Earnings Call: Q3 2018

Nov 1, 2018

Good day, and welcome to DowDuPont's 3rd Quarter 2018 Earnings Call. Session. Also today's call is being recorded. I would now like to turn the call over to Mr. Neil Charray. Please go ahead, sir. Good morning, everyone. Thank you for joining us for Dowden's third quarter 2018 earnings conference call. We are making this call available to investors and media via webcast. We have prepared slides to supplement our comments during this conference call. These slides are posted Speaking on the call today are Ed Breen, Chief Executive Officer Howard Ungerleiter, Chief Financial Officer Jim Fitterling, Jim Collins and Mark Doyle, Chief Operating Officers for DowDuPont's Material Science, Agriculture And Specialty Products Divisions respectively, Jennifer Driscoll and Lori Koch, who will lead IR for Corteva and DuPont, respectively. Please read the forward looking statement disclaimer contained in the earnings news release and slides. During our call, we will make forward looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risk and uncertainty, our actual performance and results may differ materially from our forward looking statements. Our Form 10 K and each of Dow's and DuPont's forms 10 K as well as Dow's and Corteva's forms 10. Include detailed discussion of principal risks and uncertainties, which may cause such differences. Also, we will comment on segment results on a divisional basis please take note of the divisional disclaimer in our earnings release and slides. Unless otherwise specified, all historical financial measures presented today are on a pro reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release and on our website. I will now turn the call over to Ed. Good morning. Thank you, Neil, and thanks to all that were joined for the DowDuPont third quarter earnings call. We delivered another strong quarter as you saw earlier today. I was pleased with the way our teams performed in all three divisions as they successfully grew executing good price, volume discipline, advancing their growth synergies and preparing for the spins. The financial highlights on Slide 2 were as follows: 1st, sales grew 10%. We saw continued demand for our products and executed well against our new product launches. While we had higher raw material costs, and more currency pressure than we expected, we successfully increased pricing by five points while also delivering solid volume growth. The consistency across all divisions and regions EBITDA increased 19%. We expanded our operating EBITDA margin execution overall. And last, adjusted EPS rose 35%. As our divisions advanced towards separation, They continue to build out the structure and features necessary to their future success. Each of them continues to make progress toward their best in class cost structures. Cost synergies this quarter exceeded $450,000,000. We have executed against the majority of our cost synergy projects and those savings are coming through. Today we increased our cost synergy target to $3,600,000,000, another $300,000,000 increase to reflect further expected benefits. These increased benefits are expected to begin to show in our results in the second half of twenty nineteen and are primarily related to additional permit savings. For DowDuPont, we are reaffirming our full year adjusted EPS guidance of low 20s percent growth. This is consistent with the increased guidance we provided during our 2nd quarter earnings call. It speaks to our team's focus and our ability to continue to deliver a strong full year result, which comes from the levers within our control. At execution of cost synergies, new product introductions and growth investments to name a few. Another step towards separation was, she was naming the boards of the 3 intended companies. These boards each consist of highly experienced independent professionals across a range of relevant fields. They bring deep insights, expertise and support to the respective management teams as they work to 3 committees have already done. They have worked closely with management to develop near term strategic plans for the respective businesses. They also have worked hard to enable all three companies to be well positioned in their markets, robria capital structures and plan to invest capital in R&D in a way that will drive meaningful shareholder value creation now and over the long term. Our confidence in that future is one of the reasons that we announced today a new share buyback plan, a $3,000,000,000 program. We intend to complete it before the first spin. This would bring our total expected share repurchases to $7,000,000,000 since merger closed. We are leading 3 financially strong independent companies, each of which will be well positioned for continued growth, and further shareholder remuneration to be determined by each company's board at the time of spin. In September October, we filed the initial forms 10 for Dow and Corteva. Filing the forms gets the clock ticking for the SC C to approve these registration documents enables us to stay on schedule for our expected separation. This means separating Dow on April 1, and Corteva on June 1, thereby creating the new DuPont on June 1. We show the timeline on Slide 3. Keep in mind these forms 10 are iterative. We will be sharing more information with you in updated filings. I am pleased to report today that our board made solid progress Howard will cover this in more detail in a moment. The important point is that we are doing what we said we would creating 3 strong companies that 3 businesses. With greater focus, each of these intended companies and the industry leaders as divisions of DowDuPont will be able to unlock apply their powerful innovation more productively and expand their products and solutions to more customers worldwide. Our results today and throughout the year, we've been merged, illustrate that our strategy is working. At our investor events next week, You will hear from each of these lending companies will be positioned to capture the attractive growth opportunities in their end markets. As well as further details on to all the leaders who will be driving With that, let me turn it over to Howard. Thanks, Ed. Turning to Slide 4, as Ed mentioned, one of our key achievements in the quarter