DuPont de Nemours, Inc.
Q2 2015 Earnings Call Transcript

Published: 28 Jul 2015

[Operator:]

Welcome to the DuPont Second Quarter 2015 Conference Call. My name is John. 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 this conference is being recorded. And I would now turn the call over to Greg Friedman, Vice President of Investor Relations. Greg, you may begin.

[Greg Friedman:]

Thank you, John. Good morning, everyone and welcome. Thank you for joining us to cover DuPont’s second quarter 2015 performance. Joining me are Ellen Kullman, Chair and CEO and Nick Fanandakis, Executive Vice President and CFO. 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. I direct you to Slide 1 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 and request that you review the reconciliation to GAAP statements provided with our earnings news release and today’s slides posted on our website. For today’s agenda, Ellen will provide opening remarks and speak briefly about our results for the quarter. Nick will review our second quarter financial performance as well as our outlook for 2015. I will provide business segment insights and Ellen will provide concluding remarks followed by your questions. With that introduction, it’s now my pleasure to turn the call over to Ellen.

[Ellen Kullman:]

Thank you, Greg and good morning everyone. This is our first earnings call since we completed the separation of our Performance Chemicals segment on July 1. That business is now officially a separate entity known as The Chemours Company and we have caused a key threshold to become the next-generation DuPont. Separating Chemours has been an essential and perhaps the most difficult step in our ongoing transformation to a higher growth, higher value company with a more stable and consistent earnings profile. This profile was evident already in the results delivered by the ongoing post-spin businesses over the past six years. As you know, this quarter also saw continued impact of challenging industry-wide conditions in agricultural markets and ongoing currency headwinds. As we look ahead, our priorities are clear. First, we will continue to drive productivity and reduce cost as we enhance efficiency and simplification. Second, by pairing our streamlined business structure with our innovation, science and applications expertise, I am confident we can accelerate sales and margin growth and extend or build leadership positions in attractive markets that benefit from long-term macro trends. And third, we will maintain our disciplined approach to capital allocation to deliver value to shareholders. Our successful execution of these priorities will make us even stronger, better able to withstand the kind of macro and industry challenges we currently face. Nick will now walk us through the specifics on our financial details for the quarter and then I will come back to expand on these priorities while previewing our strategies for the remainder of 2015 and the long-term. Nick?

[Nick Fanandakis:]

Thank you, Ellen. Let’s start with the details of the second quarter on Slide 2. Operating earnings per share were $1.18 versus $1.17 in the prior year. Performance Chemicals segment operating earnings were down $0.11 from the prior year, reflecting continued challenges in the TiO2 market, which contributed to the lowest earnings performance of this segment since the global financial crisis. Currency continued to be a significant headwind in the quarter impacting operating earnings by $0.17 per share, of which $0.03 per share is included in Performance Chemicals results. Consolidated net sales were $8.6 billion, a decline of 11% versus the prior year with 5 percentage points of that decline due to currency as the dollar remains strong relative to most other currencies, particularly the euro, Brazilian real and Japanese yen. Prior year portfolio actions, local price and volume each reduced sales by 2 percentage points in the quarter. Turning now to Slide 3, currency continues to be a significant headwind in 2015 negatively impacting operating earnings by $0.17, which is included in segment results. Exchange gains and losses and income taxes together were a benefit of $0.14 in the quarter, of which $0.09 was attributable to prior periods. Segment results were down $0.16, including the $0.17 negative impact from currency I described earlier. A lower share count contributed a $0.02 benefit in the quarter. Lower corporate cost provided about a $0.02 benefit more than offsetting higher interest expenses resulting in a net benefit of $0.01 in the quarter. Turning now to Slide 4, I would like to highlight some of our geographic results. As you can see, our geographic mix of sales shifted year-over-year to a higher percentage of reported sales occurring in the U.S. and Canada. A highlight in second quarter was volume growth in EMEA in most of our segments. However, the region was down overall primarily due to currency. Excluding the impact of currency, the geographic mix would have been similar to the prior year. Now, let’s turn to the second quarter segment earnings analysis on Slide 5. As you can see, earnings growth in performance materials and electronics and communications was more than offset by lower results in performance chemicals and agriculture. The growth in performance materials was driven by demand for ethylene, productivity and lower raw material costs, which more than offset the impact of currency and the prior year divestiture of glass laminated solutions/vinyls. Electronics and communications results were driven by continued productivity gains partially offset by the impact of currency. Volume growth in Tedlar film and consumer electronics was more than offset by competitive pressures impacting Solamet paste. As I noted earlier, performance chemicals operating earnings were down $0.11, or 55% from the prior year. Currency, local price and product mix together impacted sales by 10% reflecting challenging TiO2 market conditions in the quarter. Turning now to the balance sheet and cash on Slide 6, we maintained our strong balance sheet position during the quarter. Negative free cash flow of about $3 billion reflects our typical seasonal agricultural cash outflow in the quarter and was slightly than the prior year due to an increase in purchases of plant, property and equipment. Net debt has increased in the quarter over our ending 2014 balance, which reflects our normal seasonal shifts. We used existing cash balances to fund our seasonal agricultural working capital requirements, growth investments and dividends. Today, we announced that in connection with the completion of the spin-off of Chemours, the Board of Directors authorized the use of approximately $4 billion distribution proceeds to repurchase shares as follows

