricing gains on new product introductions in BioActives. Increased demand for Biomaterials and the absence of prior year one-time cost in Clean Technologies. Operating margins improved 250 basis points in the quarter for industrial Biosciences.

Protection Solutions’ operating earnings increased $9 million as lower cost and improved plant utilization at the Chambers Work facility were partially offset by lower volumes in the negative currency impact. Operating margins improved 300 basis points in the quarter here.

In Electronics & Communication, operating earnings decreased $20 million as cost savings and increased demand for Tedlar film were more than offset by competitive pressures in Solamet paste, lower demand in consumer electronics and a $16 million litigation expense. I would like to highlight that while volume in Solamet paste were down year-over-year, we did see sequential volume growth from the fourth quarter of 2015 and we grew market share following the launch of our PV19B late last year.

Agricultural operating earnings declined $37 million year-over-year as local price and products mix gains and cost savings were more than offset by an $83 million negative currency impact, lower volumes and about $40 million negative impact from the port shutdown due to loss sales in inventory write-offs. Jim will provide further details of the first quarter performance with agriculture later in the call.

Performance Materials’ operating earnings decline $44 million as lower cost and increased demand in Asia Pacific automotive markets were more than offset by lower demand for ethylene and ethylene based products, lower local price and negative impact from currency. The price decline was driven by lower ethylene prices as average spot prices were down approximately 50% year-over-year when we saw competitive pressure in commoditized products.

As a reminder, the slides with segment commentary are posted on the investor centre website under events and presentations. I encourage you to refer to those slides for further details on segment results including our expectations for the second quarter and for the full-year 2016.

Turning to the balance sheet on Slide 6. We maintained our strong balance sheet position during the quarter. Negative free cash flow of $2.2 billion reflects agriculture’s typical seasonal cash outflow in the quarter. Our free cash flow improved by about $500 million year-over-year was about $200 million of improvement due to the absence of Chemours. The remainder of the improvement is due to lower working capital and CapEx in the first quarter.

Net debt has increased in the quarter over our ending 2015 balance, which reflects our nominal seasonal shifts. Primary uses of cash in the quarter related to funding our seasonal agriculture working capital requirements, growth investments and dividends.

Returning capital to our shareholders remains priority and today, we also announced that our Board of Directors has approved a second quarter dividend of $0.38 per share. Our objective is to complete 2 billion in share repurchases in 2016. However, the planned merger of equals with Dow and the associated impact from SEC rules and regulations affects our trading windows. After the shareholder vote, we will evaluate the opportunities to enter the market and plan to make repurchases.

On Slide 7, the company now expects full-year 2016 operating earnings to be in the range of $3.05 to $3.20 per share from $2.95 to $3.10 previously announced. The estimated negative currency impact of a full-year 2016 is now expected to be $0.20 per share versus a previously communicated estimate of $0.30 per share. The U.S. dollar has weakened against most currencies since the estimate we provided in January.

For the full-year, we now expect our base tax rate to be about 24% an increase from our prior estimate of 23% due to the geographic mix of earnings. This results in a $0.10 headwind from higher base tax rate in the outlook versus our prior year.

Our guidance continues to reflect a $0.64 per share benefit from the 2016 global cost savings and restructuring plan. While the businesses outperformed our expectations in the first quarter, about half of these was due to a stronger than expected start to the season in agriculture. The remainder was due to the underlying performance of the businesses and that is what we are reflecting in our revised outlook for the full-year.

From a first half 2016, we expect operating earnings to be even with prior year as the timing benefits primarily within agriculture from a stronger than expected start to North American corn season are anticipated to largely be offset in the second quarter. We continue to expect full-year net sales to be down low single-digits percent wise versus prior year due to the impact of currency and continued challenges in agriculture.

Currency will continue to impact the top-line as the dollar is stronger than last year against most currencies primarily the Brazilian Real. Excluding currency, sales are expected to about even with prior year. We would expect operating earnings per share growth of 17% to 23% when we take out currency, primarily driven by the full-year benefit of cost savings. We remain cautious on our outlook for 2016 as market conditions continue to remain challenging.

