DuPont de Nemours, Inc.
Q3 2015 Earnings Call Transcript

Published: 27 Oct 2015

[Operator:]

Welcome to the DuPont Third Quarter 2015 Conference Call. The name is John and I will be your operator for today's call. [Operator Instructions]. Now I will 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 third quarter 2015 performance. Joining me are Ed Breen, interim chair and CEO; Nick Fanandakis, Executive Vice President and CFO; and Jim Borel, Executive Vice President responsible for our Agriculture and Nutrition & Health segments. 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 the conference call we will make forward-looking statements and 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 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. We request that you review the reconciliation to GAAP statements provided with our earnings news release and today's slides which are posted on our website. For today's agenda Nick will review our third quarter financial performance and Ed will provide concluding remarks followed by your questions. With that introduction it's now my pleasure to turn the call over to Nick.

[Nick Fanandakis:]

Thank you, Greg. Overall third quarter results were consistent with the update provided on our October 5 call. Our bottom line continued to benefit from the positive effects of our operational redesign and cost reductions in the quarter including lower performance-based compensation. More than offsetting these benefits, however, were negative impacts from currency challenges in ag markets, particularly in Brazil and continued weakness in emerging markets and oil and gas markets affecting Safety & Protection. These pressures increase our resolve to continue to deploy disciplined cost and working capital management to deliver value to our shareholders. Ed and I are working closely with business and functional leaders on our plan to accelerate and expand our targeted cost savings commitment. We're evaluating all opportunities to improve cost and working capital performance. Now let's start with the details of the quarter on slide 2. Operating earnings per share were $0.13 versus $0.39 in the prior year. Segment results declined $0.22 per share in the quarter including a $0.17 per share negative impact from currency, primarily the Brazilian real. Also negatively impacting the quarter was $0.08 per share from a higher tax rate which I'll describe in detail in a few moments. Year-to-date operating earnings per share were $2.49 versus $2.79 in the prior year. Currency negatively impacted results by $0.53 per share. Excluding the impact of currency year-to-date operating earnings per share would have increased by 8%. Consolidated net sales for the quarter were $4.9 billion a decline of 17% versus the prior year, eight percentage points of that decline were due to currency. The dollar remains strong relative to most other currencies particularly the Brazilian real. The challenging ag market in Brazil was the primary driver of the 7% volume decline in the quarter from lower seed volume and reduced demand for insect control products. However, in Agriculture we're progressing well in our limited launch of Leptra corn hybrids for the upcoming Safrinha season with an aggressive ramp up planned for our 2016 Summer season. We did see volume growth in the quarter in Industrial Biosciences on the increased demand for enzymes and biomaterials. Turning now to slide 3. Currency continued to be a significant headwind to segment results in the quarter. Segment results excluding currency were down $0.05 per share year over year, primarily due to decline in Agriculture Performance Materials and Safety & Protection. As I mentioned a higher tax rate negatively impacted operating earnings per share in the quarter. Our expected geographic mix of earnings influences our base income tax rate. In the third quarter a shift to higher percentage of earnings in the U.S. versus prior year resulted in a significantly higher tax rate. Net after-tax exchange gains and losses were also a $0.02 headwind in the quarter. Lower corporate costs and interest expense provided a $0.06 benefit in the quarter reflecting disciplined spending and continued productivity. As I noted, we continue to see the results of our operational redesign benefiting the bottom line. Turning now to slide 4, I would like to highlight some of the geographic results. As you can see our geographic mix of sales continued to shift year over year to a higher percentage of reported sales occurring in the U.S. and Canada. In the third quarter the shift was led by the overall decline in sales in Latin America as a result of currency and weakness in agricultural markets. While the region was down overall due to currency, a highlight in the third quarter was organic growth in developing EMEA. Now let's turn to the third quarter segment operating earnings analysis on slide 5. As you can see on the slide operating earnings growth in the Electronics & Communications, Industrial Biosciences and Nutrition & Health were more than offset by declines in the remaining segments. Electronics & Communications results demonstrated continued productivity and cost reductions. Volume growth in Kevlar film and consumer electronics was more than offset a competitive