[Greg Friedman:]

Thanks Nick. I would like to provide some brief segment insights focused on our second quarter results. As a reminder, the slides with complete segment commentary are posted on the investor website under Events and Presentations along with other materials for today’s call. Beginning on Slide 9, in performance materials operating earnings increased 3% driven by broad-based improved product mix, productivity and volume growth for ethylene as the prior year ethylene sales were constrained due to the scheduled outage at the Orange, Texas ethylene unit. This was offset by $42 million of negative impact from currency, the portfolio change from the sale of the Glass Laminating Solutions/Vinyls and a negative impact from an unplanned ethylene outage. Excluding the impact of currency, operating earnings would have increased by about 17%. On Slide 10, operating earnings for Electronics & Communications increased 4% as productivity gains more than offset volume decreases and a $3 million negative impact from currency. Volume growth in Tedlar films and photovoltaics and consumer electronics was more than offset by competitive pressures impacting Solamet paste. Excluding the impact of currency, operating earnings would have increased by about 8%. On Slide 11, Nutrition & Health operating earnings decreased 2% as productivity gains were more than offset by a $12 million negative impact of currency. Volume growth in probiotics, cultures, texturants and ingredient systems were offset by a decline in specialty proteins. Excluding the impact of currency, operating earnings would have increased by about 10%. Turning to Slide 12, in Industrial Biosciences, operating earnings decreased 15% as increased demand for bioactives was more than offset by lower pricing and a $6 million negative impact of currency. Increased enzyme demand principally in animal nutrition, health and personal care and food markets was offset by lower biomaterial sales. Excluding the impact of currency, operating earnings would have been about 5% lower than prior year. On Slide 13, Safety & Protection, operating earnings decreased 7% as productivity improvements and volume growth in medical packaging and protective garments were more than offset by $20 million of negative currency impact, the portfolio impact of the Sontara divestiture and lower demand particularly from the oil and gas industry for Nomex thermal resistant fiber and sustainable solutions offering. Excluding the impacts of currency, operating earnings would have increased by about 3%. On Slide 14, Agriculture operating earnings decreased 7% as improved productivity and increases in price from new products were more than offset by lower volume and an $84 million negative currency impact. Decreased volumes are due to reduced soybean sales, lower crop protection volume and reduction in global corn planted area. Excluding the impact of currency, operating earnings would have increased by about 3%. And finally on Slide 15, Performance Chemicals operating earnings decreased 55% driven primarily by lower prices for titanium dioxide and from the negative impact of currency. Excluding the impact of currency, operating earnings would have declined by about 38%. Now, I will turn the call back over to Ellen.