was defining the capital structures of each of the 3 intended companies. Each of the companies will have strong investment grade credit profiles in line with what we committed when we first announced the merger. We were able to accomplish and implement our new $3,000,000,000 stock buyback program announced today Dow DuPont. Consistent with the rating agencies criteria, adjusted debt includes several adjustments to each company's leverage to account for Heritage DuPont and Dow defined benefit pension plans in OPEB. As you see on this slide, Corteva and New Dow will each assume the Heritage U. S. Pension plans of DuPont and Dow respectively. New DuPont will issue new debt based on its standalone financials and provide to Corteva and New Dow to enable the deleveraging of the Heritage Financial debt necessary for their respective target credit ratings. Turning to Slide 5, As we disclosed when we made the shelf filing in the third quarter, this debt will be non recourse to Corteva or Nudau. New DuPont will then contribute the majority of the proceeds from the debt issuance to Corteva and Nudau so that those owes entities can further de lever to achieve their and financial strength. At our investor events next week, each of the future company CFOs will unpack more details on the financial policies that underpin these capital structures. Moving to Slide 6 and a summary of our 3rd quarter results for every quarter since merger closed, we grew earnings per share net sales and EBITDA year over year. Drivers of our 35% EPS increase included volume and local price gains, cost synergies and lower pension and OPEB costs. These gains more than offset higher raw material costs in all divisions and currency headwinds, primarily in agriculture, from the Brazilian real. We grew net sales by 10%, evenly balanced between pricing actions and broad based demand for products across the vast majority of DowDuPont's key market verticals. Sales rose 13% in material science with double digit gains in every segment. Specialty Products achieved 8% sales growth led by a 14% gain in Nutrition And Biosciences. And agriculture grew sales by 2% led by strong gains in Latin America And Asia Pacific. Volume increased 5% with gains in all divisions and all regions. Agriculture grew volume 8%, led by gains in Latin America And Asia Pacific. Materials Science grew volume 6% with gains in most And specialty products delivered 3% volume growth with gains in all segments and all regions as well. Local price increased 5 percent, also with gains in all divisions and all regions. Price increases were led by material science, which was up 7%, agriculture increased local price by 3% and specialty products increased local price by 2%. And as Ed mentioned, we continue to exceed our cost synergy commitments delivering more than $450,000,000 in the quarter. We have now delivered cumulative savings of more than 1 $300,000,000 since merger closed, and we ended the quarter at a run rate of greater than $2,500,000,000 on our cost synergies. It seeding our original 1 year target by more than $400,000,000. These collective drivers translated to operating EBITDA of $3,800,000,000 in the quarter, up 19% year over year, and operating EBITDA margin expansion of approximately 140 basis points. We delivered these results despite approximately Cash flow from operations was a use of pension contributions of approximately $2,200,000,000. Excluding these, cash flow from operations would have been a positive $1,900,000,000 The pension contributions had 2 benefits: 1st, they significantly improved the funded status of the Dow and DuPont plans, And second, they provided economic value as we were able to optimize the benefit under prior tax law and free up tax credits to offset tax on future income. Finally, dollars of cash to our owners since merger closed. Turning to our modeling guidance on Slide 7. For the full year, we are reaffirming our prior guidance of adjusted earnings per share, up low 20s percent, Consistent with the increased guidance we provided during our 2nd quarter earnings call, we continue to expect healthy demand as well as pricing gains across most of our businesses At the company sales to be in the range of $86,500,000,000 to $87,000,000,000 and we continue to expect full year operating EBITDA to be up in the mid teens percent. For the year, the Material Science division expects low teens top line growth on the continued ramp up of our recent U. S. Gulf Coast investments and strong global demand. Operating EBITDA is expected to increase in the low teens as well. On solid underlying end market fundamentals, continued cost synergies supply from our U. S. Gulf Coast growth projects and lower startup and commissioning costs. These tailwinds will be partly offset by some margin compression in plastics, and lower isocyanate prices that have begun to come down from the record levels we saw in the second half of twenty seventeen. Dollars. Full year net sales to increase in operating EBITDA to be up in the high teens percent, driven by cost synergies, lower pension and OPEB costs, sales growth and portfolio and currency benefits partially offset by increased raw material costs and growth investments. The agriculture division expects full year sales to be flat with 2017 and price and mix gains and the benefits from new products are offset by lower planted area in North America and Brazil, continued currency pressures and the portfolio impact operating EBITDA is expected to expected to be driven by cost synergies, higher local prices and lower pension and OPEB costs. Before turning it over to Jim, I want to address topics that are still receiving attention. After assessing the potential and based on actions implemented to date, we do not expect that tariffs will have a material impact on any of our we have been taking. I'll now turn it over to Jim to cover Material Science Business Performance. Thanks, Howard. Moving to Slide 8. Material Science delivered another strong quarter. The core business again achieved strong top line gain with double digit increases in each of our segments and gains across all regions. We continue to capture demand growth well above GDP, while also driving quick also continued to contribute to our performance. Our assets on the U. S. Gulf