DuPont de Nemours, Inc. (DD) Q3 2008 Earnings Report, Transcript and Summary

Good morning. My name is Curtis and I'll be your conference operator today. At this time, I would like to welcome everyone to the DuPont Third Quarter 2008 Investor 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]. We do ask that you limit yourself to one question and one follow-up question and please pick up your handset to allow optimal sound quality. To listen to the webcast, please go to www.dupont.com. Thank you. It is now pleasure to turn the floor over to your host, Karen Fletcher, Vice President of Investor Relations. Ma'am, you may now begin your conference.

Thank you, Curtis. Good morning and welcome. I'm pleased to be hosting this call. With me this morning are Chad Holliday, Chairman and CEO; Ellen Kullman, President and CEO Designate and Jeff Keefer, our Chief Financial Officer. Also joining us is Jim Borel, Group Vice President of DuPont's Production Agriculture business who we've asked to join us for the Q&A session today. Before we begin, I'd like to remind you that we're webcasting this call and you can access it through our website, www.dupont.com. We will be using slides today which are posted on the website along with the press release that we issued earlier their morning. I invite you to turn to slide 2. During the course of this conference call, we will make forward-looking statements. All statements that address expectations or projections about the future are forward-looking statements. Although they reflect our current expectations, these statements are not guarantees of future performance, but involve a number of risks and assumptions. We urge you to review DuPont's SEC filings for a discussion of some of the factors that could cause actual results to differ materially. We will also refer to non-GAAP measures and request that you please refer to the reconciliations to GAAP statements provided with our earnings news release and on our website. We have also posted supplemental information on our website that we hope is helpful to your understanding of our company's performance. With that, I'll turn the call over to our CFO, Jeff Keefer.

