DuPont de Nemours, Inc. (DD) Q2 2017 Earnings Report, Transcript and Summary

Welcome to the DuPont Second Quarter 2017 Conference Call. My name is John and I will be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. And I will now 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.: Thank you, John. Good morning, everyone, and welcome. Thank you for joining us for our discussion of DuPont's second quarter and first half 2017 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 call, we will make forward-looking statements. I direct you to slides one and two for our disclaimers. All statements that address expectations or projections about the future are forward-looking statements. Although they reflect our current expectations, these statements are not guarantees of future performance, but involve a number of risks and assumptions. We urge you to review DuPont's SEC filings for a discussion of some of the factors that could cause actual results to differ materially. We will also refer to non-GAAP measures. We request that you review the reconciliations to GAAP statements provided with our earnings news release and today's slides, which are posted on our website. Our agenda today will start with Ed providing his perspective on the company's performance, then Nick will review our second quarter and first half financial results. 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.: Thanks, Greg, and good morning, everyone. This quarter, we continued the momentum we generated in the beginning of the year and delivered a strong second quarter. We, again, drove top and bottom line growth, including volume increases across the board and strong margin growth. The gains were driven by our productive innovation pipeline as well as favorable market conditions in Electronics & Communications, Performance Materials, and Protection Solutions. The second quarter's highlights were: total sales of $7.4 billion rose 5%, which was all organic growth. Segment operating earnings increased 9%. Operating earnings per share grew 11%. We delivered volume gains in all reportable segments and segment operating margins improved about 80 basis points. Volume increases of 6% were the key growth driver to this quarter. Our focus on growth markets and new products is translating into strong results across the board. Agriculture was a large contributor to the volume gains, which Jim will cover. Electronics & Communications growth was driven by film and laminate applications in consumer electronics markets, coupled with strength in semiconductor and photovoltaics. In Protection Solutions, our volume increase primarily came from applications of Tyvek and Nomex with Tyvek active packaging as one new example. Industrial Biosciences generated volume growth largely from growth in biomaterials led by Sorona sales and apparel with bioactives up as well. Our 11% growth in operating earnings per share reflected the volume great gains as well as operating margin expansion. Electronics & Communications, Industrial Biosciences, and Ag led our operating margin growth. And Nick will cover our segment results in more depth in a moment. We also delivered a strong first half for 2017 with sales up 5%, gross margins up 45 basis points, segment operating margins up about 170 basis points, and operating earnings per share of 21% versus prior year. In addition, free cash flow year-to-date improved by about $200 million, excluding the additional pension contributions we made. It's with strong momentum that we have what we anticipate to be our last earnings news release and investor call as DuPont. Of course, this is not an ending but a beginning as we approach the expected August closing of the merger with Dow to form DowDuPont. This past quarter, we completed nearly all the steps needed to close the merger without any significant new remedies. When the final steps are completed, we will announce our expected closing date. We remain confident that the transaction will close in August. Our extensive integration planning will assure that, when the merger closes, DowDuPont can immediately begin launching the projects to achieve our cost synergy target of $3 billion and stand up the strong independent companies we intend to create. Meanwhile, the Dow and DuPont boards have begun a comprehensive portfolio review for DowDuPont, which we announced in May. The lead independent directors of each company working closely with the CEOs are leading the process assisted by McKinsey. We will update you when the process concludes. DuPont is entering the final weeks leading up to the merger with solid momentum. Going forward, we expect the combination of two great companies and the intended subsequent separations to unlock significant value for shareholders, creating independent companies equipped to continue as growth leaders in attractive market segments. Now with that, let me turn the call over to Nick. Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: Thank you, Ed. Beginning with slide 3, second quarter and first half operating earnings per share reflect continued strong top and bottom line performance in the segments, primarily driven by volume growth. Operating earnings per share of $1.38 in the quarter increased 11%, while operating earnings per share of $3.02 in the first half increased by 21%. The business continued to drive productivity as demonstrated by operating cost declining about 100 basis points in the first half as a percentage of sales on an operating earnings basis. As a percentage of sales, SG&A cost declined about 70 basis points and corporate cost declined about 40 basis points. Consolidated net sales for the quarter of $7.4 billion increased 5% versus prior year driven by a 6% increase in volume partially offset by 1% lower local price. All of our reportable segments had volume growth in the quarter with Agriculture, Electronics & Communications, and Protection Solutions leading the way. Consolidated net