Coast are running at or above design rates, and we're executing our marketing plans continue to place product in the market. And in our first quarter lapping full commercial operations at Sadara, the JV again delivered a euro year earnings improvement, let me hit the division highlights. We have delivered double digit top line growth every quarter since merger closed. We grew volume 6% with gains in most segments and all regions, and we achieved local price increases of 7% with gains in all segments and all regions. We again exceeded our cost synergy commitments, and we delivered all of these results despite $400,000,000 of higher raw material costs in the quarter. I'll now take a closer look at our business performance. Performance Materials And Coatings achieved operating EBITDA growth of 37%, led by local price gains, as well as cost and growth synergies. The segment achieved double digit sales gains in both businesses and in most regions. Sales gains in Consumer Solutions were driven by double digit local price gains in all regions. While total volume was down for the business, our price management in upstream silicone intermediates enable us to achieve volume gains for our downstream formulated silicones application. Where we achieve higher margins for our products. Industrial Intermediates And Infrastructure Operating EBITDA declined by 3%. Double digit volume gains and strong pricing actions in both businesses were more than offset by rising raw material costs. Margin compression in isocyanates and equipment repairs to an isocyanates unit on the Gulf Coast. All urethanes achieved double digit sales gains in most regions based on broad based demand growth in all regions, led by Asia Pacific and EMEA. As well as on local price increases. Industrial Solutions delivered volume and price gains in every region led by gains in down stream ethylene oxide derivatives with double digit growth in intermediates for crop defense, energy heat management, and food and feed manufacturing. Volume gains in both polyurethanes and industrial solutions were further supported by increased supply from the Sadara joint venture. The Packaging And Specialty Plastics segment grew operating EBITDA of 4%. Volume and local price gains were the key earnings drivers, including increased supply from growth projects. Lower commissioning and startup costs and cost synergies also contributed to the year over year improvement. These benefits more than offset the increased feedstock costs. Additionally, you'll remember that last year's hurricane activity hit this segment the hardest and the absence of that cost impact also helped the segment's earnings year over year. The Packaging And Specialty Plastics business grew volume 6% on broad based demand strength and new capacity additions on the U. S. Gulf Coast. Volume gains were led by demand for industrial and consumer packaging and health and hygiene applications. The business also achieved double digit growth in elastomers applications. Finally, on our growth projects through the third quarter, Sadara has now delivered year over year equity earnings improvement of $170,000,000. We have now lapped full commercial operations in the year ago period, and the JV remains on track to execute the full lender's reliability test at year end, or early in 2019. On the U. S. Gulf Coast, our new assets continue to run hard and contribute to earnings and our High Melt Index Elastomers train in Freeport and our bimodal high density debottleneck in St. Charles both remain on track for startup before year end. The strong results of our Packaging And Specialty Plastics segment is worth noting, particularly during a quarter where we experienced significant raw material cost headwinds. Our results, to several years, and it's one that well positions us for future growth going forward. There are many pieces to that advantage that pay off, especially in times like we saw in the third quarter. 1st, our industry leading asset flexibility, which enabled us more effectively manage feedstock swings versus other industry players. 2nd, is our ability to reduce risk and drive greater margin stability across the cycle. We do this in three ways through our full chain integration and ownership of the entire monomer to polymer chain, through our broad geographic reach and through our product differentiation that is further downstream than peers. Lastly, our growth investments leverage these collective factors and deliver EBITDA growth to offset the headwinds like those that we saw in the quarter. To sum it up, material science continues to capture strong demand growth, drive agile pricing actions, and exceed our synergy commitments and control our costs. I look forward to sharing more I'll now turn it over to Mark to cover specialty products. Thanks, Jim. Turning to Slide 9, specialty products, again, reported strong growth on both the top and bottom line. We continue to deliver steady mid single digit top line gains through higher volume and price. Our organic growth is enabled by our new products, customer driven application development and leadership positions in attractive end markets. The division reported 5% organic sales gains, with transportation and advanced polymers again leading the way with organic sales growth of 9 percent growth. Operating EBITDA for the division again grew double digits with gains in all segments, driven by cost synergies, sales gains, lower pension OPEB costs and a portfolio benefit, more than offsetting higher raw material and freight costs, and one time prior year benefits. One of the items I'm particularly pleased with this quarter was our pricing strength. We delivered an overall 2% improvement in price, with contribution from almost all of the businesses. This specialty nature of our portfolio enables us to price our products for the value they deliver to our customers and mitigate in imaging net sales and operating EBITDA were steady with last year due to well known weakness in the photovoltaic space, caused by the midyear reduction of incentives in China. We continue to see strength in the semiconductor business, driven by new customer wins and robust end markets. Sales in our displays business were up nearly 20% due to strong demand in China for one of our new OLEDs products. Overall