DuPont de Nemours, Inc. (DD) Q1 2008 Earnings Report, Transcript and Summary

Good morning. My name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the DuPont First Quarter 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions]. Thank you. It is now my pleasure to turn the floor over to your host, Carl Lukach, Vice President of Investor Relations. Sir, you may begin your conference.

Thank you Melissa and good morning everyone. Thank you for joining today's webcast covering DuPont's first quarter 2008 financial results and outlook. With me today are Chad Holliday, Chairman and CEO; Jeff Keefer, Chief Financial Officer; Ellen Kullman, Executive Vice President and Head of Sales and Marketing; and Robert Fry from our Economist's Office. In addition to our normal report on the quarter, we've asked Ellen to cover what we are hearing in key end use market and Robert to share with you his key economic forecasts that we are using as a factor in our outlooks. But first, the administrative items for those of you accessing this call through our website dupont.com, we will be using slides today; please turn to slide 2. During the course of this conference call, we will make forward-looking statements. All statements that are just 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 uncertainties. 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 also will refer to non-GAAP measures and request that you please refer to the reconciliations to GAAP statement provided with our earnings news release and on our website. We have also posted to our website supplemental information that we hope is helpful to your understanding of our company's performance. With that, I will turn the call over to our Chief Financial Officer, Jeff Keefer.

Thanks, Carl, and good morning everyone. Our first quarter results highlight the diversity of our products, end-use markets, and global presence. The combination of these factors produced very strong results for the quarter. Specifically, strong Ag performance, growth in emerging markets, pricing actions, favorable currency and productivity more than offset the increase in raw materials and energy, reinvestments in our businesses, and continued weakness in certain U.S. markets. With the combination of these factors, the company highlights were: global sales were up 9%; sales outside the U.S. increased 16%, and emerging markets increased 25%. Pricing gains in each platform equaled or outpaced raw material and energy increases. Fixed cost as a percent of sales improved 180 basis points as our productivity and reinvestment efforts continued. Excluding significant items, segment pretax operating income grew 13%; and further excluding pharmaceuticals, the five growth platforms' pretax operating income grew 12%. Turning to slide 3; first quarter reported earnings per share was $1.31 versus $1.01 reported in 2007. Excluding a $0.06 charge from 2007 results, earnings per share increased $0.24 or 22%. The earnings were slightly higher than the April 10th preannouncement due to finalization of our first quarter closing process. First quarter consolidated net sales increased 9%. Turning to slide 4; all segments increased sales excluding the impact of divested businesses. Agriculture & Nutrition was a standout with 18% growth. Strong global agriculture markets combined with our Crop Chemicals and Pioneer seed team's ability to deliver yield enhancing products and services produced a strong first quarter result. Electronic & Communication Technologies also had a strong quarter posting 12% sales growth, reflecting strong demand for refrigerants and photovoltaic products. Each platform will be reviewed in detail, but all segments benefited from local currency, pricing actions, as well as favorable currency. Volume declines in Coating & Color Technology, Safety & Protection, and Performance Materials can be attributed to a few primary drivers. In Coatings & Color Technology and Safety & Protection, volume primarily reflects the very weak North American motor vehicle and construction markets. In Performance Materials, the volume decline is largely due to a continuation of mix enrichment strategies, which impacts volume, but also has contributed to increasing margins over time. Looking at the global sales distribution on chart 5, 62% of the sales were generated outside the U.S. with 25% in emerging markets. Growth in non-U.S. markets totaled 16%. Sales in emerging markets grew 25%. Ellen will provide some more color, but we are pleased with the growth and are driving our plans to continue this progress. Moving now to earnings; the EPS variance analysis on chart 6 frames the factors contributing to 22% growth in the quarter. Our focus on pricing for value continues and we achieved our 17th consecutive quarters of local price increases. Pricing actions in each of the five growth segments equaled or outpaced the escalating raw materials and energy costs generated a positive net impact of $0.08 per share in the quarter. The charge for variable cost increase was $0.28 in the quarter. As I discussed on March 14th, raw material and energy cost escalation is expected to significantly outpace the increases we experienced in 2007 for two primary reasons. First, the impact of high oil prices is driving petrochemical feed stock prices, energy and transportation costs; and secondly, tight market conditions for certain inputs like agricultural commodities, ammonia, and sulfur are pushing costs up. While the impacts of increase are broadly... while the increased costs broadly affected our businesses, the most affected businesses in the quarter were Agriculture & Nutrition and Performance Materials. Our forecast indicate about 9% escalation year-over-year, almost double that of the 2007 impacts. Moving now to summarize the additional benefits in the quarter, currency, a lower base tax rate as forecast, slightly higher Cozaar results and effects from the completion of the share repurchase, all contributed favorably to the quarter. Our base tax rate in the quarter was 25.5% versus 26.9% prior year quarter, creating a $0.03 earnings per share benefit as shown on the waterfall. We continue to expect the full year base tax rate to be about 26%. Please note that the difference between our first quarter base tax rate of 25.5% and the effective tax rate shown on the income statement of 18.6% is caused by taxes generated from our hedging program. Let me be very clear; our hedging program and the related taxes in the first quarter did not contribute to any notable earnings variance versus last year. We have provided more detailed on schedule D to show you the exact impact our hedging program had on our effective tax rate. Closing out the EPS variance analysis, fixed costs were a charge of $0.03 in the quarter. Excluding the impacts of currency, fixed costs for the quarter were up about $35 million pretax on a $3 billion base. We continue to reinvest in our high growth, high return businesses. On March 14th, Richard Goodmanson showed you the numerous productivity programs, which are delivering the benefits to our fixed cost performance. This quarter fixed cost as a percent of sales improved by 180 basis points to 35.9%. Moving to cash and debt, I will draw your attention to the balance sheet and cash flow statements provided. In response to your request and as a product of our streamlining efforts, these financial statements are now available with our quarterly earnings calls. Our cash is following typical seasonal patterns and the details are there for your review. In summary, we continue to enjoy a strong balance sheet and are on track to meet our cash goals in 2008. We are not experiencing any direct impact of the current financial turmoil or credit crunch; we have excellent liquidity. Before moving to the outlook, first quarter return on invested capital, excluding significant items and other comprehensive income, is 16.6%, up 100 basis points from prior year quarter and 40 basis points sequentially due in large part to increased earnings. Turning to chart 7, our second quarter and full year guidance is unchanged from our preannouncement. For second quarter, we reaffirm about $1.05 per share, predicting flat growth in the quarter and first half growth of about 12%. We reaffirm full year guidance as a range of $3.40 to $3.55 per share. As you'll hear from Robert, certain macro conditions remain challenging and difficult to predict. What we will do is capitalize on our strengths as we vigorously manage the challenges. Our primary challenges continue to be conditions in U.S. markets, particularly motor vehicle and construction; Ellen will review these markets and our results in detail. And secondly, increasing raw material and energy costs, which are running about double the pace of the increase we've experienced in 2007. In the face of these challenges, we will capture growth and value in the robust agricultural market globally, grow aggressively in emerging markets, introduce new products and capture our share of the increased value of the product offerings. This, in combinational with our mix enrichment and pricing discipline strategies, will support further pricing gains and finally drive our variable and fixed cost productivity efforts, which will contribute to offsetting inflation and reinvestment. We are well positioned to deliver the results in a challenging and uncertain environment. With that, I will turn it over to Ellen.

