DuPont de Nemours, Inc. (DD) Q3 2016 Earnings Report, Transcript and Summary

Welcome to the DuPont third quarter 2016 conference call. My name is John, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. Please note that the conference is being recorded. Now I'll turn the call over to Greg Friedman, Vice President of Investor Relations. Greg, you may begin. Gregory R. Friedman - E.I. du Pont de Nemours & Co.: Think you, John. Good morning, everyone, and welcome. Thank you for joining us for our discussion of DuPont's third quarter 2016 performance. Here with me are Ed Breen, Chair and CEO; Nick Fanandakis, Executive Vice President and CFO; and Jim Collins, Executive Vice President responsible for our Agriculture segment. The slides for today's presentation and corresponding segment commentary can be found on our website, along with our news release. During the course of this conference call, we will make forward-looking statements. I direct you to slides 1 and 2 of our disclaimers. All statements that address expectations or projections about the future are forward-looking statements. Although they reflect our current expectations, these statements are not guarantees of future performance but involve a number of risks and assumptions. We urge you to review DuPont's SEC filings for a discussion of some of the factors that could cause actual results to differ materially. We will also refer to non-GAAP measures. We request that you review the reconciliation to GAAP statements provided with our earnings news release in today's slides, which are posted on our website. Our agenda today will start with Ed providing his perspective on the company's performance and the advancement of our strategic initiatives. Then Nick will review our third quarter financial results and 2016 guidance. Third, Jim will discuss our Agriculture business. We will then take your questions. With that introduction, it's now my pleasure to turn the call over to Ed. Edward D. Breen - E.I. du Pont de Nemours & Co.: Thank you, Greg. Good morning, everyone. Today I'd like to give an update on our third quarter performance and the progress we're making with our three strategic priorities. We continued our first-half momentum in the third quarter. Highlights were sales and volumes grew; gross margins improved; our operating costs declined; segment operating earnings increased; operating margins expanded in all reportable segments; and free cash flow improved. Total sales increased 1%. Total volumes increased 3% despite a tough macroeconomic backdrop. Five of the six reportable segments grew volumes. Performance Materials, Agriculture, and Nutrition & Health contributed the most to the company's volume improvement. Drivers included strength in the global automotive market for Performance Materials, higher corn seed and soybean volumes, and growth in probiotics, cultures and ingredient systems for Nutrition & Health. 5% volume growth in Industrial Biosciences reflected strong demand for bioactives and biomaterials. Prices for the total company declined 2%, partly due to the pass-through of lower raw material costs. Operating earnings totaled $0.34 per share, which was a significant improvement versus last year's $0.13 per share. Notably, all of our businesses contributed to the increase in segment operating earnings. While our companywide gross margins improved 45 basis points, the operating margin expansion in many segments largely came from our cost-savings program. Total operating costs declined by about $235 million for the quarter. All in, we are pleased with our financial performance. This morning, we raised our guidance for operating earnings per share to $3.25, a 17% increase from 2015. We also continued to make steady progress on our strategic priorities. As we have said, our strategic priorities for 2016 center on three drivers of shareholder value creation: cost savings, capital expenditures, and working capital. We set a target at the beginning of the year to deliver $1 billion in cost savings on a run-rate basis by year-end, with a net reduction in costs of $730 million year over year. This quarter, we continued to deliver on that goal, and we are pleased with our progress to date. We continue to project that three-quarters of our cost savings for 2016 will come from SG&A. Our goal is to bring our cost structure to best-in-class levels while continuing to fund investments for long-term growth. Keep in mind that we have a tough comparison coming up next quarter. There are two reasons for that. First, our $730 million target is a net year-over-year metric, and since we began our cost-saving actions in the fourth quarter of last year, we're starting to lap our current, leaner structure. Second, we expect compensation to be a headwind, including a recently announced merit increase for non-officer employees. The merit increase was effective on October 1. The capital expenditure plan for the year remains $1.1 billion, a 20% reduction versus $1.4 billion last year, excluding Chemours. We have invested $759 million of capital year to date. We take a close look at all of our capital projects every quarter in our operating reviews, checking progress and assessing whether updated projections for returns continue to justify the spending. The projects we've committed to are largely on track. Our third strategic priority is working capital. We have said we see an opportunity for a $1 billion reduction in working capital requirements over the medium term. We made further progress this quarter. Our free cash flow improved by $1.3 billion year to date, led by reductions in working capital and capital expenditures. Meanwhile, our planned merger with Dow is progressing as expected. While our interactions with regulators must remain confidential, I can tell you that we continue to work constructively with authorities in all relevant jurisdictions to secure the necessary approvals. We have made a lot of progress in helping regulators understand the dynamics of our industries in which we operate and demonstrating why our merger is pro-competitive. We have provided all documents requested to date and will continue to be highly responsive. Closing the merger is dependent on satisfying certain conditions, including receiving regulatory clearance from the United States, European Union, Brazil, and China. We have made progress in all key jurisdictions, and in the event that regulators use their full allotted time, we would expect to close in the first quarter of 2017. However, we are very focused on working closely and constructively with all jurisdictions to receive those approvals as quickly as possible. We will be prepared to close the transaction once all the closing conditions have been met. Merger preparations in the third quarter focused on organizational design, finalizing the cost synergy plans, and day-one readiness. We have made good progress on all three fronts. We jointly completed plans for organizational design structures for the three businesses, and we expect to name the next layer of management for all three soon. A key priority of our overall organizational design is to continue to support the innovation that will be required to grow each of the businesses and the standalone companies we intend to create. We have also finalized our projects to deliver the targeted cost synergies. We will be prepared to begin implementing those projects soon after closing, with plans for phasing them in over time in a way that protects business continuity. We have a high confidence level we will realize 70% of the savings on a run-rate basis by the end of the first 12 months after merger close and 100% of the savings on a run-rate basis at the end of 24 months. Another significant effort throughout the third quarter and continuing today is around day-one readiness. We will ensure we are fully functional on the first day of operations. At the same time, we continued preparations for the intended spins. Together with Dow, we meet frequently to review the progress in all areas. Overall, we feel good about the pace of our progress our teams are making to close the merger, to realize the value-creating synergies, and position the intended standalone businesses for sustained growth over the long term. We will continue to update you on our progress. With that, let me now turn the call over to Nick. Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: Thank you, Ed. Beginning with slide 3, we delivered operating earnings of $0.34 per share versus $0.13 per share in the prior year. The businesses continued to execute in a challenging macro environment, delivering total company volume growth and cost savings improvements in the quarter. Consolidated net sales for the quarter of $4.9 billion increased 1% versus prior year. Total company volumes grew 3%, led by strong demand in Performance Materials, Agriculture, Nutrition & Health, and Industrial Biosciences. From a regional perspective, demand was driven by growth in North America and Asia Pacific. Local price negatively impacted sales by 2% in the quarter. Turning now to slide 4. Segment results drove the year-over-year improvement in earnings, contributing $0.15 to the quarter, including a $0.01 benefit from currency. We delivered growth and margin expansion in each of the reportable segments. This improvement reflected continued execution on cost savings, as well as volume growth in most of our segments. A lower tax rate benefited operating EPS by $0.04 in the quarter due to the geographic mix of our earnings. Lower corporate expenses added $0.03 to earnings in the quarter. Corporate expenses on an operating earnings basis declined 25% versus prior year as result of our 2016 cost savings program. An increase in interest expense due to higher overall debt levels subtracted $0.01 per share from the quarter. Now let's turn to the third quarter segment