Thanks very much Karen. First, I want to thank all the investors who are taking time to participate in our call today. Market conditions are difficult and we appreciate your time and interest. The entire nation and now the world are embroiled in the credit crisis, the unprecedented market volatility impairing [ph] the long-term economic impacts that may ensue. With this backdrop, I can confirm our credit profile is very strong and even a competitive advantage. Our performance in the quarter, the hurricane impacted quarter was solid and our outlook is focused on taking quick actions in response to continuously changing environment. My review today will be very detailed, covering all of these topics, allowing as much clarity as possible upon our company's position and priorities for the coming months. I will start with a review of our credit profile on slide 3. We have long lived by a rigorous and prudent financial discipline policy with the first principle being to maintain a strong balance sheet. Due to this active strategy, today, our liquidity is solid and our cost of borrowing remains low. Specifically, we have over $2 billion in cash positioned throughout the world, we have about 2 billion in commercial paper of which our CP borrowing costs are well below the average rates of A1/P1 issuers. And finally, we have $2.7 billion in untapped credit lines with a broad and diverse institutional make up. Simply said, we enjoy the benefits of being a flight to quality [ph] and rightfully so. In addition to having a strong position, we are taking actions around the world to ensure we build on this position. And I will detail out for you specifics during our review of the third quarter and outlook. Now if you'll please turn to slide number 4. Before reviewing the quarter, let me detail the impact related to the Hurricanes Ike and Gustav. While two hurricanes affected the operations of our Gulf Coast plant sites in the third quarter, the vast majority of the financial and physical impacts resulted from Hurricane Ike's storm surge damage to our Sabine plant site in Orange, Texas. To frame the situation for you, Sabine is our largest and most complex plant in the Gulf Coast, representing greater than 50% of our global ethylene copolymer capacity or about 3% of total company sales. The plant sustained storm surges of about 14 feet, which took close to a week to recede. Our employees are all safe, and while many of them are displaced from their homes, they are working diligently to bring the plant up as soon as possible. Sabine has six production units, which comprise some of more specialized polymer product line in packaging and industrial applications. All of these units can be operated separately and current plans are for a phased start up as the individual production lines are repaired with total polymer capacity back on line by mid to late December and ethylene capacity back on line soon thereafter. There are three primary costs associated with the hurricanes: First, costs for clean up and repair damages and for lost inventory and equipment. We recorded a significant item charge in the third quarter of $0.16 per share to account for that. Second, additional capital expenditures to replace destroyed equipment. We estimate that we will spend about $120 million on this, most of it in the third quarter... fourth quarter. And third, the impacts from business interruption which includes missed sales that also include incremental costs such as alternative sourcing of materials. For this item, our third quarter sales were reduced by about $80 million and we estimate the earnings loss to be about $0.02 per share. We estimate our fourth quarter sales will be reduced by about $200 million and earnings by about $0.10 per share. We will continue to update you on our progress as we move into 2009. Now turning to the review of the quarter. We had solid underlying performance in the third quarter despite the impacts of the hurricanes. Sales growth in Ag and emerging markets continued to be our strength, which was partially offset by lower demand for motor vehicle and housing markets. A lower base tax rate and gains from soy contracts more than offset the earnings impact from the hurricane-related business interruption and the absence of benefit related to a contract termination in the third quarter of 2007. In short, if you exclude the hurricane impact, segment pre-tax operating income was held essentially flat despite the difficult environment while driving selective growth investments forward. Turning now to slide 5 which summarizes earnings per share and sales results. As we discussed, third quarter reported earnings per share includes a charge of $0.16 related to clean up and repair of damages from the hurricanes. As a result, third quarter reported earnings per share were $0.40 compared $0.56 in the prior year quarter. Excluding significant items in both periods, we delivered earnings per share of $0.56 compared to $0.59 earned in 2007. Importantly, on a year-to-date basis, we delivered 13% higher earnings per share excluding significant items and 10% higher revenue. The year-to-date results reflects a diversity of our mix of businesses, growth in our geographic footprint, continued strong pricing disciplines supported by a science-based offering that delivered value to the market and finally, our productivity improvements. These are important advantages in any economic environment. Third quarter consolidated net sales increased by 9%, reflecting 9% local price gain, 4% currency benefit and a 4% decrease in volume. Turning to slide 6. All segments delivered sales increases with several standouts in the quarter. Agriculture & Nutrition delivered 22% sales growth, which reflects our strong position in Latin America. Our Latin American Ag team delivered almost 40% top line growth, reflecting a successful introduction of double-stack corn seed, a very good start to the soybean season and volume growth and pricing gains in crop chemicals. Safety & Protection business grew sales 9%, particularly related to both volume and pricing gains in chemical products. In the Electronics & Communication Technologies platform delivered strong top line growth, in part reflecting a substantially increase in demand for Solamet and Kevlar going into photovoltaics' market as well as pricing gains in refrigerants. There were strong headwinds from hurricane disruptions as well as lower motor vehicle and housing demand pressuring volumes. But on balance, the diverse product portfolio both in end markets and geography performed very well. Before leaving sales, let's take a quick look at our sales results by geography on slide 7. Emerging markets in total delivered 25% growth, underpinned by the strongest sales quarter in the history of our Latin America businesses that collectively delivered 28% sales growth. U.S. sales were down 2%, reflecting 12% price gain, but 13% lower volume and a 1% decline due to divestitures. We estimate U.S. volume decline is largely related to a general slowdown including another drop off in motor vehicle builds and to a lesser extend hurricane-related business interruption, particularly in packaging and chemical products. Our earnings outlook, which we will discuss in a few minutes, anticipates weaker demand in North America, particularly in motor vehicle and housing markets and lost sales due to hurricane-related plant outages. Europe sales grew 14%, reflecting broad-based local currency pricing gains, currency benefits and volume growth in emerging Europe for agricultural products and safety and protection products, which more than offset a slowdown in Western Europe volumes related to the motor vehicle market downturn. Our outlook assumes continued weakness in Western Europe demand and continued growth in emerging markets, but at a slower pace. Sales in Latin America grew 28%. Latin America has become a meaningful contributor of both sales and earnings across all of our segments. Each of our segments benefited from pricing gains and volume gains. But the results in the quarter primarily reflect the success of our Ag franchise as the summer agricultural season is underway. Looking forward, our fourth quarter outlook for Latin America is favorable as the summer agricultural season continues. Asia Pacific grew 15% in the quarter