DuPont de Nemours Inc (DD) — Q3 2017 Earnings Call Transcript

Thank you, Rachelle. Good morning, everyone. Thank you for joining us for our third quarter 2017 earnings conference call. DowDuPont is making this call available to investors and media via webcast. We have prepared slides to supplement our comments, which are posted on the Investor Relations section of DowDuPont's website and through the link on our webcast. Speaking on the call today are Ed Breen, Chief Executive Officer; Howard Ungerleider, Chief Financial Officer; and Andrew Liveris, Executive Chairman. Also with us in the room today for our Q&A session are Jim Fitterling, Jim Collins, and Marc Doyle, Chief Operating Officer for DowDuPont's Material Science, Agriculture, and Specialty Products Divisions; and Neal Sheorey, Vice President of Investor Relations. Please read the forward-looking statement disclaimers contained in the press release and slides. In summary, it says that statements in the press release and the presentation on this conference call that state the Company's and management's expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under federal securities laws. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. A detailed discussion of principal risks and uncertainties that may cause actual results to differ materially from such forward-looking statements is included in the section titled Risk Factors in both Dow's and DuPont's most current annual report or Form 10-K, as well as the joint proxy statement prospectus included in DowDuPont's registration statement on Form S-4. In addition, some of our comments referenced non-GAAP financial measures, a reconciliation to the most directly comparable GAAP financial measure, and other associated disclosures are contained in our earnings release and on our website. Unless otherwise specified, all financial measures presented today are on a pro forma basis and where applicable exclude significant items. I will now turn the call over to Ed.

Thanks, Greg, and thanks everyone for joining us for the first earnings call for DowDuPont. On Slide 4, I'll cover our third quarter highlights and provide an update on three key strategic drivers: the merger, the synergies, and the spins. We are making good progress on all fronts while continuing to execute in the business. Some pro forma highlights for the quarter include: sales were up 8%, volume grew 4%, operating EBITDA rose 7%, and adjusted EPS increased 10%. Overall demand indicators were strong, particularly in packaging, electronics, transportation, instruction, and consumer care markets. An exception was Ag, which was soft, particularly in Brazil due to the delay to the start of the summer season and lower expected planted corn area. However, we'll cover the Ag segment results in further detail, but we expect a strong finish to the year for this business. Operating EBITDA increased despite several headwinds in the quarter, including hurricanes, higher feedstock costs, and start-up expenses for new assets we are bringing online to continue to meet demand growth. As you know, we closed the merger on August 31; this was a significant milestone that followed months of hard work, strong execution of a complex transaction, and the completion of a rigorous regulatory approval process. Less than two weeks later our newly formed board unanimously approved a realignment of more than $8 billion in sales and approximately $2.4 billion in EBITDA from the Materials Science Division to the Specialty Products Division. This realignment was based on a thorough analysis completed over four months. The thoughtful, decisive actions by our board better aligned the businesses with the end markets they serve, increased their competitiveness, and importantly, enhanced their long-term growth potential. We also completed two of our three remedy divestitures; we closed the Dow ethylene copolymer asset sale on September 1, and just yesterday we completed the sale of certain DuPont crop protection assets to FMC along with the acquisition of most of FMC's health and nutrition business. We expect the third transaction, the sale of certain Dow Brazil corn seed assets, to close later this quarter; this is all good progress and once again shows our team's focus on rapidly working through our key milestones. Now let's turn to synergies on Slide 5, starting with cost synergies. First and foremost, we remain committed to our target of $3 billion; there is no change to that expectation. Our previously stated timeline still holds; we expect to reach a 70% run rate by the end of year one and a 100% run rate by the end of year two. Since the portfolio review announcement, we spent additional time reworking our cost synergy playbook and the division targets. Due to the portfolio change, we now expect cost synergies of $1.2 billion for material sciences, $800 million for specialty products, and the cost synergy target for Ag remains at $1 billion. We have already begun taking action; in the third quarter we took a restructuring charge of $180 million. This charge accelerated the capture of the synergies, and today we announced actions designed to integrate the divisions post-merger and deliver efficient cost structures for the three intended companies; they include procurement synergies, global workforce reductions, building and facilities consolidations, and select asset shutdowns among other activities. These changes are carefully designed to help us create the strongest possible foundations and clear strategic focus for each of the three divisions. We expect total pretax restructuring charges of approximately $2 billion, which encompasses the majority of the actions we will take to generate the $3 billion of cost synergies; we project that our cost savings will hit a run rate of $500 million by the end of 2017. Keep in mind the cost synergies included in cost of goods aren't recognized until they flow through inventory. There will be CapEx associated with capturing a portion of these cost synergies; setting aside synergy-related CapEx, we are also carefully scrutinizing our CapEx plans for each of the divisions and expect their 2018 spending not to exceed D&A before the accounting step-up. Turning now to growth synergies, we have also begun our work on the $1 billion target. Let me give you a few examples of what we are doing. First in Ag, we have a very strong pipeline set to deliver 10 new seed products and 11 new crop protection products to the market over the next five years. We will leverage our expanded market access to deliver these solutions to our customers. An example of this is in Brazil where we will use our advantage throughout the market to expand the launch of our new Conquista and Enlist E3 soybeans. Another example draws on the combination of Dow Pharma and Food, the DuPont Health and Nutrition portfolio, and the business we just acquired from FMC; our portfolio now has one of the broadest pharma offerings to serve the growing excipients industry. We can now provide customers with capabilities to blend and integrate requirements for controlled release, binding and solubility, and emerging needs. Our new pharma excipients business unit created from the integration of Dow and FMC also gives us a stronger position in the healthcare market when combined with our other initiatives in medical silicones, medical packaging, and emerging bio-based products. We plan to share more details with you as we continue to advance and implement our plans. Finally, I will share an update on our intended spends. Recall that we initially said we expected to complete the intended spends 18 to 24 months after the merger. The recent realignment of the businesses and reduced new complexity to the financial carves, IT harmonization, and legal entity requirements. Our team spent the past few weeks remapping the stand and spend timing, looking at several scenarios and walking through risk mitigation plans. We remain committed to our previously stated timeline of 18 to 24 months for the merger close, and our teams have begun assessing our options to accelerate this timeline. In summary, we are executing on our top priorities, delivering our operating and financial plan, we've begun the work to achieve our synergy targets on schedule, and we're advancing the process of standing and spending the intended companies. I'll now turn it over to Howard to review our financial results in further detail.