pressures impacting Solamet paste. In Industrial Biosciences operating earnings grew 24% on strong volume growth, cost reductions and continued productivity improving operating margins by 360 basis points. Volume growth was led by solid demand for enzymes in food and home and personal care as well as improved demand for biomaterials. Nutrition & Health improvement resulted from cost reductions and continued productivity which more than offset negative currency. Strong growth in probiotics, ingredient systems and texturants was offset by volume -- lower volumes due to competitive challenges in specialty proteins. Operating margins in the segment improved 160 basis points and have now grown year over year for nine consecutive quarters. In Agriculture near-term conditions remain challenging. Demand for seed and crop protection products primarily in Brazil further weakened in the quarter impacted by macroeconomic and competitive pressures. In Brazil where the planting season is in progress tighter grower profits and credits are causing growers to be more cautious in their spending. The seasonal loss in third quarter was $154 million larger than the prior year as improved productivity, cost reductions and higher global price were more than offset by lower volumes, currency and the impact of the LaPorte manufacturing facility shutdown. The shutdown of the LaPorte facility impacted operating earnings for the quarter by about $40 million. And on a year-to-date basis by about $90 million. Our view of the season in Brazil remains consistent with what we communicated on October 5. Performance Materials operating earnings were down as cost reductions and continued productivity were more than offset by negative currency and lower ethylene prices and volume. Average ethylene spot prices were down 60% year over year and our significantly impacting topline and bottom line segment results. Third quarter operating earnings for Safety & Protection declined as cost reductions, productivity improvements and increased demand for Tyvek protective material and medical packaging are more than offset by negative currency, lower demand from oil and gas and military markets and higher costs associated with continued operational issues at our Chambers works facility. Our team is fully dedicated to resolving these issues. Lower demand from oil and gas and military markets impacted sales in Nomex thermal apparel, Kevlar high-strength materials and sustainable solutions offerings. As a reminder the slides with segment commentary are posted on the investor center website under events and presentations. I encourage you to refer to those slides for further details on segment results including our expectations for the fourth quarter. Turning now to the balance sheet and cash on slide 6. Our free cash flow for the first nine months of 2015 is about even with last year and reflects our expected seasonal working capital needs. Lower cash earnings were offset by related improvements in working capital. Consistent with prior years, we anticipate seasonal cash inflow in the fourth quarter. Net debt at September 30 reflects our normal seasonal pattern of cash flows. In the quarter, we entered into an accelerated share repurchase agreement to enable our $2 billion share repurchase commitment for 2015. In the quarter we received and retired an initial delivery of about 29 million shares which represents 80% of our $2 billion commitment. We expect final settlements of the ASR in the fourth quarter. We estimate that average diluted shares outstanding for the full year will be 900 million shares and about 880 million for the fourth quarter. Consistent with our previous statements we expect to return an additional $2 billion to shareholders through share repurchase in 2016. On slide 7, we're continuing to execute our operational redesign which delivered approximately $0.10 of incremental value in the third quarter and is on track to deliver about $0.40 of incremental savings in 2015. Cost reductions and continued productivity were key drivers of the results for the quarter resulting in operating margin improvement in four of our six operating segments, invisible in an over $150 million reduction in selling general and administrative and R&D costs versus our prior year. DuPont remains committed to our dividend. Last week we announced our 445th consecutive quarterly dividend since 1904. Our intent is to continue to grow our dividend in line with future operating earnings growth. On slide eight, we're reaffirming our outlook for 2015 operating earnings per share of approximately $2.75 reflecting continued strengthening of the U.S. dollar versus currencies in emerging markets, weak agricultural markets primarily in Brazil and continued weakness in emerging markets. Our guidance assumes a full-year currency impact of $0.72 per share. Excluding the impact of currency, the outlook for full-year operating earnings per share including benefits from share repurchase and cost savings represents a 3% increase year over year. For the full year we continue to expect our base tax rate to be about 22% based on our anticipated geographic mix of earnings and the assumption of the re-enactments of the U.S. tax extenders in the fourth quarter. With that let me turn the call over to Ed.