Thanks, Jeff, and good morning. Before Carl review the segment results, I would like to provide some market commentary. First, I'll update our view on the impact of lower demand from the U.S. construction and motor vehicle markets, then I'll share perspectives on emerging markets. Let's start with U.S. construction and North American automotive OEM on slide 8. Last year we said our sales into these two markets were about 13% of total company sales based on 2006 sales data. That dropped a bit in 2007 to 12%, comprised of 7% in North American auto OEM and 5% in U.S. construction. Let me address the dynamics of these two markets and then discuss the overall impact to DuPont earnings. As for U.S. construction, Robert will share his outlook for the U.S. housing market. What I am hearing from our customers is that they need to differentiate themselves in this market and this has resulted in the emergence of two trends: first, rising interest in green products, both energy efficiency and reduced environmental footprint; and second, the need for builders and designers to differentiate their products at all price points in this down market. So what are we doing? Please turn to slide 9. We've introduced new products such as Tyvek, ThermaWrap, and new drainage products for commercial construction to manage both energy, efficiency, and moisture; and we have repositioned our Tyvek specialist to focus on downstream design and modeling support, so our new products are easy to use. We've introduced new products with recycle content. We have launched the Zodiaq Terra collection with greater than 50% recycled glass, and we launched 25 Corian Terra colors with up to 13% recycled content. These are beautiful colors that meet designers' needs and have a broad enough range to meet any budget. On the design sign, we've added the use of light and shade with the launch of our Corian Illumination Series in Chicago and Milan last week. These have new shades to further differentiate our offerings. Turning to automotive; vehicle production in North America is expected to decline about 6% to 7% in 2008, following a 3% decline in 2007. However, vehicle production in the rest of the world is forecasted to grow 6% in 2008, following 8% growth the previous year. And in fact, if you look at our OEM sales, the emerging market component grew from about one-third of worldwide revenue in 2006 to about 40% expected in 2008. The DuPont OEM is expanding in the part of the market that's growing. Clearly, their growth opportunities in automotive markets outside the U.S.. For instance, in the first quarter, vehicle builds in Brazil were up 31%, Russia 34%, and China 18%. Our OEM coatings business has gained new orders equal to about $25 million in annual sales in emerging Europe that will be realized over the next 18 months. I will talk more about emerging markets for the total company in just a minute. So first, what's the bottom line? Last year, we estimated lower demand in U.S. construction and auto cost DuPont about $0.20 of earnings per share in year-on-year headwind. We expect the same order of magnitude of headwind in 2008, and we have included an additional $0.20 hit in our full year EPS guidance. Our first quarter results indicate we are on that track. This year, the impact, while about the same magnitude as 2007, seems to be more weighted towards construction market declines and less towards motor vehicle declines. Now I would like to move to emerging markets. Jeff showed you that emerging markets grew 25% in the quarter. Looking at our growth outside of our agricultural markets, we grew 17% in the quarter, indicating that we had exceptionally strong performance across the board. And I would like to share some specific business highlights. In Latin America, our sales increased 21%, reflecting solid performance across most of our businesses. Seed, Ti02, certain chemical businesses and surfaces, all posted above 30% growth in sales, again showing good demand across multiple markets. Emerging Europe increased $209 million or 33%, Ag & Nutrition segment had strong results in the region with over 43% growth, and three out of five of our platforms had growth that was around 30% or greater. In Greater China, which includes Hong Kong and Taiwan, our sales increased about $70 million or 17% with Performance Materials and Electronic & Communication Technologies, both posting better than 20% growth in the quarter with strengths in many end markets. And on this last point, I would like to share an example of how one of our teams is continuing to grow in China. DuPont Engineering Polymers has made significant investments in Asia-Pacific, not only in the manufacturing assets, but in application development capability; and this started several years ago. In November of '05, we opened an automotive development center in Nagoya, Japan to facilitate new parts and system global designs and specification with Japanese OEMs and first tier automotive suppliers. And in March of '06, we opened the Shanghai Technical Center to support the local Chinese customer processing support for the local automotive industry. Now we are leveraging both of these assets and resources in the region to drive growth in China. These types of technical and application investments are critical to Engineering Polymers double-digit revenue growth in Asia-Pacific in the first quarter of 2008. Back to you, Carl.