Thanks, Ed. Moving to Slide 6 and a summary of our results on a pro forma basis. We delivered adjusted EPS of $0.55, up 10% versus the year-ago period. This was driven by higher business results, improved equity earnings, as well as a $70 million benefit from lower pension/OPEB costs due to purchase accounting with approximately two-thirds of these costs in the specialty product segments. Sales in the quarter grew to $18.3 billion, and operating EBITDA increased to $3.2 billion, both driven by volume and price gains. Sales were up in all geographies except Latin America, volume grew 4% on strong consumer demand across a broad range of key end-markets. From a geography perspective, we saw particularly strength in Asia Pacific, which was up double digits, and from Europe, the Middle East, and Africa, driven by the continued ramp-up of the Sadara assets, strength in consumer demand, as well as in the industrial semiconductor and consumer electronics markets. Local prices rose 3% as we drove pricing initiatives in response to higher raw material costs and tight supply-demand fundamentals. Equity earnings grew year-over-year, led by higher MEG prices and margins, which benefited our Kuwait joint ventures. These gains translate into higher EBITDA in the quarter as we more than offset headwinds from higher feedstock costs, weak Ag conditions in Brazil, the unfavorable impact from hurricanes and start-up expenses related to the new assets on the U.S. Gulf Coast. We also saw improvement in our cash conversion cycle during the quarter; going forward we see additional opportunities to improve our working capital performance, and we will continue to focus on it for each of our divisions. Let me now touch on a few items in light of the modeling guidance we provided in September. First, I want to thank our teams who did an incredible job mitigating the impacts of the hurricanes, while many of our businesses declared forced majeure in the aftermath. Our operations and our supply chain teams managed the dynamic situation on the ground and dampened the operational and financial effect. As a result, the headwind in the quarter was approximately $150 million. I also want to provide greater transparency into our tax rate, which was impacted by significant items, DuPont amortization of intangible assets, and the hedging of foreign exchange gains and losses. When we adjust for these effects, the pro forma operating tax rate in the quarter was 27%. Now turning to our segment results starting with Ag on Slide 7. The third quarter, as you know, is typically a seasonally low for our Ag business from an earnings perspective; this year we faced additional headwinds in Brazil. Operating EBITDA declined $67 million, primarily driven by lower volume and price. Lower crop protection sales were due to weakness in Latin America as sales channels continued to hold elevated inventory levels of crop protection products. Additionally, seed volumes declined primarily due to a delayed start to the Brazilian summer season and an expected reduction in planted corn area. We partially offset these headwinds with lower product costs and continued penetration of new products across cereal herbicides, soybean fungicides, corn hybrids, and insecticides for SAP eating pests. Looking ahead for Ag, we anticipate a return to growth in the fourth quarter with sales up about 10% versus the prior year and operating EBITDA up to approximately $225 million. The increases are driven by higher fungicide sales, increased corn volumes in Latin America from continued penetration of Leptra corn hybrids, lower pension and OPEB costs, and the portfolio benefit. We expect full-year sales to increase in the low single digits, and operating EBITDA is expected to increase 11% to 12%; both of these will be driven by volume, feed pricing, and gains from increased penetration of new products including Leptra corn hybrids, Enlist cotton, and A-series soybeans. Turning to the Material Science segments on Slide 8; the division grew operating EBITDA 8% led by robust demand in end markets where we hold leadership positions today. Sales grew 11% with gains in all segments and geographies on increases in both local price and volume. Moving to the segments; performance materials and coatings achieved an operating EBITDA increase of $142 million primarily reflecting continued growth in silicones, as well as increased pricing and robust consumer demand. Consumer solutions delivered sales growth in all businesses led by volume growth in most geographies, increased pricing, and disciplined margin management in upstream silicone intermediate products. Industrial intermediates and infrastructure delivered operating EBITDA of $676 million, up significantly from $401 million. The business had pricing momentum, higher equity earnings, and broad-based demand growth, which together more than offset the impact of higher raw material costs, hurricane-related repair costs, and lost production in North America. Polyurethanes reported strong demand and price increases in downstream higher margin system applications, as well as higher merchant sales of MDI. Industrial Solutions delivered strong sales gains led by consumer-driven market segments. The Packaging & Specialty Plastics segment reported operating EBITDA of $1.1 billion, down from $1.4 billion in the year-ago period. Volume growth, local price gains, and higher equity earnings were more than offset by increased feedstock costs, hurricane-related repair costs, and lost production in the U.S. The Packaging & Specialty Plastics business grew volume on continued consumer-led demand, this was largely due to higher sales in Asia Pacific and EMEA, which were primarily enabled by the ramp-up of Sadara volumes. Demand remained healthy with double-digit volume growth in health and hygiene end markets in the Americas and strong demand in Food & Specialty Packaging applications, particularly in Asia Pacific. Now to the Specialty Products segment on Slide 9; the division delivered operating EBITDA growth of 10% and top-line growth of 5% in the quarter on continued strong demand in key end-markets including semiconductors, consumer electronics, and automotive. Electronics and imaging achieved $382 million of operating EBITDA, up from $341 million in the year-ago period, as broad-based volume growth and mix enrichment more than offset lower local price and a negative impact from portfolio actions. The segment achieved broad-based volume growth led by double-digit gains in semiconductor, consumer electronics, industrial photovoltaics, and display end-markets primarily in Asia Pacific. Nutrition and Biosciences reported operating EBITDA of $315 million versus $321 million in the year-ago period as double-digit sales growth, microbial control solutions and probiotics, coupled with continued local price and volume gains in biomaterials were more than offset by declines in protein solutions, systems, and textures, and a negative impact from portfolio actions. Transportation and advanced polymers operating EBITDA increased to $325 million from $303 million in the year-ago period led by volume and pricing gains, which more than offset higher raw material costs. Volume growth was driven by strength in the automotive, aerospace, and electronics markets. Safety & Construction achieved operating EBITDA of $351 million compared with $282 million in the year-ago period. Volume gains and improved plant performance more than offset the impact of higher raw material costs; stronger demand from industrial markets, particularly oil and gas contributed to double-digit gains in Nomex thermal-resistant garments and mid-single-digit gains in Kevlar high-strength materials. Turning to Slide 10, I'd like to highlight a few of our expectations for the fourth quarter. We expect pro forma net sales to be in the range of $19 billion to $19.5 billion, which equates to over 7% top-line growth year-over-year. Pro forma operating EBITDA is expected to increase 11% to 13% year-over-year with growth in every segment. Volume gains on healthy consumer demand and key end-markets and pricing momentum are expected to be key drivers for top-line and bottom-line growth, further supported by new product penetrations notably in Ag, as well as by mix improvement and disciplined margin management to offset the raw material cost increases impacting many of our businesses. While we continue to see growth in semiconductors and consumer electronics, sales in the electronics and imaging segment are expected to decline due to a negative portfolio impact from the sale of our stake in a non-core joint venture earlier this year, as well as due to the Hurricane Maria-driven productive disruption at our plant in Puerto Rico. A benefit from higher industry margins in the Packaging & Specialty Plastics segment and ramp-up in production at the recently started U.S. Gulf Coast projects will be partly offset by the commissioning costs for the sequence start-ups of the remaining units in the Gulf Coast, higher turnaround activity, as well as by a residual $40 million carryover impact related to Hurricane Harvey. As we continue to ramp these units, we will further capitalize on our early mover advantage to deliver differentiated package solutions and higher EBITDA in this robust consumer demand environment. Our fourth-quarter outlook incorporates an expected EPS tailwind of about $0.06 per share from year-on-year lower pension and OPEB costs, primarily in the Specialty products and Ag portfolios as a result of purchase accounting. However, this benefit is expected to be offset by an increase in the operational tax rate to about 25% from 19% in the fourth quarter of '16 due to the geographic mix of earnings. Please refer to Slide 15 in the appendix of the earnings presentation for additional commentary on our segment outlook. And with that, I'll turn the call over to Andrew.