[Ed Breen:]

Thank you, Nick and good morning everyone. This is my first DuPont earnings call and I am honored to have been selected to lead this great company during this period. My immediate priority is to DuPont successfully through the current challenging time to assure we can capitalize fully on our next phase of growth and innovation. DuPont is a great company with many competitive advantages. The company has made huge progress through a broad transformation over several years, but we have a lot more work to do. The increasingly challenging environment of the past few months clearly presents new hurdles and my immediate priority is to guide DuPont successfully through this period. Since I took on the role of interim chair and CEO on October 16, we have been taking a hard look at our cost structure our working capital performance and our capital spending. While it is too early in our process to share a specific plan and metrics, we see opportunities for further improvement in all three areas and we're working quickly with a sense of urgency. We will finalize these plans in the fourth quarter. Cost is one of the biggest levers we can control. We can't precisely predict how long pressures from currency, ag challenges, reduced global production and a slowdown in emerging markets may continue. But as we aggressively address the fundamentals, cost, working capital performance and capital spending we will assure that our cost actions will result in a significant net benefit for the bottom line. We're looking at every investment to ensure that we maximize our returns. This increased rigor will also improve our cash position and ultimately enable us to emerge even stronger. For me this deep dive is an essential first step to developing the right plan to deliver a sustainable improvement in shareholder value. There is more than one route to long-term shareholder value and each situation is unique. I have always looked at each situation with an open mind and a commitment to effective decision-making based on the specific facts and circumstances. At General Instrument I drove an organic growth strategy over many years. Tycho was a very different situation that required a focus on cost efficiencies, restructuring and divestitures. As I have said before, I will work with the board and management team to carefully determine the best way to create greater sustainable value for our shareholders. As we do this work I have been struck by how seriously the entire team takes its responsibilities to our shareholders and how much this team wants to win, that's why I'm confident we will deliver. Now let me turn it back to Greg.

[Greg Friedman:]

Thanks, Ed. We will now open the line for questions. John?

[Operator:]

[Operator Instructions]. And our first question is from Jeff Zekauskas from JPMorgan.

[Jeff Zekauskas:]

Ed, I was wondering as interim CEO are you a candidate to be a non-interim CEO? Or are you not a candidate?

[Ed Breen:]

Jeff, the Board is going through a process as we speak. I don't think process will be much longer. I will say the Board knows that I am fully engaged. I have been around for three weeks. I've been working seven days a week on DuPont and I just talked to the Board at the end of the week and told them how excited I am and that I see more opportunity than when I arrived just three weeks ago and we're going to get to it and start getting some things done.

[Jeff Zekauskas:]

For my follow-up is really a question about your safety and protection business. That business fell very, very sharply in the third quarter and I think you expect it to be relatively flat in the fourth. But business conditions in oil and gas probably are not so different. So what is the lever that will make the third quarter level of profits rise so sharply in the fourth quarter?

[Nick Fanandakis:]

Yes, Jeff, let me answer that. It's Nick. When you look at the third quarter, let's clear the deck on that one. The currency was a part of that. You had about six points of the drop that occurred in S&P was related to currency. As you look at the market space, military market was lighter than anticipated. And the demand being off there impact of the Kevlar business, oil and gas prices did impact several businesses within S&P not only the Nomex business but also on our safety solutions business as well. And then we also had some operating problems at chambers works that impacted the quarter as well. As we go forward into the fourth quarter, we do see those operating issues being addressed and we also see some of the military market tenders picking up as well.

[Operator:]

Our next question is from PJ Juvekar from Citi.