Okay; thank you, Ellen. A short word of introduction; we have asked Robert Fry of the DuPont Economists' Office to join us today. As I think you all know, the DuPont Economists' Office is the only three-time award winner of the Lawrence R. Klein Award for Blue Chip Forecast Accuracy. One of the contributing factors to their success is their knowledge of DuPont's businesses and global markets and their interactions with our business leaders and our customers. We use Robert's insights and predictions in our business planning; so if you would please turn to slide 10, Robert will provide a summary of the key macro economic forecast that he... that we have incorporated as a factor in our 2008 outlook. Robert?

Thanks, Carl. Until the fourth quarter of 2007, the slowdown in the U.S. economy was almost entirely concentrated in housing and the Detroit based half of the auto industry. Real GDP growth, excluding residential construction actually accelerated and grew at an above trend rate during the first six quarters of the housing downturn. In the fourth quarter, however, the slowdown spread to the rest of economy and to consumer spending in particular. This was the result of record high oil prices, accelerating declines of home prices, and the largely physiological impact of the subprime-related credit crunch. In terms of quarterly GDP growth, we are essentially at zero. If you look at the monthly data the National Bureau of Economic Research uses to determine when recession start and end, that's employment, income, production, and sales, you will see some small declines in recent months. If the fiscal stimulus plan fails to help these declines relatively quickly, I think the NBER will eventually designate the current period of rescissions even if GDP growth doesn't go negative. But even though the slowdown slash downturn has spread beyond housing and Detroit 3 autos, make no mistake, the weakness is still concentrated there. In terms of year-over-year growth rate, the headwinds from declining housing starts and motor vehicle production will be at their worst in the second quarter. But we think starts will hit bottom this quarter and spending on residential construction will hit bottom in the second half. Home prices, however, are not likely to hit bottom until late 2009. Despite big declines in motor vehicle production, industrial production in U.S. manufacturing has been just slightly worse than flat since the peak last July. This is really more consistent with a mid-cycle slowdown than with big declines in production that you normally see in a recession. I think the current recession, if it proves to be one, may turn out to be the flip side of the 2001 recession. During that downturn, the declines were almost entirely concentrated in manufacturing. Housing was virtually un-scathed. This time around, housing is bearing the brunt of the downturn and manufacturing outside of the industries tied to housing and all of those hasn't been hit very hard, at least so far. The reason for the difference is exports. In 2001 the dollar was extremely strong and U.S. exporters were at a terrible disadvantage. Now the dollar is at record lows and the climate for U.S. exporters is the best that it has been in decades. Another reason for strong exports in addition to the weak dollar is that growth has slowed much less than the rest of the world than it has in the United State. Growth has slowed in Western Europe but just to its long-term trend. Leading indicators have been pointing the declines in Japan, but we haven't seen much of the slowdown yet. We expect GDP growth in Western Europe, Japan and the United States to come in around 1.5% this year. But keep in mind that in Western Europe, 1.5% is only slightly below trend and in Japan 1.5% is right on trend. We're seeing some slowing in some of the emerging markets, but growth rates remain very strong by both historical and global standards. We've seen little of any slowing in China. Industrial production in China was up 17.8% year-over-year in March. China has been trying to slow its economy in response to rising inflation, but their efforts are likely to fail unless they let the yuan to appreciate much more rapidly. Keep in mind that even though the yuan has been rising at an accelerating rate versus the dollar, it has been declining on a trade weighted basis. This keeps exports strong and inflation rising. We don't look for China to make any serious moves to slow the economy before the Olympics, but afterwards you could see a more significant appreciation of the yuan and higher interest rate which would slow growth in 2009. Growth also remains strong in some of the other Asia-Pacific economies. In particular, year-over-year growth rates for industrial production and manufacturing in both Korea and Taiwan were in double-digits in February. With growth in the emerging markets still relatively strong, we are not looking for anything close to a global recession, which is GDP growth below 2%. But that does not mean that the rest of the world won't be affected by what's happening in the United States. We expect growth to slow in every region of the world this year, except for Middle East and Africa where high oil prices were a positive rather than a negative, and we don't look for a strong rebound in global growth in 2009. I will now turn the call back to Carl.