operating earnings analysis on slide 5. Segment operating earnings increased $174 million or 40%. Performance Materials' operating earnings increased $54 million. Volume growth of 4% was driven by increased demand in automotive markets, primarily in China. Operating margins in the segment expanded by about 350 basis points year over year. Nutrition & Health results increased $33 million. Volume growth of 4% in the segment was led by demand in probiotics cultures and ingredient systems. Operating margins in this segment improved 380 basis points and have now grown year over year for 13 consecutive quarters. Industrial Bioscience operating earnings increased $17 million. Volume growth of 5% was driven by increased demand in bioactives and biomaterials due to growth in home and personal care and in the apparel market. Operating margins improved by 360 basis points in the quarter. Protection Solutions and Electronics & Communications each improved operating margins on cost savings in the quarter. Jim will speak to the Agriculture performance later, and I direct you to the materials we posted on our website today for further details on the segment results. Turning now to the balance sheet and cash on slide 6. Negative free cash flow of $1.8 billion year to date reflected Agriculture's typical seasonal cash outflow. Our free cash flow improved by $1.3 billion year over year. The improvement is primarily due to low working capital and CapEx year to date. Working capital improved by about $400 million, primarily due to business-driven actions, and lower tax payments contributed another $200 million. Our capital expenditures decreased by about $300 million or 28% versus the prior year when you exclude Chemours. The absence of Chemours contributed $400 million of the overall improvement in free cash flow. We remain committed to returning capital to our shareholders. Last week we announced our 449th consecutive quarterly dividend, and in the third quarter we completed $416 million in share repurchases, resulting in the retirement of 6 million shares. As previously communicated, in regards to our 2016 share repurchase plan, we will not complete the full $2 billion stock buyback program by the end of 2016. The amount and timing of the repurchases continues to be dependent upon our trading windows and daily trading volumes. We plan to enter the market as soon as our trading window reopens, shortly after this earnings announcement. On slide 7, the company now expects full-year 2016 operating earnings to increase 17% versus prior year to $3.25 per share and up from our previously communicated range of $3.15 to $3.20 per share. We now expect our base tax rate for the full-year 2016 to be about 23%, representing a $0.07 per share headwind to operating earnings. We continue to expect a benefit of $0.64 per share from the 2016 global cost savings and restructuring plan and an estimated headwind from currency of about $0.15 per share. We continue to expect sales to be down low single digits percent versus prior year and about flat with prior year when you exclude the impact of currency. Turning now to slide 8. In the third quarter, our operating costs, which include SG&A, R&D, and other operating charges, declined $235 million on an operating earnings basis. This represents a 14% decrease in costs year over year. Actual cost savings in the quarter were higher than expected due to a shift in external R&D spending from the third quarter into the fourth quarter. SG&A costs declined about $150 million or 15%, with most of the decline related to G&A costs. Our current corporate costs decreased 25% in the quarter. Changes in variable compensation in both periods significantly impacted the year-over-year comparison. Excluding these changes, corporate cost expenses would have decreased by about 40%, in line with our results in the first half of 2016. As expected, in the fourth quarter, an increase in compensation, as well as additional seasonal spending, will result in a tougher comp year over year for operating expenses. However, we remain on track to deliver $730 million in cost savings in 2016. With that, I'll turn the call over to Jim, who will provide an overview of the results for Ag. James C. Collins, Jr. - E.I. du Pont de Nemours & Co.: Thanks, Nick. I'll provide a review of our financial results and expectations for the fourth quarter, share our view on the latest market conditions, and update you on the three strategic priorities for our Ag business. Against a backdrop of challenging market conditions, our Ag segment continues to execute well. For the third quarter in a row, we have delivered strong results. Ag sales increased 2%, and operating earnings for the quarter were a smaller seasonal loss of $189 million. Our solid performance was driven by a strong start to the Brazil summer season, with our new Leptra hybrids continuing their successful launch. Favorable currency and cost savings also helped drive the earnings improvement. Our third quarter volume increased 4%, with growth in both corn and soybean seeds. That was partially offset by lower crop protection volumes due to the continued low pest pressure and high inventory in the industry. In Latin America, farmers chose a stronger mix of Pioneer's newest corn hybrids, resulting in higher net corn price. The third quarter improvement in our seasonal operating earnings losses was driven by cost savings, higher volumes, and a $28 million benefit from currency. It's important to note that the $21 million improvement came despite the absence of $48 million of one-time benefits, which were recorded in the third quarter of last year. Year to date, our Ag sales of $8.1 billion grew organically by 2%, driven equally by volume and price. In corn seed, we have grown sales in 2016 by 4%, also driven by both volume and price improvements. This was enabled by building upon our leading positions in high-value global markets, including North America, Brazil, Mexico, Southern Europe, and South Africa. Our growth reflected the strong performance of our newest products and continued enhancements to our direct route to market. Our year-to-date segment operating earnings are up 5%, driven by cost savings and favorable pricing, which provided us with the ability to overcome currency headwinds and weakness in the crop protection industry. So turning to our outlook for the final quarter of the year, we currently expect sales to be down in the mid-single digits percent range. We expect the seasonal operating earnings loss to be nearly half of what it was in the same quarter of last year. The fourth quarter outlook is pressured by timing in two respects. First, we are shifting seed deliveries from the fourth quarter to the first quarter of 2017. That's primarily driven by our Southern route-to-market change to a sales agency model, which is similar to the approach that we utilize in the Midwest. And, second, we realized sales in the third quarter to the detriment of the fourth quarter, primarily in Asia and Africa. The Ag industry continues to face tough conditions, with challenging commodity prices leading to a further decline in net farmer income and high channel inventories. However, one thing remains clear: Global demand continues to climb, which places an emphasis on innovation to drive productivity to meet farmers' financial goals and the needs of a growing population. We are helping to drive productivity through new product introductions such as our newest corn genetics, Leptra and Qrome corn products, our newest crop protection products such as Zorvec fungicide, and continued expansion of our Encirca service's digital ag offerings, which were on more than 2 million paid acres this year, more than twice last year. I will close with an update on the three strategic priorities for our Ag business. First, achieve our cost reductions and earnings commitments; second, deliver the new product pipeline; and, third, plan for synergy delivery and ensure we're ready for the new Ag business. We are entering the home stretch of 2016 and are on target for both our cost-savings initiatives and our earnings plan. Advancements from our innovation portfolio are a key reason for our strong results. We continue to see favorable market reactions in Latin America to Leptra, which accounted for greater than 50% of our product mix in the Brazil summer season and drove overall price improvements in our year-to-date segment operating results. And, finally, our integration planning activities continue to progress. During the third quarter, we made significant progress across key work streams. We have invested the time to ensure our readiness for the merger and plan the organizational structure. Now, this is important work as we think about bringing three successful businesses together as DowDuPont to become one Ag division with increased ability to innovate, meet customer needs, and deliver returns for shareholders. We have finalized the plans to meet our commitment of $1.3 billion in cost synergies. While much of this work will continue to be refined as we approach and ultimately close the merger, we are highly confident in meeting our overall commitments. As we look ahead, science, technology, and consumer demand are rapidly changing the face of the industry. Today, offering unparalleled innovation to farmers and investing in new products is a requirement, not a choice. We continue to expect that the complementary combination of our portfolios will enable our R&D organizations to deliver growth through innovation at above and beyond what our current standalone organizations could have delivered. Innovation will always be an imperative for our business. Now let me turn the call back over to Greg. Gregory R. Friedman - E.I. du Pont de Nemours & Co.: Thanks, Jim. We'll now open the line for questions. John, if you could please provide the instructions?

