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EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2014 - Q1
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Executives

Carl Lukach - VP, IR Ellen Kullman - Chairman & CEO Nick Fanandakis - EVP & CFO Jim Borel - EVP, Agriculture and Nutrition.

Analysts

Kevin McCarthy - Bank of America Merrill Lynch Jeff Zekauskas - JPMorgan Don Carson - Susquehanna Financial John Hirt - Citi Laurence Alexander - Jefferies Frank Mitch - Wells Fargo Vincent Andrews - Morgan Stanley John Roberts - UBS.

Operator

Good morning my name is John and I will be your conference operator today. I would now like to welcome everyone to the DuPont Quarterly Investor Call. (Operator Instructions). It is now my pleasure to turn the floor over to your host, Carl Lukach, Vice President of Investor Relations. Carl, you may begin..

Carl Lukach

Good morning everyone and welcome. Thank you for joining us to cover DuPont’s first quarter 2014 performance. Joining me today are Ellen Kullman, Chair and CEO and Nick Fanandakis, Executive Vice President and CFO and Jim Borel, Executive Vice President, Agriculture and Nutrition.

The slides for today’s presentation can be found on our website along with our news release. During the course of this conference call, we will make forward-looking statements and I direct you to Slide 2 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 also will refer to non-GAAP measures and request that you review our reconciliations to GAAP statements provided with our earnings news release and today’s slides posted on our website. For today’s agenda, Nick will review our first quarter financial will review our first quarter financial performance and 2014 outlook.

Jim will then provide insight into our agriculture segment and will conclude with Ellen’s comments after which we will be happy to take your questions. With that introduction, it’s now my pleasure to turn the call over to Nick. .

Nick Fanandakis

Thank you Carl and good morning everyone. On slide 3, you can see our summary results for the quarter. Operating earnings per share were $1.58 up 1% from last year. Consolidated net sales were 10.1 billion which was down 3% however to understand our company’s performance in the quarter you have to look deeper.

We saw positive steady growth in industrial market demand for DuPont products and strong earnings growth in most of our segments. Similar to what we saw in the fourth quarter of 2013. In fact we saw volume growth in each of our industrial related segments during the first quarter.

This growth however was offset by the negative price variance in our performance chemical segment principally due to refrigerants and difference in year-over-year timing of sales and planted area in our AG segment. In addition segment results were affected by an unfavorable currency impact that was steeper than anticipated.

We will go over in more detail the source and impact of the conditions that offset otherwise clear momentum in most of our businesses including the adverse winter weather we discussed in our March 10th, 8K filing. Moving to slide 4, you can see the highlights of our segment operating earnings variance.

Jim will provide details about our AG segment performance but first I will cover the other segments. Safety and protection had modest top line growth but earnings growth was up 27%, margins improved year-over-year resulting from continued cost productivity actions.

Electronics and communication segment operating earnings were up 53% over last year on strong PV volumes versus a weak quarter last year. Metal prices in the first quarter were lower than the prior year which reduced our sales. Nutrition and health sales were 1% lower as price gains were more than offset by unfavorable currency.

However segment operating earnings were up 22% due to enhanced product mix, lower raw material cost and productivity gains. Industrial biosciences revenues were up 4% and segment operating earnings were up 37% on higher demand for enzymes for U.S. ethanol production.

Performance materials had a 2% segment operating earnings growth as strong auto volumes in performance polymers were largely offset by weather impacts and higher ethane cost in packaging and in industrial polymers. Segment results in North America were also constrained as we prepared for a second quarter scheduled ethylene outage.

The extended cold weather temporarily impacted our manufacturing, supply chain and operating cost and several plan locations. In performance chemical segment TiO2 volumes increased 7% in the quarter. Our performance chemical segment earnings were down 20% however due primarily to lower prices in fluoroproducts principally refrigerants.

Higher raw material and energy costs as a result of the adverse weather and lower Ti02 prices were also contributors. Segment volumes are recovering, but margins are generally lower due to year-over-year price variances. The second quarter typically represents peak seasonal demand in North America markets for both for both TiO2 and refrigerants.

While we anticipate TiO2 industry fundamentals will continue to improve we believe it will be at a measured pace. Overall our company managed well through severe weather conditions which mostly impacted performance materials and performance chemicals.

In total we estimate that our segment operating earnings were about $0.07 lower in the quarter due to missed sales and higher cost associated with weather related plant disruptions and higher raw material cost. Turning now to slide 5, I would like to cover our regional results.

