DuPont de Nemours Inc (DD) — Q4 2015 Earnings Call Transcript

Thank you, John. Good morning everyone and welcome. Thank you for joining us to cover DuPont’s fourth quarter 2015 performance. Joining me 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 our reconciliations to GAAP statements provided with our earnings news release and today’s slides, which are posted on our website. For today’s agenda, Ed will provide opening remarks; Nick will review our fourth 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 Ed.

Thank you, Greg and good morning everyone. We entered 2016 with a lot of momentum on key initiatives. I’d like to comment on the quarter and our progress operationally before having Nick go through the numbers; then I’ll come back and provide an update on our planned merger with Dow. The quarter came in largely as expected amid continued challenging macroeconomic conditions including currency pressures. The progress we are making on the three critical initiatives I outlined last quarter contributed to the quarter and will serve us well in the future. Regardless of macro conditions, our cost structure; our working capital; and our capital spending. First on our cost structure: Cost reductions contributed $0.10 per share to our fourth quarter results, providing $0.40 in savings for the full year from our operational redesign program. We also announced in December a new global cost savings and restructuring plan designed to reduce 2016 costs by $700 million versus 2015 or $900 million on a run rate basis. We have since identified an additional $100 million savings bringing our run rate total to $1 billion and increasing our 2016 savings to about $730 million. This plan will further simplify our organization into fewer larger businesses with integrated R&D, engineering, and manufacturing functions, accelerate decision making, and connect even more closely to our end markets. It will sharpen our focus by giving the businesses more control over their P&Ls and more agility to pursue growth. When we complete our cost savings program, our SG&A will reduce by about 15% on a run rate basis in 2016. Within that number, we are reducing our corporate costs by $200 million. On an operating earnings basis, corporate expenses as a percentage of sales will reduce to about 1.3% in 2016 from 2.3% in 2015. I want to emphasize that this program is a DuPont initiative, completely separate from the proposed merger with Dow. We took a clean slate approach to building the right organization for the future. The changes we are making would have occurred regardless of the planned merger. The changes will make our businesses linear, stronger competitors in every market where we do business. Importantly, these efforts are bringing even greater discipline and rigor to the investments we continue to make in the businesses to maintain our competitive advantage and better connect our science to the marketplace. The long-term success of our businesses will be driven by innovation and strong return on R&D investments. Our pipeline continues to deliver. Over the past quarter in Agriculture, we successfully launched Leptra corn hybrids for the Safrinha season. Production plans for Leptra are on track for one of the fastest technology ramp-ups in Pioneer history in the summer season. Our two newest classes of genetics demonstrated strong harvest performance and are expected to comprise over half of our North America corn sales volume in 2016. Qrome corn products continue to progress well towards commercialization. We will expand testing this coming summer in our IMPACT trials, as we await final import approvals in key markets. Another example of where R&D is driving productive innovation is in Nutrition & Health. In the quarter, we had volume growth in high-value products including probiotics, cultures, and ingredient systems. Demand for probiotics primarily in the U.S. has been driven by our HOWARU products, which promote respiratory health in children. Demand for cultures has been driven by YO-MIX, which facilitates sugar reduction and delivers mouth feel and texture in yogurt. Next on our list of critical initiatives is working capital. Each of our businesses has set individual goals for improvement in working capital for 2016 from a bottoms-up approach. We also launched the company-wide project on working capital to look at it from the top-down perspective. We are benchmarking our performance in payables, receivables, and inventory against industry leaders and believe the opportunity for improvement is significant, as much as $1 billion in the medium-term. Our third area of focus is capital allocation. Our capital spending is guided by long-term goals and that principle will not change. After reviewing every project and its expected returns, we approved 2016 capital expenditures of $1.1 billion, which is down from about $1.4 billion in 2015 and $1.5 billion in previous years excluding Chemours. Our 2016 plan is more in line with our depreciation and amortization. In summary, all of these activities demonstrate our focus on strengthening DuPont while creating sustainable shareholder value. Now, I’d like to ask Nick to take us through the financials and outlook in more detail.