Thank you. Our first question is from Vincent Andrews from Morgan Stanley. Vincent S. Andrews - Morgan Stanley & Co. LLC: Thanks, and good morning, everyone. Just a question on crop chem inventories and I guess pricing as well, because it seems like the high level of inventory is starting to weigh on price. What is the end game for the industry here with the inventory levels? How are they ultimately going to be brought down? James C. Collins, Jr. - E.I. du Pont de Nemours & Co.: Yeah, this is Jim. You're right. If we take a broad look at global inventories, we'd say they're slightly elevated. A big part of that issue continues to be in Latin America, and we're feeling that with volumes. We've got low insect pressure still in that market, and we've got insect-protected varieties of soybeans that's putting downward pressure on that. And we're just going to need some time to work through those inventories – add a little credit tightness to that market as well. When I step back and look at North America, I would say North America inventories are not an outlier. I think they're about where they ought to be at this part in the season going into 2017. And, as we talked about before, I really like where DuPont sits going into this market, especially for crop protection in North America. We didn't play some of the things that happened in the marketplace late in 2Q and 3Q, and so I feel like we're sitting in a really good spot. Vincent S. Andrews - Morgan Stanley & Co. LLC: Okay. Nick, if I could just ask you a question on the free cash flow. The $1.3 billion improvement in working capital year to date, is that what we should anticipate as we factor in your free cash flow for the full year? Are there any things that are going to change in the fourth quarter that would alter that dynamic? Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: So the number that you quoted, the $1.3 billion, is where we are at this point in time, as you said, Vincent, and I would project it being about that at year-end. You are going to see, because of the channel change we're making in the Southern U.S., which is the right thing for the business – you are going to see a working capital hit there because of that, but then we'll continue to see productivity across the working capital chain that we've been driving. And so I think it's going to be about the same free cash flow number as we have right now, which is that $1.3 billion improvement over last year. Vincent S. Andrews - Morgan Stanley & Co. LLC: Okay. Thanks very much.