[Ellen Kullman:]

Thanks, Greg. Since 2011, we have completed three major and many smaller portfolio actions with the intent to strategically align our businesses with our science capabilities and with large, attractive, long-term growth markets. With the Chemours separation complete, we are stronger in several respects. Our core portfolio is more resilient and less cyclical with the capacity for more stable and consistent earnings growth. In the past three years, we have significantly streamlined our asset base. And today, we have almost 30% to our manufacturing plants than before with 60% of them now biology-based. We are more R&D intensive, deploy more of our capital to growth projects and have a higher margin profile. In addition, organic and developing market growth from our current portfolio historically has been strong and we expect that to continue into the future given our global scale and targeted market presence. As I mentioned in my opening comments, our current priorities are clear. We took the opportunity to identify the separation to take a fresh look at our cost structure and are on track to deliver $1 billion in savings by year end 2015 and $1.3 billion in savings by the end of 2017 both on a run-rate basis. You can see the progress in our second quarter results as our selling, general and administrative costs were over $100 million lower than last year and we increased operating margins of our ongoing segments by 180 basis points. Additionally, cost reductions in our production and supply chain operations have lowered cost of goods sold and are improving our margins. We are doing this by making important improvements that have transformed the structure of the organization. We have taken out layers of management, consolidated facilities, simplified support activities and improved the efficiency of our supply chain. These are meaningful savings that will not only improve our margins, but better equip us to invest for top line growth. We fully expect to continue to find additional opportunities that will take us beyond the $1.3 billion of cost reduction. The next important phase of productivity improvement will come from our enterprise resource planning system, which we referred to as One DuPont. Productivity has played an important role in our margin expansion. With the early success of our redesign initiative and focusing on accelerating top line growth, we believe we have further runway to build on that progress. Another focus for DuPont moving forward is top line growth in near, mid and long-term horizons. We are intensifying our drive to increase sales and value by building and leveraging existing world leading positions in three highly attractive, strategic focus areas

[Greg Friedman:]

Thanks, Ellen. Before we open the line for questions, I wanted to announce that we are planning on an Investor Day on September 29. I invite you to join us to learn more about our long-term strategy, segment plan and updated long-term segment target. You will have the opportunity to hear directly from our business leaders. We hope you can join us. We will now open the line for questions. John?

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Vincent Andrews from Morgan Stanley.

[Vincent Andrews:]

Thank you and good morning everyone. I couldn’t help thinking as Greg was going through some of the segment commentary and he was talking about the Performance Materials segment, there was a lot of conversation about ethylene, I just was wondering Ellen, if you could remind us as you think about sort of DuPont as it is today why is that still core to your overall portfolio in terms of the goal for the future?

[Ellen Kullman:]

Thanks, Vincent. Thanks for the question. Our Performance Materials segment and the ethylene copolymer that comes from the unit that you are talking about provide a very unique set of capabilities that we utilize in the packaging industry to leverage our strength in nutrition and in packaging and to that industry and also in sporting goods and other areas like that. So the application development groups within that business are very active in those two markets are real good face of DuPont to them. And we utilize not only those materials through it, but also integrating Industrial Biosciences materials, renewable materials through that channel as well. So it does serve a purpose within our company from the standpoint of bringing science to those industries and is a very valuable phase for DuPont.

[Vincent Andrews:]

And just as a housekeeping follow-up, the $2 billion repo that you are going to do by year end, I assume the impact of that is in the 3.10 [ph] and so I am just wondering if you can help us with the share count that we should be using for the full year?

[Ellen Kullman:]

Sure. Nick?

[Nick Fanandakis:]

Yes. So we will be doing the $2 billion by the end of the year as we said. We will look at doing the accelerated share repurchase. And the share count obviously is going to depend on the purchase price we get back and what level we can do that. But I would estimate it to be somewhere in the 900 million to 905 million share range.

[Vincent Andrews:]

Okay, great. Thanks very much.

[Operator:]

Our next question is from PJ Juvekar from Citi.

[PJ Juvekar:]

Yes. Hi, good morning. Just have a question on P-Chem business, as it earned about in my calculation, it earned about $0.20 a share in the first half. But for your full year guidance, you are subtracting $0.80 per share for that business, should you be subtracting something less than that and does that indicate any weakness in the core business? Thank you?

[Ellen Kullman:]

Sure. I mean I think you have to go back, PJ to where we started the year with our $4 and $4.20. Nick, why don’t you take him through the details?