operating EBITDA improvement from cost synergies, higher semi and display volumes and lower pension OPEB costs were offset by headwinds from softness in photovoltaics and higher raw material costs. Nutrition and biosciences grew sales grew net sales by double digit with price and volume gains in addition to the benefit from the acquisition of the FMC Health And Nutrition business. Organic sales increased 4%. Nutrition And Health continues to see strong growth in probiotics with sales up more than 30 percent this quarter. Within industrial biosciences, top line growth in clean tech and volume growth in bioactives were offset by lower production volumes in bio materials, partially driven by Hurricane Florence. Segment operating EBITDA grew 33% driven by portfolio benefits, cost synergies and volume growth. Safety and Construction organic sales increased 8% led by broad base growth across industrial, personal and life protection and medical packaging, partially offset by softness in construction in U. S. Residential markets. Our pricing strength continues to improve. In this quarter, we delivered 2% growth. This was a result of targeted actions to drive value and use pricing across our portfolio. Operating EBITDA $30,000,000. Growth was driven by cost synergies, lower pension OPEB cost and higher local price, partially offset by higher raw material costs and the absence of prior year one time gains. Transportation and Advanced Polymers again delivered strong and again significantly outpaced auto builds. Our ability to sustainably deliver this type of above market growth stems primarily from 2 factors: 1st is our leading position with key OEMs second is our robust product portfolio, vehicles. We also continued to experience growth pricing strength in our nylon products as tight industry supply dynamics supported our position with customers looking to meet strong market demand. Operating EBITDA margins expanded by more than 5.50 basis points to about 30, 31%, driven by sales gains, cost synergies and pension OPEB benefits, partially offset by raw material headwinds. In closing, I'm pleased with our business's ability to execute on items that are benefiting all lines of our P and L through pricing actions, productivity initiatives, high return capacity expansions, and customer driven new product innovations. This winning formula will enable us to continue to drive sustainable top and bottom line growth. With that, I'll turn it over to Jim to cover agriculture. Thanks, Mark. Turning to Slide 10. For agriculture, Our third quarter is mostly put on the Southern Hemisphere, and we finished strong. The 2 stand out highlights were the 11% organic sales growth, $134,000,000 year over year improvement in operating EBITDA. I'm pleased with how well the team has executed, particularly with our new product launches in crop protection. Let me break down that organic sales growth figure of 11%. Volume for ag this quarter, 8%, driven by Latin America And Asia Pacific and local price increased 3 percent. Our organic sales growth was largely driven by crop protection. Total sales rose 2% with a negative currency impact of 6% and portfolio reductions of 3%. Our currency pressure came mainly from the Brazilian real, which went as high as a result of the Brazil seeds remedy we executed last year to complete the merger. Our organic sales growth this quarter reflected the strength of new product launches, more normalized crop protection inventory levels in Brazil, 15 benefits in crop protection, and an early start to the Latin America season for seeds and crop protection. Our crop protection business led the way with 17% organic sales growth. As expected, much of the sales gain came from volume, up 13% as we successfully launched several new crop protection products this quarter. Among the side for rice brown plant hopper control in Asia Pacific. We also saw strong growth in seed applied technologies with new launches of Lumicina. Last year's third quarter crop protection inventories were unusually high and have now returned quickly to fluctuations headwind in the second half for the ag segment, impacting seed more than crop protection. Organic sales per seed rose 1% on volume despite an expected reduction in corn planted area and lower royalties. We continue to have good results and strong demand for our power core and leicester brand corn seeds, and we enjoyed an earlier start to the planting season. And I will also note that pioneer hybrids were awarded the 1st and second prizes in Mexico's large dairy Congress for their extraordinary silage results. Price and seed was essentially flat with last year's quarter. The remedy loss subtracted 9 points from seed with currency taking another 6 point for a total sales decline this quarter was $104,000,000, an improvement of 56% versus last year's quarter. The third quarter is our seasonal low point ahead of the Southern Hemisphere season that starts in September. The year over year improvement reflects cost synergies, sales gains, lower performance based compensation and lower pension and OPEB costs. These positives offset higher raw material costs and launch spending for our new products. We reaffirm our full year what we said last quarter, including the earlier start in Brazil, which benefited the 3rd quarter, and continuing currency pressure. Turning to operational highlights, we had 3 worth calling out this quarter. First, we exceeded our of reaching a 75% run rate against our goal of $1,100,000,000 in cost synergies by the 1st year since March. This run rate illustrates that we have taken quick action and are tracking these projects rigorously, consistent with company's new synergy target, we now project a total of $1,170,000,000 in cost synergies, an increase of 70,000,000. We expect to reach 2nd, we have advanced our new multi channel multi brand strategy in the quarter. Realigning our global brand portfolio was necessary to better focus our product and service offerings across various agriculture distribution channels, including agency direct, retail, distribution and licensing. So far, the response from farmers has been good and early indications are that we are making a smooth transition to the new brand structure. We launched our Brevant brand in Eastern Europe after having launched it in Brazil and Argentina earlier this year as part of our efforts to regain share lost from the seed remedy. 