Thank you, Ed. Let’s start with the details of the fourth quarter on slide two. Operating earnings per share of $0.27 were largely in line with our expectations. While we continued our disciplined focus on cost reductions and productivity, our results again were significantly impacted by currency challenges in ag markets, particularly in Brazil, and the continued weakness in emerging markets. Segment results declined $0.23 per share in the quarter, including a $0.17 per share negative impact from currency, primarily the Brazilian real. Full year operating earnings per share were $2.77 versus $3.36 in the prior year. Currency negatively impacted results by $0.71 per share. Excluding the currency impact for the full year, operating EPS would have increased by 4%. Excluding currency, consolidated net sales for the quarter of $5.3 billion declined 1%. Currency negatively impacted sales by an additional 8 percentage points. The dollar remains strong relative to most other currencies, particularly the Brazilian real. Turning now to slide three, consistent with prior quarters, currency was a significant headwind to the segment results. Segment results excluding currency were down $0.06 per share year-over-year, as growth in Industrial Biosciences and Nutrition & Health was more than offset by declines in Agriculture, Performance Materials, Safety & Protection, and Electronics & Communications. Net after-tax exchange gains and losses were a $0.04 headwind in the quarter. This was primarily driven by the recent currency devaluation in Argentina. A higher tax rate reduced operating EPS by 0.03 per share in the quarter. A continued shift to a higher percentage of our earnings in the U.S. and Canada versus the prior year resulted in this higher tax rate. While changes in corporate expenses did not impact quarterly results, I would like to highlight that for the full year decreases in corporate expenses contributed $0.09 to earnings, reflecting our focus on cost reductions and productivity. Slide four illustrates our geographic footprint in the fourth quarter. Our sales in the U.S. and Canada continued to grow as a percentage of total sales, primarily due to the strengthening of the U.S. dollar. Now, let’s turn to the fourth quarter segment operating earnings analysis on slide five. Operating earnings growth in Industrial Biosciences and Nutrition & Health was more than offset by declines in the remaining segments. Industrial Biosciences operating earnings grew 25% on cost reductions and continued productivity. Operating margins improved by 450 basis points. Volume growth in enzymes, particularly in food and home and personal care, was offset by some declines in biomaterials. Nutrition & Health improvement was led by cost reductions, continued productivity, and increased demand for probiotics, cultures, and ingredient systems, which more than offset the negative currency impact. Operating margins in this segment improved by 110 basis points and have now grown year-over-year for ten consecutive quarters. In Agriculture, an operating loss of $54 million resulted in a $188 million decrease in operating earnings. Increases in local price, cost reductions, and continued productivity improvements were more than offset by a $139 million negative currency impact. Prior year results benefited from a timing impact from performance-based compensation adjustments and a $36 million gain from portfolio actions. Excluding the impact of currency, the segment would have reported operating earnings of $85 million. Performance Materials operating earnings were down as cost reductions, continued productivity, and increased demand for performance polymer offerings in global automotive markets were more than offset by lower ethylene prices and volume along with currency. Average ethylene spot prices are down over 60% year-over-year and continue to significantly impact both top-line and bottom-line segment results. Fourth-quarter operating earnings for Safety & Protection declined as cost reductions and continued productivity improvements were more than offset by lower demand and currency. Demand from the oil and gas industry and the military segment remained soft, impacting sales in Nomex thermal resistant fiber as well as Kevlar high-strength materials and our sustainable solutions offerings. Electronics & Communications operating results decreased by $5 million as cost reductions and continued productivity were more than offset by competitive pressures impacting Solamet paste. 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 these slides for further details on the segment results, including our expectations for the first quarter and full year 2016. Now, let’s turn to the balance sheet and cash on slide six. Let me start by explaining that our cash flow analysis includes Chemours for both 2015 and 2014. As you can see on the slide, our free cash flow decreased by about $1 billion from the prior year. About $650 million of the decline related to the Chemours transaction; the remainder was due to lower cash earnings from ongoing businesses year-over-year. As Ed indicated, we’re very focused on our cost structure, working capital discipline, and capital spending, and our plans to address these areas as part of our 2016 global cost savings and restructuring program should improve our free cash flow in 2016. We ended 2015 with a net debt of $2.6 billion versus $3.6 billion in 2014. The change from the prior year is due to a decrease in gross debt year-over-year as a result of debt maturing during the year. Year-end cash balances were about $6 billion. In the quarter, we completed the $2 billion accelerated share repurchase program, using proceeds from the Chemours separation. Under the program, we received and retired about 35 million shares at an average price of $57.16 per share. Average diluted shares outstanding for the full year were above 900 million and about 882 million for the fourth quarter. For 2016, we expect average diluted shares outstanding to be about 875 million shares, primarily reflecting the benefit of the 2015 share repurchases and the share repurchases scheduled in the second half of 2016. On slide seven, our operational redesign program delivered $0.10 of savings in the quarter and $0.40 of cost savings for the full year 2015. This resulted in operating margin improvements in five out of our six segments for the full year. As we move into 2016, we will continue to aggressively focus on cost reduction in accordance with the plan we announced in December. As Ed mentioned, we have identified an additional $100 million of cost reductions, increasing our total run rate savings to $1 billion, 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 will be weighted towards the second half of 2016 as we implement specific actions in the first and second quarters. Of the $1 billion in run rate savings, about three-fourths will come from SG&A. Included in these reductions is a decrease of about $200 million in corporate expenses. On an operating earnings basis, corporate expenses as a percent of sales will improve to about 1.3% in 2016 from 2.3% in 2015. Turning now to slide eight, I would like to review our assumptions regarding our key markets and the broader economy in 2016. These assumptions form the foundation for our 2016 guidance. As we saw in 2015, the U.S. dollar continues to strengthen against most currencies and will be a headwind for us again in 2016. We expect global growth of about 2% on an overall slowdown in global trade driven by weaknesses in emerging markets and, in particular, uncertainty in China. We expect global industrial production to increase about 2% in 2016. Europe continues to gradually improve and expand manufacturing, while the U.S. will be challenged due to tepid global demand and a stronger dollar. China’s slowing and uncertainty remains a concern as we continue to see a shift from industrial production to services and consumer sectors. In Agriculture, the fundamentals remain challenging as net farm income continues to decline. Auto growth is expected to continue with 3% growth year-over-year. With this backdrop, let’s turn now to slide nine. We expect net sales to be down low single digits versus the prior year due to the impact of currency and continued challenges in agriculture and emerging markets. Currency will continue to impact the top line as the dollar strengthens against most currencies, primarily the euro and the Brazilian real. Excluding currency, sales would be about even with the prior year. The Company expects 2016 operating earnings of $2.95 to $3.10 per share on flat sales excluding currency. Our guidance reflects a $0.64 per share benefit from the 2016 global cost savings and restructuring plan. The estimate also includes headwinds of approximately $0.30 per share of currency impact due to the continued strengthening of the U.S. dollar and $0.05 to $0.10 per share from a higher base tax rate, reflecting our expectations of the geographic mix of earnings. We continue to see slowing growth in emerging markets which is shifting our earnings mix to higher tax jurisdictions. The currency impact is expected to be most significant in the first half of the year due to a further weakening of the U.S. dollar versus last year. Given the seasonality of our operating earnings from agriculture in the Northern Hemisphere, we anticipate approximately two-thirds of the expected currency impact to occur in the first half of 2016. Excluding currency, we would expect earnings growth of 17% to 23%, including the full-year benefit of cost savings and share repurchases. For the full year, we expect our base tax rate to be about 23%, an increase from the prior year due to the geographic mix of earnings. This represents, as I mentioned, a $0.05 to $0.10 headwind in the outlook. Benefits from a lower share count will be partially offset by higher interest costs in 2016. Interest expense will increase as a result of our reduced commercial paper market capacity. Capital expenditures are expected to be about $1.1 billion. Excluding Chemours, this represents about a $300 million decline year-over-year and reflects our commitment to improving our capital allocation process as we scrutinize returns on a project-by-project basis. In 2016, we will continue to exclude from operating earnings, non-operating pension and OPEB costs, as well as costs associated with the planned merger of equals. With that let me turn the call back over to Ed.