[Nick Fanandakis:]

Sure. I think you are absolutely right, if we go back in time PJ here, when you look at the start of the year, we gave a range of $4 to $4.20. And after the first quarter, we realized that currency headwinds were going to be greater than had anticipated and we guided to the low end of the range of $4. So what made up that $4, let’s just kind of start from there. And when you look at the P-Chem businesses, you had a TiO2 business that for the first three quarters of 2014 was stable business. You had a price increase that was announced by the industry in the first quarter of 2015. You had additional opportunities that were arising like the Altamira facility. You had the work we had done on Opteon 1234YF and the traction that was starting to get as the year was unfolding. So you had all of these dynamics playing at the time that, that outlook was set. And at that time, that outlook was set at $0.80. Now that’s in line very much with what we had communicated all along because we have been saying from point one on this that the expectation for P-Chem at that time should be equal to about last year’s performance. And if you look at last year’s earnings levels, that’s about where it was, $0.82 is that number. So, we have been very consistent along that. Now the market dynamics are changing obviously as the year unfolds, but when the outlook was put together, that’s what was represented in that outlook.

[Ellen Kullman:]

Yes. And then Mark will be coming out next week with his earnings calls and give you all the forward look for Chemours.

[PJ Juvekar:]

Thank you. And just quickly you talked about slowdown in global autobuild, are you seeing slowdown in sort of growth in the second half can you just talk about that? Thank you.

[Ellen Kullman:]

Alright. I think what we saw was the fact that in the first six months of the year, the growth was about 1.5% and the expectation as we entered the year was it was going to be 3%. So there has been a drag on growth from that standpoint. Now the external economics groups that put the data out show the pricing for the quarter is pretty much counting on China growing north of 10%. And so I think there is a healthy understanding of whether that is real or not, whether that will be taken down. So we are anticipating that the ag industry is not going to grow at five plus percent in the second half of the year, it’s going to be more in the range of 2% to 3%.

[PJ Juvekar:]

Thank you.

[Ellen Kullman:]

I am sorry, it’s auto not ag. I apologize.

[Operator:]

And our next question is from Jeff Zekauskas from JPMorgan.

[Jeff Zekauskas:]

Thanks very much. Good morning. 2015 is turning into a tough year for Agriculture and what you have done there is you have sort of lowered your expectations for the third quarter in terms of operating income, how does the slower expectations affect the overall cash flow from operations of the company. And of course there are changes with performance chemicals do you think your cash flow from operations for the year will be higher than last year or lower than by any significant amount?

[Ellen Kullman:]

Nick?

[Nick Fanandakis:]

There is no doubt, Jeff that the performance in ag from an overall perspective is going to have an impact on the cash. But obviously, it’s not a one for one sort of exchange because you are also going to have changes in the working capital needs to support those reduced levels of earnings. When you look at the net cash flow, for the year it’s going to be far higher, because you have got the additional inflow of the cash from the Chemours separation. If you were to take that out and you look at it net of the share buyback that we are also going to do in the same year, the $2 billion, it’s going to be roughly equal maybe slightly better than last year from a net cash flow perspective.

[Jeff Zekauskas:]

Okay. And then secondly with the accelerated share repurchase, are you doing it in the third quarter or the fourth quarter or why might you do in the third or the fourth?

[Nick Fanandakis:]

Yes. So, with the ASR, Jeff, we are going to initiate that very soon after the blackout period lifts for us on the earnings announcement today and we are going to do it as accelerated share repurchase. So, the majority of the $2 billion will be done very quickly from a share reduction perspective, but the closeout of that ASR will be done by year end.

[Jeff Zekauskas:]

Okay, great. Thank you so much.

[Nick Fanandakis:]

Yes, thanks.

[Operator:]

Our next question is from David Begleiter from Deutsche Bank.

[David Begleiter:]

Thank you. Good morning. Nick and Ellen, just on the ASR, was there a restriction on doing an even larger ASR right now than $2 billion due to the Chemours spin-off? And if not, why not bring the entire $4 billion forward now given where the stock price is?

[Ellen Kullman:]

Great question, Dave.

[Nick Fanandakis:]

So, Dave thanks for your question. When you look at the $4 billion that we are getting in from the spin, you got to keep in mind with the credit rating agency and our commitment around maintaining that strong balance sheet. And so when you think about the EBITDA level that is going out the door and you look at our current leverage, you see a number that supports $2 billion happening this year and the rest happening next year. And that really just allows us to maintain that credit rating that we have today, the strong balance sheet we have.