3rd, we filed the initial Form 10 for the Corteva STIN. As promised, we will continue to update that document as more details become available. Overall, we are happy with the progress the team is making towards separation. All the key projects remain on track as we advance towards June 1st. In closing, we are delivering results by optimizing successfully launching innovative new products targeted to customers' needs and maximizing efficiency and productivity. I'll now turn it to Jim to open up Paragrabarks and the following Q And A. Rochelle, please provide the Q And A instructions. Thank you. The question and you. And our first question today will come from Vincent Andrews with Morgan Stanley. Thank you and good morning everyone. Ed, if maybe I could just ask you to put the buyback, the $3,000,000,000 into context, purely given where the share price is. Why not why wasn't it larger? Why did you discretionary pension payment now versus maybe doing a higher buyback now? And why not an accelerated share repurchase given where the stock is? Thank you very much. Yes, this is Ed. Let me comment and maybe Howard wants to make a couple of comments also. Remember, the share repurchase that we announced today. We're going to accomplish that in literally the next 5 months previous spin of Dow. So we'll be moving at a pretty good clip there. I would also say to you, although, we have to have the new boards of the 3 companies look at this, but we're obviously going to talk about financial policy next week at our Investor Day for the 3 companies. So we'll get into more detail on that, talking about dividend and all, but I can suggest to you that we will be very friendly, remuneration companies to our shareholders and share buyback will also be a part of that. So I would look at this in the context of the next year and the opportunity we have to repurchase shares and have a nice dividend in each of the companies. The pension, I'll let Howard comment on that here, but it was very advantageous for us to do it at this point in time. And Howard wants you to give a few of the details around that. Yes. Good morning, Vince. And it was really a combination of tax benefits as well as the value from the spread between the the interest expense spreads. And so, and it was a credit neutral event because if you look at the capital structure slides in the deck, you'll see that the rating agencies look at the underfunded pension. So it was a credit neutral from that perspective and it allowed us to take a significant economic opportunity to create value. And next we'll move to David Begleiter with Deutsche Bank. Thank you. Good morning. Ed, can you and Jim discuss the load guidance in Materials Science for the full year? And how much of the additional cost synergies are in, in material science going forward? Yes, I'll take it, Ed. Good morning, David. Look, I think the 2 big things that are on the radar screen for everybody in materials is just margin compression in isocyanates, which we seen. And also a little bit of concerns about what's going on with feedstock costs as we look at the plastics chain. Just to give you a reference on the third quarter, we actually did better in plastics versus what the IHS forecast were out there in terms of margin compression. Consider better. And we're starting to get synergies to roll through. I'll give you a quick plastics recon. Synergies in the third quarter were positive $87,000,000. We had a positive $80,000,000 from Hurricane. We had lower startup costs, so that was positive $66,000,000. We had positive $103,000,000 from our Gulfstream investments, positive $15,000,000 from Sadara turnarounds and maintenance was a negative. So I had a couple of, turnarounds and I had one unplanned about $70,000,000 and feedstock 231. So that's how you get to the 3rd quarter result. Isocyanates saw some compression still good margins. I think at these growth rates, both PMDI and TDI will tighten up by mid-twenty 19. David, this is Howard. The only other thing that I would like to just add is if you look at it on a full year basis, the material science division is up on an EBITDA basis, low teens percent. So we feel really good about that performance. And next we'll move to Jeff Zekauskas with JP Morgan. Thanks very much. If you add back your pension contribution, said your cash flow from operations was $1,900,000,000. So what that means is that for the year, even if you added back your cash flow from operations are down by about $3,000,000,000, can you talk about that differential, why it so much lower. And last year, your cash flow from operations for the year were $8,700,000,000. Where do you think you'll stand relative to that, you know, adjusting for your pension expense? Yes, I think on a Good morning, Jeff. This is Howard. On a cash from ops basis, I mean, one of the big drivers is working capital. So we've been growing, we've been growing sales double digit now every quarter since merger closed and it's just not possible to do that and not add some working capital dollars. But the team is very focused on efficiency. And if you look at the efficiency metric, for working capital. Q3 versus a year ago, our efficiency improved by a day, a little bit higher DSI, but offset by positive improvements in both DSO and DPO. When you think about it on a full year basis, I mean, if you just take the street estimate of around $18,000,000,000 of EBITDA for 2018, you subtract out the interest expense, the working capital investment the voluntary pension contributions, if you integrate the one time integration restructuring costs, you're getting a cash from ops of around $10,000,000,000. And then if you subtract out CapEx, you're talking about free cash flow of around 5. And next move on to P. J. Juvekar with Citi. Yes. Hi. Good morning. A question on Ag with Jim Collins. And Jim, can you describe the impact you expect to see from a 4000000 to 5000000 acre shift from soybeans to corn next spring. And then in your recent $4,600,000,000 charge, that you took in AG, you mentioned delays in product registration. Can you shed some light on what I said getting delayed? Thank you. Yes, thanks, P. J. So