In agriculture, the fundamentals have not changed since the outlook we provided in January. Net farm income is declining and season crop protection suppliers have abundant of inventory globally. Economists are currently forecasting lower global industrial production in key markets including the U.S., Central and Eastern Europe and China. China’s economic slowdown continues particularly with its industrial, real estate and financial sectors impacting the Asia-Pacific region.

Turning now to Slide 8. I would like to highlight where we stand on our 2016 global cost savings and restructuring plan. As we previously communicated, we expect this plan will generate $1 billion on a run rate basis, which translates into approximately $730 million of savings in 2016 versus the prior year. We expect the plan to deliver about $0.64 per share in cost reductions, which would be weighted towards the second half of 2016.

For the first quarter, our operating costs, which includes SG&A, R&D and other operating charges declined about $135 million on an operating earnings basis. This represents a 7% decline in costs year-over-year. SG&A cost declined about $110 million or 9% versus last year on cost savings and currency benefits.

Our corporate costs on an operating earnings basis decreased 44% year-over-year and highlights that the actions we outlined in December are truly generating results. We are on track to deliver our 2016 commitments of $200 million decrease in corporate expenses improving to about 1.3% as a percent of sales.

With that, I would like to turn the call over to Jim to provide an overview of results and agriculture.

James C. Collins

Thanks Nick. Overall, agricultural markets are playing out pretty much as we expected with famers facing challenging economic conditions and seed and crop protection suppliers having plenty of inventory globally. So we’re not seeing anything significantly different in market conditions from what we shared with you earlier this year, but even in this difficult environment, we remain focused in our executing on the variables that are within our control and I think our first quarter performance clearly illustrates that.

I'm focused on three very clear priorities. First, delivering on our 2016 cost savings and operating earnings commitments and our results for the quarter indicate we’re firmly on-track to do that. Secondly, I’ve been personally spending significant time reviewing our R&D programs with our research team to ensure we’re delivering on our exciting pipeline of new genetics, biotech traits and crop protection products on schedule.

Lastly, from our announced merger with Dow, our teams are working with great urgency to create a world leading production Ag business and we’re developing detailed plans to capture the $1.3 million of cost synergies. Even though, this is challenging work, you can feel the excitement of the teams. In addition to these three priorities, I also spend my time minimizing distractions, ensuring our teams keep their focus on delivering results or our stakeholders during this exciting time of change.

As I mentioned, our results in the first quarter demonstrated strong execution in challenging market conditions. Results were better than we expected primarily due to higher corn area in North America. Earlier timing of shipments to customer is consistent with the strong start we had in the fourth quarter of 2015 and stronger sunflower sales in Europe based on the performance of our newest products. Currency, while still a significant headwind compared to last year was also a little better and we anticipated.

What I’m proudest of, is we were able to deliver 2% higher prices across the segment even in this highly competitive market environment. In seeds, a stronger mix of Pioneer’s newest corn hybrids resulted in higher net corn price globally and most importantly in North America. In crop protection, we took decisive pricing actions to mitigate a stronger U.S. dollar in Latin America and Eastern Europe and in fact, local pricing actions fully offset the impact of currency in Latin America.

Now in addition to local pricing gains, corn seed volumes were higher than the prior year from sales in North America consistent with the recent USDA reports indicating higher expected corn acres this year and in Brazil’s Safrinha season. Our increases in corn and sunflower volume were more than offset by lower insecticide sales in Latin America and in sales to other third parties.

Additional offsets included the impact from the shutdown of the LaPorte manufacturing facility, and from lower soybean volumes. Now most of the decline in insecticide volumes can be tied Brazil’s low pest pressure, high industry inventories and the impact of insect protected soybean varieties.

Now turning to our pipeline, as planned, we made our first sales of Zorvec fungicide for disease control in Korea, Australia and China in the first quarter. We expect Zorvec to be very competitive in the $2 billion market for blight and downy mildew control, offering potato, grape and vegetable growers consistent, long-lasting control with a favorable environmental profile.

We successfully launched Leptra, insect protected corn hybrids in Brazil in the Safrinha season and initial indications of performance are good. Leptra’s strong value proposition is also allowing us to recapture price in that market. Strong customer interest and an aggressive seed production plan have us well-positioned to ramp-up Leptra to as much as a third of our volume in the upcoming summer season, in one of the fastest technology introductions in Pioneer history.