and the growth was broad based across the region. China delivered sales growth of 13% in the quarter, reflecting strong demand, particularly for electronic materials, Solae branded products and engineering plastics. Here again, we see broad diversity in end markets as well as geography even within the Asia region itself. Growth in the quarter stem beyond China. Our teams delivered 33% growth in ASEAN, 22% growth in India and 15% growth in Korea. Our outlook assumes the growth continues, but slows modestly in the fourth quarter. Moving now to earnings and the EPS variance analysis on slide 8. The biggest boost to EPS year-over-year is the $0.54 benefit from local price gains. Once again, this performance shows the disciplined approach to pricing we have developed over the last four years. All of our segments delivered pricing gains in the quarter. On a year-to-date basis, the spread between local prices and variable cost increases is a positive $0.07 per share. But the message here is we deliver value to our customers and we have a disciplined approach to manage price to ensure we capture value for our shareholders. The variable cost increase this quarter adjusted for volume and currency was $0.46 per share. Raw material, energy and freight cost increased about $550 million or about 16% in the quarter. We are still dealing with historic high oil and gas prices moving through inventory. In addition, our results reflect agricultural commodity cost increases and continued tight supply for chemicals such as sulfur, ammonia, caustic soda, ore and methanol. Increased costs due to hurricanes are isolated to a few commodities such as HMD and coke. Similar to last quarter, our variable cost includes the impact from soy contracts. However, this quarter we realized a $49 million pre-tax gain on settlement of the soybean contracts, which offset the $52 million second quarter mark-to-market loss we reported on open contracts. We do not anticipate any significant fourth quarter impact from soy contracts. In our fourth quarter earnings guidance, we are assuming that our variable cost increase excluding volume and currency will continue about the rate we incurred in the third quarter, meaning we are anticipating full year variable cost increases of about $2 billion pre-tax. Let me give you some more color on the fourth quarter. We have a diversified raw material buy. Of the top 30 materials we buy, only four are moderating sequentially. Commodities such as ammonia, TIT ores [ph], HMD and benzene are still moving up. While we believe that commodity costs may start to moderate, we just do not see this happening in the fourth quarter. Moving now to other income. Improved pharmaceutical royalty income of $0.02 a share was offset by the absence of a contract settlement which contributed $0.02 to prior year quarter. Pharmaceutical earnings improved in the quarter due to U.S. price gains and increased volume in Europe and Japan. The pharmaceuticals' outlook for fourth quarter assumes modest improvement versus prior year. Our base tax rate in the quarter was 14.4% versus 22% prior year quarter, generating a $0.05 earnings per share benefit as shown on the waterfall. The lower base tax rate primarily reflects favorable geographic mix of earnings and one-time tax settlements. I want to highlight the difference between our third quarter base tax rate of 14.4% and the effective tax rate excluding significant items of 25.7%. The difference is caused by taxes generated from our balance sheet hedging program. Our program net of taxes in the third quarter created an earnings charge of $0.05 per share and is also highlighted on the EPS waterfall. We have provided more detail on Schedule D [ph] to show you the exact impact of our hedging program had on our effective tax rate. We expect the fourth quarter base tax rate to be about 22%. Closing out the EPS variance analysis, excluding the impacts of currency and volume, our fixed costs in the quarter of $3.1 billion were up about $133 million pre-tax or $0.11 per share. Fixed cost as a percent of sales improved by 110 basis points to 42.7%. Our productivity programs again delivered savings that largely offset inflation. We are driving our streamlined efforts hard and we are on track to deliver $400 million of productivity gain in 2008. The $133 million pre-tax increase in the third quarter excluding currency and volume was for planned selective cost investments in R&D, selling and expansion projects in high return, high growth businesses including Pioneer seed, photovoltaics, Kevlar and Nome that will accelerate new products to market and increase our penetration in emerging markets. Let me conclude by saying, clearly, things have changed and we are intensifying our focus on fixed costs. We have a good track record of productivity and we are making cost and capital decisions based on the times. You can count on us to have our costs in line with the current new reality. Moving to cash and debt. Cash flow from operating activities through September was about $500 million, which is off the pace of prior year period, but we are on track to generate about $4 billion in cash flow from operations for 2008. The anticipated fourth quarter cash flow from operations is largely attributable to Ag & Nutrition, collecting 2008 accounts receivable as is typically their seasonal pattern and, to a lesser extent, from broad-based working capital improvements as we focus on tight inventory management. And certainly as the credit crisis evolve, we continue to closely monitor our customer and value chain. Unfortunately, to date, we don't have any significant issues as a result of the crisis. In this environment, we are looking at capital expenditures very closely and making the needed reduction. Included in our capital outlook is the unanticipated spend for hurricanes of about $120 million. Overall, our capital spend is still expected to be about $2 billion in 2008. And finally, our dividend yield is 4.5%. We have a long history of more than 400 quarters of dividend payments and this includes the timeframe when we sold Conoco, which generated about one half of our cash flow and we held the dividend constant. I think that speaks for itself. Turning to slide 9. Our fourth quarter earnings guidance is a range of $0.20 to $0.25 per share. Let me frame it for you versus last year same period results. Included in the outlook is about $0.10 per share impact reflecting hurricane-related business interruption, the absence of a $0.02 asset sale in last year's fourth quarter and the impacts from a stronger dollar. We also anticipate continued selective growth investments and higher raw material costs. From a volume perspective, we anticipate further weakness in auto and construction markets, overall slower growth in U.S. and Western European markets and emerging markets growth to continue but at a less robust pace. We believe this is a prudent outlook in light of all of the economic uncertainty. 2008 will certainly go down as an extraordinary year which presented extraordinary challenges. Our businesses have performed very well against historic raw material increases and the collapse of the housing market, the retrenchment of the motor vehicle industry and more broadly, recessionary environments in U.S., Western Europe and Japan aggregated by global delever... by the global deleveraging that is occurring in the financial industry. As we proceed into the fourth quarter, we are working aggressively to deliver cash by adjusting our capital spending and working capital levels to address today's difficult environment to deliver gains from productivity, to deliver gains where our markets are strong and to be disciplined on pricing. Looking towards 2009, the governments around the world have taken action to correct the credit crisis. Time is needed to understand the impact of those actions and reduce the uncertainty in the economy. With the change in business mix over the last five years, we are a less cyclic company today. We will aggressively work on those things we can control. This includes managing costs and capital in line with the business reality, but also ensuring we continue to capture growth where the markets are strong. We are well positioned to manage in these uncertain times. With that, I'll turn it back over to Karen.