Our next question is from Jeff Zekauskas from JPMorgan.

Thanks very much. In general, your prices are down a couple of percent, and your volumes are up 3%. So your volumes seem to be slowly accelerating, and your prices seem to be slowly decelerating. Can you talk about that general phenomenon? And do you expect more price pressure in the future, or have we gotten to the end of it? Edward D. Breen - E.I. du Pont de Nemours & Co.: Jeff, this is Ed. Let me hit it from a broad perspective, and either Jim or Nick, you might want to jump in on either Ag specifically. But when you go through each business – and let me take Electronics first, because Electronics is our soft business on the sales line, and price was down 1%. And we're just sitting in a tough consumer electronics market. It's over 30% of our portfolio in that business, and handsets, by the way, is the biggest part of the consumer market for us. So that's been weak, and we're seeing that there. But if you take a lot of the other businesses, it's raw material pass-through in Protection and Materials. It's just simply mix in Nutrition & Health, but we're working the mix to our advantage with the probiotics and the ingredients. So I feel good about that long term. And in Ag it was currency related. So every one was a little bit different. So when I kind of look at the whole pricing – because Nick and I have been studying this in the ops meetings – I don't see across-the-board price pressure per se on the businesses as we go into 2017. It really is a bunch of different issues here. We probably still will have some raw material pass-through in 2017, but in general I don't see that worsening. Hopefully that improves just slightly.

Okay, great. And then for my follow-up, Dow and DuPont have talked about a $3 billion cost goal for a combination, and you've worked further in articulating the areas where you might be able to pull out costs. And I think in the past you've talked about the cost synergies being at least $3 billion. At this moment, does it seem to be a little bit more than $3 billion? Or a lot more than $3 billion? Edward D. Breen - E.I. du Pont de Nemours & Co.: Well, I don't want to get into specifics, but I will say $3 billion is the floor number. I think there's opportunity above $3 billion. As you heard us in our prepared remarks, Jeff, we have locked down on all the programs we're allowed to be involved in pre-merger with Dow, so we're ready to go on all the projects. The one area that we can't have final detail on – let me say it that way – is on the procurement side, because we can't compare contracts directly with our procurement teams. And as I've always said before in my past experience in life having done this a few times, is that's where hopefully we get some nice opportunity on the procurement side. And, by the way, in our synergies we've counted on a certain number in the procurement area, and my gut is when you look at it on a percentage basis of other deals it is a little on the lighter side. So I hope we can really jump on that once the merger closes and see some opportunity there. But I'm very, very confident now, because we've locked down on the programs, that we've got the $3 billion identified. And we can move really quickly out of the chute on that. And the only caveat I'd say to moving quickly is we've got to be careful in the Ag business, depending where we are in the cycle of seasons, how we take the cost out. But, having said that, that'll play out over the first year also.

Okay, great. Thank you so much. Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: Thanks, Jeff.

Our next question is from David Begleiter from Deutsche Bank.