[David Begleiter:]

Understood. And Ellen, just on the potential next layer of cost takeout DuPont beyond the $1.3 billion, where do you see that coming from and what timeframe and drivers and the thought process, how do you get out that additional cost layer?

[Ellen Kullman:]

Yes, yes, David, absolutely. So, over the last three years, we have undertaken a program that we call One DuPont and it basically changes the fundamental transactional backbone of the company into a simplified, standardized to SAP standard, not to DuPont standards. And moving to standard cost, common chartered account is the whole thing across our globe. That will start to stand up in January and roll around the world over the next two years as we convert these systems and that is going to enable us to automatically instead of using a proprietary consolidation and reporting system, which we now have GCAP, it’s going to allow us to use a standard one that will automatically create the schedules, the spreadsheets we need to understand the business very quickly. So, it’s going to be impact on our supply chains and creating standard data very quickly for them to utilize. And there is going to be great efficiencies there. It’s going to impact our financial organization. I mean, a lot of organizations around the world, this is going to help us really streamline and simplify. So, that’s the next tranche we are going to be talking more about that in Investor Day and giving you an idea about the savings that we will see then, but it’s never finished. I mean, whether we use tools like One DuPont to help us get more efficient or even our warehouses and things like that in modernizing those, which are part of the One DuPont. There is always opportunities we would see to drive productivity and we will continue to go after it.

[David Begleiter:]

Thank you very much.

[Operator:]

Our next question is from Bob Koort from Goldman Sachs.

[Bob Koort:]

Thanks. Good morning. Ellen, I was wondering if you could dive a little deeper into the Solamet problems and how long you see that continuing before your new products can sort of overwhelm the challenges there?

[Ellen Kullman:]

Yes. So, we have been answering this for a little while now. You have heard us talk about it for the past year. The market is still going strong. Our Tedlar sales are very strong. And PV is where the issue is. We have just launched the PV19A. We launched it in the second quarter. First shipments are now in July. All the competitive information and the testing we have done shows that we believe that will stabilize the situation. And then we have two other advancements beyond that, that are in the pipeline that we are looking to bring out later this year and early next year to continue to drive from a stabilization to a differentiation between us and the competition. So, I think this is the very focused time. We see how innovation is changing very quickly in some of these markets and we got a little bit behind in Solamet and we are driving to get ahead now.

[Bob Koort:]

And if I could follow-up on ag, you mentioned that farmers are looking to reduce input costs yet they are also embracing your newest, arguably highest priced technology. So, can you help me with that apparent contradiction?

[Ellen Kullman:]

You know what I think you see in our segment results for the quarter, the price was up in ag. And if you take a look at it, there is – with the market challenge, they are closely scrutinizing all their input costs, feed first, what is it going to yield for them? And then crop protection and how many times that you need to lay it down in what timeframe. And so we are seeing a lot of hesitation there and scrutiny and maybe taking a little bit of risk, if they don’t, they don’t turn out fine. So, I mean, it’s delayed some things that we have seen. And so they are not – we are not seeing the inventory move out into the marketplace as people are delaying their decision much closer to when they are going to use it. So, I just think it’s a natural course with the state of the ag industry right now. It’s something our teams globally are staying very close to.

[Bob Koort:]

Okay, thank you.

[Operator:]

Our next question is from Frank Mitsch from Wells Fargo Securities.

[Frank Mitsch:]

Good morning folks. Nick, in the commentary regarding the geographies, you actually were talking about volume growth in Europe. I was wondering if you could expand upon that and the expectations for the back half of the year?

[Ellen Kullman:]

Sure. I mean, Europe being the best reporting region, mostly in developing Europe, I mean improved 10% is a very strong volume performance for us across performance materials and in HC’s protection technologies. So Nick, what would you add?

[Nick Fanandakis:]

Well, I think it was the bright spot and that it was somewhat of a surprise and that volume was up in this region of the world, 2% volume overall in EMEA and like Ellen said developing EMEA even stronger with a 9% volume increase. And it was driven by the products Ellen mentioned, Pioneer was one and Nutrition and Health another. So, we did see some areas of brightness there that were somewhat of a surprise. Conversely, when you look at some of the things in Asia, in China, we saw some negatives that were somewhat of surprise as well in the context of the work that’s going on there. And it was pretty much cost across the board. A couple of bright spots in like N&H and BPT, but in most other areas we saw negatives in the region like China.