Thank you, Robert. Now we go to the traditional walk through the segments sharing key highlights that explain first quarter results and outlooks for each. Just to remind that all references to individual platform earnings are excluding significant items. First up, our Ag & Nutrition platform on slide 11. Sales grew 18% to $2.9 billion, earnings grew 21%. This strong performance reflects, as you are well aware of, robust Ag environment with growers investing in more technology to protect crops and maximize yield. These favorable market conditions created operating margin opportunities across our portfolio. The positives included, global pricing strength, richer product mix, international volume growth, positive currency impact in Europe, and targeted productivity savings. Earnings growth in the quarter was tempered, however, by much higher ingredient costs in our Nutrition and Health business and our planned increased spending in R&D. Crop protection products delivered impressive first quarter results and record sales. Earnings were up substantially, driven by market demand for fungicides, insecticides and herbicide products. Emerging market growth in Central and Eastern Europe was especially strong. In Latin America, increased sugarcane and definitive corn acreage drove increased insecticide volume and pricing opportunities for key Argentina and Brazil markets. Variable margin improved from richer mix of sulfonylurea products sales, pricing strength, currency and productivity savings. Rynaxypyr sales, our newest insecticide, is off to a strong start in 2008, the first full year of commercial launch. We received registration approval on Canada just a few days ago and expect to receive U.S. Federal and State Regulation soon, well within our timelines for product sales this season. We will continue to build momentum through 2008 with the renewed sulfonylurea portfolio that introduces six differentiated herbicide blends to meet challenge... changing control needs in corn, soybean and cereals. We are confident in our ability to sustain strong performance with the growing arsenal of the new and exciting products. We expect more record results as we integrate these into our platform offerings. Moving to seeds; first quarter revenue and earnings increased substantially, driven by higher value products mix, strong pricing, and record volumes, offset by growth investment spending. Regarding North American corn share this year, we expect to hold North American corn share at 30%. This is based on our seed corn sales to-date, in season business, and using a traditional range among the latest USDA forecast of 86 million acres to be planted along with our expectation for normal returns. Our corn volumes were down first quarter as compared to last year, reflecting fewer corn acres to be planted. But net price increases partially offset by higher commodity costs and increased winter production contributed to healthy corn unit margin growth. Our sales team works individually with each customer to develop the right trait and germplasm package field-by-field. Biotechnology penetration is at nearly 90%, soybean acres are on the rise and so is demand for Pioneer brand seed, clear market leader in soybeans yield and market share. Our international seed business continues to flourish, led by a strong and early start in Europe with record corn unit sales and increased sunflower revenue. Latin America corn revenue was also up, driven by increased safrina corn volumes resulting in another market share increase, coupled with strong pricing and sales initiatives. BioGene, our second brand of Pioneer Brazil corn seed, created to access the B market was officially launched with first sales occurring in the summer season. The outlook is solid for our seed business to deliver strong growth for the current planting season. Our outlook for seeds for the first half of 2008 will contribute to platform earnings growth in the mid-teens. Furthermore, even as we anticipate increasing cost for Herculex, Optimum AcreMax and Optimum GAT regulatory activities, we are on track with our goals to deliver more than 15% annual PTOI growth for Ag and Nutrition between now and 2010, and this includes reinvest in R&D at a relatively consistence percentages of sales through these year. Moving now to our Coatings & Color Technologies platform on slide 12, Coatings & Color Technology segment sales increased 6% to $1.6 billion. Earnings were down 2%. Excluding a $16 million insurance recovery in last year's first quarter, PTOI grew 7% to $190 million. Ti02 to product sales increased slightly as favorable U.S. dollar price in Europe and Asia and higher demand in Asia, Europe, and Brazil were largely offset by lower North American sales. Excluding the insurance recovery, last year earnings improved modestly, reflecting lower fixed costs and favorable currency, largely offset by increased raw material, energy, and transportation costs. Sequentially, sales prices improved two quarters running in North America as the previously announced price increased gain traction. Our Coatings businesses increased sales moderately as higher U.S. dollar pricing more than offset lower volumes. But earnings increased substantially and operating margins improved by 135 basis points, reflecting pricing gains for refinished and industrial paint, fixed cost controls, particularly in OEM and currency benefits which more than offset volume pressure in all paint businesses. Our second quarter outlook for C & CT reflects modest sales and earnings increases. Growth drivers are emerging market growth, penetration of new products, pricing actions, and productivity gains. These opportunities will be partially offset by continued declines in North American auto and housing markets. And finally a brief update on the status of our Ti02 expansion project in China. As you know, our investment decision is based on building the lowest cost Ti02 production facility in the industry in the highest growth region. Pre-construction milestones consist of two main items, receiving environmental approvals and business license approval from the Chinese government. In 2007, we obtained the environmental approvals; the team is now focused on obtaining business license approval. Once the business license is obtained, commercial production will follow about three to four years after. We will continue to update on our progress. Moving now to our Electronic & Communication Technologies platform on slide 13; sales grew 12% to $1 billion, principally on higher U.S. dollar selling prices and substantial growth in the photovoltaic market. Aggressive cost improvements, volume gains and mix improvements drove earnings up 41% to $175 million. Demand was strong for refrigerants, photovoltaic products and offset by softness in materials for cell phones, plasma displays and U.S. automotive electronics. For the second quarter, we expect moderate sales growth, with continued strength in photovoltaics and refrigerants and moderately lower demand for electronic materials into consumer goods. We expect PTOI will be flat. Recall that we had $25 million one-time benefit recorded in the second quarter of 2007. Please turn now to slide 14 for the Performance Materials segment. Sales grew 8% to $1.7 billion, principally on higher U.S. dollar selling prices. Excluding the significant items from the previous year, PTOI increased 8% to $219 million. Earnings growth reflected solid sales and mix enrichments, offset by variable cost increases and manufacturing consolidation costs. The businesses in this platform face multiple significant increases in raw material costs and we are able to offset these headwinds with improved mix, pricing gains, and benefit from currency. Revenues grew in Asia and Europe, but were offset by a volume decline in the U.S. and the impact of reduced neoprene available for sale due to the shutdown of our Louisville production unit. For the second quarter, we expect PTOI will be up slightly. We expect continued significant raw material increases in most product lines. Sales are expected to increase modestly, reflecting price gains and currency benefit, offset by a weak U.S. volume and lower year-over-year neoprene sales. Turning to slide 15 and looking for Safety and Protection segment, sales increased to $1.4 billion, up 4% excluding the impact of a divested business. Earnings in the quarter were $272 million, down 7% versus previous year, but margin for the platform was 20%, modestly below last year, reflecting change in product mix. The quarter results reflect the impact of a largest quarterly reduction in housing starts since the decline began over one year ago, as well as plant maintenance shutdowns, growth investments in Kevlar and Nomex, and the impact of a divested business. Looking at the key businesses, Kevlar and Nomex have strong demand in end-use markets of automotive, fiber optics, mass transportation, and electrical, but lower military demand due to contract timing. The Nomex business successfully completed the first phase of an extended maintenance shutdown in preparation to bring new capacity online in the third quarter, earnings declined due to less favorable sales mix and investments related to Kevlar expansion. Building innovation sales were down globally reflecting weak U.S. markets exacerbated by de-stocking through the channel, partially offset though by double-digit growth in Europe and Asia. The non-U.S. growth reflects the success of penetrating commercial construction, particularly in our Surfaces business. Chemical products significantly increased sales and earnings as mix enrichment, pricing actions and cost control, all contributed to improved results. Turning to the second quarter outlook for Safety and Protection, sales and earnings are expected to be challenged by weak North American construction and Phase II of the Nomex maintenance shutdown. Second half performance, however, will benefit from 10% Nomex capacity expansions coming online. That completes our segment review. I'll now turn the call over to our Chairman, Chad Holliday.