[PJ Juvekar:]

Question on Pioneer, Pioneer has always lagged in trade development. Would you be willing to take view that finance should focus on seeds and licensing on the trait and stop spending on trade R&D.

[Jim Borel:]

PJ, this is Jim Borel. First of all I think it's important for us to be able to have some discovery effort of our own, but we're very open to also end licensing and we'd certainly end licensed a number of trades over the years and we end up using this tool of bio technology and a lot of different aspects of our research effort, not just around trait discovery, but we've developed a real competitive advantage around trait introgression and getting a final product that combines trait genetics kinetics and traits that perform well in the yield. We think our investment in biotech research as it's deployed makes sense.

[PJ Juvekar:]

Ed, there's a debate out there with the investor economy in the U.S. whether there's a recession or not, DuPont brought genetics products into different industrial end markets was wondering where you stand of the debate. Thank you.

[Ed Breen:]

I mean look, things have clearly softened up, just look at every industrial company that's reported this quarter. Having said that, I don't think things are in any draconian situation. I think it's just a low growth to no growth environment across some of the industrial spaces, that's fine. We can operate well in that environment if we do the right things at our end that we need to do and when things pick up that's great everybody. But, no, I don't see a disaster out there by any means. But I think we're in a kind of zero growth environment when you put all the pieces together and that's fine. There's a lot we can do that's in our control.

[Operator:]

And our next question is from Bob Koort from Goldman Sachs.

[Bob Koort:]

Ed, I was wondering if you might have any perspective to -- a lot of the flack I hear from investors is around the returns on your overall R&D investment and I'm just curious if you have any thoughts or strategies on how you might better relay successes or failures or return on that pretty substantial R&D spend every year.

[Ed Breen:]

Look, I think overall this is one of the areas I have been -- one of the three key areas I've been digging into very significantly. I think we can have a better rigor around our return metrics across all of our products and platforms and programs that we're working on. So we're clearly on instituting that. So I don't just highlight that to R&D. I think that's across the board on how we spend on CapEx and certainly R&D is a big piece of that, but it's across the board. I think more rigor around R&D is needed. Having said that, R&D is one of the great strength this company, but more rigor around that and that process I think could be very helpful for us and we're starting to put some more of that in place.

[Operator:]

And our next question is from Frank Mitsch from Wells Fargo Securities.

[Frank Mitsch:]

Ed a lot has been written and speculated that your appointment may be signaling that the company would be broken up by -- written and speculated by others I should say. And I'm just trying to get a sense from you given the fact you've been on the Board now nine months. How do you think about the debate in terms of the sit of ag in side of the broader DuPont portfolio?

[Ed Breen:]

That's why I highlighted my prior career. I've had two very distinct paths that we created significant value at both. One happened to be a split up that obviously worked very well. The other was not a split up at all. It was a growth strategy with assets that we had that also worked extremely well. So I come in with a very open mind. Having said that, I'm not naive about what's going on in the ag space right now. I do think at some point there's consolidation here that will occur. You saw some other announcements just this week from others. And so we need to be very cognizant of that and clearly -- let me just say it this way. We will do what's right for our shareholders no matter what form factor that takes. If we have something that will create significant value for our shareholders moving forward, we will seriously be looking at it.

[Frank Mitsch:]

And obviously speaking of ag it is a very difficult ag environment with virtually every large company opining on how difficult it is. How should we think about it in 2016? There's been a lot written about crop protection chemical inventories and so forth. Are we set up for another difficult year and in fact one that's likely to be lower than 2015 as some others have speculated?

[Jim Borel:]

Frank, this is Jim Borel. I think the way I'd say that is were certainly taking a cautious view of 2016. We're not expecting a big market recovery overnight. So -- but we'll talk more about the 2016 outlook and we get ready to talk about the 2016 plan.

[Operator:]

And our next question is from David Begleiter from Deutsche Bank.

[David Begleiter:]

Ed, in your brief time as CEO in long time as Board member, what do you think DuPont does well and what do you think DuPont does not as well.