Great, thank you, Nick. I would like to walk you through our priorities for 2016; it’s simple, we have three. One, delivering growth and operating earnings, an important driver here is delivering the $1 billion in run rate cost savings and the organizational efficiencies that come with the restructuring. Equally important, we are placing a lot of emphasis on keeping the business steady and on track. Our people are very focused on connecting even more closely with customers to deliver the value-added solutions they expect from DuPont. Two is driving improved capital allocation and working capital performance to generate more cash and enhance our returns. Three, closing the merger, planning for synergies, and preparing for the intended separations. Let me now say a few words about the merger of equals with Dow which we announced in December and which will be named DowDuPont. As we said at the time, we intend to combine two complementary portfolios to create three strong, highly focused, independent businesses well equipped to deliver growth and long-term sustainable value. Each business would target attractive markets, where combined science, technology, and operational expertise will drive value for our stakeholders. We are focused on completing the merger in the second half of 2016 subject to customary closing conditions, including regulatory approval and approval by both DuPont and Dow shareholders. We’ve identified the priority work streams and established our teams. We have begun the process of addressing the requirements under various competition laws including the Hart-Scott-Rodino Act in the U.S. We’re also focused on the preparation of the merge co-registration statement on Form S-4 to be filed with the SEC. The initial filing will be made after each of DuPont and Dow filed their annual reports with the Commission in February. In December, we said that we expect the combined company to realize $3 billion in cost synergies. Each company has chartered a dozen formal business and functional integration and synergy planning teams to develop detailed, execution-ready plans to ensure we can quickly integrate the companies post-merger and capture our anticipated costs and growth synergies. The functional teams include legal, sourcing, logistics, supply chain, HR, finance, IT, and facilities among others. All of these teams are focused on planning for seamless business operations on day one after the merger and quickly capturing our planned synergies. Just a few examples of the planning work the teams are doing include reviewing our warehouse and facilities footprint, evaluating IT platforms for savings, and developing integration plans for our transactional processes. As announced, we intend to pursue the separation of DowDuPont into three separate public companies after our merger is complete: an agriculture company, a material science company, and a specialty products company. We are doing all that we can now to expedite the timing of the spins including beginning work on the carve-out financial statements for the separate companies. In conclusion, 2016 is a pivotal and transformational year for DuPont as we accelerate our value creation work, invest in our core franchises, and position our businesses for a competitive future. We will give you regular updates on our progress. Now, I’ll turn the call back over to Greg.