sales for the first half of $15.2 billion increased 5%, all on volume growth. Sales grew in most segments led by Agriculture, Performance Materials and Electronics & Communications. Slide 4 outlines our growth from a regional perspective in both the second quarter and first half. In the quarter, we grew North America, Europe, and Asia Pacific, while sales in Latin America were down versus prior year. Growth in North America was primarily driven by Agriculture, while growth in Asia-Pacific was primarily due to Electronics & Communications and Performance Materials. For the first half, we saw strong growth in each region led by improvements in Asia Pacific and North America. Strength in consumer electronics and semiconductors, coupled with increased demand for polymers in automotive drove the improvement in Asia-Pacific. In North America, Agriculture led the way, driven by benefits from the timing of seed deliveries, increased insecticide and fungicide sales, and higher soybean seed sales. On slide 5, I want to highlight that the primarily driver of earnings per share growth in the second quarter is segment results, which contributed $0.13 to the quarter. Volume growth in all of our segments resulted in an increase in segment operating earnings. Turning to slide 6 for the first half results. Consistent with the quarter, segment results drove the year-over-year improvement in operating earnings, contributing $0.37 per share to the first half. Top line organic growth in most of our segments improved segment operating earnings. Exchange gains and losses contributed $0.07 per share to the first half results. The benefit is primarily due to the absence of prior year currency devaluations in both the Ukraine and Argentina. Lower net corporate and interest expenses added $0.04 to earnings per share in the first half, primarily due to cost savings and higher interest income on marketable securities. A lower tax rate added $0.03 to operating earnings in the first half, primarily reflecting a benefit associated with the adoption of a recent accounting pronouncement. As we noted in the first quarter, the company adopted this new guidance regarding accounting for certain aspects of share-based compensation. Lower average shares outstanding contributed $0.02 per share to the first half. Now let's turn to second quarter segment operating earnings analysis on slide 7. Segment operating earnings increased $144 million, or 9% in the quarter versus last year, with operating margin expansion of about 80 basis points. Growth in Agriculture, Electronics & Communications, and Industrial Biosciences drove the improvement in the quarter. Turning to slide 8 for the first half, segment operating earnings increased $418 million, or 13%, with operating margin expansion of about 170 basis points. More than half of the improvement was due to Agriculture, which Jim will cover in more detail. Performance Materials' operating earnings increased $86 million. Volume growth of 6% was driven by increased demand for polymers in global automotive markets and high-performance parts in semiconductor and aerospace markets. Operating margins in this segment expanded by about 175 basis points year-over-year. Electronics & Communications' operating earnings increased $53 million. Volumes grew 14% in the first half, driven by demand in consumer electronics and semiconductor markets, as well as stronger photovoltaic material sales. Operating margins improved by 335 basis points in the first half. Industrial Bioscience operating earnings increased $26 million. Top line organic growth of 9% reflected volume and local pricing gains in biomaterials and bioactives. Operating margins expanded by 210 basis points in the first half. Nutrition & Health results increased $22 million. Growth in probiotics was offset by declines in systems and texturants and protein solutions, resulting in volumes that were flat versus prior year. The business continues to focus its portfolio on higher growth, higher-margin products, such as probiotics and cultures. Plant productivity, mix enrichment, and cost savings drove the improvement in operating earnings. Operating margins in this segment improved by 165 basis points. I refer you to the materials we posted on our website today for further details on segment results. Turning now to the balance sheet and cash on slide 9. For the first half, we had negative free cash flow of about $4.6 billion, reflecting $2.8 billion in higher pension contributions, as well as Agriculture's typical seasonal cash outflow. In May, we completed a $2.7 billion discretionary contribution to our principal U.S. Pension Plan. When adjusting for the additional pension contributions, our free cash flow increased by about $200 million year-over-year. The improvement is primarily due to the timing of tax and other payments, including the first half 2016 prepayment to Chemours for delivery of certain goods and services. Higher merger-related costs partially offset these improvements. The businesses continue to drive towards best-in-class in relation to working capital. When comparing to the same period last year, business working capital levels remain about flat despite sales growth, as continued improvements in accounts payable were offset by increases in accounts receivable. Our continued focus on productivity has resulted in improvements across each of our business working capital turn metrics year-over-year. Net debt increased in the first half over our ending 2016 balance, reflecting the $2 billion debt offering we completed in May to fund the pension contribution, as well as our normal seasonal shifts in cash, primarily due to Agriculture. Before I turn it over to Jim, I wanted to comment on guidance for the remainder of 2017. Given our expected merger closing with Dow in August, it would not be appropriate for us to give guidance for DuPont on a standalone basis. As DowDuPont, there'll be a number of adjustment to