Okay. Thanks Jeff. I'll now go through our traditional segment reviews, sharing key highlights that explain third quarter results and our outlook for each. Just a reminder that all references to individual platform earnings are excluding significant items. So turning to slide 10. Our Ag & Nutrition segment delivered strong seasonal results. The fundamentals for growth in production agriculture continue to be outstanding despite the global credit crisis. Global demand for grain and oilseeds is high, pending stocks are low, commodity prices remain attractive even in light of the recent declines and the financial help for farmers is strong as measured by record net income per acre returned. Our Ag & Nutrition revenues grew 22% over last year and underlying earnings improved 45% when you exclude the $49 million gain from closing soybean contracts that Jeff discussed earlier and a $25 million gain from last year from a contract settlement. Higher average selling prices and volume increases drove our revenues up a record $236 million to $1.3 billion in the quarter. We continued our fixed cost productivity improvements in the platform while maintaining strategic growth investments in seed research and our global sales force. Our growth in crop protection product earnings and working capital improvement contributed an estimated 200% increase in free cash flow in the quarter. Let's take a closer look at the results from our crop protection products. Revenue increased significantly on strong global insecticide and fungicide sales and herbicide pricing in Latin America. Earnings were up substantially on higher variable margins, favorable product mix and fixed cost improvements. Higher average selling prices more than offset increased raw material and energy costs. Sales in Brazil were early and volume is driven by strong demand for [indiscernible] fungicide and Lannate insecticide. Acres increased in sugarcane and soybean. Fruits and vegetable markets remained strong in Brazil, Colombia and Mexico. As for Europe, sales were essentially flat with price gains offset by volume with cereal and oilseed rape harvest late this year delaying fall planting. Also, fungicide and insecticide supplies were tight due to strong demand. For the fourth quarter, we expect crop protection product sales to be flat despite increases in renoxopere [ph] sales. Pre-tax operating losses will be substantially lower because of the absence of a $15 million gain on an asset sale that we highlighted in fourth quarter last year. Turning to seeds. Third quarter seasonal sales increased substantially to $440 million, reflecting strong product performance and technology sales in Brazil and canola market share gains in Europe. Pre-tax operating losses improved moderately, excluding the soybean contract gains and the contract settlement I mentioned earlier as we continue to reinvest in research and development and sales force expansion. Our Brazilian seed sales continue to flourish and we benefited this quarter from an early buying pattern. We sold out of YieldGard corn borer with industry leading volumes. We anticipate a market share gain with corn acreage about equal to last year. Our soybean sales have consistently grown over the last five years. Our new Roundup Ready soybeans with [indiscernible] resistance are outyielding key competitor varieties by up to 10%. The combination of excellent genetics, superior seed quality, investments in people and infrastructure and our unique business model in Brazil will enable us to expand our leadership position. We anticipate record sales and a 2 to 3% market share increase in soybeans. In Argentina, we expect corn acreage to be down and market share to hold flat due to tight supplies. Higher selling prices more than offset increased commodity costs for a 30% gross profit per unit increase. We sold out of double-stack corn and our new genetics. We're very excited about this product line up that will outyield the industry and set a new standard for disease resistance. Looking ahead to fourth quarter, we expect seed sales to be up moderately on strong sales in Latin America and early corn and soybean deliveries in North America. As is typical for fourth quarter, with seasonal sales against the periods complementing fixed costs, we will have a pre-tax operating loss. Seed earnings are expected to decline substantially, reflecting growth investments and our European corn sales returning to normal volumes versus a strong early buying pattern last year. So for the full year 2008 platform outlook, we continue to expect our Ag & Nutrition segment to deliver double-digit sales growth and PTOI growth of at least 20% over 2007. Moving now to slide 11. Coatings & Color Technology segment sales of $1.8 billion were up 7%. Earnings of $190 million were down 7%. Cost productivity gains and higher average selling prices only partially offset the impact of the lower demand for motor vehicle and housing markets. Titanium dioxide sales and earnings were up moderately on flat global volume and improved price. Demand was strong for us outside of North America from customers in both coatings and plastic markets. In addition, we're getting share of end users seek a reliable supply source. Volume in North America continues to be pressured by weak demand for architectural coatings market, but was in part offset by sequential and year-over-year price gains. Performance coatings results in the quarter were down substantially despite growth in sales and earnings in refinished paint as North American motor vehicle production was down 15% versus prior year quarter and Western Europe motor vehicle production was down 2%, both negatively impacting our OEM paint products. Looking ahead to the fourth quarter for Coatings & Color Technologies, we expect global motor vehicle production levels to drop lower and as a result expect substantially lower earnings versus prior year quarter. As we plan for significant volume pressures, our teams are focused on delivering productivity improvement in cost and capital. Please turn to slide 12 for Electronic & Communication Technologies. Sales grew 13% to $1.1 billion on higher prices and continued strength in photovoltaics. Underlining earnings were flat at $139 million in the quarter, reflecting softer markets, higher raw material costs and growth investments in photovoltaics. Volume declined 1% in the quarter with weakness in automotive electronics spreading from the U.S. to Europe. In September, wafer starts at the major semiconductor foundries fell sharply. Slower fab utilization looks like it will continue through the fourth quarter. So for the fourth quarter, we expect a modest sales increase with continued strong growth in photovoltaics and pricing gains in select markets, tempered by a slowdown in consumer electronic spending. Excluding a $28 million gain from a land sale from fourth quarter 2007, we expect earnings will be down slightly due to lower volumes and a weaker product mix. Please turn to slide 13 for Performance Materials. Sales grew 3% to 1.7 billion with price and currency benefits offsetting a decline in volume. Pre-tax operating loss was $91 million which includes a $216 million hurricane charge. Excluding this item, earnings were $125 million, down 36% due to higher raw material costs, lower demand especially in motor vehicle-related application and business disruptions from hurricanes. As Jeff mentioned, our plant site in Orange, Texas was shut down in advance of Hurricane Ike and it experienced significant damage due to storm surge. Extensive repairs are underway and current plans are for a phased start up as individual production units are repaired with full polymer capacity back on line by the end of the year and ethylene capacity back on line in January 2009. We remain under forced majeure in ethylene copolymers with allocations across the portfolio including certain Surlyn, Elvaloy and Bynel product. We estimate that about a third of our third quarter underlying earnings decline for the platform is related to the hurricanes. The remainder of the earnings decline was the result of softening markets, particularly U.S. and European motor vehicle coupled with raw material cost increases that were not fully offset by our pricing actions. Looking ahead to the fourth quarter for Performance Materials, we will continue to have substantial supply limitations in our ethylene copolymers business due to the outage at our Texas plant. We also expect lower demand from motor vehicle markets will continue with competitive pressures on both volume and price. We expect sales to be down moderately, but earnings to be down more than half as compared to fourth quarter '07 with three-quarters of the decline due to the hurricane impact. Turning to slide 14 and looking at Safety & Protection. Sales of $1.5 billion were up 9%. Pricing gains, particularly in chemical products along with volume growth in emerging markets more than offset the volume declines in North America. Earnings of $251 million were down 20% from the prior year quarter. Excluding a $4 million hurricane-related charge, earnings were down 18%. The impact of the housing market is the largest contributor to the earnings decline. This segment is facing tough market conditions in housing as North American builds were down 32% and we're seeing inventory destocking as downstream participants deleverage in response to credit tightness. Kevlar and Nomex product lines delivered both volume and price gains and we continue our investment plans to increase Nomex and Kevlar capacities. Our previous outlook anticipated personally offsetting the growth investments with new Nomex capacity which was scheduled to come up online in third quarter. Delays in startup are resolved and startup is now targeted to add to earnings in the fourth quarter. The outlook for fourth quarter anticipates moderate sales growth and moderate earnings decline as negative comps in the housing market continue at about the same rate into the fourth quarter. So that completes our segment review and I'll now turn the call over to our Chairman, Chad Holliday.