Thank you. Good morning. Ed, on the closing of the Dow-DuPont merger, have you detected any heightened regulatory scrutiny of this combination or other ag-led combinations ongoing? Edward D. Breen - E.I. du Pont de Nemours & Co.: David, I would say no. We're very deep into the process with the four big regulators, the EU, Brazil, China, and the U.S. We're deep into those conversations. So I think we've done a good job explaining our end markets and our businesses to the regulators. We've taken a lot of time educating them on that. There are rumors out there, which I'm not going to comment on, but I was sure there will be some remedies at the right time. And we are pre-working on that and very focused at Dow and DuPont on understanding that so we're in a position to move really quickly when we need to. And, by the way, just this whole comment, just to put it in on perspective on the regulatory side, remember, we are first in line. I think even the EU Commissioner commented on that, that we review things in the order that we get those, in a recent statement. And I would also comment, just to put this in perspective, sometimes we lose sight, when you put Dow and DuPont Ag together, we're going to be a strong number two in seed – not a number one, the number two – and in crop protection we're putting the number four and number five player together to create a number three player. And our goal obviously through that is to have increased innovation and capability to improve our pipeline and speed up our products, both on the crop side and on the seed side, so – and we're very confident we can do that. But I just want to kind of put that whole thing into a perspective. But I think we're right where we would think on the timeline. We did have some delay, as you all read, with document submission on the EU side. That clock has restarted a few weeks ago, and the outside date that you saw, which is public, in February the 6th, so our comments today, we would therefore close the merger in the first quarter of 2017.

Very good. And, Ed, just on the separation at the back end of this combination, I know you mentioned 18 months again in the release. Any potential to meet the initial mid-2018 target even though it's less than 18 months from the close? Edward D. Breen - E.I. du Pont de Nemours & Co.: Yeah, well, there is a possibility. I don't want to go there yet, but what you did see us say today, which we're highly confident in, is we took the 24-month comment off the table. We were 18 to 24, and we know we can do it in 18 months for sure from time of close, and we are working really hard with Dow. I mean, the luxury of having this time now is we actually can do a lot of the work, the carve work and other things, for the separation now. So we're not waiting for the merger to close. So we'll give you an update when we get closer to closing the deal, but that's a big focus area for us is that spin timeline. But we now know we're certainly in the 18-month window, and we'll continue to work with that.

Thank you very much.

Our next question is from Mark Connelly from CLSA.

Ed, Ellen Kullman said that the greatest impediment to innovation at DuPont was centralized management, and you took out the matrix, which isn't really the same thing. But now you say you've put in place an organizational design that fosters innovation. So can you help us understand what's different in the organization you're putting together? Edward D. Breen - E.I. du Pont de Nemours & Co.: Yeah, Mark, it's actually two or three things, and the matrix is the biggest part of it. When we did away with that, we did away with three parts – there really was three parts to the matrix. One was in the R&D side, where there was a fair amount of central R&D, and we've embedded that almost now exclusively into the businesses – and oh, by the way, when we get to MergeCo and running the three divisions, it will all be embedded in the business. And I think that's a huge shift, because we're very close to the customer with our R&D in this company. There's a ton of application engineering that goes on, and the closer we are with the R&D in the businesses, the closer we are with our customers, the quicker we're iterating for them and innovating for them. So I think that was big for us. But I don't take lightly – I think what was really big for us was getting rid of the matrix, the global matrix, and again embedding everything into the business. And then the third area which I think is going to have a huge, huge payback, and I think we're seeing some of it already, is we embedded all the manufacturing in the appropriate businesses. So the Presidents, the PL leaders, have total accountability for every number in their business, and I also think that's helped us. As Nick mentioned earlier, we've driven very good working capital performance very quickly this year, about $600 million so far in the year. And that's not by luck. That's by a lot of hard work, and I think reorganizing the way we did has helped us with that discipline.

Helpful. And the second question, with so much of the cost saving coming from SG&A, I'm surprised to see the emphasis in your comments about gross margin, which – a lot of innovation companies don't spend a lot of time talking about that. So can you help us understand what performance metrics you're focusing your attention on? Edward D. Breen - E.I. du Pont de Nemours & Co.: Well, from a performance standpoint, it's almost – I'd almost have to walk you down the P&L. When we do operating meetings, we're very focused on our volumes and price, where we're headed with that, what we're doing. And that's a very big issue in the Ag business, by the way, how we price ourselves going into the season, so a big focus there. And then we have a big focus in the company on mix enrichment, because that's really what's going to drive our gross margin improvement. And so, for instance, and I mentioned earlier in Nutrition & Health, the mix of the businesses, with us spending more of our capital on the probiotics side of the business, the cultures and the ingredients – they're the areas growing the fastest, and that's at the expense of some of our other concentrates, texturants and also. We're really working mix – and, by the way, in Ag, Jim can comment. It's a lot of new product launches, like Leptra, which we're getting better pricing, better mix. And so we're really focused on that, which is going to drive the gross margin line. And then obviously we've got the cost reduction efforts going on both in the businesses and across cross-corporate which is benefiting us. So we've really got a nice mix up and down the P&L.

Super. Thank you. Edward D. Breen - E.I. du Pont de Nemours & Co.: Thanks, Mark.

Our next question is from Steve Byrne from Bank of America.