Thank you, Carl. Now turning to slide 16, our customers depend on DuPont to provide products and knowledge to meet their needs. This alignment with customers supported our 22% first quarter earnings increase. Over the past five weeks since our meeting in New York, we view our equity customers, we've listened extensively to your needs. The design of today's call was in direct response to your comments. For example, Ellen addressed key market factors for developed and developing or emerging markets, which you wanted to know about. Robert has put the worldwide economy in perspective that only he can because of his knowledge of our company from the inside. Carl, Jeff, Ellen and Robert shared with you our best view of 2008. Even with all these perspectives, there is a high level of uncertainty in the world today. A company can be tempted at a time of uncertainly to wait and see before acting. Our experience is that this is a time to act and act decisively to seize the opportunities. However, we must act in full alignment with a clear corporate direction. We are focused on the next phase of our acceleration that we described for you in March and we are determined to deliver a higher level of earnings growth and significantly increase the value of our company. We want to prove not to be just in our results but also our stock price. We must keep posting the kind of performance that's impossible to discount. Our goal continues to be delivering results you simply cannot ignore. Using 2008 as a base and focused over the near-term goal of 2010, we will accelerate revenue growth from 5% to the 7% to 9% per year area. And excluding our pharmaceutical income, we'll advance earnings growth to about 13% per year, nearly double recent performance. The acceleration will come in three primary areas. First, agricultural market, we will fully update you on the North America season in July when we see all the data. But you can tell we are off to a strong start. Second, accelerate revenue growth including emerging market. Ellen described the 25% growth we saw in the first quarter in emerging markets. And third, extend productivity gains. We committed to at least $1.7 billion improvement by 2010. Let me elaborate on this third point. In New York five weeks a Richard Goodmanson broadened our corporate productivity work to include energy and raw materials, clearly the right focus given the current conditions. Building on our Six Sigma base, we have launched the DuPont Production System and DuPont Integrated Business Management throughout our company. These are the right tools at the right time. Results are clearly visible in the first quarter with a 180 basis improvement in fixed cost as a percent of sales, while we consciously increased marketing, selling and R&D expense for growth in the future. Let me summarize, we have a firm grip on the wheel of our productivity improvement and we are not turning loose. We've also made improvements in productivity of our innovation process in DuPont. Our leading metrics around patents filed and granted are up significantly. And we are intensively focused on advancing our new technology platform Advanced Bio Sciences. Because of the tremendous growth opportunity it represents in biofuels and Bio-Base materials, it look even more promising as we speak. A.G. Lafley of Procter & Gamble described innovation in his new book The Game Changers. We are pleased to see that we made A.G.'s radar screen and included in a 10-page section of the book titled How DuPont Got it's Groove Back. Clearly, new products for DuPont, the market-driven science company, are changing the game and we are just getting started. Our commitment to you is effectively navigate 2008 and deliver in the years to come. Carl, back to you.

Okay, thanks Chad. Melissa, we are now ready to go to questions from the phone lines. Question And Answer

Thank you. [Operator Instructions]. Our first question is coming from David Begleiter with Deutsche Bank. Please go ahead.

Thank you, good morning.

Good morning.

Chad, could you detail the impact from Solae in the quarter, how much it hurt Ag & Nutrition profitability?

Carl, he has the details on that.

Well, Dave, it's... the higher ingredient costs, certainly are a factor. It tempered our growth for the platform as well as the plant and additional R&D spendings that we made on the platform of biotechnology. Sales for that business were up substantially. Unfortunately, we didn't get the pull through to the bottom line. If you took those two factors into account, the higher Solae raw material and our spending in R&D, earnings growth for the platform would have been about 30% or more than 30%.

Very helpful. And just lastly on raws in Q2, will they exceed pricing?

David, it's hard to predict exactly what that's going to be quarter-by-quarter. Our goal as always is to exceed raw material cost increases with pricing. We are off to a good start this year with an 8% net benefit. And we are going to continue to drive there. However, as I covered with you, our raw materials are going up significantly this year, almost double what we experienced last year.

Thank you. Our next question is coming from Mark Connelly with Credit Suisse. Please go ahead.

Thanks, and thank you for all the detail on the hedging. I still got it wrong, but it wasn't for lack of details from you guys; so, thank you.

Thanks for that.

Question for Ellen, talked a lot about what's happening in the market, but I'm curious what Western European customers are saying, particularly in coatings and materials. When we listened to Robert's comments about Europe returning to trend, that's not all that dissimilar to what happened between '06 and '07 in the U.S. So, we have seen some major impact. So I am just trying to get a sense of what customers are saying, are they cautious or are they optimistic?

Well, Europe is kind of tale of two cities. In Western Europe, there is a lot of caution, but the markets still looks pretty good. People are being very deliberate in the actions they are taking in terms of what they are talking to us about the growth, very high interesting new products and innovation to differentiate themselves, both in the coatings market and in the housing market quite substantially. And then in Eastern Europe, Central Europe, I tell you it's great growth. In the marketplace, we are seeing a tremendous infrastructure development and whether it's our products to go into roads or construction, or the automotive industry over there. We are putting a lot of people, a lot of products into those areas right now, and they are very optimistic about the year, so really it's a tale of two cities.