Thanks, Ed. We’ll open the line for questions now. John, if you would please give the instructions?

In going through your slides, it looks like you think your agricultural operating income will be down about $250 million in the first quarter, but you think it would be flat for the year. How might you accomplish that? And secondly, in choosing the heads of the separated companies, will there be a procedure where you go outside both Dow and DuPont to compare candidates from outside the companies as well as candidates inside the companies or will those leaders essentially be chosen from inside both companies?

Yes, Jeff. This is Ed; I’ll take that your second question then turn it over to Jim Collins for the ag question. So, we will have a process in place where we will look both externally and internally in the company. We are setting up a process for that that is not just for who the CEOs will be, but there are obviously many other key public company positions that need to be staffed. I would certainly hope that some of that staffing is obviously going to be from key people in the companies, but our master will be to get the best staff we can to run the businesses. Jim, do you want to take?

Sure, thanks Jeff. You’re right. When you look at full year operating earnings, we’re about flat and that’s primarily driven by local pricing gains in North America with new germplasms they have for Pioneer seed and corn, and transition to our T Series soybean. So we’re getting some good pricing momentum there. And obviously, we’re starting to see the benefit of our cost reduction efforts flow through. These are dramatically offset clearly again by the currency impact, and we are having some impacts primarily in crop protection and in soybeans in Brazil. For example, if you excluded currency for the full year, we would be up about 10% in operating earnings.

Ed, just on a cost savings, ex the Dow merger, how much more do you think was available to DuPont, so beyond $1 billion of savings you’ve targeted already?

There are always opportunities for cost savings, and I believe they happen every year within a few percent as you continue to streamline the company. It's an ongoing process. In DuPont, we saw more significant cost savings when we managed to implement a unified IT platform, which would have greatly improved our G&A back office. Unfortunately, we are still using a fragmented IT system. One advantage of the Dow merger is that they are on the IT platform we were planning to adopt, specifically the latest version of the SAP platform. The work we completed on that platform along with the progress they have made will be beneficial. For instance, their agricultural business is already on this platform, and if we can transition to it as well, we can achieve cost savings. If DuPont had remained independent, we would have taken a couple of years to establish that platform, which would have led to additional costs primarily in the G&A area. However, through the merger, we can realize those benefits quicker if we integrate with that platform. The teams have already met several times about this, and I participated in one of the meetings at the Dow corporate office in Midland, where we felt very optimistic about this opportunity.