Hi, Jim. I had a couple questions for you. You noted in third quarter results your seed business seemed to offset weakness in crop chemicals. Just wondering what your outlook is for the upcoming seed-selling season in North America. We're picking up some comments out of the North American channel that soybean seed pricing is getting increasingly aggressively placed out there. Can you comment on the outlook for seeds for this upcoming season? James C. Collins, Jr. - E.I. du Pont de Nemours & Co.: Sure. If we could first of all talk about the quarter for a moment. You did mention that we had good, strong performance in our seed business, in corn mainly in Latin America; as you heard Ed mention, Leptra. And we actually had a fairly strong finish to the North America selling season as well. And you're right, that performance in seed was primarily offset by some weakness in our crop protection business that was essentially due to Latin America for all the reasons we talked about: inventories, pest pressure, and insect-protected varieties. But the rest of our quarter was really a timing story. We had some seed and crop sales that landed in third quarter to the detriment of fourth, and that was primarily in Africa and Asia. Just a timing thing, so we've adjusted full year based on that. And then we had some timing of some costs that hit us in third quarter – or were not in third quarter – to the detriment of fourth quarter, primarily write-downs from an inventory quality perspective and then some costs tied to R&D contract timing. We pay for a lot of our field trials and contracts sometime here towards the end of the year, and it's a little hard to call that timing. So we had some benefits in third that now we have those costs in fourth. So you're right. When we look at 2017, I think like others we're predicting still a pretty challenging market as corn commodity prices continue to fall, and soybean's a little bit unchanged. It's favoring the soy market, and we are seeing some volatility in pricing in both of those. We launched our programs here back in August, September, and essentially our pricing structure was flat going into that season. And I think this is a real advantage of our route to market, where we're actually sitting down with growers right now and having conversations with them directly. It gives us good transparency around our pricing activities, it gives us good control of our inventories, and if things start to shift, we can adjust as the season unfolds. But it's still really early to call how 2017 is going to play out. But we're, as I said, essentially flat, and we're going to play it really, really tight as we go into it.

And you commented about that $1.3 billion cost synergy target. Presumably that's now been derived from more of a bottoms-up analysis versus the original top-down approach from last December. Can you just comment on what you may have learned from that? And what new opportunities or any changes in that cost synergy target from the new integration plan? James C. Collins, Jr. - E.I. du Pont de Nemours & Co.: As Ed mentioned, you're right. The benefit of some of the timing here is that we've been able to really focus on the detailed planning around all of these synergies. And so we have a very project-by-project-oriented approach, a very bottoms-up approach, that essentially has confirmed that we had the target pretty much right. The way those costs have unfolded, we have a little bit that's focused in R&D and sales and marketing. We have some, as Ed mentioned, that are focused on our buy and in the sourcing arena, and there's also a fair amount that's really just tied to our production footprint, especially here in North America, as we start to think about combining production assets both in seed and crop protection. So I think maybe the confirmatory news – I wouldn't call it new news – is the synergies are very broad. They're across all aspects of the business, and our teams are working really well together to develop a playbook that is very actionable on day one.

Thank you. Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: Thanks, Steve.

Our next question is from P.J. Juvekar from Citi.

Yes, hi. Good morning. Edward D. Breen - E.I. du Pont de Nemours & Co.: Good morning.

It looks like you gained share in corn, particularly in Brazil where they planted more post-crop corn. But in soybeans you may have lost some share. So can you comment on share? And what are your plans to gain soybean share back? James C. Collins, Jr. - E.I. du Pont de Nemours & Co.: Yeah, P.J., I think we're going to continue to evaluate the market share numbers in North America. If I use the latest October USDA acreage estimate, we're calling our market share in corn North America essentially flat. And you're right, in soybeans both in North America and in Brazil, we've been working on turning over that germplasm base with the new varieties, our T Series varieties, getting access to traits in Brazil, like Intacta going forward. So that's all been a part of us rebuilding share that we had continued to lose in soybeans. You did mention, the real bright spot for us has been corn in Brazil. We know that in the safrinha season we gained share based on a fantastic launch of Leptra, and that momentum continued into the summer season. Still a little early with summer data still flowing in to call exactly what that share gain might be, but we know that we gained share in an expanding, growing market as well. So we feel really good about how we held in North America with corn and how we're positioned to continue to capture growth in Latin America in corn.

Thank you. And, Ed, DuPont has several infrastructure-intensive end markets, like autos and housing. If rates were to begin to go up later next year, how do you think that will impact DuPont's overall earnings? Thank you. Edward D. Breen - E.I. du Pont de Nemours & Co.: Yeah, I think I got that, P.J. Auto and housing markets, kind of how it's looking. I'd say, by the way, during the third quarter, let me say, on the housing side, our Tyvek business actually had growth. So if you look at Protection Solutions, the actual growth areas came in Tyvek and came in the surfaces businesses with Corian and Zodiaq. So we saw nice demand on that side. Having said that, I mean, it looks like all forecasts say that housing is dropping off – at least from a start standpoint – dropping off some in the three-month window or rolling window – July, August, September, looks like there was a decline of about 1.5%. So not significant, but it looks like there's a little bit of a rollover off of kind of that 1.1 million to 1.2 million starts. So kind of flat to down a little. So you might see a little bit there. And then on the auto side of the business, it looks like auto builds are going to be down in the couple percent range going into next year. So that's a little bit of a drop from the 5% to 6% that we've kind of been running through the year. So you might see a little there. However, by the way, our demand still looks good for autos, specifically in China on the Performance Materials side of the business. But we are modeling a little bit of a downdraft in those couple end markets.