[Ellen Kullman:]

Yes, but EMEA was a bright spot as well.

[Nick Fanandakis:]

EMEA was a bright spot as well. Volume was up about 13% in India, right?

[Ellen Kullman:]

And that was pretty much across the board, we are seeing that improvement in that economy and a little bit confidence coming back in is really making a difference.

[Frank Mitsch:]

Alright, terrific. And just to follow-up, I understand the response on why the $2 billion ASR, rather than a $4 billion ASR with respect to the credit rating agencies, but I was wondering keeping some cash on hand or your powder dry, I mean, there is a lot of discussion these days about major, major M&A in the ag space and perhaps some of the properties becoming available. What are your thoughts about participating in further industry consolidation in the ag space in particular?

[Ellen Kullman:]

What we are seeing is a confirmation that you need more than just one product line in ag to be successful in the long-term. You really have to add not only seed, but crop protection services, the things that we have been talking about. And that scale is very important. And so I think that the industry dynamics are all very interesting right now. Certainly, it’s something that we stay very close to. I think the importance of crop protection and how it can really add a lot of value in the marketplace is being confirmed. And I think our pipeline there is just doing very well. So, we have recognized for a long time that we have needed a strong crop protection business, but we continue to understand what our options are there or where it could create value and understand how that could add to this strong pipeline that we have in both seed and in crop protection. And right now as you walk around the marketplace, it seems like everybody is a buyer, nobody is a seller. So, I think it will be interesting to see how this plays out.

[Frank Mitsch:]

And we would put you also in that buyer camp possibly, correct?

[Ellen Kullman:]

Everybody is a buyer and nobody is a seller.

[Frank Mitsch:]

Thank you.

[Operator:]

Our next question is from Mark Connelly from CLSA.

[Mark Connelly:]

Thank you. Just two things. When I look at the drop in your pesticide numbers, it looks fairly large relative to what we are seeing from others, but obviously the comparisons are not that simple. I wonder if you could help us understand why this quarter might have been tougher for your mix than for somebody else as if they have that right? And second, you mentioned slower sales in specialty proteins and I am wondering if that’s a secular shift away from soy or if there is something else going on?

[Ellen Kullman:]

Thanks very much, Mark. I think that as we take a look at CP, crop protection business, we are looking very clearly at where our insecticides, our fungicides started playing versus others. There is weaker demand across the industry. So, the demand being weak is hitting us all. We have a very competitive position in growers’ fields. We are confident in that. We have got a strong position in insect control, but that’s been impacted by lower demand in Latin America. So, that has a little bit of an impact on us potentially versus other sectors to be in. And your second question was?

[Mark Connelly:]

About the shortfalls you are seeing in specialty proteins, I am just wondering if it’s soy versus other protein issue?

[Ellen Kullman:]

Okay. I think what we are seeing is an increased competitive dynamic with new capacity coming in and the Chinese. There are other protein sources, but it’s not the sole reason for the dynamic that’s going on in that market right now.

[Mark Connelly:]

Okay. So, you are not looking at anything specific shifting in your protein business and you are not looking to reposition it then?

[Ellen Kullman:]

The protein business is one that has its ups and downs and we are constantly looking for ways to stabilize it and to improve it. And so I think this is just one of the challenges with that area that we continue to drive.

[Operator:]

Our next question is from Mike Ritzenthaler from Piper Jaffray.

[Mike Ritzenthaler:]

Yes. Thank you Ellen for your previous commentary around the ag consolidation, but I am curious about a bit more nuanced aspects and your thoughts about maintaining competitiveness in ag into an environment where consolidation is becoming this louder and louder component of the narrative. Is it going to require an acceleration in R&D spend or redesign of how new product introductions are embraced in the ag segment?

[Ellen Kullman:]

Yes, I think that the ag segment has always been very intense around what R&D contributes for each one of the players there, I mean, including us. I mean, we have seen the value of really novel crop protection products like [indiscernible] in the fungicides and the impact that can have on our position in the marketplace and the tremendous progress we have made there. We have a very strong pipeline in crop protection products and we are very excited about what is coming in that industry. On CE is again, it’s something that has historically farmers who pay for the yield. The yield has been driven by not only the strong germplasm and the strong genetics of the seed, but also the traits and other things that are very additive to it. The third dynamic of it is coming in services and I think it’s becoming more and more important with the increasing complexity of whether it’s the regulatory environment, the weather impacts, all of those things. And we have had services apt to the marketplace for a decade and we are well-positioned with our direct models, direct to farmer model to really get firsthand feedback on not only what our pipeline should be, but how the services can truly continue to differentiate us in the marketplace.