Thank you, Howard. Turning to our economic and market outlook on Slide 11, global economic acceleration continues led by the ongoing strength of the consumer across most major economies. The United States is maintaining its trajectory in line with what we have seen for many quarters. The positive change we see is the greater than expected performance in the euro area; notably for the first time in a decade, all 40-plus OECD countries are on track to grow this year. One of the best examples of the demand strength we see is that our Sadara joint venture. In August we announced that all 26 units at the World Class complex had achieved commercial operations and by then the JV was already significantly ramping its sales. In the last quarter alone, it's sold more than £0.5 billion more than in the same period last year. We are seeing strength in particular in the polyurethanes envelope, and we were able to ramp up these units not only due to our pre-planning and established market channels but also because our customers around the world in China, India, Southeast Asia, and Central Europe demanded Sadara's products and solutions. We expect this trend to continue into next year as the site reaches its full capabilities. In Packaging, the fundamentals remain positive. We have maintained a consistent view of the supply-demand fundamentals for nearly three years, and the trends have largely matched our projections. PE demand continues to be robust, even in the slow growth environment, with upside potential as global GDP growth prospects continue to improve. Supply additions have been delayed, leading to new capacity coming online at a more measured pace than expected. These factors taken together support our long-held view of a short and shallow adjustment period. More importantly, our longer-term outlook remains unchanged as population growth, the standard of urbanization, and a growing middle class in the emerging markets continue to drive greater adoption of consumer packaging. Looking forward on Slide 12, DowDuPont has all the levers it needs to execute on near-term priorities. You can see this in the performance we delivered in our first quarter reporting as a combined company; we delivered top and bottom line growth, overcoming several headwinds in the quarter. We closed two of the three major remedy divestitures with a third expected to close this quarter. We continue to advance our growth projects in the U.S. Gulf Coast and the Middle East, as well as accelerated progress on the growth synergy plans. We immediately began executing our plans to achieve our cost synergy commitments, as well as on our intended spend plans, with the expectation that we'll complete the intended spends within 18 to 24 months after closing the merger. As Ed said, we remain committed to our original timeline and we are actively assessing ways to accelerate it. We will share more on this on our future earnings calls. Before I turn to Q&A, I will cover one more step forward that we are announcing today; DowDuPont's Board of Directors has approved a fourth-quarter dividend of $0.38 per share and authorized an initial $4 billion share buyback program underscoring our commitment to returning capital to our owners. In considering the shareholder remuneration, the board engaged multiple external advisors to work in coordination with our teams to establish a capital allocation approach that returns excess cash to shareholders while preserving the financial flexibility to achieve the target capital structures for each intended Spin Co. Additionally, the Board considered numerous factors in making its decisions, including affordability and cash flow, precedent transactions, and the historical approach on dividend policies for both heritage companies. The Board's decision on the dividend is meaningful in three ways; first, the quarterly dividend announced today is consistent with the targeted dividend payout ratios of each heritage company, and its equivalent to the weighted average quarterly dividend of both heritage companies. Second, by setting a payable date in December, heritage Dow shareholders will receive a total of five dividend payments in 2017, the equivalent absolute amount of cash to the legacy Dow dividend through 2018. And third, for heritage DuPont shareholders, this represents a quarterly dividend increase. Today, we are announcing an additional $4 billion repurchase program. As you know, both heritage companies have had limited ability to repurchase shares over the past two years as a result of the prolonged regulatory review of the merger, so we look forward to resuming our share repurchase program. I'm proud of what this management team and our Board has accomplished in such a short amount of time. We began this journey with the intent to create three industry-leading growth companies that would deliver sustainable shareholder value creation, and we are firmly on that path today. With that, I'll turn to Neal for Q&A.