it's a little too early to kind of nail down what we expect to see going into 2019 in terms of acres. And we would be out selling right now, normally, we'd have a good look at our order book, but you're probably also keeping track. North America harvest is been quite delayed. So Our signal that we would normally have by now is a little bit weak. That said, commodity prices on soybeans, that pressure is likely to drive some some higher Corn acres. And, historically, our portfolio from a margin perspective and just our ability to compete favors a strong corn market. So we'd expect to see that Other crops that we participate in a little bit too, will benefit. We think some of that shift out of soy could be going into wheat and So it's a little hard to say. The flip side is, as we're seeing more soy acres going into Brazil, we have a very strong chemistry portfolio that I've talked about before our Picoxi based products are industry leading. So we'd expect to benefit on this soy shift in Latin America. In terms of the impairment and the registrations, the main one we were pointing to there, was Chrome, another year delay, not huge, but with the discussions going on with China, we'd expect to not hear anything now until early 2019 and, our ability to ramp up parent seed. We are out with a limited commercial launch, so we're still demonstrating that technology to customers and we're still seeing good yield advantage. So the other thing is some delays in being able to integrate some of the Dow trades into PIONEER germ plasm, especially within list, another delay in that. And final one we pointed to was, we lost a registration in Europe for for fungicide in week. And we're working with the European Commission to get that registration back, but we're going to lose at least a sales season there. And next we'll hear from Christopher Parkinson with Credit Suisse. Great. Thank you. Within the specialty businesses, there's been a lot of end market noise and even some investor fear, just ranging from construction to semis to auto. Can you just parse out the key macro variables over the 12 next 12 months as you see it and how you're positioned for further growth And then also if you could just address the simple new sources of the $100,000,000 synergy increase and give a quick date on your intentions for the broader portfolio realignment. That'll be greatly appreciated. Thank you. Yes, this is Ed. Let me just make a few comments on trends and by it's always hard to say, we'll say what the next 12 months will do, obviously. But if you look at the quarter that we just reported, and I'd even go to the guidance that we gave for the quarter. We're now in 4th quarter. Auto sales for us were up 10% even though auto builds were flat to down 1%. And by the way, that continues a trend we've had for almost 3 years now where we've had double digit growth in auto and it's because of the parts of the market that we participate in the light weighting electrification, etcetera. So we're seeing strong demand there. Our China sales across the DowDuPont portfolio were up 18% and very strong. In fact, it was double digit growth in all three divisions, by the way. So continuing strength there. Our semi business, as Mark had mentioned, was up nicely at 3% and our industrial sales across the platform were up 8%. So some of the areas I know others have been talking about We continue to see nice secular strength in our part of the product portfolio that we deliver into those markets. And so, this is Mark. Let me just add a little bit more on the market side going into 2019. We are, as Ed said, it's hard to predict the future, but we are expecting the electronics markets to be strong next year. We think semi will have another strong year next year. As Ed indicated, we think our auto growth will continue to be strong because we're better connected to key trends like auto electrification. And we're also taking photovoltaics to rebound next year. So that'll be a positive tailwind next year for us versus this year. Want to say something about synergies too. There was a question about the synergy breakdown. I'd say just from a spec of perspective, we said that the breakdown of synergies would be about 100 for SPECO. It's mostly going to be driven by procurement savings and we'll see most of that in the back half of next year. And so that maybe answers the question on the synergies. Yes. And just to follow MacCO will have about $130,000,000 extra in synergies. Ag will have about $70,000,000 in extra synergies. The bulk of the increased synergies and we've kind of highlighted before that we've been working on hard is in the procurement area. So that'll start kicking in Kind of depending on the division, but kind of by midyear 2019, those extra synergies will be kicking in as it flows through our production facilities. And next we move on to John McNulty with BMO Capital Markets. Yes, thanks for taking my question. I think in the remarks, you had indicated there was, I think it was a $650,000,000 raw material headwind that you were dealing with. Guess, can you give us some color as to where you're catching up on that and where you feel like there's still more to go? I guess, especially in the specialty business, but even in the materials segment would be, would be helpful. Yes, let me give you an overall comment though. And Mark and Jim can comment on those the 2 divisions you mentioned. I think, look, one of the highlights in the quarter was across the whole platform, we had a 5% price increase So we saw raw materials going up and our teams reacted very, very quickly. And with the product we have, we were able to get price out of it. So to capture that kind of price across the platform, I think, really demonstrates the strength of the portfolio. So we were able to take that $600,000,000 and really cover it and have great leverage to the bottom line. I mean, our leverage to the bottom line with 35% EPS growth was very significant despite that fact and a lot of that was due to the price actions that we took. Jim, do you want to comment specifically on that? John, out of the 6 somewhat 1,000,000 dollars, $400,000,000 of that approximately within materials company. It's both hydrocarbons and energy, but it's some non hydrocarbons cost to just other