Thank you, Karen. Please turn to slide 15. DuPont had a solid third quarter. Key elements of our business strategy continue to deliver results despite the rapidly changing economic environment. We performed well in targeted growth markets such as production, agriculture, photovoltaics and emerging markets and overall performance benefited from cost productivity work and new product acceleration. But we have to do more. Recognizing the new reality I described last quarter, we are dynamically redirecting resources and production plans to respond to changing demands. Our efforts are supported by a strong balance sheet and cash position. The current financial crisis has not impacted DuPont's liquidity or cost of funding. I commend Jeff and his team, particularly our Treasury Group led by Susan Stalnecker for their diligent work to closely monitor financial markets and maintain strict discipline about how our cash is managed at DuPont. From that foundation, our leadership team is focused on ensuring that we stabilize and strengthen those factors within our control in these rapidly changing times. Let me highlight four points. First, key elements of our business strategies are working and we will continue to drive them hard. Those include positioning in growth markets such as agriculture, electronics and energy conservation. In addition, we are even more diligent on our cost productivity. We are accelerating the delivery of our $1.7 billion goal. Second, our focus on the customer. In addition to serving customers needs with valued products and services, we are working with customers to understand their liquidity and their ability to continue operation in today's financial environment. We approach each situation individually to understand and anticipate issues before they hit us in the face. Third, we remain a-market driven science company. Our R&D pipelines are the fuel for our success. We continue to make the investments in science and technology that will deliver value over the long term. And finally, our core values. In turbulent times like we have today, it's easy to get distracted and lose sight of the fundamentals. Our core values are safety, environmental stewardship, high ethical standards and respect for people. We will not waver from working to these highest standards in every area. We are also taking actions across our company to address the fluctuating environment. Global markets are clearly in flux. U.S. and Western Europe are approaching recession. Emerging markets are still growing, although at a slower pace than we've seen in the last couple of years. Adjusting to these market changes starts with leadership at the top. Ellen and I have conducted intense reviews with all DuPont units over the past few weeks to drive faster response times, to activate contingency plans and increase cash flow. We will focus on execution in this very dynamic environment. We always focus on cash. Our company has strong cash flow. We will generate about $4 billion cash from operations this year. But in these dynamics times while global banking systems work their way through this gradual increases in credit availability, it is prudent for us to increase our intensity on cash management. We are in a very strong position and expect to outperform our peers in this regard. With a leadership team actively engaged in making sure we execute and deliver the rest of 2008 with maximum efficiency and effectiveness, we believe we will maintain, even improve our competitive position over peers. At the same time, current conditions clearly indicate a worsening environment. With respect to 2008 results, Jeff already provided guidance for the fourth quarter. If you exclude the impact from hurricanes, our 2008 EPS are expected to be in the range of $3.37 to $3.42 per share. That translates into 3 to 4% EPS growth this year excluding significant items. Considering the extraordinary year we've had with respect to raw material prices, depressed conditions in U.S. motor vehicle and housing markets and now the credit crisis, we see 2008 as a year that demonstrates DuPont's ability to generate higher profitability returns compared with others in the materials sector. With respect to 2009 results, Ellen is leading the planning process. As you can appreciate, this process is dynamic. Our updated plans are being hammered out right now and we'll provide you with specifics about 2009 outlook by mid-December. But there are two points I'd like to make at this point in time. First, I would caution you not to extrapolate our prudent outlook for fourth quarter 2008 into 2009. Second, we are a very different company today than we were at the last recession. Let me just compare the year before the last recession in both cases. If you take 2000, the year before the last recession in 2001, and I contrast that with 2008. In 2000, agricultural and pharmaceuticals were only 12% of our earnings. This year they will be about 40% of our earnings. In 2000, we had a fibers business that amounted to about 30% of our earnings. As you know we sold our Commodity Fibers business. Our U.S. sales were 51% of the total in 2000. It'll be about 38% today. In 2000, we had a pre-tax profit margin of about 10% and we're looking about 15% this year. We're entering whatever this economic turmoil turns out to be in so much better shape than we were at the last one. I have great confident this company is going to perform to your expectations. Karen, back to you.