Thank you, Andrew. With that, let's move on to your questions. First, I would like to remind you that our forward-looking statements apply to both our prepared remarks and the following Q&A. Rachelle, please provide the Q&A instructions.

Yes, thank you. As Brent hit $60 and oil prices go up, it's hard to understand the impact of rising oil prices on the combined company. I think historically Dow benefited on the petrochemical side but I think DuPont was hurt on the specialty side. So what's the net impact on the new company? And then, is there any change in approach to what's heading hydrocarbons as a result of the combination? Thank you.

Hi P.J., this is Jim. As prices increase, I believe this creates a positive long-term environment for us. However, in the short term, there can be a delay between price changes and their effects on downstream products and our cost structure. We are constantly evaluating our hedging strategies and how to leverage both our physical and financial positions, and we will keep doing that. Most of the exposures you mentioned will primarily manifest in the materials company; I think this will likely be noticeable over an 18-20 month period. We are actively monitoring that from our perspective.

I'll just build; this is Marc Doyle from Jim's comments from the specialty division. It's actually really sort of a wash; we've got some raw material headwinds when oil increases but we also sell a substantial number of products into that market segment. So net-net, we're pretty well balanced in this division from oil price changes.

Thanks. Just a question on the spends and the timing; I guess first question as you talked about options to accelerate, could you discuss what those are at a high level? And then specifically the Ag, you know, just thinking maybe that would be the first one to come out now because there was nothing obviously done between material co and specialty co there and you knew about the FMC transfer for a long time. So any thoughts there would be helpful.

Yes, please and my apologies. We had a little bit of a technical difficulty. We'll start the call again. We also will go past the top of the hour to make sure we make time for plenty of Q&A. So Rachelle, if we could go back to Vincent's question, that would be great.