raw materials that we purchased. As I mentioned, $230,000,000 of that was in plastics. So you can see the rest of it. And largely in Performance Materials, Industrial Intermediates And Infrastructure. Some of what happened in the quarter was you had a big spike at the end of the quarter in ethane. And as we know, that was very short lived and that's come back down to kind of the 35 $4.0 range. And I think as we go forward, you'll probably see ethane in that $0.40 range for the quarter. Natural gas come back off quite a bit. So natural gas, there's plenty of gas in the United States of below 350 and plenty of gas at $3 a 1,000,000 BTU. So that to me means we're going to have good gas, good ethane, good propane positions. And that's our key feedstock exposure. So I think in the quarter, as we saw the stock price decline, there was some overreaction to what people were anticipating with some of those feedstock costs. And look, That's why we invest to be able to navigate through that with feedstock flex. Let me just add on the spec side. We had a little over $100,000,000 in headwinds on raw materials and it was distributed through the segments, the largest piece was in our transportation and Advanced Polymers segment. And there you can think commodity chemicals for monomers for our polymer production. And we more than offset it at the division level with pricing. So We felt pretty good respect to how we performed during the quarter. And next we'll move to Steve Byrne with Bank of America. Hi, I got a question for Jim Collins. Just want to know how you're doing on trying to recapture some of that divested insecticide business. And then I'm sure you saw EPA blessed the dicamba tolerance technology last night. If you can ever get Chinese import approval on your list technology, do you think that market going to be too penetrated to enter into with a new technology? Thanks, Steve. So globally, we've been working with a really strong insecticide portfolio, as you know, headlined by our Spinosid and Spinanoram products. And we've been working on debottlenecking manufacturing processes. So we have the volumes to be aggressive. And overall, that's working quite well. And we talked about our insecticide volumes through the first half. Were up dramatically and we continue to see that same trend, for the second half of the year. So I feel really good about that. The other area we're focused on, remedy recovery is certainly in our seed business in Latin America and, feel really good about the way that team is at executing. We saw a nice early start to the season and the additional launches of our new seed brands like Brevant are giving us a greater opportunity there. So overall, in really great shape. In terms of the Dicamba piece, Yes, the main news there was obviously the shortening of the window a days after planning application window. And we're still excited about the round of ready to extend technology and we still feel like it's very useful. That said, within list in soybeans, we think we will benefit, from, maybe a better advantage in terms of application flexibility And we already know that in cotton, today, we have a strong advantage with, within list and the flexibility that growers have around application windows. And we'll move on to Jonas Oxgaard with Bernstein. Hi, good morning guys. Good morning, Joe. 2 part question, if you don't mind. Ed, you previously said that you were going to stay actively involved with all three companies. We saw the announcement on the board today and you're not on the Dow board So first part is how are you planning to be involved with Dow after the spin? And follow-up question is also on the Dow board, there were a couple of board members who are very close to that mandatory retirement age. How should I think about that going forward? Is that mandatory retirement age is going to change or are the S going to be basically interim members? No, I think by the way, on all three of the boards, we'll have additional turnover here in the next year or 2. Because of the part of it because of the angel and you just mentioned. So we're well aware of that. Each of the 3 divisions is actually continuing to talk to other of people about joining the board. I wouldn't doubt, by the way, that you'll see another announcement from or 2 or 3 from us still that. If you kind of add up the list of what we announced today, you can see we're maybe 1 or 2 short, when each of the boards potentially from where we want to be including turnover because of the ages you mentioned that we'll be having over the next year or so. So we're clearly talking to a group of people, still I'm pretty excited about some of people we're talking to and the skill sets that they have. So we're not 100% complete there. And yes, there'll be additional turnover that we're working on. As far as my involvement, I am, as you can see from today's announcement, I'm going to be on the Corteva Board Executive Chair of DuPont. And I think my comment back when I made it was I'm going to stay actively involved to help these companies out. So I think that's the best area for me to be involved the Executive Chair role will be a full time role. So it's I'm going to be very, very busy doing that. By the way, I feel very good about the Dow board and the additions that we made. I think there are awesome additions to the business. And I also feel very, very good about where the Dow board is is and the management team is headed with the business. I think the focus around capital spending DNA levels. And by the way, they're going to crush it this year on that. They're going to be $550,000,000 below. No big green fields come. I think the way Jim Fitterling and the team are managing the business is just very, very different. As we move forward here over the next few years and you're going to see great returns out of that business and I think you're going to see great returns out of the other two businesses the way we're managing them. So I'm pretty excited about future for all 3. And next we'll move to Arun Viswathin with RBC Capital Markets. Thanks. Good morning. I just wanted to go back to some of the commentary on materials go. Jim, you mentioned that you'll stay in that $0.40 range or so on ethane. You also mentioned that the isocyanates MDI could