segment results such as synergy capture, purchase accounting, alignment of accounting practice, impact and remedies and the anticipated integration of Dow and DuPont businesses within certain segments. In line with SEC requirements, we will file historical pro forma financial information for DowDuPont subsequent to merger close. As part of the slides for today's presentation, we have included key market commentary for the remainder of 2017 for each of our segments. With that, I'll turn it over to Jim to provide an overview of the results for Agriculture. Jim? James C. Collins - E.I. du Pont de Nemours & Co.: Great. Thanks, Nick. While the Ag markets in 2017 continued to be challenged, our results reflect our ability to deliver value for our customers and growth for our shareholders. In the second quarter, Ag segment sales grew 7% with crop protection sales up 10% and seed sales up 6%. Volume improved by 8% and was driven by a 16% increase in our crop protection business and a 6% increase in our seed business. The volume gains in crop protection were realized through increased insecticide and fungicide sales with each generating growth in the double digits. Volume improvement in our seed business was driven by the benefit from the southern U.S. route-to-market change and higher soybean sales in North America due to the increase in planting acres. Price was down 1% reflecting competitive pressure in crop protection markets in Latin America and Asia. Now in the quarter, operating earnings increased 11% as top line growth and cost productivity were partially offset by higher soybean royalty costs. Now in the first half, which represents the majority of the northern hemisphere planting season, Ag segment sales increased 5% with volume up 5% and price up 1%. Portfolio changes negatively impacted sales by 1%. Crop protection sales were up 7% and seed sales rose 5% in the half. Our operating earnings grew 12%, which translates to about 175 basis point improvement in operating margins. Strong volume growth in the first half was driven by the timing benefit in our seed business, including the southern U.S. route-to-market change, increases in insecticides and fungicide sales, soybean seeds in North America and sunflower and corn seed sales in Europe. Now this growth was partially offset by the expected decline in corn volumes driven by the reduced corn area in North America. Our price growth was led by a double-digit increase in Brazil driven by the continued penetration of our Leptra corn hybrids and increased pricing in soybeans in North America from the full launch of Pioneer brand Roundup Ready 2 soybeans with Xtend technology. Xtend soybeans are part of our latest A serious lineup of soybeans, which enables a greater than two-bushel per acre advantage. Both of these new products contributed to a greater than 2% increase in global seed pricing for the first half. Now in the first half, our crop protection business delivered strong top line growth of 7% amid challenging and highly competitive industry conditions. We are pleased by the continued expansion of Zorvec, one of our latest fungicides, which is targeting peak sales of greater than $200 million and by the launch of Vessarya, a premium fungicide in Brazil for controlling Asian soybean rust, which is also targeting peak sales of greater than $200 million. We have also restored supply of Lannate and Vydate volumes which contributed to the first half growth. Now volume growth in the half was partially offset by lower local prices driven by competitive pressures in Latin America and Asia. Looking towards the second half from a market perspective, we are anticipating lower planted corn area in Brazil's summer season coming off strong plantings and good yields in the previous summer season, and a sharp decline in domestic commodity prices. These dynamics are causing farmers in Brazil to delay purchase decisions until closer to planting as they scrutinize their cropping plants. We are also carefully watching the condition of the North America crop during this critical time in the growing season and the impact it could have on summer plantings in South America as well as commodity prices in North America as farmers plan for 2018. As always, we continue to be tuned in to market conditions, and we'll remain agile in order to respond to changing customer needs. Now I'll close with a brief update on our progress towards the achievement of our 2017 priorities. Our first priority is to achieve our sales, operating earnings and cash commitments and our first half results demonstrate that we're executing well against this goal. Our second priority is to drive rapid and successful technology launches. Evidence of steady progress in this area is shown by the price and volume benefits we realized in the first half and continued expansion of Leptra corn hybrids and Zorvec and new products such as A-Series soybeans and Vessarya. Our final priority is to prepare to close the merger and execute on integration plans in preparation for the intended separation. We used the first half to further define our projects to deliver the $1 billion in Ag cost synergies, and we will be ready to begin to execute on day one. Now the leadership team of the new business has spent considerable time together ensuring the robustness of the plans and setting the framework for an engaged and collaborative organization. Bringing together the innovation engines and combining the market access of the two organizations will drive substantial value for our customers and our shareholders. It will be an exciting second half of the year and I'm looking forward to starting the first chapter of the DowDuPont Ag business. So with that, I'll turn the call back over to Greg. Gregory R. Friedman - E.I. du Pont de Nemours & Co.: Okay, thanks, Jim. We'll now open the line for questions. John, if you could please provide the instructions for those on the phone to ask a question.