Okay. Thanks Chad. So Curtis, we're ready to open our lines for Q&A. Question And Answer

Thanks ma'am. [Operator Instructions]. Our first question comes from Don Carson with Merrill Lynch. Your line is now open.

Thank you. Couple questions for of you Jim Borel on Ag. Jim very strong Ag performance driven by Brazil, I know in a verity of products we've seen a lot of pre-buying ahead of the currency decline there. Just wondering to what extend you think you might have pulled sales from Q4 into Q3? And also I know there is credit issues down there, if you can comment on that. And then not that were, partway though the harvest in the U.S. are you seeing evidence that... with your new germplasm that you're closing the yield gap with your competitor, which would obviously be the key to next year's corn seed share in the U.S.?

Thanks Don. Sure, let me talk about Brazil first. There was some earlier than expected sales on both that you see in the chemistry side. I'd say... it's hard to quantify... but I'd say maybe in the range of 50 million of revenue that was above of what we expected. Despite that, we had a great quarter. Even if you took that out and the soy hedge out, we grew top line and bottom line in all the businesses. So great quarter on all fronts. In terms of credit, we are not seeing any issues evident in the market right now. But I've been in this industry for 30 years and talking about Brazil, over those years, I have seen just about anything you can imagine happen down there. So we are keeping a very close eye. We've got a very professional team that helps us with our credit exposure. Collections in Brazil are actually a little ahead of schedule so far this year. So so far so good and we're just keeping a close eye on it. You also asked about yield. The harvest is about three weeks behind normal. And so there is some very early stuff going on, but it's a little... everything we've seen looks on track, but it's just a little early to say we will back to you in a few weeks as normal with what the results are after we have it.

And then just to clarify Brazil. So you would expect Brazil to be up significantly year-over-year in the fourth quarter despite the pre-buying and currency issues down there?

We're still expecting strong sales in Brazil for the year.

Okay.

And our next question comes from Frank Mitsch with BB&T Capital Markets. Your line is now open. Frank Mitsch - BB&T Capital Markets: Thank you, good morning. If I remember history correctly, I think Katrina hurt you by a dime in the third quarter of '05, and that happened late August. Ike was in the middle of September, and the hurricane impact you're saying is $0.16 a share. Can you add some granularity to that number and talk about what capital costs are included or not included in that number? It seems rather large.

Well the business interruption for the third quarter was $0.02 a share and that's lost sales basically from three weeks on those product lines. The larger is a $0.16 a share one-time cost, which includes $227 million of one-time repair and replace. This is rewinding motors, reworking equipment that's been damaged by salt water. There was a tremendous four feet of water across the site for a week, takes it toll. In addition to that, we will be spending capital expenditures of about $120 million between the third and fourth quarter on items that need to be replaced as opposed to repair. So I don't have the Katrina numbers with me. The Katrina repaired numbers were quite large, about $0.10 may have been just part of it, so. But we can get the details on that and give you an exact comparison. Frank Mitsch - BB&T Capital Markets: The $0.16 a share does include $120 million of CapEx?

No, it does not. That is just the repair and replace.

And our next question comes from Robert Koort with Goldman Sachs. Your line is now open.

Thank you, good morning. A question for Jim. I know you guys were targeting something like 0.5 million acres of biotech sales down in Brazil this year. I was wondering how you came in relative to that. I think Karen said you were sold out. And then two, strategically, how do you think about selling your competitors' technology when hopefully yours get approved over the next year down there in terms of seeding a market with somebody else's technology and asking your customers to switch? Thanks.

Thanks Bob. Yes, we have sold out the technology down there. It's just been a very good launch and we met our targets and in fact are ahead of plan. So we are feeling good about that. Yes, whether it's competitor technology or ours, the point is we are trying to first deliver what the customer needs. And we can do that with the products we have now and over time. If we can do that even better and have them be proprietary trade, that's clearly the intention. But focus first is delivering real value to the farmer.

Our next question comes from Kevin McCarthy with Banc of America. Your line is now open.

Yes, good morning. Given the tougher macroeconomic environment, do you see potential for incremental cost savings or productivity initiatives relative to what you might have been planning say six months ago? And if so, can you quantify and elaborate on those or is it perhaps too early?

Kevin, thanks for the question. We are really intensely focused on our cost structure and particularly fixed costs and really combing every... through every unit in the company to make sure that we've got our costs in line with the current economic reality. So we are working very, very hard to intensify our efforts there. I would say it's too early to size all of that, but we will meet our $400 million cost productivity target this year.