In North America soybeans, we are currently introducing varieties with Roundup Ready 2 Xtend technology in a very limited launch. While we didn’t plan for large volumes, this will allow our sales reps and customers to test the performance of these soybeans as we prepare for our full launch in 2017, pending regulatory approvals.

In addition to all of that, we had a really exciting announcement this past week. We announced our intention to commercialize our first corn hybrids, developed through the application of CRISPR-Cas advanced breeding technology within the five years. While this is a first step, our initial CRISPR-Cas offering allows us to lay a solid foundation for success for future products developed with this important innovation in plant breeding.

We now anticipate results for the full-year to be a little stronger than what we shared with you in January, primarily due to the recent weakening of the dollar against many global currencies, including the real, and from higher corn planted area. This will be partially offset by the shift of a portion of our fourth quarter seed sales to first quarter 2017. This is a result of the enhancements we are making to our pioneer business as we transition to an agency based route to market approach in the Southern U.S. similar to the Advantage approach we take in the Midwest.

Additionally, we’ll have some unplanned cost as a result of our recent decision regarding the LaPorte insecticide unit from the write-off and disposal of in process inventory and to dismantle the facility. We had a good start to the year, we have a lot going on in agriculture and I’m very excited about the progress. I’m confident the team is focused on delivering on our commitments, preparing for the merger and advancing our pipeline.

Now, I’ll turn it back to Greg.

Gregory R. Friedman

Thanks Jim. We will now open the lines for the questions. John if you could please provide the instructions.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session [Operator Instructions] Our first question comes from David Begleiter of Deutsche Bank.

David Begleiter

Thank you, good morning. There has been some talk about aggressive seed prices discounting in the U.S. this season. Could you address those concerns and how you are addressing that issues?

James C. Collins

Yes, great, thanks for that questions. We know those comments are out there. As we said back in January, we just weren’t seeing much change in the conditions in the marketplace from where we launched, back in August or September. So we've had our pricing cards out there for a number of months. So when I look at pricing, I think of it in that area I think of it in three specific ways.

First is card price and that’s that the year-over-year same technology, same market card pricing and as we said back in January, our card pricing in generally flat year-over-year. The second impact in our numbers then would be due to mix and we’re seeing strong demand in our order book for our newest technology.

About 50% of our line-up in North America is from genetics that we’ve put in the market in the last two years. So as growers have a chance to look at that two consecutive years in our yield trials they really jumped on that. So we’re seeing a nice lift in overall mix. And then last would be in the discounting area and so these discounts come in a number of different area whether its early or early buy discounts or cash discounts and overall I would say we’re seeing maybe a slightly elevated level of discounts, but nothing really out of the ordinary that you might expect.

Folks took a good advantage of some of programs that we had out there. I would also remind you that our direct sales model in North America gives us great visibility of our products and our pricing, especially at that net price levels. So we see almost on a real-time basis purchases and what is going there. So I think overall what this speaks to is a strong focus by our organization and a execution intensity in really driving the plan that we put out there back in August and September.

David Begleiter

Very good. Ed and Nick Just on performance materials. Can you look at the business ex-ethylene of underlying business due this quarter?

Edward D. Breen

Yes, when you look at the performance materials business, ethylene obviously did have a impact because spot prices were so much lower David as you know on a year-over-year basis like 50% down. But if you would have take that out the automotive segment was up slightly in Asia, almost a point, Europe up 1.7, North America was kind of flattish auto bills, but we did see a fairly good demand outside of the ethylene impact that you saw within that segment.

David Begleiter

Thank you very much.

Operator

Our next question is from Jeff Zekauskas from JP Morgan.

Jeffrey Zekauskas

Hi good morning. Ed it sounded like you are optimistic about the working capital for the year and agriculture is coming in pretty much the way you thought it was. So do you have a working capital target, how much you think things will be better year-over-year either inclusive of the titanium dioxide separation or without it?

Edward D. Breen

We just introduced our working capital program in the first quarter, so we just got those launch, we were studying in detail in the fourth quarter what we thought the opportunity was. And over the medium term, I think we said last time, the opportunity looks like it’s a good $1 billion dollars to a $1.3 billion somewhere in that range, what I call more best-in-class performance. So we have a big opportunity there, mostly it’s the biggest piece in inventory, so we’re very, very focused there.