Okay, thank you.

Thank you. Our next question is coming from Peter Butler of Glen Hill Investment. Please go ahead.

Yes, good morning. The essential question, the key question is not what you earned in the first quarter, but what does... what do you think DuPont's environment will look like a year from now in the first half of 2009. For instance, are the Ag results sustainable next year, will you start losing pharma income? Did you project out and Gary Pfeiffer used to give us the pluses and minuses, and maybe you could give us the pluses and minuses of next year's first half versus this year's.

Yes, Peter, this is Chad. Thanks for the question. As Robert pointed out, we don't see a significant increase in overall economic activity globally. In 2009, we might be surprised on the upside, but we think it's premature to do that. We do see our agricultural business continue to improve as our new products roll out, both crop production chemicals and our seed business and we will see more traction from them in 2009. We are very encouraged about the prospects there. And in general, our productivity work continues to gain traction. So, you put all these things together, no matter what the economic environment is, we all see some important in 2009.

Chad, on the productivity question, the way you are looking at is deceptive in the sense that your sales line is inflated with the tremendous cost pressures and so that looking at fixed cost as a percentage of sales, may be that doesn't give you the right answer. And the bottom line looks like in fact your fixed cost cost you on the earnings per share line $0.03 I think. So, are you really making any progress on fixed cost if they go up?

Yes, absolutely, Peter. We... of course our cost if it's in euros in Europe, it's inflating too just like the revenue line is with these pressures. But what we track internally is program-by-program, project-by-project. Richard has detailed seeds, we're focused on everything because we want to know exactly where the fixed cost is coming from because we are consciously increasing, as I said in my talk, in marketing sales and R&D because we've got playing offer a well. We've got to know where it's being spent. So, I've never been more confident that we've got the right programs and right tools to control that. Thanks for the question.

Thank you. Your next question is coming from Jeff Zekauskas with JPMorgan. Please go ahead.

Hi, good morning. In Ellen's commentary this morning, did she say that she expected Auto & Construction to be a $0.20 hit for 2008, but for purposes of your guidance you are budgeting $0.40 or did I misunderstand that?

No, no, it was $0.20 for 2008 versus 2007.

Okay, and that's what budgeted into your guidance.

Yes.

Okay, follow up question is in the Ag area, Optimum GAT in corn is such an important product for you. And for the first time you will have a trade that protects us against ALS family herbicides. How much... how many acres of corn in the United States use ALS herbicides or could you talk about the prevalence of the use of ALS?

Jeff, I don't have the data on ALS; I know it's not insignificant. And you know our value proposition there with... you hit the value proposition right on the head, the expansion of tolerance to not just clidosate [ph], but also the ALS family. And just I'd add on to the sulfonylurea families included that, our flagship herbicide at DuPont. And additionally, more importantly the blends that we are bring into market that are tailored to meet specific farmer weed control problems. So, you are right; we are very excited. That enthusiasm hasn't dimmed whatsoever, and it's high priority for us to bring it to market.

Thank you. Your next question is coming from P.J. Juvekar with Citi. Please go ahead.

Yes, hi, good morning. A quick question on photovoltaic business; how big is this business and what are the margins here?

P.J., the business, I think when we first started to talking to you, the number of DuPont businesses selling to that market space. And when we first started talking to you, I think it was two years ago, it was about $100 million. This year, we should break over $300 million pretty comfortably, and margins are very attractive. Demand is strong.

Okay, and second question for Jeff. Your effective tax rate was 18.6% and that was driven down by the tax impact of the exchange losses, and I understand that. My question is when you put the hedges on, do you take into account the tax impact of those hedges?

Yes, we do. The goal of the program is for our monetary assets on an after tax basis to be neutral. So, I think you will see that we basically have achieved that a year-over-year and no impact on our earning per share variance analysis from that program.

So, in your guidance on tax rate, do you take into account the impact of that?

No, that's why I give you a base tax rate, which is about 26% for this year because again the goal of that program is to have zero impact on our earnings on an after tax basis.

Thank you. Your next question is coming from Sergey Vasnetsov with Lehman Brothers. Please go ahead.

Good morning. Do you expect the difference Ag and Chemical earnings distribution between the first and second quarter of this year compared to the historical pattern?

I'm sorry; do you mean sales, Sergey?

No, profits.

Profits, there is some natural business differences between the first quarter and the second quarter in the North American season that... I doubt that they will be that visible or meaningful to you, but corn versus soy mix, as you know, flips from 60-40 to 40-60, something like that. In the crop protection chemicals area, our outlook is sensitive being more or less in line with the first quarter in terms of what demands for and what products and what markets.

This is Chad. The question is we see major different patterns, first quarter, second quarter this year versus previous year is not really. It's a matter of just... a little better earlier selling and couple of products in Europe, but that would be enough to shift it. Other factors are soy and corn mix will probably be bigger factors and it's just too early to say what that's going to shake out to be.

Okay. And secondly, with higher contribution from Cozaar earnings based on Merck's comments yesterday, it seems like your guidance for the second quarter is very conservative.

Yes, Merck guidance gave yesterday show that the U.S. sales were declining. Our agreements with them are heavily loaded in the U.S. as many of the exclusivity in other countries in the world are expiring. So, our guidance is consistent with what we will see based on our contracts.

Thank you. Your next question is coming from Kevin McCarthy with Banc of America. Please go ahead.

Yes, good morning. On slide 7, you are guiding to $1.05 for the second quarter, which would represent a 20% sequential decline versus the $1.31 that you posted. If I look back over the last six years, your sequential change is nearly flat versus the first quarter. So, I am wondering given the Ag seasonal pattern being similar to what it normally is, are you just taking a conservative tack here given the macro economic backdrop, or are there some other larger company-specific factors that would cause a more precipitous decline in 2Q?