It is going to continue to be a pretty challenging market where we’ve got some inventory carryovers that we’re dealing with both in Latin America, lowering insect pressure that we saw here in the fourth quarter and the impact of insect-protected varieties of soybeans that are out there. I think in North America, we look at the market in general and see that it will be another challenging environment. We do have some new product launches that will be coming out, our fungicide and our insecticide, so that will help us from a mix standpoint.

Thanks, two questions. First, you talked about getting a lot of local pricing in the seed business, in both North America and South America but your remarks in the slide deck as well as some competitor commentary talk about a very competitive environment. So, I was wondering if you can reconcile, it sounds like you are expecting to see net pricing gains but you are also seeing some competition; so what do you see going on in the marketplace?

Yes, thanks. In the fourth quarter, you saw some of the impact of the pricing actions that we took primarily in our crop protection business in Latin America, and that was largely to mitigate the currency impact. We also look forward; we’ve got new genetics, something in North America. So, I look at our pricing book year-over-year for like products. We’re about flat, and you add to that the conversion to T Series soybeans in North America and the new genetics in corn, and plus the launch, the continued launch of our products like Leptra in Brazil. That Leptra ramp up in Safrinha was good but in summer corn, could be one of the largest ramp-ups that we’ve had in our history. So, it’s going to be tough; it will be competitive, but we feel good about the lineup that we have going forward.

When you look at the spot prices, it’s down about 60% on a year-over-year basis. About half of our output is exposed to these external market spot prices. The main factor here is the reduction in oil and the competition coming from naphtha-based products, which is impacting us even though we’re a natural gas supplier.

I have a question about capital allocation. Based on your guidance for 2016, it seems you could reach about $3.5 billion in operating income. However, you're planning to spend around $4.5 billion on capital expenditures, dividends, and share repurchases, not including any merger costs. I would expect at least an additional $0.5 billion for the restructuring and merger-related expenses. Are you planning to go into debt, or how are you approaching this situation?

When you look at the cash uses next year, we are anticipating obviously dividends, extremely important to the Company in the past and the future. And so dividends are going to be about $1.3 billion. We are reducing our CapEx from the levels in the past of about $1.4 to $1.5 down to about $1.1 billion. And as we said in the commentary, that’s in line with our depreciation, amortization. We made the commitments on the $2 billion of share repurchase; we are committed to accomplishing that. We’re limited right now on our ability to enter the market because of the transaction that’s going on, and we will have that limitation probably through the proxy vote. But then after that, we’ll be looking to enter the marketplace on that. So when you add all that up, you’re right, there is a higher cash drain versus the operating income, but we’re also looking at driving some working capital improvements. This is an area that we have focus on; we had some improvements, slight improvement in our working capital turns this year. But we’re looking at attacking all three areas, receivables, inventory, and payables. And we believe, if we can get to best in class in these areas, that we can liberate another $1 billion plus of cash in the medium-term. So that’s where we’re driving our efforts.

First question for Jim; Latin American or Brazilian in particular soy corn share, you’ve got a couple of trends, obviously Leptra should help down there, you’ve struggled with the Bt resistance on some of the corn. How do you see those two playing out against each other this year and where would you anticipate ending up in corn for this year?

We continue to see some pretty competitive challenges in corn seed in Brazil, especially in the summer season. We lost some share in 2015. It’s a little too early to size what that might be based on planted acres. We are excited about the launch of Leptra hybrids. We’ve got some of those coming into the Safrinha season. And then we would expect that to be about 10% of our Safrinha volume. And then as we start to think about that 2016 full summer season, this would be one of the fastest ramp-ups of new trade in our portfolio. So, we’ll have much more significant volumes of that going forward. In soybeans, it’s a little too early to comment on final share. Clearly, we did face some competitive pressure in Brazil based on the adoption of the insect-protected soybean varieties that were out there. And we’re collaborating with our crop protection colleagues on the use of seed treatments to offset some of that. And so we’ll have to be back to you later as the season unfolds to really range just how that unfolded.

Yes, you will see a nice rebound there with the launch at the end of the year, beginning of the year, but there is another launch of a product coming out about mid-year that we feel will be much more competitive as we move forward there. Nick, you might want to comment on that.