And our first question is from David Begleiter from Deutsche Bank.

Thank you good morning. Ed, on the review that the new board is doing, can you provide any more color on the process they're going through and potential for some movement of sales, assets and businesses from material co to specialty co? Thank you. Edward D. Breen - E.I. du Pont de Nemours & Co.: Yeah. Thanks. Thanks, David. As you all know, we hired McKinsey to assist the board, and so the process is being led by the two lead directors, Sandy Cutler and Jeff Fettig with Andrew and I, obviously, involved also. But we have McKinsey doing a deep dive of study on it. And our goal is to get that done as quickly as we can so once we merge, we can, as a joint new board, new DowDuPont board, we can assess the outcome of that and move as rapidly as we can on making any decisions. But, obviously, the goal of this is to ensure maximum shareholder value is created, and that's the goal of the study and we'll see where that comes out. But we're moving as expeditiously as we can on that.

And our next question is from Vincent Andrews from Morgan Stanley. Go ahead with your question, Vincent. Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Sorry about that. Can you hear me?

Yeah. Vincent Stephen Andrews - Morgan Stanley & Co. LLC: My question, Jim. There seems to be a lot of moving parts in Brazilian market, particularly crop chemistry. We saw in the quarter a competitor took an inventory write-down, we know there have been high levels of inventory. It looks like your volume was strong globally, price was down. And then we've got the farmer may be holding off on inventory purchases and then you're selling some of your crop chemistry down there to somebody else. So how do we assess what's going on, sort of, in the Brazilian market, in general, and then how it's going to impact the DuPont RemainCo Ag business as we move through the rest of this year and into the next year? James C. Collins - E.I. du Pont de Nemours & Co.: Thanks for the question. I think there were probably four or five questions in there. So let's start with Brazil. We talked a lot about inventories in the past. And while, I would say, overall industry inventories down there are still a little bit elevated and, yeah, we heard some announcements out there, I'd say our inventories are kind of now back to where I would really like them to be, kind of normal. And I'd say that for the pretty much rest of the world. We've done a nice job as a team of managing those inventories back to where they need to be. So what you're starting to see then in the quarter is the volume response based on that. So we're picking back up now that volume as we continue now to replenish inventory levels to where they need to be. You're right, we did have strong volume growth in the second quarter. A lot of that was driven by our insecticide portfolio. And, yes, part of that was related to products that we're holding separate as part of the remedy to FMC. If I had to range that, I'd say that maybe of the overall segment total, about a quarter of that volume would have been tied to products that are in that hold-separate category. But the rest of it, and you're seeing that strength in Brazil as tied to our fungicides portfolio, we've talked about the Vessarya launch here for a few cycles. We started to really see that volume in the quarter as well, as it pulls through some additional picoxy volumes. And then on top of that, I mentioned in the opening, we saw a return really to full volumes with Lannate and Vydate globally. And a lot of that goes in both North America and in Latin America. And then finally, Zorvec, we talked about its launch. Farmer results have been extraordinary, especially in places like China, where we're really enjoying some benefits of brand new technology, and that flows through in mix as well, and you saw that a little a bit in our pricing results for the segment, so.

Our next question is from Jeff Zekauskas from JPMorgan.

Thanks very much. Good morning. In the original design of the merger, there was no category for tax savings. Have you made any progress in tax design, or is your expectation that your tax savings are zero? And secondly, in Protection Solutions, you've not really had the kind of operating improvement that you had in other divisions. Do you need to do something more, and what's holding you back there? Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: So on tax, Jeff, this is Nick. Obviously, we're working that whole equation right now. We've had several discussions in Asia around – in Singapore, with tax authorities on what might be able to be put in place to the new merged entity. It's too soon to come out with what the end result of all those discussions are, but they're progressing very nicely as we go forward there. And so the tax – full tax impact – I'm not going to characterize what that impact is right now, but we've been working very hard around that area, and we've had some very good progress in that space. Edward D. Breen - E.I. du Pont de Nemours & Co.: Jeff, your, I think, second question there on DPS. We did have volume growth in the business, as you said, and didn't have quite the leverage on the operating earnings. But this past quarter, and by the way also the first quarter, we definitely made growth investments, mostly in Tyvek and Nomex, for new applications that we're launching. One of them I mentioned in my prepared remarks a few minutes ago, so we see some nice opportunities in those areas and we're investing in them now for growth to pick up in the business. So we should, as we move forward, start to see leverage in that portfolio, but definitely making the investments for the future.