Kevin, this is Chad. Just to add, what Ellen and I were doing I was referring to in my remarks is we've got to get our costs in line with market reality everywhere in the world. And that's what I was trying to imply my comments that we are well and away [ph] to do that.

Chad, given your strong balance sheet and the volatility recently in the equity markets, do you see any potential for change in your M&A activity over the next one year say?

Well, we've been extremely disciplined in our activity, and I think that looks pretty smart right now compared to what the prices were... what the prices are now. Bulking up for bulking up's sake has never been our objective. We want to have strategic additions. I think the acquisition that Ellen announced earlier this week in the Safety Protection area, the little consulting company we bought is a great example of what we're trying to do: bringing things that make sense that are clearly on our radar screen. They'll be more affordable now. As that affordability comes in the face, we'll do the right thing for the shareholders.

Thanks very much.

Our next question comes from Mark Connelly with Credit Suisse. Your line is now open.

Thank you. Just a broad question. As you think about the pricing power that you've seen and the typical ability of more specialized products to hold pricing power, but energy coming down, what are you assuming in your forecast about your ability to hold price? What I am trying to get to is is it the most specialized part of your portfolio that's getting priced or is it the stuff that's sort of in the middle and quasi-commodity?

Thank you very much for that question. First, I'd like to point it out, we have achieved exactly what we set out to do: to more than recover our raw material and energy costs. And as I mentioned, we now have a year to-date spread of $0.07. We are by far the... if you look across our largest products in the portfolio, the majority we do is value and used pricing. And we're going to continue to do that, and that's from our product innovation, application development that drives that. A very small percentage is passed through. Of course, those prices will go up and down with the pass through economics. And then we've got a portion that is a little less differentiated, primarily in some of our Performance Materials segments. Those costs have been primarily driven by ingredients as well as some value in used pricing. Those tend to be a little sticky on the way up and a little stickier on the way down. And that's what I anticipate looking forward.

Okay, that's helpful. Thank you.

Our next question comes from P.J. Juvekar. Your line is now open.

Yes, thank you. Good morning. One more question for Jim. Jim, your y-series soybeans, can you talk about how you're positioning them in terms of pricing? And are you positioning them to compete with the second generation soybean offering by the competitor?

Thanks P.J. First of all, kind of following on with what Jeff just said, with price per value y-series soybeans are really exciting in terms of what they're going to deliver in terms of value to farmers. We are seeing... we already have a yield advantage over the competition and the y-series extends that. So we'll expect to price them for value and we'll deliver a lot of value to farmers. And we're competing with what's already on the market and I am pretty confident we'll be very competitive with whatever else they can throw out there.

Okay. And quickly, one quick question for Jeff. I was just a little confused about the cash flow comment from operations. I think you also mentioned that cash flow from Ag was strong. So it was... for the first nine months, it's lower year by a billion dollars compared to last year. Can you just walk us through the pieces of that, how much is working capital and all that?

Yes, thanks P.J. I'll be glad to. So you're correct, we're about down a $1 billion if you look year-over-year. I didn't mean to confuse on the Ag comment if I did. Our cash flow is going to be stronger as we go to the fourth quarter. My point was is we will collect the receivables in Ag. And so we're anticipating with strong collections as we always have, and of course we've redoubled our efforts there as well as tight inventory management, we're going to hit about $4 billion of cash flow from operations for the year.

Our next question comes from Jeff Zekauskas with JPMorgan. Your line is now open.

Hi, good morning. If I remember correctly that pension benefit this year was about $0.14 per share, do you have any idea what it might be for next year, what the pension change might be?

Yes, thanks Jeff. You are correct in your statement for this year. We do... we will not remeasure until December 31st. I really can't estimate that now you know how volatile these markets are and so we'll let you know after all the facts are in and we see how that turns out. I do want to assure everyone that right now, we do not foresee a scenario requiring a cash payment and a cash contribution in 2009.

And then secondly, a question for Ellen. I realized that you're early in the planning process for next year, but do you see 2009 as the year of expansion or retrenchment? That is, you are spending heavily for CapEx this year, maybe it'll be close to a couple of billion dollars. And your R&D is now going up at a rapid rate. Do you see a rough continuation of those trends next year or do you see a departure because of economic conditions?

As we look at our '09 planning our process, we are looking very detailed at individual businesses, what their market conditions are, what their competitive positions are, benchmarking against what we need to be there and understanding. That's going to be a very individual plan for business. There are strong... some strong markets out there, and certainly we are well positioned from a science standpoint to take advantage of it; we will. And there are areas where we will need to be very cost focused, very productivity focused in order to be able to do the right thing and create that plan. So I don't think there is one broad answer to that. In the mid-December timeframe, we'll be bringing out the plan, and I think you'll be able to see that then.

So in the aggregate, is it business as usual or are you going to retrench?

Well I don't... I couldn't imagine a term today 'business as usual'. Business is not as usual today, I mean with the volatility in the markets and what we're seeing. But we have a very different set of portfolio today and we're going to do... take actions very commensurate with the opportunities or the issues that we see.