[Ed Breen:]

I love that question. There are so many great things here and I told the employees that were really working off a very solid foundation. First of all I've been in many companies and the one thing I can say is the employees are really dedicated. As I said in my prepared comments, they want to win. So there is a great spirit here and a great drive and you can't make up for that. I've been in other situations where that's not the case. I think there's two other pillars I would mention. Obviously this is a great science and R&D company and a lot of great things come through that. And this company is also very focused on its customers with an extensive global sales force that really is very impressive. So that's a great foundation to have. The areas where I think there's improvement needed are more operational. At this point time anyway especially with the environment we're in, I think there's a nice opportunity on the cost side. This company has an overhead structure all cost from everywhere is about $7 billion. That's R&D, that's sales, it's marketing, that's G&A expand, it's corporate expand. That's a big number. And there's ways to strategically reduce that more so on the G&A side by the way, because what we don't want to do is we don't want to hurt at all our growth potential and volume potential over time. So that's what we're working our way through. That clearly needs improvement and I've felt that way, by the way, as a Board member and now certainly kind of confirming that my first few weeks here. I also think from a CapEx standpoint we've been spending around $1.5 billion a year. I think that number is too high. We've pretty much zeroed in on what our numbers going to be for 2016. I will hold off on that until we give some more guidance on 2016, but we've work our way through that nicely and that gets back to a rigor around returns on invested capital and what programs really makes sense which ones are marginal. And we're going to do a lot that have great returns with them. And I'd say the other area where there's improvement needed is working capital. If you look at DuPont right now and if you just took the metrics we had last year of working capital versus the deterioration we've had this year, there wouldn't be additional $500 million coming our way in cash. And that would be just the benchmark to our last year performance. If you look at benchmarking of the best of the peers, there's a much larger opportunity than the $500 million and that's what we're going to get at also.

[David Begleiter:]

And, Jim just for you on the upcoming ag consolidation. How do you see it playing out and maybe of the big six that exist today, what's the number we get going forward is it three is it four? What are your thoughts on how it plays out?

[Ed Breen:]

This is Ed. Let me take a cut at that. Who knows how fast it happens, but you've seen all the activity in the last six months and one of the other ag players just this week saying they are looking at what they would do with their ag business and I'd also say one of them said everyone's talking to everyone. That's a true statement and we're also -- I am personally talking to the CEOs of some of the other companies. Something will give here on the ag side and I would say just looking at it consolidation should happen. So clearly we will make sure we have our -- our nose in the tent to see if there's anything that makes great sense for our shareholders.

[Operator:]

And our next question is from Vincent Andrews from Morgan Stanley.

[Vincent Andrews:]

Can I just ask a follow up on some of these ag consolidation questions. It sounds like, Ed, you'd intimating you'd actually be a seller of ag in the event there was a compelling value proposition for shareholders versus keeping it. Is that a correct statement?

[Ed Breen:]

Let me answer it this way. We will do what's right for our shareholders to create value for them. That's lasting value. Not for some overnight pop but something that creates long-term value for our shareholders. We certainly have a fiduciary responsibility to look at it as a management team and a Board and we will do that.

[Vincent Andrews:]

If I could just ask on the Laporte costs, you said $90 million year-to-date and it sounds like there are going to be some incremental costs in the fourth quarter. Can you give us a sense of how that's going to flow into 2016? Do you have any sense of when you might be a little restart that facility? Or should we just be carrying through, sounds like maybe $120 million in cost into next year.

[Jim Borel:]

This is Jim Borel. We're working with the regulatory agencies, various agencies that are involved. And that's really the pacing item. And so it's difficult to say exactly when it'll start up, but I can tell you that as soon as all the actions are taken, we will be ready to start up as quickly as that's all cleared. But certainly you're right, we expect the impact to continue at least through the fourth quarter and we'll see where we go after that. One good thing is we continue to see demand in the marketplace for the products that we would make there, so we expect once again start up for things to spring back very quickly.