Yes, thank you very much for that question, Kevin. First of all, I think, as you saw, we are off to a very strong start in the first quarter. And as we look at the second quarter and the rest of the year, there are uncertainties, but there are two big factors to consider. One is corn seed planting in the U.S. less than 5% at this point; and secondly, the increase in the raw material cost, which as you know, is over $115 a barrel. So, we've given you our very best judgment on guidance for the second quarter and the balance of the year given the uncertainties.

Great. And then a follow up if I may, on the subject of decoupling versus re-coupling and maybe it's tied into some of Robert's comments. If I look at your Asian volume as a proxy for what's going on in emerging markets, slowed a little bit, but still healthy at plus 6% volume versus plus 10 in the fourth quarter. Do you see any evidence of material deceleration in your emerging markets or do you think it's more of a case of decoupling in those markets proving very resilient to what's going on the U.S. and Western Europe?

Well, I think the answer of that is mixed depending on which platform you are talking about. We see continued... in automotive markets continued strength in Asia and emerging markets in safety and protection products. There are some areas in polymers where we are seeing a little bit of mixed signals in terms of volume with some of the higher performance polymer still growing, but some of the lower end stuff that might go into things like toys and garden furniture not growing as greatly. So, I do think that the answer there is not straight forward with our mix of products that we have. I think we will weather this as well as we can with a lot of those materials going into local consumption.

Thank you. Our next question is coming from Mark Gulley with Soleil Securities. Please go ahead.

Good morning, I've got two questions. First of all, I get the sense there maybe in order to hold market share from North American corn seed that perhaps you have this stepped up your promotional activity, perhaps we see other promotional moves in order to achieve that goal? Am I reading perhaps a little bit too much into what I am hearing?

I think you are reading too much into it. I think that '08 is on track with what we said back in August in our December call. We are valuing used pricers that's at work. You see in the data that net price was up substantially for the platform as well as in Pioneer in the first quarter, Mark. So, I'd say straight out and that's not the case.

Okay. And secondly, appreciate the comments about the Ti02 plant in China. If I try to reboot those lines, it almost sounds a bit like you're trying to drag your feet there with respect to getting your business permits. And you wouldn't mind if the on stream date were four years hints. Again, am I perhaps reading too much into those comments, Carl?

Mark, it's Chad. Yes, you are reading too much into that. We are very respectful of governments and letting them go to through their processes. We are very pleased that we have got these environmental approvals with a lot of work and a lot of data. And we just don't want to preempt and tell a government when they are going to make a decision; that's their call. And we are working through that process in an orderly way; as soon as we get that business license, we will start to moving toward that plan. But we don't have it yet, and we are going to let the government sort it out properly.

Thank you. Your next question is coming from Robert Koort with Goldman Sachs. Please go ahead.

Thanks very much. Two questions if I might; one, on the pricing front, obviously quite remarkable pricing. How much of that is sustainable as raw materials or demand starts to erode? In other words, how much of that is true value pricing and how much of that is in preparation for a raw material surge? And then secondly, Robert might help us out, back in the good old days, I think you used to produce a DuPont market index. And I am just trying to get... when I see U.S. GDP up 2% in '08, but the first quarter volumes were down 5% for DuPont. Can you help us characterize a little bit more what your end markets would look like as opposed to the overall economy? Thanks.

I can take the fist question on pricing, and clearly in some of our chemicals businesses and in some of our performance materials business, we do and are able to pass through raw material increases and the contracts are set up that way. But the vast majority of our pricing and our revenue is from value in these pricing. And we do not connect to raw materials per se, it's based in the value of the product and use of the customer, and we continue to drive that as our primary means of gaining in price.

As far as the DuPont market index goes, over the last couple of years, we moved away from making that public. We regard it as a proprietary tool to be used internally for planning purposes. Looking at some of the major markets, as we talked about earlier, housing and autos are down much more than the overall economies, no surprise there. If you look at the rest of industrial production, it's actually not done too bad, it's just down slightly since last July; that's mostly export driven strength. So, outside of housing and autos, it's not that bad right now.

Thank you. Our next question is coming from Mike Judd with Greenwich Consultants. Please go ahead.

Yes, quick question for Robert here. What are your assumptions about the $1 in the second half of the year? And lastly, do you have... is there an assumption built in there on which political party interblending the election? The reason I ask that is from a... one of things evidently the Democrats are talking about a lot is a changing some of these free trade agreements. So, it's an important issue. And again, these comments are really focused more on our next year perhaps than this year.

I'll answer the second question first, but the kind of stuff that we are doing, we are looking at business cycle developments on a rather short-term basis. I don't think the election has that big an impact, it has a much larger impact on longer-term growth rate and of course the trade agreements and tax policy will have a big impact over that. But as far as the short-term business cycle fluctuations that we often look at, not a major impact there. I think Jeff will address the dollar question.

Yes, let me just comment on currency. We use the... we don't... we use the same forecast from major financial institutions. And so, our view, you can get just from the blue chip consensus basically, and that's... so if you look at that, that's kind of what we are thinking about exchange rates.

Thanks for the help.

Thank you. Your next question is coming from Chris Shaw with UBS. Please go ahead.

Yes, hi, good morning. And thanks to having Robert on; that was really helpful.

Great, thanks Chris.

In the seed business, are you guys seeing any last minute acreage changes because either the weather or because where our commodity price has gone since the USDA reports, particularly in corn. And also as a corollary, are you guys sold out in triple stacks, so... there were some late changes, could you guys still provide triple stack?