Yes, I think Ed characterized it right. It is a business where the competition has gotten more intense but it’s still a business that relies a lot on innovation and development of new products. We issued one in December that kind of leveled the playing field; we’re starting to see the impact of that, and we have one scheduled for the second half of the year that we believe is going to give us a leg up again from a competitive standpoint, so in the second half of the year.

Good morning. Could you speak a little bit about what you’re seeing on the industrial markets order flow and how much visibility you have supporting the outlook for the 3% light vehicle production growth?

Certainly, both the industrial production index and global GDP are experiencing pressure, which is evident worldwide. Auto builds have increased by about 2% for the year, and we're predicting about 3% growth for the coming year according to IHS data, with a similar forecast of 2% to 3% for the next year and about 2% for the first quarter, consistent with fourth quarter results. It's important to note that a significant stimulus was introduced in China during the fourth quarter, boosting year-over-year numbers by 8%; we're beginning to see the effects of that stimulus reflected in industrial figures. The oil and gas sector continues to weaken for us, impacted by prevailing oil prices, which also affects some of our other industrial segments. Interestingly, our fourth quarter organic revenue was the strongest of the year, improving from a decline of about 3% in the first nine months to a decrease of only 1% in the fourth quarter. Geographically, performance was flat in Latin America, North America, and Asia, while Europe experienced a 2% decline. We'll monitor the trend in the first half of the year, but it's somewhat encouraging to see this improvement.

Do you know where the ag company will be headquartered yet?

We have not made that announcement yet; I would expect we will make that in the next few weeks. We’ve been going through that analysis. And it’s something we want to get out there for a whole bunch of reasons, but the number one reason in my mind is for our employees, so they understand and have some clarity on that. So, we’re moving as fast as we can to get that announced. And it will be in the next few weeks.

Well we saw increases in volume growth in Nutrition & Health, which was up about 11%, Industrial Biosciences was up. And when you take up the Performance Materials, which was the biggest part of the Electronics and Communications, it would have actually had a good quarter as well. So, we did see offsetting areas where we saw strength in that region.

Just a couple of questions, your R&D expense of roughly $1.9 billion in 2016, can you tell us how much of that was in Ag and where do you see that R&D expense growing next year?

Let me talk R&D in total and then Jim you might want to add some color or commentary. But about half of our R&D in the Company is in Ag. And by the reductions that we have done, just to put that in perspective, takes our R&D to between $1.6 billion and $1.7 billion. And I think we are very selective in how we did it. One of the things if you look back historically just to put this in perspective because I know there has been a lot said and talked about it, but through the last 15 years the R&D has averaged in DuPont $1.65 billion and that’s a run rate over 15 years. And actually from 2000 to 2010, it was $200 million lower than that and then there was a little bit of a ramp up to bring that average up to the $1.65 million. And that’s exactly about where we are going to be as we move forward through 2016 and on. So, we are at a very heavy robust level; we’re still one of the highest R&D companies in the world. And it’s not off of a run rate that the Company has run at for many-many years. Any other commentary on the Ag, Jim you want to add?

If you look back at 2015, financially it did have an impact based on year-over-year; some of that was from lower volumes that we just didn’t have to sell, and some of that was from the fixed overhead cost that we had at that site continuing to flow through. We have forecasted and expect the impact of the reported shutdowns to continue throughout the year of 2016. And we continue to work with regulators. And at this point, we really don’t yet have a timeline for when the reported shutdown would be resolved. So, it’s later in the year we were able to get that resolved and started back up that would actually be a tailwind for us. In our current outlook, we’re not counting on it.

Nick, I know you’re really busy this week with the earnings and snow, so you probably missed some of the football this week. And I would just suggest you go back and check it out because Cam Newton was really amazing.