Sure, I have a different question. Ed, considering your assessment of Specialty Co, what are your thoughts on how nutrition, health, and industrial biosciences fit within the overall Specialty Co? Specifically, I'm curious about the valuation, as some of those business multiples are quite high, in the high teens or low double digits on EBITDA. Do you believe that business will fully reflect those peer multiples alongside the overall Specialty Co? Thank you.

Vince, you're not the first one to ask that question. But let me start out by saying, look, I'm really pleased with the portfolio moves that we just made because we added substantially to the nutrition and health division. You can see just from a revenue standpoint, it's the leading nutrition and health company in size and scale in the global market at this point in time. As we mentioned earlier on the call, I'm really excited about the pharma focus we will now have. DuPont's been breaking into that market, we've been spending R&D against that, and here comes the Dow portfolio and the FMC portfolio which combined really give us the leading presence in that market. So I couldn't be more pleased overall with where we are fully in that part of the portfolio. I would add one other point and I get directly to your point or your question; there is portfolio cleanup we're going to want to do in the nutrition and health business, so you'll see some quarters where our growth might not be as high. You noticed in our guidance, our fourth quarter growth will be very nice in that business, but there are some commoditized areas we'd like to exit our way out of and really reinvest more in the growth part of that portfolio as we move forward. So we've got work cut out there, but that's very good for our shareholders over time. The way I would answer it is; the Specialty portfolio is a great set now, it's four very solid divisions and we will have all kinds of optionality sitting in front of us to how we will want to handle that, and our goal at the end of the day is to create long-term sustainable shareholder value; whatever the best path is, we will certainly take a look at that and pursue that. You're absolutely right; the multiples you see in that industry are 16 to 18 to 19 times which is above what even the specialty company would trade at. We'll see how things trade, what they look like, and we'll always look to optimize shareholder value out of it.

Thanks very much. In the wide of DuPont's pension funding, how does that pension funding of the combined company work going forward; what are the levels of contributions you have to make? Also, what was your pro forma cash flow for the quarter? And in your $3 billion of synergies, if you could divide that up into procurement, workforce, buildings and facilities, and asset shutdowns?

Jeff, on the synergy piece; about 30% of that is more headcount-related type actions, and then you have a big piece in curves and facilities and all that makes up the rest. I will say on the synergies, we now have the procurement teams working together, and there are over 50 teams working globally in the procurement area on all of our contracts across both companies, and we were not allowed to do that until we merged the companies because of the guidelines that you have to follow. The teams have had now 60 days of really intense work, and you've heard me say before, I think some of our upside opportunity is going to come from the procurement side because we only baked in $660 million out of the $3 billion from procurement; the fact that we have between these two companies, which is north of $35 billion, we should be able to extract some really good savings there. So I would say stay tuned on that one, and we'll be updating probably in the next quarter where we're at on that piece. But again, both from the Dow division, the Ag division, the Spec Co division; we've all met multiple times already with these procurement teams and we're going to make good progress there.

Jeff, this is Howard. Let me address the other two parts of your question. First, regarding pension funding, we still have the legal structure in place with the Dow tower and the DuPont tower, so the pension funding and expenses will remain consistent with previous periods. From Dow's perspective, the funding is around $600 million for the full year, which has already been secured. For the DuPont tower, there will be a slight benefit; I mentioned earlier that we expect about a $200 million tailwind in the fourth quarter, which will continue to impact the DuPont tower and flow into Spec Co and Ag Co primarily through 2018. Lastly, concerning cash flow, we expect to see positive GAAP free cash flow and positive GAAP cash from operations, both exceeding $1 billion, in the Q we plan to publish early next week. However, it's important to note that the figures are not directly comparable due to the merger and pro forma GAAP accounting. If you examine the cash balance for both the Dow tower and DuPont tower compared to the same quarter last year, there's an increase of approximately $2 billion in cash, which is how I would break that out for you.

Thank you, good morning. Ed, on the buybacks, it seems a bit late overall, 2% to your market cap. Can you discuss the cash needs you might have between now and separation that might be limiting the buyback level? And what's the timeframe for the buyback to be completed? Thank you.

One of the key points Andrew highlighted was that this is an initial buyback program. Our Board has been quite active with various actions we've taken, and one of our priorities was to resume share repurchases. As Andrew noted, we had not been in the market much over the past year or so, and we wanted to change that. Both Dow and DuPont had roughly $4 billion remaining for share purchases, so we decided to utilize that and enter the market. Moving forward, we need to review our cash flows and consider the short-term cash requirements for the synergy work, which is more front-loaded. Our goal is to achieve a BBB rating for the Dow tower, something between BBB and high BBB for Spec Co, and an A minus for Ag. We have a clear understanding of our target ratings, and we will reassess our excess cash over the next year to a year and a half. Remember, this is just the initial step for us to get started on the buyback.

I just thought I could add, David. I think from the Mat Co point of view, we've been very public before the merge that we will take out CapEx down to D&A, we're not backing off of that. As Ed and I go through board reviews here in the next couple of Board meetings, we're going to look very strongly at 2018. We have an affordability topic that we have to get into, as well as the capital structure topic Ed just covered; but the CapEx equal D&A is something that we remain committed to, especially off the high CapEx spend we've just come off of in materials.