Okay. Thank you very much.

Our next question comes from David Begleiter with Deutsche Bank. Your line is now open.

Thank you. Ellen, I believe when you look at North American or in the [ph] housing, it was about $0.20 earnings hit... or headwind in '07. What's the current update for that impact in '08 and perhaps even '09 given what's happening heading into the end of the year?

David, this is Jeff. Let me take that question. Just to kind of frame it for you, if you look at U.S. housing and construction, we believe that was down about 15% in the third quarter, probably approaching 20% in the fourth quarter. If I had to size it for you, earlier this year, we said $0.20. It's probably $0.25 or a little bit greater right now as we kind of look out for the balance of the year.

And I assume it negative as well in '09?

We're going to comeback to you in December and kind of give you a holistic view of '09. I don't want to comment one-off on any individual market view for next year.

And Jeff, just on FX, I believe it was about a $0.29 tailwind in the first nine months of the year, what will what should be based on current exchange rates in Q4, as the key current exchange rates flat, what were will head wind be in 2009?

Well, let me just comment on the fourth quarter, currencies are moving around pretty dramatically but clearly that's going to be headwind dated in the fourth quarter. If I had to size it, probably around $0.05 or so. But clearly, with all the volatility that's a very difficult forecast and we'll just have see how that plays out. Again for 2009, with all the volatility, we will come back in mid December and we'll give you a holistic view of our best view of what 2009 looks like that.

And just lastly, given the large cash balance, any thoughts on share buybacks once credit markets stabilize?

Well I think again, our record speaks for itself. We have, as I think I have commented before, about over the last four or five years, returned greater than two thirds of our cash to shareholders and so I am not going to comment specifically about buybacks. But I think our record speaks for itself, David

Thank you.

Our next question comes from Chris Shaw with UBS. Your line is now open.

Hi, good morning guys. Just quickly following up on David's last question, did you buy any shares back during the quarter?

No, we did not.

Okay. And so you haven't bought any back for the full year, right?

No, we have not.

And sort of also following then up on Mark's question from earlier on pricing. Pricing was pretty significant in the quarter. I think it was 9% higher. So obviously driving a lot of growth. What... sort of trying to drill down a little bit more, what percentage of that do you think is maintainable, that's not associated with sort of more pass throughs or more commodity like products.

Again, the vast majority of our products in businesses are value in used pricing. So supported by strong pricing discipline. So I think we've got in place what we need to and the vast majority the pass through is very small and the other that I've described is relatively a small portion as well. Vast majority in value in used pricing.

Curtis, I think we have time for one more question.

And it appears our final question comes from Mark Gulley with Soleil Securities. Your line is now open.

Good morning, two questions. One, Jim, this is for you. Switching to North America now, we get the impression with the acceleration [ph] tailwind gone, farmers are more prone to kind of sit on their hands in terms pre-buying for all their Ag inputs for next year. Are you seeing that in your two key businesses, seeds and traits and crop protection chemicals? I have a follow-up question.

In terms of probably based on the seeds and so far for North America, things are on track. Farmers are still in the middle of harvest, so there is still not as much. You can make a lot of decisions for a few more weeks. But we're picking up that there's going to be a significant delay. I think it will depend once they get the harvest done, then they will start focusing on making decisions for next year.

My second question, Chad, this is for you, if I may. Obviously, you lived through the '01 recession. Looking at the slide deck, you guys do provide the volume declines in '01 down about 7%. I know you're going to talk about this in six weeks, but still does this recession that's facing us now feel us bad, worse than or better than the '01 recession in terms of the volume declines that DuPont should expect to see?

Mark, the reason I through in prepared comments and described the company going into the last recession and the company going into this discussion is we are a very, very different company. And I think that's the most important thing you can take away from where we are today and with our used leverage we have and the competitive condition we have to outperform in whatever this economic environment is. And we are just not... don't have any unique insight into what this next recession is going to look like except it sure looks like it's coming.

Okay, thanks Chad, and clearly, we're at the end of our time. But I would like to turn the floor over to Ellen so she can provide some final comments.

Great. Thanks Karen. There are three points I want to close with. First, DuPont's economic health and growth potential are both excellent. We have a robust growth profile in production, agriculture and photovoltaics, large growing positions in emerging markets from many DuPont products, a highly profitable and growing safety and protection franchise, an R&D pipeline that remains strong and productive and a continued, reliable farm income for 2009. We are laser focused on cost control while continuing to invest for growth. Second, with the latest sell off in the market, we're paying our shareholders a dividend yield of 4.5%. We're proud of our 416 quarters of uninterrupted dividends. It's important to us and I'm sure to you also. We have a strong balance sheet, cash position, cash flow from operations and an enviable credit rating. And finally, you've got my commitment that we intend to work through the short-term challenges of slower macroeconomic growth and raise the long-term fundamental growth rate of DuPont. Our direction is unchanged. I'm working intensely with our business teams and look forward to sharing with you by mid-December our 2009 expectations and outlook. Thanks for your time and your continued interest in DuPont.

Okay, Curtis. Thank you everybody on the call and that completes our call this morning.

This concludes today's DuPont third quarter earnings conference call. You may now disconnect your lines at anytime and have a wonderful day. .