Our next question is from Jonas Oxgaard from Bernstein. Jonas I. Oxgaard - Sanford C. Bernstein & Co. LLC: Good morning, guys.

Hello, Jonas.

Good morning. Jonas I. Oxgaard - Sanford C. Bernstein & Co. LLC: So, wondering if you can give an update – what's left in the regulatory before we can close? And part of that, so the European Commission is reviewing the FMC, or the DuPont acquisition of the FMC assets. What happens if they come in and request a Phase 2 review, or even block it? Edward D. Breen - E.I. du Pont de Nemours & Co.: Yes, Jonas, so let me talk this through what's left. Understand that every jurisdiction around the world has approved the merger. So what is left, and Jonas, it goes right to your point. There's a couple markets where we're waiting on the approval of the buyer of the remedies and the two that are there is the EU, as you just mentioned on FMC, and the remedy in Brazil. We're down to the, literally, the last yards here to punch the ball into the end zone. We're not going to a Phase 2. We're very deep into the dialogue and we're literally, kind of any day here, awaiting on those. So we will close the merger in August. I can't say for sure yet if it's the beginning or towards the end, but it will definitely happen here in the month of August.

And our next question is from Chris Parkinson from Credit Suisse. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC: Thank you. Within E&C, it appears that you've had some pretty solid results across the segment, including consumer, semis, and photovoltaics. I think there were some easy comps in consumer versus the first half of 2016, but can you comment on your perceived sustainability of the rest of the growth across the E&C portfolio on a go-forward basis? You mentioned that on top of the 180 basis points improvement that – on volumes and price – that you actually offset a little with gross spend. Can you just elaborate a little bit more there and how that factors into your outlook? Thank you. Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: Yeah, let me handle that, Chris. So as you go forward looking at Electronics & Communications, as you said, you're absolutely right, there were some rather lower comps that we were against. So part of it is that. But we have seen good, strong consumer electronics, semiconductor, as well as PV in the quarter and as we're going forward. When I look beyond the second quarter in the rest of the year, we do expect continued moderate strength in some of these key markets, primarily the three that we talk about, consumer electronics, semiconductors and PV. We are though forecasting growth rates to be down in the PV side due to some of the reduced government subsidies around the grid capacity constraints in China. So that will be tempered somewhat in the second half on the PV side but continued growth around the consumer electronics and semiconductor space.

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

Yes, thank you. Question for Jim. Wanted to ask you about your new dicamba formulation, FeXapan. I was wondering if you'd conducted your own growth chamber and field studies on this product to assess drift potential and volatilization or does this product essentially rely on Monsanto additives and approvals? Are you at all concerned that this product could go down the path of your former herbicide, Imprelis? And do you see any merits in combining Enlist and Xtend down the road as a means of providing this protection to the soybean crop? James C. Collins - E.I. du Pont de Nemours & Co.: Yes, Steve. Thanks for the question. Clearly, you're right. We're watching this situation out there very closely. And DuPont FeXapan is essentially a duplicate product with XtendiMax that is out there in the marketplace. So we've relied heavily on the published labels that Monsanto had filed and duplicated those labels. We did our own testing and our own field trials and, certainly, our customers have had visibility of this technology for a couple of years. And we're committed to a pretty – one of the highest stewardship approaches that we've taken. Our route-to-market gives us direct access to our grower customers. We've been able to walk a lot of these fields. And based on the thousands of growers that are out there that have used this program this year successfully without any issues to meet the challenges that they face around some of these horribly resistant weeds that we're trying to control, we need this technology. And we're committed that it can be properly used and properly stewarded. So we're working with our customers. We're listening an awful lot. I've been out myself, looked at some fields, and we remain committed to the technology and the proper stewardship associated with it.

And our next question is from P.J. Juvekar from Citigroup.

Yes. Hi. Good morning. James C. Collins - E.I. du Pont de Nemours & Co.: Good morning, P.J.