And our next question is from Robert Koort from Goldman Sachs. Ryan Berney - Goldman Sachs & Co.: Good morning. This is Ryan Berney on for Bob. Ed, when you first showed up at DuPont, there was a lot of focus on the cost-cutting. There still is, but 3% volume growth you put up this quarter I think is the best you've had in at least seven quarters, and it's coming against what feel like still-softening end markets for you. So I know you've just given a little bit of guidance for how you see end markets playing out next year, but is this level of volume growth, in your opinion, sustainable and targetable for you at DuPont going into 2017? Edward D. Breen - E.I. du Pont de Nemours & Co.: Yeah, I don't want to get into quarter-by-quarter forecasts, but just bigger picture, as I mentioned before, we're really working very hard on the innovation side and on our spending and our capital side is, Where is the larger growth opportunities? So when you go back to my comments about mix, we're very focused in each business of where are these growth businesses, and where are we going to spend more money? We've just, by the way, committed $82 million in our Nutrition & Health business on the CapEx side. And we're putting it into our two highest-growth platforms because we have great expansion opportunity there. And we're not putting that kind of capital into a couple of our more commoditized, just to give an example. So that's what we're working on very hard with our teams, and I think that will pay off over the medium term for us on the volume side. Again, quarter to quarter, I don't know, but generally I think we're working the right trend line here to help that, so we can hopefully outperform some of these end markets that we have. Because, at the end of the day, a lot of our stuff goes in industrial end markets besides Ag, and they're kind of flat right now. So we really need to work this mix of where the higher demand is. Ryan Berney - Goldman Sachs & Co.: Great, thanks. And I also had one for Jim. Jim, you've adjusted your sales model a little bit this year. Do you feel like you're happy with where things are now as far as how you see the model? And you think that'll change at all? Or do you see any additional changes coming through once you close with Dow? James C. Collins, Jr. - E.I. du Pont de Nemours & Co.: Great question. You're right. We made two adjustments in our sales model globally this year. A smaller one that we talked a little bit about in Brazil is continuing to implement a more direct agency-based approach route to market, fine-tuning that, and then the big change that we made, as we talked about, this year in the Southern U.S. For the Americas markets, then, that pretty well sets us on our path going forward, and as we look globally, we saw some other country opportunities here and there. We've done some work in Eastern Europe and in Asia in the past, and we'll continue to evaluate those as the opportunities come up and we have the resources available to invest. We know we've got a good model. Every time we do make that change, we can point to the payback for those, and it's just a matter of how many of those we can handle. As we think about the merger, post-merger with Dow and bringing the Dow team in, I can tell you that there is some excitement about how do we take advantage of – utilize this route to market in certain geographies where today Dow in some of their programs doesn't have the kind of visibility that we have. So we'll take those on a market-by-market basis and do what's right to make sure we're putting as many choices, as many product offerings, as we can into the marketplace for our customers. Ryan Berney - Goldman Sachs & Co.: Thank you very much. Edward D. Breen - E.I. du Pont de Nemours & Co.: Thank you.

Next question is from Jonas Oxgaard from Bernstein. Jonas Oxgaard - Sanford C. Bernstein & Co. LLC: Morning. Edward D. Breen - E.I. du Pont de Nemours & Co.: Morning, Jonas. Jonas Oxgaard - Sanford C. Bernstein & Co. LLC: So I'm going to ask – it feels like a same question a little different way, if you don't mind. Out of all this top line growth, how much would you say is macro? And how much of it is internal improvements? Edward D. Breen - E.I. du Pont de Nemours & Co.: Well, I'd probably have to do some math on that, but I don't think if you look at our end markets it's a ton of macro that we're seeing out there. Again, we're Ag, and you know the situation in Ag. And we're a lot of industrial end markets, so I think we follow a lot of the industrials that actually you just saw report their numbers over the past two weeks. So you've kind of got to go specifically by all our businesses, but I think it's where we're putting some of our dollars and where we're focused in our end markets. By the way, as I did say, though, in the third quarter, just to use that – we did see some strength in the construction market with Tyvek and surfaces. We did see some strength in Performance Materials on the auto side. But on the other hand, let me just give you another example on this whole mix thing. In Industrial Biosciences, our volume was up 5% in the quarter, and it was a lot of application work and product development with some of our big end customers that really drove some of the business on our apparel side and our home and personal care side of the business. And that's where we saw nice growth. So I think that's us inducing innovative products that are helping us drive some share and some opportunity. And, again, that's what we have to keep doing, because in the kind of intermediate period, that's going to help us outperform a tough market on the volume side for all of us. Jonas Oxgaard - Sanford C. Bernstein & Co. LLC: Excellent. And outside of the capital allocation and the reporting line change, is there anything else you're working on internally to simply make the company run better? Edward D. Breen - E.I. du Pont de Nemours & Co.: Yeah, Jonas, that's a great question. We've been spending a lot of time the last couple months really in the one area that we had not focused on. And I say not – our teams are obviously focused, but Nick and I have been spending time. So we've been looking at volumes as we're talking about in this mix shift. We're looking obviously at the cost structure of the company. We got rid of the matrix organization. We're really focused on where our R&D is going to drive results. But the one area that Nick and I did not focus on last year, and we're making it a big effort for 2017, is our whole operations side of the house. We think there's really nice opportunity. As I say, every facility needs to prove what its entitlement is to be best in class, and we have a couple hundred facilities, but there's 17 of them that are really large and really make a difference in DuPont. And some of those are very large, complex facilities with multiple product lines. And we're really going facility by facility to come up with the entitlement is, and then a program, a very disciplined program, on how we start making improvements there. And I think tomorrow or the next day Nick and I are actually headed out to another one of our facilities. We're hitting them one by one. And so I think that's another area, and that'll be the next interesting opportunity for us to streamline and get more efficient. And that's not only overhead structure; that's really increased throughput through each facility, which allows us to run more on the same overhead structure and capital structure, and that could be a big benefit for us. Jonas Oxgaard - Sanford C. Bernstein & Co. LLC: Thank you. Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: Thank you, Jonas. Gregory R. Friedman - E.I. du Pont de Nemours & Co.: And we'll take the last question.