[Vincent Andrews:]

But there is no volumetric hit from the plant shutdown?

[Jim Borel:]

The products we were making there, yes, have been part of the negative impact on sales and crop protection. Is that your question? There was volume that we lost as part of that.

[Operator:]

And our next question is from Jonas Oxgaard from Bernstein.

[Jonas Oxgaard:]

Question for you, Ed. When you're looking at the company for five years from now having done all the cost cutting and all the improvements in R&D and everything, where do you see growth really being reignited? Are you thinking of basically taking the DuPont that is today and supercharging it or are you thinking of other areas to add on like DuPont has done in the past?

[Ed Breen:]

It's probably too early for me to comment on that. But look, the time I've been here I think there's a lot of great growth opportunity the least of which is ag coming back here at some point. We're sort of like everyone counting on softer 2016, but when you look at ag and nutrition it's almost kind of half the company. So and we're in the bottom of the down cycle right now or hopefully close to it. So clearly there's a big opportunity there. And everyone's seen that. I've been operating reviews with all the businesses. I think they have great growth plans. We're continuing those growth plans. We're funding them. I've been pretty clear that were not -- when we look at our cost cuts, we're not looking at stopping the projects at all that will be part of our future to grow the business. Our look is much more surgical and strategic where we can get, let's say a little bit of slop out of the system. So I think we have great opportunities across all of our businesses. We're not going to impinge on that growth opportunity as we go through some downsizing and streamlining.

[Jonas Oxgaard:]

And as a follow-up on that are there pieces that you're looking at not fitting into the DuPont portfolio at this point?

[Ed Breen:]

We're doing a strategic review obviously of the company kind of parallel with my comments on all the cost, the CapEx, working capital, kind of the operating performance of the company. We actually just had a Board meeting at the end of last week. We spent a lot of time on strategy and I won't comment past that, but we're very engaged on that side.

[Operator:]

And our next question is from Mike Ritzenthaler from Piper Jaffray.

[Mike Ritzenthaler:]

I wonder if we could back up for a moment on some of the cost efficiency work since the original operational redesign initiatives are starting to overlap with some of these fresh programs. What's the expected run rate that will compare -- the expected run rate in 2015 that will compared to the $1.3 billion run rate at the end of 2016.

[Ed Breen:]

I think I understand the question. At the end when we come out with a new program which we will have done in the fourth quarter, that will be the amount incremental amount that we're going to capture during 2016 that will be off the baseline of where we end 2015. So when we talk to you about that you'll clearly understand where the numbers ended for 2015 and what we communicate to you will be the number that will be the cost opportunity we will be addressing 2016. And let me clarify that, the number at the end of this year is $1 billion from the first fresh start program is where we will end up. So it will be off of that base.

[Mike Ritzenthaler:]

Yes. Okay. I think I have that clearly. And just a question on ag maybe more for Jim I guess. As challenging as that market has been, Pioneer's competitors have been recently pounding their chest about market share gains in corn. And is that a Pioneers expense or is it domestic genetics? Then maybe as a subtlety in there, are there particular products, the Leptra product is one that's coming out next year or are expected to grow significantly in 2016, but are there particular products coming into Brazil to kind of shore up that market share?

[Nick Fanandakis:]

So in North America we held market share in corn so the team did a great job in the season. Plus the farmers saw great results from the new products and hybrids that we were bringing out last year. So we've got a strong position there. As it relates to Brazil, the issue we've had down there has been the Herculex resistance that we talked about before. And as you mentioned Leptra starts to come in in a limited way and that's a premium market with an expected rapid ramp in the summer season next year. And that we think it's going to help restore our competitive position, because that product is on top of some very strong genetics that we have already down there. We have -- we're optimistic about getting back into that market in a strong way.

[Operator:]

Your next question is from Don Carson from Susquehanna Financial.

[Don Carson:]

Ed, a question going back to the portfolio. In the past DuPont's justified having this very diversified portfolio, because there were ostensibly links between the different businesses on the R&D side. Do you see those links as justifying the diverse portfolio?