Okay. Chris on the first question, I'm sure you are thinking as we are too about the USDA reported yesterday that plantings were a bit behind. I talked to Shickler last night, and the team out Des Moines, and our read on the situation right now is that we don't anticipate a material change in the corn acreage levels from those that were released in the USDA's planning intention report. So, I think that there is time, it's still early. And we are not picking up any signals of shifts between the crops right now. On your second question about availability of triples, we continue to feel that we've got adequate supply to meet all farmer needs for triples in all the markets where it's needed.

Great, that's it. Thanks.

Okay. Thanks, Chris.

Thank you. Your next question is coming from Frank Mitsch with BB&T Capital Markets. Please go ahead.

Good morning all. Chad, you initially guided three months ago to $1.12 to $1.17 for this quarter, and it come in at a $1.31. Can you talk about some of the major deltas that occurred over the past three months that led to this very large upside?

The productivity continues to perform at the upper end of our expectations. Our ability to get the new products out and price effectively, I think you saw our very strong pricing in the first quarter. We are very proud of what happened here and that's why I started off my comments talking about customers because it's taken that value to customers that I think our people did an extremely good job of, and it's managing these supply chains very effectively. Obviously Ag was a strong first quarter and the Ag business is sometimes hard to predict, and that was a part of having a stronger first quarter than we thought. And then these other factors, the overall corporate costs and all were managed quite well.

And looking at that, I mean, the three of these factors, look like they will continue into the second quarter. Can you talk a little bit about the monthly trends through the first quarter and here we are at the end of the year quarter of the second quarter... I am sorry, first month of the second quarter. Can you talk about business activity trends on a monthly basis?

I don't think we saw enough of a change month to month from the first quarter that would be instructed to you or us to managing our business. And it does vary tremendously across the individual marketplaces, but if what's got behind your question is there are some trend there that's instructive of the second quarter, I think that would be way too soon to call.

All right, thank you.

Thank you. Your next question is coming from Don Carson with Merrill Lynch.

Yes, thank you. Coming back to the Ag side, a couple of questions; one is on corn seed, you talked about stabilizing share of 30%, Monsanto stocks of being up 3% to 5%. So I guess my question would be who is the big loser here? Is it all the number three player collapsing or is it just broad based gains, because I know this market does appear to be evolving into a bit of a duopoly. And then secondly on the soybean side, you haven't talked too much about that, but if in fact we do meet the USDA numbers, which are quite high, do you have enough seed to maintain your market share lead in U.S. soybeans?

Well, I wouldn't want to pick up on the second question; let me take that first on. Yes, we definitely have what we think would be ample supply of soybean supply for the season, and we are excited about it. I think I mentioned in the script that the orders are up and the business is looking up during the second quarter. In terms of market share, we are looking at our business, and we are focused on those fundamentals, how many acres are going to be planted, what we are offering county by county, farm by farm and it's that detailed background that we have that gives us the confidence that we are going to be able to meet our goal to hold our share in 2008.

I guess, Carl, an increased share of soybean, right?

An increase... we expect an --

Under any scenario that we think is reasonable right now, Don, we will still be increasing share of soybeans.

Okay. And then a question on crop chemicals, you talked about positive pricing trends there. Does the significant increase that we are seeing in glyphosate pricing give a nice price umbrella for your sulfonylurea, is that what's helping on the pricing front here?

It's not really Don, no. I'd say that our price gains in the first quarter were in line with the industry averages which were kind of low single-digit price increases in local prices. Now, on the other hand there is favorable mix going on in our crop chemicals business. We are offered for sale and sold a greater number of the SU blended products there. As you know well, are very tailored to a specific farmer weed control problem. So that's helping the overall variable margin and profitability business.

Thank you. Our next question is coming from Hassan Ahmed with HSBC. Please go ahead.

Good morning guys.

Good morning.

Clearly very good results in the Ag segment, pricing up a good 15%. My question is that obviously there is more and more chatter these days about food price inflation and you have countries like India coming out and stopping rice exports and then you have Saudi Arabia lifting import duties in a variety of food products. I guess the question is that how should we going forward think about crop pricing? And obviously in turn pricing within your Ag segment, particularly in this environment where a variety of these emerging markets, countries are coming out and trying to curb food price inflation.

It is Chad, thanks for the question. We believe that commodity crop prices will be up for an extended period of time over their historical levels. We think this is a natural results of people moving up the standard of living chain and wanting more of their protein from chickens, from pork, from cattle, an it's a natural impact. That's why we believe our new products both on the seed side and chemical side are so important to increased productivity. If you look back at the last 10 years, population's gone up 13%, the demand for these major products such as soy, corn have gone up about 30% and land has only gone up to 6%. And so we got to have more productivity to get it out and that's why we think this a right area for research to put our money to invest and grow, and we were very encouraged about that. Secondly, as we know, there will be other pressures for biofuels, we think our cellulosic biofuels and our move to biobutanol are the right ultimate steps to answer that question. So, we are not stressing the food crops as much for biofuels. We think right now, we do need to use food crops or biofuels. But we need to go through a natural evolution as we have in other products. So, I hope that responsive to your questions. We are also are keenly aware of, when you talk about these restrictions and exporting rice, if our numbers there's about 840 million people in the world that go to sleep undernourished every night. And we think that's important that we reduce that and it has been reduced over the last 20 or 30 years as a percent of total world population. But there will be continuing work by the UN and others to do that, and we hope our products can help that level of farmer too over a period of time. Thanks for your question; I think it's very important.

Thanks for the question, Hassan. I think that we run over and we'll end the call on that note. I know you all have other calls today too to go to. We thank you for your interest in our company. As always, the Investor Relations team is available to take any follow-up questions that you have. Thank you all very much and have a good day.

Thank you. This does concludes today DuPont first quarter 2008 earnings conference call. You may now disconnect.