Thank you and congrats so far on the progress. Has the silicones business been physically de-integrated already, or is that de-integration still ahead, and just the reporting has been done for us and splitting it between the two segments?

John, this is Jim. As far as the physical de-integration, what I would say is we announced the portfolio changes in the first/second week of September; we've done a lot of work with obviously reinforcing the employee population that will be part of that and going through the notifications on that between now and the end of the year. We've also done all the work on the financials so you've got the financial reporting, that's in the numbers in the pro forma as it is shown there today. As far as physical separation, i.e. spending money or looking at facilities and that, that work has not started yet, but that is on our radar screen. Mark's teams and our teams on the silicone side are working well together, so the businesses that are going to receive those businesses have already been in contact, and they are making great progress in this 45 days since we announced that.

And this is Andrew. It's actually been one of the positives of the delay to the merge is we were able to stabilize Dow Corning silicones, and so a lot of that work is behind us. So from a next-step point of view, we're all ready to make that what Jim just talked about happen.

Yes, good morning. Would you comment on the expected earnings improvement from Sadara as you ramp through 2018, as well as the analogous contributions from your Texas 9 complex as you're up and running there?

Look, I've just come back from Saudi, and I would tell you the moving parts score a ramp-up is huge, and so we made an announcement before the merger that we would be trooping out our participation post-spin and post-lender's reliability test. I would tell you that the operational side you can comment on, as well as of course talk about Texas 9, but just the moving parts called the partner has needed a lot of close engagement, we've been doing a lot of that and Jim and I have taken the lead on that. And Jim, you might want to comment on how the units are doing.

Yes. So through the third quarter, Plastics obviously has been running strong through the year. We are starting to see product move; you didn't see the full capacity of the chemicals business in the third quarter, I think you will see us hit that rate in the fourth quarter. We've got a lot of the supply chain full, we have all of the terminals and tanks operating now around the world to get that moving. You will see an improvement year-over-year. We're right on track with what we guided you to earlier; Plastics is starting to see a tailwind from this; performance materials, and now industrial intermediates and infrastructure are seeing a little bit of a drag year-over-year, but it's more positive than we expected it to be. As we move into 2018, you are going to start seeing both of them become positive year-over-year. I don't have a planned number or dollar number to give you at this point but I think you are going to see a step-up improvement in both of them.

Good morning. I was just wondering as I think about the synergies and cost cuts, what part of that is comprised of telecommunications and conference call equipment? And is there any thought of aiding back to those programs?

Well Frank, we're now going to look for more in that area.

And I guess my broader comment would be; we're using METs technology, Frank.

Thank you. No, you mentioned asset shutdowns as part of the synergies production assets; obviously, we know about the offices and so forth, where should we be thinking about that and what's the rationale; was one or either of the companies running at very low operating rates? And so any color around that would be very helpful.

Let me address the specialty side of our operations and touch a bit on agriculture. Over the past year, DuPont has closed three significant facilities and consolidated our presence in Wilmington. We are in the process of shutting down the Laport facility completely. A few months ago, we announced the closure of Cooper River, with production being moved to another existing facility to better utilize our overhead structure. Today, we announced the sale of our cellulosic facility in Nevada, Iowa. While we have demonstrated the technology works and will continue to develop it, our current strategic focus on specialty products means this facility is not essential to our future. Thus, we will be exiting that site. These are just a few examples of major changes taking place, and there are several other smaller adjustments in agriculture that, while not as large individually, collectively make a significant impact. Perhaps Jim Fitterling can provide insights on Mat Co.

Yes. Frank, I think on Mat Co, look, I would just echo what Ed said. I think there are no market reasons for us to take anything down; there might be some strategic reasons as we look at the footprint that we have in the new company and how many locations we have to support around the world. So sometimes when you get into some downstream assets or some opportunities, the combined locations can move an asset or do something of that nature, and we're taking a look at that. We've also done a lot of things over the last 18-24 months to get ready for the merger and to get ready for this next step. So I don't think it's the biggest driver of what we're doing here.

Good morning. Did I hear you right when you said the spends are now expected to be 18 to 24 months; and if so, what happened there because I thought that there was a pretty consistent message of 18 months or less before?

Yes, let me comment, and maybe Howard wants to add a few words to this. But the shift is only because of the portfolio change. We're not only moving $8 billion of revenue over but remember, when you look at what we're moving over to align it properly, it's part of divisions in many cases of Dow; it's very similar to what DuPont had to do to carve out not its Crop Protection division but like half the Crop Protection division, which is a much more significant task. We're doing that in multiple scenarios now on the Dow end, and that carve-out work, the legal entity work, harmonization of our IT systems is really the extra work we now have to do. What we guided to today was 18 to 24 months; Jonas, you're right, we originally said 18 to 24 before but then over ensuing months our team worked that down where we felt confident to tell you 18. We're kind of back at that point again; we're 18 to 24, and we'll update you as we go. The teams are working extremely hard nights and weekends, trying to de-risk it and see if we can pull that data in some, but nothing else to report there that a lot of hard work and hopefully we can make some progress.