And you know we are going to have some headwind this year, as I mentioned in my prepared remarks, because of severance cost and all that. So again that’s for the benefit of the company going forward, but if this won’t happen just this year, we clearly will have traction this year. I think if you saw in the first quarter, we had slight improvement already in working capital and generated additional $300 million of free cash flow over this year over last year also because CapEx the way was lower by 14% year-over-year.

So, we’re starting to get really good focus Nick and I had operating reviews with every business over the last week and working capital was a big part of the conversation with the teams. So I feel that confident will build momentum as the year goes.

Jeffrey Zekauskas

The CapEx for the year is supposed to be $1.1 billion, but you spent 360 in the first quarter. So you are annualizing at 1.4. Why was the CapEx so high in the first quarter? What did you spend on? And then do you really expect it to sharply drop in the second?

Edward D. Breen

Okay. Now if you look back at last year, our first quarter is always our high quarter the way we account for. Even having said that with us at the higher, this number, this quarter, we’re still were 14% below last year. So we’re trending properly, we said we will be down 21% for the year on CapEx. So when you look at our second quarter, there is a major drop off in CapEx spending in the plan. We’re more front-end loaded, because the maintenance work that happens end of year, beginning a year and it’s just the seasonality of it. So we will definitely nail the $1.1 million.

Jeffrey Zekauskas

Okay, great. Thank you so much.

Edward D. Breen

Thank you.

Operator

Our next question is from Don Carson from Susquehanna Financial.

Don Carson

Thank you. Follow-up for Jim on Ag. Jim, crop protection was down 18% sales year-over-year in Q1. How do you expect that to unfold over the year and as you look at the year as a whole are you expecting corn seed share to be up in North America, or are you just being up in line with the increased market acreage?

James C. Collins

Well let’s talk about the crop protection first. You are right, you did see some pretty significant declines in volume in the first quarter that was mostly tied to the insecticide business and a bulk of that in Brazil and we’re still chasing two consecutive years of low pest pressure there. We’re feeling the impact of insect protected varieties of soybeans that are in that market. And overall, I would say channel inventories there are still pretty elevated based on the two-years.

Our insecticide business as well and crop protection we’re feeling the impact of the LaPorte shutdown that we had. Most of that is related to Vydate. We’ve essentially replaced all of the methanol that we have been selling in previous years now through third-parties, but it’s just been really tough to find good quality sources of [oxymill] (Ph). So you are seeing some of that year-over-year.

As we get into the second half of the year, we continue to drive the launches of Cyazypyr around the world. If I separate Brazil, Rynaxypyr sales growth has grown volumes every year since its launch and we expect to see good in roads. And I would say our crop protection business in North America started off pretty strong here this year, looking at the on-the-ground sales versus our out-the-door business, we feel really good about our penetration there.

It’s still early in the season to talk about full-year, we still have a lot to go and when I think about corn share now again, a little early to call share. Agree with you, no doubt we’re seeing volume increases in North America consistent with that USDA report on the 94 essentially million acres. We’re seeing volume growth based on our new technology and our teams are going to stay really focused.

But like I said, it’s way too early to talk about seed share. As of today, we’re about 30% planted in North America. That is elevated. Normally we would be about 16% for this time of the year and again you saw some of that volume increase flow through in our first quarter, but we will see how things shake out around share for the full-year.

Don Carson

Jim, just to clarify, so you think crop protection will still be down for the year at double-digits, so are you gaining more and Ag operating income is coming from seed side?

James C. Collins

A little early to size the crop protection overall full-year, but I would expect it to be down year-over-year, again primarily we’re still working to replace the optimal volumes and we’re still struggling in that Brazil around insecticide.

Don Carson

Okay. Thank you.

Operator

Our next question is from Jonas Oxgaard from Bernstein.

Jonas Oxgaard

Hi guys congrats. Nicely done.

Edward D. Breen

Thank you.

Jonas Oxgaard

A question, your R&D seems to be down about 10%-ish. Wondered if you had some color on what are you targeting and how is that paying out?