You had significant charges related to cost-cutting. And given that the merger took much longer than expected to close, can you achieve the part of the $3 billion of cost-cutting ahead of the merger and how does the post-merger cost-cutting will look like? And then secondly, for Nick. Can you comment on the timing of your pension pre-funding, and any tax benefit you gain from that? Thank you. Edward D. Breen - E.I. du Pont de Nemours & Co.: Yes, P.J., let me take the first part of that. We took some charges during the first half of this year that were related to our $3 billion program. But we're not going to see the benefits of those until we're into the merger. You probably saw a few months back, we made an announcement about shutting down one key facility, we're merging it into two other facilities. We took a charge for that. And that has a longer tail to us, six to eight-month tail. So some of those programs we already enacted, so we don't have to it as long to get the synergy. But we still are lined up and ready to go on the $3 billion synergies once we merge and to get about 70% of that in the first 12 months of the merger. A – [06ZC7N-E Nick Fanandakis]>: And P.J., on the pension. The contribution we made voluntary of $2.7 billion above what was required. A couple of drivers there. First, we look, P.J., at the next several years, the next three to five years of metrics and dynamics that impact the payments that would be required. And we had projected that the number of this $2.5 billion to $3 billion was about the number that we would have to pay over the next three to five years in the way of required contributions. Second, we looked at the TVs, a little bit around that tax structures and what's coming in the way of tax changes. And if we're going to have to pay that over the next three to five years, it made sense to pay that now in order to get the benefit of the current tax position that we have. And then lastly, and as I looked at the opportunity here and what we're able to do, by doing this contribution at this point in time, it enabled optionality and flexibility as we go towards the ultimate spins into the new entities by having that reduced unfunded pension to deal with. So those were the drivers, P.J. There was a tax benefit, it was anticipated and the flexibility piece.

And our next question is from Don Carson from Susquehanna Financial.

Jim, a question on soybeans, you talked about the price benefit of the ramp up of your Xtend and you're A-Series, but you did have high royalty cost. Did those higher royalties offset the price improvement? And how will those royalty expenses unfold as you go forward to the next two years and include more of those Monsanto technologies in your soybean lineup? James C. Collins - E.I. du Pont de Nemours & Co.: Yeah. Thanks. Thanks, Don, for the question. You're right. We are able to realize a price premium for our Xtend soybeans. And it only represented this year, somewhere between 10% and 15% of our total lineup. You're also correct that the continued penetration of those Xtend soybeans thus, have a negative impact. We don't talk specifically about gross margins below kind of the corporate level, but you'll start to see that it will have a drag as we're not able to really fully price to cover 100% of that royalty. Remember also, that royalty had some other things associated with it. It was our full enablement around Roundup Ready 2 Yield. It also had some other rights in access for us around the stacking of trade. So you can't pin 100% of that royalty drag directly on Xtend, but it is certainly a piece of that As it unfolds over time, we are able to begin to cover that essentially 100% of that by the end of the planting horizon. And we do that in a number of ways. Other pricing mechanisms that we have in the marketplace for the value that those products delivering, like more of our A-Series lineup into that background germplasm. It also has a flow through from a manufacturing perspective as we put more units to our manufacturing sites we get a pass-through on margin there as well. So as it becomes more and more a percentage of our overall lineup and our overall mix, I'm confident that we'll be able to essentially offset that.

And our next question is from Frank Mitsch from Wells Fargo.

Good morning, gentlemen. The very last DuPont conference call. I don't know if I'm sad or excited or what. Hey, Ed, when you're talking about what's left to be done, you mentioned EU and you mentioned Brazil, and I thought I saw something about the South African Competition Tribunal is going to hold a hearing on August 4. Does that mean that August 1, 2 and 3 are off the table in terms of when you could close this transaction? How does that factor into the expected timing of the closure of the deal? Edward D. Breen - E.I. du Pont de Nemours & Co.: Yes. The South Africa one, we'll see, but we're in the daily talks with them. And I don't think that will be the long pole in the tent on the next week or so here. It's really the other two we talked about.

And our next question is from Duffy Fischer from Barclays.