Thank you. Good morning. Your slides indicate an expected EBITDA growth of 11% to 13% for Q4. I'm interested to know if that growth rate will be sustainable in the upcoming quarters. Additionally, do you anticipate any reduction in startup costs that might accelerate growth, or are there new product launches planned that could impact this? I would appreciate any further insights you can provide regarding your outlook. Thank you.

Yes, let me make one comment and I'll turn it over to Howard. You've got to take into account Ag seasonality when you talk about sequential quarters; so just bear that in mind, you're going to have a real down quarter when you've got the up quarter. So putting that aside, how we're doing we'll talk about the rest.

Yes. I mean, I would just say that look this was the first quarter as Ed I think kicked off in his introductory remarks. First full quarter as DuPont is the fourth quarter, and so what we try to do is give you as granular a look by operating segment as we possibly can; we'll do more in the next quarter to give you our 2018 outlook, but we feel really good about the third quarter results and that fourth quarter of 11% to 13% up on the EBITDA, as well as the growth in the top line of north of 7%, we feel really good about both of those numbers.

Hi, this is Dan for Laurence. So as we head into 2018, do you have any early thoughts on the outlook for North American Ag?

Yes, thanks. Clearly, the market in Latin America experienced some delays in the third and fourth quarter, which is affecting the summer corn season. We will also see shifts in Supremia that impact North American markets, as growers evaluate commodity pricing and planted acres. Our current outlook suggests that corn area in North America will likely remain flat. The pricing for Bag C-tags is expected to be stable. Our opportunity lies in our product mix, as we continue to introduce new technologies to the market, enhance our corn genetics, and promote our A-Series soybeans and Roundup Ready to Extend technologies. All of these factors contribute to a positive uplift. Last year, we dealt with a significant amount of replanted acres, so we are optimistic about a more typical season for replanting this year.

Thanks very much. I was wondering as you guys thought about carving up, outlining a bit differently; I know in the past I had rightly been proud of some of the efficiency and integration benefits; did you have any dis-synergies as you feel that apart?

Thanks, Bob. I want to emphasize that we have spent the last four months before the September 12 announcement considering a complete realignment of our portfolio. We evaluated market verticals and explored ways to cut costs while enhancing business growth in those verticals. We are quite pleased with the realignment we proposed, which involves removing certain businesses from Dow Corning, such as Molly Code and Multi-Base, and aligning them with the Spec Co segments based on the four market verticals we are reporting. While we expect some dis-synergies and stranded costs, we are dedicated to managing those challenges. We believe the portfolio we announced in mid-September represents the optimal approach to maximize value while balancing risk, setting these companies up for long-term success.

Could you provide more details on the growth synergies? You mentioned a figure of $1 billion and shared some examples. What portion of those synergies will come from Agriculture, and what is the expected timeline? The products listed are already in the pipeline, so how will DuPont's enhanced capacity to launch new crop chemical products play into this? What specific outcomes are you anticipating?

Yes, let me just give you a high level, and maybe Jim And Mark want to touch on this. The high percentage of the gross energies are now going to reside in between Spec Co and Ag, especially because of the portfolio change. It really opened up a lot more significant opportunities because of the like end-markets as Howard just talked about. So that's the teams working on the bulk of them, but Jim, why don't I turn it to you and you talk about Ag and then Spec Co.

Thank you. You're correct; as we evaluate growth synergies, we have a pipeline of products integrated into our base plan. By enhancing our channel access, we can better leverage offerings like the Enlist E3 technologies or the Conquest technology. Dow has maintained a certain market share, but with access from the pioneer brand now available, we have the opportunity to develop a stronger retail presence than we've had in the past. Previously, we relied on a more direct route for our pioneers, but now we can package genetics for retail sales. This perspective is focused on North America, but we also see opportunities in Latin America through our initiatives with background genetics. This broader access and route to market are key drivers for our growth synergies. The same applies to our chemistry products. Our companies have varying strengths across different global markets, and combining our efforts in China gives us confidence in launching new products. With our established expertise in the insecticide market and the added opportunities from new chemistry offerings under a larger team, we believe this will also contribute to our growth synergies.

The original question was about the $1 billion and the breakdown; as Ed said, Jim and I kind of have the lion's share of it. I think the portfolio realignment around end-markets has really opened up a lot of opportunities for growth synergies. Originally we were focused on the electronics channel, and that was the early plan, and I'm still very excited about the alignment between our electronics businesses and we're seeing a lot of specific share gain opportunities there. But now we've opened up a number of new avenues for growth synergies, and the teams are already actively working on those; for example the construction industry, the combination of Styrofoam and Tyvek products and associated building products leveraging our residential channel. In particular, we see a lot of upside there and in automotive electrification; and again, leveraging the strengths of the Dow portfolio with our high-performance polymers is offering a lot of potential uplift and new growth. The pharmaceutical excipients example is also a combination of Dow's business with the FMC portfolio; now we suddenly have the broadest range of offerings in that space in cellulosic and some pretty exciting growth potential there. Across Specialty Co, many opportunities exist here for delivering growth synergies, and we're really focused on moving those forward.