James C. Collins

Yes Jonas. It is down about the 10% that was part of our whole program in our cost reduction plans. And I mean look just to tell you high level, we reviewed every major projects then and the R&D management teams made those decisions as we went, but we also kept in mind with the impending merger coming down the road. We really looked at programs, we also saw we were going to be double counting, double working on things like that to get there.

Interesting, and I’ve made this point before, our R&D and ramped up the last 2.5-years.I would say fairly significantly in such a short period of time. The reductions we’ve made which were mostly done within R&D really put us about the run rate, this company has historically run at on R&D, which I’m very comfortable with kind of like 10-year average run rate on a percentage of sales basis is about rate where we’ve always been. So that’s kind of where we’re ending up.

Jonas Oxgaard

Very good. any particular programs you discontinued or its just across the board?

James C. Collins

It was programs in each of the businesses that we were concerned with the payback on and that’s really how we looked at it on returns and looked at each business, all major programs and that’s how we got there.

Jonas Oxgaard

Okay good. Thank you.

Edward D. Breen

Thank you Jon.

Operator

Next questions is from Frank Mitsch from Wells Fargo Securities.

Frank Mitsch

Good morning gentlemen. Given the nice results Nick I’m guessing that takes the sting out of the Brady ruling for you.

Nicholas C. Fanandakis

That’s only a rumor Frank.

Frank Mitsch

As I think about the commentary regarding the tough market environment and the global IP slowing. Taking a look at your volumes down materially in Q3, down just 1% in Q4 and here down 2%. It’s looking like you have a little easier comps in Q2 and certainly Q3 is stepping up in front of us. So how should we be thinking about DuPont’s ability to maintain volumes or perhaps even grow volumes, but or is it just two [tough] (Ph) of an environment out there and how would you answer that question?

Edward D. Breen

Well look a bunch of angles, it depends by business, some of the businesses looks like growth is going to be very nice in the year and some product introductions in the second half of the year. Let me just start by overall saying to you, we’re still counting on the year being relatively flat from volume price or an organic standpoint as we move forward. So if we had a minus two in the first quarter, just some slight improvement kind of in the second half of the year and then it really depends by business as you look at what it whether it’s going to be, Nutrition & Health obviously good, we’re seeing really broad based growth there.

And by the way the probiotics area is really hot like 30% growth and we’re actually getting more product out the door, more efficiency in our facility. So that’s a good sign, it should continue not just this year, but into the future and then on the IB side we’re still counting on growth for the year in that business. And we have launches in a bunch of other businesses like Leptra and other products.

So we’re feeling good as we look at the pipeline that you know will actually pick up a little bit more here and be running more flat on a revenue line basis. And I'm not planning or looking at anything pass that. I want the company to plan around that, I don’t think its overly conservative, but if we plan around it we’ll make some smart decision as we see upside later in the year more than better.

Frank Mitsch

Okay. So the view point is it’s not overly conservative, but it will - you have lot of things moving up and I guess a little bit down. Hey Ed in describing the Dow transaction and the shareholder vote coming in Q3, which I think may have been a little bit later than what I had originally thought. So certainly closing before the end of the year, does this give you an up - I’m curious what would be the lag between when the shareholder vote takes place and when you actually close the transaction. And are you looking to complete the $2 billion share buyback within that window or is that just something that can be executed until December 31 regardless of DowDuPont or just DuPont alone.

Edward D. Breen

I’ll take the first one and let Nick handle share repurchase part. Just to clarify the dates, we’re looking at shareholder vote at the end of second quarter somewhere in that timeframe. It looks like the timeline along with S-4 filings and all that where we just made our comments back. So that looks like it’s around that timeframe and then I need to put an exact date on it, but I would say we’re shooting for October, November kind of close of the transaction.

So both the second quarter shareholder votes are both Dow and DuPont’s shareholders October November close. We’re in great shape on all our filings in the key jurisdictions around the world you know the big ones, China, Europe, Brazil and obviously the U.S. all that’s in motion. So for the timeline where we needed to be to try to hit those dates, we’re in good shape.

Nicholas C. Fanandakis

And for the amount Frank, like Ed said, we’re going have the vote and then we’ll evaluate the opportunities to enter the market and our plans obviously is to make those repurchases. We are going to be limited by trading windows even after the vote from normal black-out periods relating to earnings.