[Mike Ritzenthaler:]

That makes sense. I guess, is the current environment sort of tailoring some of your emphasis on certain products over others as you kind of look out into ‘16/17?

[Ellen Kullman:]

Yes, I think that ‘16/17, we are very focused on Leptra, on DP4114 is going to have a tremendous opportunity for us and [indiscernible] we are continuing to get more registrations [indiscernible] around the world and that’s been a positive for us. And then seed treatment is becoming a more important part of the mix, more important part of how we control either from a crop protection standpoint and I think there is still a tremendous amount of opportunity out there.

[Operator:]

Our next question is from Don Carson from Susquehanna Financial.

[Don Carson:]

Yes. Thank you. I want to follow-up on crop protection, Ellen you were down 21%, you mentioned earlier you have more of a focus on insecticides, but how much of this reduction is actual growers using less versus how much was just the full pipeline that you still have from last year in Brazil and North America. And overall, what percentage of your reduction in ag guidance is driven by crop chemicals?

[Ellen Kullman:]

Yes. I think that – so it’s both, right. Absolutely, it’s both, growers using less and therefore stuff not moving through the channel. Weather has played an impact on here, on delays and also pest pressure, which is not being as strong as it was in previous years are driving really the market condition as well. So it’s really hard to gauge exactly what percentage comes from which of those areas, but all three are tending to have the kind of impact as we have. As we look forward in the second half of the year, certainly crop is going to – is part of the decline based on what we are forecasting to occur down in Latin America. And so, I think its part of the mix along with the lower corn acres down in Latin America coming up in second half of the year.

[Don Carson:]

And then just a follow-up on the dividend, you have assigned $0.11 the quarterly dividend to Chemours, if market dynamics have changed and that’s not sustainable, would you bump up the DuPont dividend going forward?

[Ellen Kullman:]

We have recognized the importance of dividends to our owners and understand the concern that we are talking about the combined aggregate dividend given the current market conditions for Chemours. And I think it’s important to keep in mind that we have a long track record demonstrating our commitments to the dividend. I think it’s 444 consecutive quarters of paying a dividend dates back to 1904. Nick took you through kind of how we set those numbers. I just want to say that it’s – the primary question of whether or not a change would occur in the future, they are an independent company. They are going to make the decisions that are in the best interest. I am not going to speculate on what might happen in the future. But if there is a change, our Board and leadership will have an opportunity to evaluate it and we remain ever mindful of the importance of the dividends to our owners.

[Greg Friedman:]

Last question.

[Operator:]

John McNulty from Credit Suisse.

[John McNulty:]

Yes. Good morning. Thanks for taking my question. I just had one for you, so earlier in the year with the Chemours move, you moved two of your Board members off the Board and added two, I guess the question is any new actions or changes in priorities within the DuPont Board that we should be thinking about now moving forward with the changes that have occurred? Thank you.

[Ellen Kullman:]

Our Board is getting together. We just had the spin a couple of weeks ago, 27 days ago. And so we are taking a look at our strategy and reaffirming what that strategy is driving forward. We are going to be bringing that out in the investor meeting in September. But the focus is on how innovation can deliver real value in the marketplace and create growth for our company. The focus is on productivity and it’s a very competitive world out there and on making sure that our resource allocations and how we are delivering against that are appropriate given the marketplace. So driving the top line is productivity, I think are really key in the wheel house and we will continue to drive that. So we are going to update you guys coming up here on the end of September. And I think it’s going to be a great year.

[John McNulty:]

Okay, thanks very much.

[Greg Friedman:]

Well, thank you all for joining the call today. Just wanted to mention that the Investor Relations team is available to answer any further questions that you may have and with that, we will end the call.

[Operator:]

Thank you. Ladies and gentlemen that concludes today’s conference. Thank you for participating. You may all disconnect.