And it's from Frank Mitsch from Wells Fargo Securities.

Greg, you are not allowed to leave me off this roster of questions. So thank you. And nice quarter, fellas. And obviously it looks like the guidance on Q4 is a sandbag, but I'll leave that for follow-up. My question is really around the regulatory process and improving the transaction. We have some visibility on what's going on in the EU, but I really don't have a great feel for where you stand with the U.S., with Brazil, with China. Frankly, I would've thought that the law of averages, one of those three, or two or three of those three, would've approved the transaction by now. Where are you specifically with those three jurisdictions? Edward D. Breen - E.I. du Pont de Nemours & Co.: Frank, if I just had to summarize it – and this this might sound vague; I don't mean it that way. We're at about the same stage with all of them. And maybe some of the stuff with EU has been a little more visible, because they do put stuff up publicly when certain events happen. So that's probably the reason for that. But I'd say we're at about the same stage with all of them. And, again, we're pretty deep into it, but we're not to the finish line yet. And as I said earlier, we're preparing for what we need to do to take actions to get the deal done.

Ed, it sounds to me like there is 0% chance the deal happens before the end of 2016, if you're at the same stage and the EU is looking at a February 6 sort of timeline. So we should just start recalibrating our clocks sometime in Q1 to get the approvals? Edward D. Breen - E.I. du Pont de Nemours & Co.: Yeah, well, Frank, it can move faster. The February 6 is the outside date. But, yes, as you just heard me say in my prepared remarks, let's assume that's the date and we're in the first quarter at the close of deal. And mentally that's how I'm looking at it and thinking about it.

All right, terrific. And then lastly, obviously great volumes in North America and in Asia. Europe, not so much, down 2%. Is Europe slipping into a recession? What are you guys thinking there? Edward D. Breen - E.I. du Pont de Nemours & Co.: Well, it was really two issues for us in Asia. So I don't think - Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: In Europe we had two things, Frank. Ag was a big piece of the year-over-year volume down. And if you look at that, it's really the technical sales – Jim can talk a little bit more – that we would have and that fell off on a year-over-year basis that impacted the Ag business. And the other one was Electronics & Communications was softer than last year. And we've talked in depth around the drivers there; the continued weakness in the consumer electronics market is really the main driver for that impact. James C. Collins, Jr. - E.I. du Pont de Nemours & Co.: Yeah. Frank, those tech sales, those are to other third parties that are booked in Europe, but they really are representative of the global marketplace. So you're just feeling that show up there, but it's a reflection of how we look at the global crop protection market. Others are facing the same issues that we face.

So you would not be concerned about Europe slipping into a recession, is that right? Edward D. Breen - E.I. du Pont de Nemours & Co.: Well, I don't think, Frank, by our results, that you would say that. I guess you'd have to lump a bunch of other companies together to look at it, but I don't think you could come to that conclusion with us.

Terrific - Edward D. Breen - E.I. du Pont de Nemours & Co.: They were very specific areas, and by the way, the communications one is a global kind of softness, and but the other one is really more technical issue with our licensees. And so I wouldn't say it's broad-based again through our other end markets. Again, not great. No growth either, but nothing slipping.

Terrific. Thank you for the clarification. James C. Collins, Jr. - E.I. du Pont de Nemours & Co.: Thanks, Frank. Gregory R. Friedman - E.I. du Pont de Nemours & Co.: Well, thank you, everybody, for dialing in to our call today, and thank you for your interest in DuPont.

Thank you, ladies and gentlemen. That concludes today's call. Thank you for participating. You may all disconnect at this time.