So the end state of when that merger takes place will influence the amount of time we have available to us to make those purchases. We can make the purchases as long as we are a DuPont company and once it forms DowDuPont well then obviously that would be a decision would have to made by the Board of that company.

Frank Mitsch

Okay. Alright, thank you.

Edward D. Breen

Thank you.

Operator

Our next question is from Vincent Andrews from Morgan Stanley.

Vincent Andrews

Thanks and good morning everyone. Jim just wondering the 93 million or 94 million acres of corn in the U.S., I mean obviously it’s going to be helpful of volume metrically this year, but how do you sort of access the potential hangover from that if we have decent weather over the summer. Are you at all worried about having lower commodity prices in the fall and into next spring and given that’s already a pretty competitive operating environment, I guess I'm just curious what your thoughts are there.

James C. Collins

Yes, I think it’s a really great question. There is no doubt that our order book and our volumes in the first quarter indicated stronger increases in corn areas in the U.S. and that’s consistent with that USDA report. Now our original guidance for the year assumed a slight increase. So I would agree with you, we’re feeling some of that lift. However, the weather is always a big element here and we’ve seen a wet period here in the Midwest.

Last couple of days have been great, we’ve seen planting jump, I think we’re about 30% planted as of today and that would be consistent again with what we’re hearing that we’re probably slightly earlier this season than the historical average which would be more about 16%. Historically tough, planted acres doesn’t always equate to yield, we could still see some issues to summer especially during pollination where we know we can really take the top off of yield on any of those crops.

So kind of like you, we’re in a wait and see mode, if the weather is perfect and we get 94 million acres, you are right we’ll continue to see commodity prices at that low end of - I would say what I’m calling the new normal range of that 320 to 420 kind of operating range. And that will continue to put stress on that farm income and keep farmers really focused on how do they get the most productivity off of everyone of their acres.

Vincent Andrews

Okay. And then may be just a follow-up on Solamet. I heard that volume was up in the quarter but it seems like pricing is still weak from competitive perspective. If I remember back to 4Q, I think you said there were sort of a dual track of innovation coming this year where some came I think in the first quarter and more was coming later on. So how do you access your performance so far and what should the slope of the line be through the balance of the year?

James C. Collins

Yes the Solamet, if you look at it year-over-year it’s still down very significantly from a shares standpoint. That compares as it a big part of the performance difference you see in electronics and communication over the year, but on a sequential basis, we did have market share proven, we thought we bottomed out in the fourth quarter and we did bottom out in the fourth quarter.

We did have a product introduction at the end of the year and that’s what we’re picking up here on. We are expecting the next introduction by mid-year and we think that will put in the lead here from a technology standpoint than continue to gain share. So again, very off from a year-ago, but now picking up and starting to pick up share.

Vincent Andrews

Thank you very much.

Operator

Next questions is from Steve Byrne from Bank of America.

Steve Byrne

Yes, thank you. Our corn belt channel checks has indicated that Pioneer has gained some traction this year, tying the financing on seed sales to crop protection, chemical sales. Can you comment on how much of a benefit that’s been for you given our channel checks indicate pricing is broadly down and yet you are reporting corn seed pricing to be modestly up?

Edward D. Breen

Yes Steve, so you are right. We’re always looking for opportunities to collaborate between our Pioneer and our crop protection organizations. If you remember back from the Bank of America Ag Conference, I talked a little bit about that collaboration. This is about looking at our crop protection share with our key Pioneer customers and being able to offer a broad portfolio of solutions. So collaborating with them upfront to think about how do we connect the best technology we can to that acre opportunity for grower productivity.

If you do look at North America, you are right our price is up in the market and as we said to you we’re attributing that to a couple of areas, mostly we think it’s on new technology. About half of our line-up in North America is brand new in the last two years and you will know that we do impact trialing and even on farm trialing for a couple of years ahead of time. So growers get the chance to take a good look at new genetics before they commit fully and so a big part of our lift in North America is that they went all in on a lot of that new technology this season.

Steve Byrne

And would you say that lift could be accelerated post the merger with Dow where your crop protection chemical platform would be broader at that point?