[Ed Breen:]

I do see those links. I spent half a day two weeks ago over at our main R&D lab, our experimental station. There is a lot of work going on. I'd say it's cross pollinating, so no I clearly see that. And that's a great thing. I'll go back to my original comment though. You just never know where there's opportunity to create value and you just have to assess those things against whether opportunity might arise and always answer what's the best thing for our shareholders. And that's how we'll look at things. Clearly there is linkage. There's some very impressive work going on there.

[Don Carson:]

As a follow-up just on the dividend. Prior to the Camorra's spin DuPont was paying about $1.7 billion annually. You allocated $400 million of that to Chemours which was clearly above what they could sustain at the bottom of the cycle. And they've since cut. So effectively if you're a DuPont holder you've seen a significant cut in your dividend if you've held both stocks. Any plans to rectify that on the part of DuPont and return the yield that to close to what it was?

[Ed Breen:]

We're not going to address our dividend based on what Chemours did. We will make our own independent decisions. We're two separate companies and we will base our decisions on our own analysis.

[Operator:]

And our next question is from Arun Viswanathan from RBC Capital Markets.

[Arun Viswanathan:]

Just wanted to understand a little bit more on the commentary in the release. So when you see more focus on CapEx allocation and cost reductions and you also noted that the opportunity maybe bigger than when you are on the Board, can you quantify what that could be? Is it $200 million, $300 million more to the $1.3 billion that you've outlined or could it be even greater than that.

[Ed Breen:]

There is still more cost reduction happening during the quarter we're in right now, so you should count on that occurring as we communicated to get you to a run rate savings on all fresh start of $1 billion. So that is continuing and then in the fourth quarter we will be communicating with you about our future plans on cost reduction. At that point in time we will size what that opportunity is and again that opportunity will be something we will accomplish in 2016. It won't be a multi-year. It will be what we're going to accomplish it in 2016.

[Arun Viswanathan:]

Okay and just as a follow-up. Do you foresee a lot of other changes either in management or in headcount in order to affect some of that increased cost reduction. Thanks.

[Ed Breen:]

As I said some of that cost reduction will come from the G&A line. So you can take that how you want. That's clearly an area we need to streamline in the company. In fact a lot of corporate America has been streamlining in that area, because it's not affecting your growth within your customer focus and your R&D. So a higher portion of it will obviously come from areas like that.

[Operator:]

And it's from Jim Sheehan from SunTrust. Please go ahead.

[Jim Sheehan:]

You commented on some weakening in the consumer electronics markets where you're seeing a little bit of a slowdown. I understand some of that's in China. Could you just give some more color on consumer electronics end markets where you're seeing that and did that continue in October?

[Nick Fanandakis:]

This is Nick. Jim when you look at electronics communications, consumer electronics was actually a strength in the quarter as was our Kevlar film business and the PV. Where the drop-off occurred was in the Solamet paste, also in the PV industry and largely service in AP, specifically China region. That's where the greatest year-over-year decline occurred within the business.

[Jim Sheehan:]

And with respect to your Nutrition & Health segment, I was wondering if you could give us some broader comments on when do you expect to reach your longer-term targets in that business?

[Nick Fanandakis:]

The Nutrition & Health business has been making very consistent progress and we expect that to continue and I think it's what the ninth quarter of expanding margin. So the business is growing faster than the market and we expect that to continue indefinitely and they've got a lot of room for continued market expansion over the foreseeable future. So I'm not going to predict a plateau. We're expecting continued progress.

[Operator:]

This concludes the Q&A portion of the call and I will now turn it back over to Greg Friedman for closing remarks.

[Greg Friedman:]

Great. Well, thank you very much for joining our third quarter earnings call. If you have any further questions, feel free to reach out to the investor relations team and we look forward to connecting with you again as we close the year.

[Operator:]

Thank you, ladies and gentlemen. That concludes today's call.