Yes. And let me just clarify again, to your comments, our cost reduction of $1 billion is separate from the DowDuPont $3 billion. And on our $1 billion, we’re moving obviously as rapidly as we can. I want to get that out of the way and how things settle down for the Company and all that. So, we’re moving as fast as we can and we did identify more and so we’re moving on that. The interesting thing on the Dow synergies with Dow, we have broken that out by all those key buckets we mentioned in our prepared remarks. The teams are meeting, as my comment was one of our big opportunities is this IT platform, that’s why I got personally involved in it because if we can overlay onto that, there is a huge opportunity. But if you look back at our charts, there is $1.2 billion to $1.3 billion in Ag that is very identified at this point in time. And there is so much overlap in the supply chain, the manufacturing chain, the sales chain. And by the way, the percentages we’re talking about on the Ag side are very similar to other transactions of similar type companies there. And then, we’re in good shape, looking at the synergies on the specialty company. A lot of that comes from the combination of the electronics businesses from Dow and DuPont coming together and the synergies, then we have on the material side that are identified. But where we’re still working and we have a lot of opportunity is the purchasing supply chain. As I mentioned the IT and then we have a great opportunity to look at more shared services across the whole platform. And that’s where hundreds of millions of dollars of savings could come from there. So, it’s a combination of all that. Now, we’re doing a lot of heavy lifting. For instance, in the supply chain area between the two companies, we have hundreds of warehouses around the world and we don’t need that when we come together. So that is work you can’t do in one week; that’s going to take us the next three or four months literally identifying every single one and going to work merging them together. So, a little bit heavy lifting on that supply chain, purchasing, IT side and then the shared service, how do we want to move to more of a lot of the back-office work which will reduce our G&A. So, I really plan and we’re really pushing with the teams that we have totally identified on the $3 billion minimum by the time we get to close a merger, so we can move immediately on it. And I would also say I would be very hopeful that the $3 billion is our floor number and not the ceiling number. And if we can get more out of that, obviously we’re going to just move on it.

That’s very helpful, I appreciate the color there. And then just operationally on safety and protection. I know you guys highlighted oil and gas being weak, no surprise there. You also talked about military being weak. Can you offer some commentary on what you’re seeing there and what your expectations are for the military side?

Well, it’s really delays in the tenders and spending there. So, it’s more of a timing thing than a cancellation thing. And so it’s difficult, Frank, to predict exactly when that’s going to free up again on the spending side of it. But those tenders are in place, and it’s just a matter of when they get executed against.

Question for Jim on Ag. Jim, you talked about how crop protection sales were down 24% in the fourth quarter and in your slides. What was the full year impact? And could you sort of cite what the key factors were, how much of that was channel destock in Brazil, how much was La Porte? And what’s your expectation for crop protection sales in 2016 versus 2015?

So, I did talk a little bit about the impact in fourth-quarter volumes related to the insect-protected varieties down in Brazil. So that was one impact. We will expect to see that carry over as well. Paste pressure is another aspect; again it’s difficult to predict what we’re going to see going forward. If we think about 2016, just overall total macroeconomics, we’re predicting net farm income and net farm prices for growers to be challenged. And from the past, as they start to make purchasing decisions, lock in lands, they will secure their seed and they’ll make sure they’ve got their fertility programs right and then sort of back into what their crop protection regime is going to be. On top of that for our own business, we’re missing some volumes associated with the La Porte. And so that kind of all adds to that picture, so overall, strong competitive market. I think on the offset there, we’ve got a strong crop protection pipeline that continues to come forward. We’re not into the full-blown launch of our Cyazofamid here. We’ll expect to see some recovery in propiconazole volumes especially in places like Asia Pacific in foods and vegetables; on fungicide, Zorvec, early days, but starting to get some traction on that and our new insecticide Prexil. So those are a couple of areas that would offset some of that in the downside, and Prexil, we're really just getting some testing going on that the full launch of will be in 2017.

Just a couple of more for Jim. You’ve looked at the feasibility of transferring the products from La Porte to one of the Dow ag facilities post-merger and what’s your outlook for channel inventory levels of crop protection down in South America at the end of the Safrinha season?

So I’ll take the second one first. We do expect to see some challenging inventories as that insect control market in the fourth quarter last year really died on; its’ the combination of just lower paste pressure and the impact of insect-protected soybean varieties that we’re in that market. So inventories have been challenged. Now we saw some of that coming in and we started to take some actions to correct for that but still will have some pressure there. On La Porte and Lannate and some opportunities there, it’s really way too early to be thinking about those kinds of actions. We’re just in the early days of thinking through integration and certainly those might be opportunities, but those would really come once the merger was complete, and we have a chance to really sit down with our counterparts and understand what their capabilities are.

Great. Well, thanks everybody for joining the call today. The IR team is available for your further questions, and we ask that you have a good day. Thank you.