Yes, good morning. Question for Jim. You made a comment, but it wasn't quite clear to me. If you exclude the business it's going to go to FMC, roughly how would that change the 7% growth in the Ag business? James C. Collins - E.I. du Pont de Nemours & Co.: Yes, Duffy. If you think of it as an overall segment level Ag volumes, about half of the volume – about a quarter of the volume increase that we saw in the quarter would have been tied to those businesses that are moving away in the whole separate with the remedy. If I hone it down a little finer for you, and just talk specifically about the crop protection volume growth that we saw in the quarter, about half of that growth would be tied to that. The other part of our growth is tied to products that we're really excited about going forward, that are actually on a growth trajectory. If you think about our fungicides portfolio, Zorvec and Vessarya, we're just starting to see those volumes, and they represented about a quarter of the benefit that we saw in the quarter. And then the rest of it are insecticides that were not included in the remedy, and I mentioned Lannate and Vydate are two of the important ones, were now fully back enabled with volumes, and you're seeing the return to growth with those products as well.

Our next question is from Robert Koort from Goldman Sachs. Robert Koort - Goldman Sachs & Co. LLC: Thanks very much. Good morning. I was wondering if you could talk about on Performance Materials, it was the one segment where you had some margin compression. Is that just a function of competitive intensity, is it the OEM customer bases product sell-through to and with the caution about still in play to draw in the second half, how do you expect that price cost dynamic to play out through the rest of the year? Thanks. Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: Yeah, Bob, it's Nick. When you look at Performance Materials, you're right, it was the compression there, really driven by the raws, when you look at butadiene, benzyne, all have price increases. It also did have our plan turnaround at the cracker in the quarter as well. And that obviously would impact some of the volume pieces. But mainly it's on the raws. Looking forward, we look to see those raw headwinds continue around butadiene, benzene, ethane. The ethylene margins are going to see compression because we are seeing ethylene spot pricing start to decline somewhat as well. So you will continue to see that margin compression in Performance Materials because of the market and the raws.

And our next question is from Sandy Klugman from Vertical Research Partners.

Thank you, good morning. You reiterated the $3 billion cost synergy target. I was curious if there's any updated thoughts regarding the $1 billion revenue synergy target? And whether the continued challenges we're seeing in the Ag commodity market in any way impact your long-term expectations? James C. Collins - E.I. du Pont de Nemours & Co.: No, Sandy, this is Jim. We did a lot of work as we reset that $1 billion synergy target for the Ag businesses, post the remedies that we saw in the EU, and we had anticipated that there likely might be some remedy associated with the seed business in Latin America, which all came pretty much like we thought. So we feel good about that $1 billion. A lot of it is certainly tied to some areas around our production capabilities, seed and crop protection around the world, as we look at the opportunity to manage – to look at our footprint. It has to go with market and some channel access. There are countries around the world where each company has maybe a better footprint and gives us opportunities to compare that. And then part of it has to do with our retail and market approaches. And the teams have spent a lot of time looking at this kind of multiproduct, multichannel, multibrand approach, and I feel really good about our ability and readiness to execute on those plans as well.

Our next question is from Laurence Alexander from Jefferies.

Hi, Jim. I guess just one last question on Ag, can you just flesh out a little bit your thoughts on your CRISPR strategy? Do you see that as deepening your portfolio in your existing footprint, or will you take a second look at crops or niche crops that you aren't currently in, or vegetables or any other applications? James C. Collins - E.I. du Pont de Nemours & Co.: Thanks, Laurence. Yes, our CRISPR strategy, I would say, is something that is still emerging. We've clearly identified a few early targets. We talked about our waxy corn program. I think I had mentioned it a little bit at several of the Ag conferences. So it will be our first commercial product. We'd expect that by the end of the decade. We're beginning to work on a few other diseases that we think CRISPR could help us control. One of those is northern leaf blight. You know how important or how big an impact that disease can be. I think I saw a number last year, could have been as high as $1.6 billion in North America alone. So what that'll allow us to do is leverage our existing germplasm, but look for background germplasm where that trait or that natural disease resistance already exists and then use the CRISPR tool, just like we would any other advanced breeding technology, to breed our background germplasm in with that protection. So, after we kind of get through those two constructs, we are going to take a look at other crops, whether this opens opportunities for wheat and rice that have been a little more difficult, and take a better look at the global background of our germplasm to see what other opportunities might bring.

Our next question is from Arun Viswanathan from RBC Capital Markets.