Edward D. Breen

There is no doubt that we’re excited about a broader portfolio of offerings, we’ll be able to offer much more choices to growers out there in the marketplace. So it’s a little too early for us to begin to speculate on how we might execute against that but yes no doubt that there will be more choices out there.

Steve Byrne

Thank you.

Operator

Our next question is from P.J. Juvekar from Citigroup.

P.J. Juvekar

Hi good morning. In electronics you saw 9% volume drop and you talked a little bit about Solamet paste. How much of the decline was in solar versus how much of it was in consumer electronics? And then in consumer electronics what are the products where you are seeing these declines?

Nicholas C. Fanandakis

So if you look at the pieces in PV, P.J., there is an element of the photovoltaic that was very strong. Our Tedlar film volume grew in the Tedlar film side of the house. Now there is no doubt as Ed already mentioned that from the Solamet paste side on a year-over-year basis a significant change in volume on that product line. Consumer electronics was weaker, we did see weaker demand and we actually anticipate that to continue in quarter two and start to turn in the second half of the year. The exact breakdown of how much is electronics versus how much is PV, I don’t have that at my fingertips right now.

P.J. Juvekar

Okay. Thank you. And then generally at the free cash flow, if its back free cash flow defined as operating cash flow minus CapEx and it has declined materially in the last three-years compared to prior levels. So given that and given your significant new cost cutting, do you have any specific goals for free cash flow this year? Thank you.

Edward D. Breen

Specific targets, is that what you said P.J.?

P.J. Juvekar

Yes. Specific targets for this year.

Nicholas C. Fanandakis

What we have is a very active plant in place now around working capital improvements, which is going to be a key element to generating additional cash flow from operations as we look at that and as you already heard, we have reductions in our CapEx. So all of those programs that are in place are going to be generating improvements around the free cash flow line. We haven’t quantified the total impact in the current year yet, we’ve talked about it more in the medium time period of the impact those programs are going to have.

Edward D. Breen

One last question?

Operator

Our final question is from Sandy Klugman from Vertical Research Partners.

Sandy Klugman

Thank you. Ed, do you still expect to be able to achieve a split into three businesses within 18-months to 24-months of the mergers close. And then you have made comments in the past that the corporate overhead the three separate entities would not be higher than that at the parent. I’m wondering if that’s still your expectation?

Edward D. Breen

Yes, we’re definitely planning Sandy the 18-month to 24-months period. We’ve have a lot of teams going that are already doing some of the work to help us out on that timeline, as I think we mentioned before we’ve already started the financial carve out work, so we’ll get way ahead on that part of schedule. So yes, the timing in the 18-months to 24-months were very comfortable, then obviously we would all like to pull that in if we can, but that’s the timeline rolling now and we’ll keep working that as we go forward.

Our plan is with the reductions we’ve done here, our plan would be and by the way I did this in my prior life, but we’re going to keep the overhead percent of sales down where we’re getting them to with the reductions of both companies are making as we speak. So to me a more of a world class percent, the corporate overhead is approaching 1% of sales and we’re as I think Nick mentioning, we’re down to 1.3% of sales with the actions we’ve taken. So we’re kind of getting in that zip code and that’s where we plan to be with each of the companies.

Sandy Klugman

Okay great, thank you and then a follow-up on Ag, you mentioned losing out on some insecticide sales in Latin America, due to the presence of traded corn, outside of Latin America are you seeing the crop chemical category loseout theseed just giving how takeover margins are? Have you seen that dynamic anywhere outside?

Nicholas C. Fanandakis

Outside of Latin America, not that it would remarkable here, as I think about how the season is unfolding. We’re excited about the start to North America, we’re seeing as I mentioned good flow through to on-the-ground sales versus out-the-door and our business in Europe, especially in Eastern Europe had a strong start to the year. So a little early for Asia, little more seasonal effect on Asia as we get further into the year, but right now it’s all about Brazil.

Sandy Klugman

Okay, thank you very much.

Gregory R. Friedman

Thank you very much. This now concludes our call. Thank you for your interest in DuPont and thank you for joining us today.

Operator

Thank you ladies and gentlemen. You may all disconnect at this time.

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