improve by mid next year. Maybe you can just give us a little bit more detail on both of those and also your outlook on polyethylene given some of the recent nominations and also the pullback in ethane? Thanks. Yes, sure Arun. On ISOS I and H, you know, MMDI is tight. PMDI is a little more well applied right now. But at these growth rates, it's going to tighten up by mid-nineteen. And what you had in the first half of the year with the big spike in our PMDI pricing and MDI pricing was because you had some unplanned outages that were in the marketplace as well. And so those are not easy technologies to run. So sometimes things happen to tighten those markets up. TVIs in the similar situation of PMDI. The other thing I would say is the growth in the business is really heavily shifting towards systems. So if you look at systems and this is where the isocyanates get consumed, you're talking about double digit growth rates, whether it's systems going into automotive applications, insulation applications, energy efficiency, food value chain, food storage, comfort, into new materials. They're all good which some of it includes the SEDAR capacity that we brought on. Polyethylene, as I said, relative to the IHS estimates, we ended up in a much better place in third quarter. There are some predictions out there that everything's going to collapse. I'm not sure that I believe that We've seen that inventories are relatively under control. They're actually down at the end of 3rd quarter slightly. So inventories are at 42 day, and that's basically what you need to run the supply chain. So there's no massive issue there. Operating rates on polyethyl are tight. There are new polyethylene capacities coming on that will tighten up ethylene a bit. We've needed ethylene to tighten up a bit. And I think you'll see that start to happen. And most of that ethylene length has been in the U. S. So I think there's some concerns that people have about China and China demand. But as Ed said, DowDuPont was up 18% in China this quarter. Materials was actually up 20. So we're still moving a lot of material into China. The demand is good. So I think some of the pessimism is a little bit overblown. And John Roberts with UBS. We'll have our next question. The, industrial intermediates volume growth of 14% included a significant benefit from distribution for Sedera, but didn't mention any Sedera equity income there, like you did over in the plastics segment. So is all of the Sedera equity income being booked in plastics, even though the sedara distribution sales are spread across the segments? Yes, John, this is Jim. Sadara, was positive in plastics this quarter. It was slightly negative, in the polyurethane space. It was good in industrial intermediates it was slightly negative in the polyurethane space, mainly because we had a isocyanate unit that was down in the quarter And we did that because we were making some mechanical adjustments to get ready for the lender's reliability test, which is underway right now. So that was planned. That was just something that we needed to get done. So we had a good shot to pass this test. Otherwise, I think you'll see good rates through the fourth quarter and you'll see some improvement there. And moving now, we'll hear from Frank Mitsch with Permian Research. Hey, good morning folks. Hey, Jim, just to follow-up on integrated polyethylene margins and your comment for that you exceeded the IHS margin forecast in Q3. And in your supplemental slides, you talked about the U. S. And European integrated polyethylene margins down greater than 50%. It obviously sounds like you don't believe that. Can you get kind of ballpark where you think that might settle out? And actually more importantly, what is your expectation, as we head into 2019? For the integrated polyethylene margins? Thanks. Welcome back, Frank. I, I think a couple of things factor in here. One of them is mix. One of the reasons we did better than the IHS forecast was product mix. I think the IHS forecast kind of attributes quite a bit of our mix to commodity materials. And so they don't account for things like double digit growth in elastomers and how much elastomers mix we've got and the investments that we made in both Sadara and in the Gulf Coast to grow the customers business. So we're continuing to shift mix as we make those investments and that helps. Feedstock advantage helped in the quarter, because we were able to use Flex in the quarter in Europe, and that's an advantage to us. So you can see that clearly in the peer comparisons And then geographic mix, we're obviously growing share in Asia. We're growing share in Africa. We're growing share in India, Middle East. So those are all helpful to us. We've got synergies. So synergies are going to continue to accrue into next year. Our volume growth and the margin on that volume is offsetting obviously some of the compression that you've got across the rest of the base. And we're continuing to keep the focus on making sure that we're getting the right nominations out there on the pricing. So I think we ended up probably half the delta of the IHS, what they anticipated margin compression was going to be in the third quarter. That might be a good barometer on how you look going forward. I think we'll tighten Obviously, what's happened with ethylene is you've got ethylene and PE kind of out of balance with each other. They're both running high rates. They're in the 90% to 95% operating rates. So I think what you'll see is a couple of polyethylene units come up as I will tighten things up across the board and that through the early part of next year will be kind of a shortened shallow compression here and then we'll come out of it. Thanks, Jim, and thanks, everyone, for joining us through the DowDu call. We appreciate your interest in the company. For your reference, a copy of our transcript will be posted on DowDuPont's Investor Relations website later today. I'd also like to remind you that our Investor Days will be held next week on the afternoon of November 7th and all day on 8th. These events will be video webcast. And all materials will be made available on the new DowDuPont Investor Relations website. And with that, we conclude our call. And that will conclude today's call. We thank you