Good morning. A question around Materials Co; you know, if I heard correctly earlier in the call, you guys talked about maybe a slight dip in utilization rates next year; obviously, with all of this capacity coming online. It seems that there is very little capacity coming online on this sort of post-2018 time period? It also seems that the hurricanes have had some sort of muting impact on the downside as well. So the second part of this is that recently I came across this announcement talking about how Iran is considering converting all of its methanol facilities into MTO facilities, and any future sort of methanol facility that they will build will actually be tied to olefins. So how should we think about all of these moving parts as they pertain to the cycle in the near to medium term?

I'll start, and I'll get Jim to add. Hassan, your first two points were involved in alignment with what I think the next 24 months is going to show more upside of supply-demand than what consultants and industry pundits have been consistently wrong for three years have forecasted. So we indicated a lot of what you just said, that's the way you should take it. Regarding Iran, for that matter China and all the other MTO projects, they've been consistently late, they've been consistently over-capitalized, and they've consistently not occurred. I would take nothing from any announcement out of Iran short of something that President Trump might say, which is a whole other thing. So I would tell you that we're not worried about that in supply-demand balances over the next five years.

Yes, I would say our numbers and analytics indicate that in an economy with a GDP growth of around 3%, we are seeing demand growth in plastics of about 3.7% to 4%, with capacity growth of approximately 4.1% to 4.2%. This trend is expected to continue for the next couple of years, so our outlook until 2022 suggests a positive environment for demand growth in the plastics segment. Downstream demand remains strong, and we are focusing on competing more in the higher end of the market. Polyurethanes are growing at about 1.6 times GDP at the moment, and while there is some new capacity coming online, there is also significant downstream demand. This business has diverse markets, and we are experiencing steady demand. I share your view that the changes being discussed will take five years to realize, and if they come on at that pace, we will find ourselves in a very different market environment from an oil and gas perspective.

Good morning. The gains in your volume and price were really very impressive in a slow GDP environment. I'm wondering how much of a help is it to have Dow folks on the ground in some of these markets rather than selling through distributors as some of your competitors do?

Peter, this is Jim. Look, I think it's always helpful for us to be on the ground selling; we've got to build good relationships with the customers and I'll just use Sadara as a great example. You know, there is a plant that comes online, 26 plants, and everybody expects a giant wave of material to come out; as we've said, there are literally more than a thousand customers for those materials in 60 to 70 countries that have been qualified all over. So it isn't like all this material is going to one place in the world; that global reach and presence is something that both Dow and DuPont have and actually when you look at all three of the divisions now, they all have feet on the ground in those market segments and they are all used to selling value and pulling that demand through the distribution chain. I don't see that changing in any of these models.

Peter, the other thing I would add, by the way, which is really important to these divisions going forward; a lot of the growth you're going to get out of us in the future is because of our innovation in new product pipelines. When you look at the 4% volume we had this month in 3% price, that's clearly above where the global economy is growing, and when you look at it in our Ag business, it's all about the pipeline. Our results this past year being above the market dynamics and Ag was all about the pipeline and the new products and the growth that we talked about. By the way, I'll give you one other example in the transportation area; in the auto area, we're growing both the Dow part of the portfolio and the DuPont above auto builds because we're putting more content into the car, whether it's electrification or lightweighting of vehicles; and those are very positive trends, but that's really compelling us to continue our innovation, our R&D spend, and our launch of new products into the marketplace these next few years.

Thank you. I appreciate you squeezing me in here. A couple of questions about Sadara; that facility is polyethylene and has the ability to meet the specs to move product into that higher-priced European market. Can you comment on the outlook for feedstock pricing for Sadara given the Saudi government's initiatives to push feedstock pricing?

On the product end, what I would say is not just plastics, but all the products we have the ability to meet the specs of our global customers and they've all been qualified already at those accounts. There is no issues there; they won't see an issue, and what they see actually is another source of supply, which is a very positive thing for them. As you know, when we put the deal together, we had a locked-in agreement for those feedstock costs for a time period, and that's still in place. So I think a lot of the moves you see happen in our go-forward basis and that would be for new projects and new capacity.

Yes. Double down on that that we have that commitment from the Ministry of Petroleum. All agreements will be honored; all the new pricing structures are whenever they enact it, which I think is imminent. I would tell you also the other big things that are did and it's well known in the kingdom and for that matter of the region, we really grabbed the last ethane allocation available, which gives Sadara competitive edge but no other competitor in the region can now have. Most of that gas is dry, though they are finding all the associated gas that doesn't have much liquids, so it's a really important thing that we may be able to put those agreements in place when we did, and we'll have that for the next several years based on what Jim-how Jim answered the previous question.

Thank you, Andrew. With that, let's conclude today's call. We appreciate your interest in DowDuPont. For your reference, a copy of our transcript will be posted on DowDuPont's website later today. Thank you.