Great. Thanks. Good morning. Just had a question. First off, you have pretty tough comps next year in Ag, potentially. So maybe you can just elaborate on how you see the contributions coming in from volume, price – volume may be facing some tough comps, so price maybe not so much, and then FX also should be easing. And then secondarily, does the pension contribution or potential capacity investments for Dow reduce the potential for buybacks or dividends post-merger close? Thanks. James C. Collins - E.I. du Pont de Nemours & Co.: Yeah. It's obviously a little early to be talking about our guidance for next year. A clear part of our growth strategy as we think about the go-forward business is going to be on our new product pipeline, new product launches. I talked about a few here today. We have another important insecticide, Pyraxalt, which we'll be launching in 2018. And I think if you'll look at several of the Ag conference charts from both DuPont and Dow, you'll see that we both have good pipelines, with a number of new products coming over the next several years. So 2018, we'll be continuing to accelerate the launches that we've already talked about with Zorvec, Vessarya. We'd hope to continue to penetrate with Xtend and Leptra, both in Latin America and North America, so there'll be a positive mix effect from those two as well. And then I mentioned Vessarya earlier. I would say that, as we think about the second half of this year, especially in Brazil, we're cautious on that market, just as growers are. They're clearly watching to see how this North American crop develops. We're in a real critical stage right now, where temperature can have a big impact at pollination on yields. So I think we're all waiting to see how that turns out. That will naturally affect commodity prices for corn and soybeans. And those are two big drivers as to how the next season will unfold as well. So, as I said, it's a little early to call it, and we're watching things pretty closely. Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: Arun, on the second part of your question with the share buyback. Share buybacks is an important tool for returning value to the shareholders. It's one that both Dow and DuPont have utilized in the past. What's going to happen going forward, obviously, that's going to be a DowDuPont board decision as to what would take place in the way of share buybacks post-merger. Specifically on your pension though, when you look about the pension contribution, keep in mind that from an adjusted net debt perspective and from a credit rating agency perspective, that really had zero impact because they take that pension liability into account in their rating. So by making that contribution, even though net debt went up, it had zero impact on the adjusted net debt.

Our next question is from John Roberts from UBS.

Thanks. And Nick, I don't know if you'll be on the next call, but it's been great working with you. Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: Thank you, John. Same here.

When you say you'll file pro forma historicals after the merger closes, when DowDuPont reports in October, will the July results of DuPont be disclosed at that time, or since this is structured as Dow acquiring DuPont, will that third quarter pro forma come out later? Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: Yes. So the pro formas will come out 75 days after the merger. And those pro formas that we will issue will have the historical DuPont in place. What you're talking about on the DowDuPont going forward, as you look at the merge day, the DowDuPont numbers will pick up from that point going forward. So you could have anywhere from one to two months of DuPont alone results lost from those reported results depending upon when the close is, first of the month or the end of the month. That will not be picked up, but it would be picked up in the DuPont only pro formas.

Our next question is from Alex Yefremov from Nomura Instinet.

Good morning, everyone. Thank you. Question on Performance Materials segment. Any of you, is it possible to meaningfully accelerate growth in engineered polymers through more active product line acquisitions? Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: Well for Performance Materials, you're talking? I mean, if you look at Performance Materials and the work we're doing around application development, the continued driving of new applications, new uses, that's all still in place. So although there are market trends that determine pricing, we're constantly looking for applications that will allow us to grow at greater than the industry rates of growth. So if you look at, for instance, auto builds over the last several quarters, you'll see a growth rate that the lower than that of which we've been able to realize in our business. So we'll continue to grow at a better rate because of the application development. As far as portfolio changes, that's something that the business always looks at the end looks for opportunities in and out to enhance of the value of the offering. Gregory R. Friedman - E.I. du Pont de Nemours & Co.: And we'll take our last question.

And our last question is from Jim Sheehan from SunTrust Robinson.

Thanks. In Performance Materials, the raw material outlook that you got for the second half, you've identified some changes in the pricing there. If we see some of the raw materials come down and price, can you just talk about what the potential is for some modest margin expansion that you see in those businesses? Nicholas C. Fanandakis - E.I. du Pont de Nemours & Co.: Yes, obviously, if those raws don't go up as much or potentially turn, there's the opportunity to see margin expansion and greater leverage opportunity in the business. It's difficult to predict exactly where that's going to be. Keep in mind though, there is like a three-month lag to inventory as those movements take place either way. Gregory R. Friedman - E.I. du Pont de Nemours & Co.: Well, thank you for joining us today on the DuPont second quarter earnings call. We thank you for your interest in DuPont.

Thank you, ladies and gentlemen. That concludes today's conference. Thank you for participating, and you may now disconnect.