Most of the impact from adverse weather and year-over-year on shifts in AG occurred in the Americas. As you can see on this slide, U.S. and Canada sales were down 8% and Latin America sales were down 10%. We had strong volume growth in Europe, sales in developed EMEA grew 9% and our sales in developing EMEA grew 8%.

We see a recovery underway in Europe for DuPont products led by our agriculture, electronics, performance chemicals, performance materials and safety and protection segments. Improved pricing of our products particularly in agriculture and positive currency variances contributed favorably to these regional results.

In Asia-Pacific, we had solid growth in developing Asia with sales volumes up partially offset by lower price and negative currency impact. Within this developing region China sales volumes were up led by higher performance material sales into the auto markets.

Electronics volume grew in China primarily in photovoltaics which was more than offset by the declines in metals pricing for silver. Lastly in India, strong volume growth was over shadowed by negative currency impact.

In developed Asia-Pacific sales were down about 6% due primarily to currency and lower metals pass through pricing in electronics and communications. Turning now to slide 6, we have summarized the changes in our operating EPS in more detail here. As you can see EG&L and tax largely offset each other.

With regard to currency, the devaluations in Argentina and the Ukraine contributed to the variance. In total exchange losses resulted in a hurt to earnings of about $0.05 per share. Our base tax rate was 20.5%, 2.9 points lower than last year’s first quarter rate of 23.4. This provided a year-on-year benefit of $0.06 per share.

We still expect a full year base tax rate to be about 22%. Corporate expenses of $201 million in the quarter were down slightly reflecting further progress with our ongoing productivity initiatives. We’re on track and expect to achieve our targets of 450 million from our 2012 restructuring program.

Turning now to slide 7, in the first quarter’s operating earnings you will notice that we excluded transaction related cost for the plan performance chemical separation. While these costs were relatively small only one penny in the first quarter.

Our best estimate at this time is that the full year we will spend about a $170 million pretax for separation cost or about $0.13 per share. These costs will mostly be encouraged to prepare audited financial statements, build the necessary standalone information technology systems and create separate legal structures around the world.

We will continue to report these costs as significant items and exclude them from our operating earnings and we will provide at a later date an estimate of the separation cost we expect to incur in 2015. Many of you have asked where we’re in our performance chemical separation activities.

I’m pleased to say that we remain on track for a mid-2015 spinoff and our work is progressing well. Specifically site separation plans are well underway and day one operating plans are defined.

Also we’re creating new legal structures around the world to house the separated businesses and are actively completing standalone financial statements for the new company. We expect to make our regulatory filings in the fourth quarter of this year.

In the interim our performance chemical leaders will continue to be focused on serving our customers while advancing the plans for separation. Turning now to slide 8, we maintained our strong balance sheet position during the quarter.

Our negative pre-cash flow of 2.7 billion slightly better than last year reflects our typical seasonal agricultural cash outflow in the quarter and lower cash payments for taxes. In the first quarter we began the share repurchase program we announced in January with open market purchases and a $1 billion accelerated share repurchase agreement.

Under the ASR, we retired 12.5 million shares in February and expect to finalize the ASR in the second quarter of this year. With this ASR we’re more than halfway towards meeting our commitment of $2 billion of repurchases in the year.

Net debt has increased in the quarter over last year and over our ending 2013 balance which reflects our normal seasonal shifts. In addition to repurchasing about 1.1 billion of our shares in the quarter we used existing cash balances to fund our seasonal agriculture requirements and other working capital needs.

We also used existing cash to retire 1.2 billion of maturing long term debt in the quarter. In summary, despite the challenges we faced from weather and the difficult year-over-year comparisons in AG our businesses delivered a solid quarter largely in-line with our expectations.

Looking ahead for the remainder of the year we are reaffirming our full year outlook of $4.20 to $4.45 operating earnings per share. In light of quarter run-results, we expect 70% of our full year operating earnings per share to occur in the first half of this year.

We’re encouraged by the signs we’re seeing of continued, modest year-on-year global growth in industrial production and the gradual sequential improvement and demand for our products and we’re confident of our growth and our strength in agriculture. Now with that let me turn it over to Jim.

Jim?.

Jim Borel

Thank you Nick. As we anticipated in early March sales in our agriculture segment ended at 4.4 billion which was below last year’s record first quarter volumes were 7% lower while price which was negatively impacted by exchange rates increased 1%.

Operating earnings declined 55 to 1.4 billion on lower seed sales as a result of shifts on in both timing and planted area. Higher volumes and a stronger mix in crop protection as well as lower seed input cost partially offset the decline in seed sales.

We continue to grow our insect control business in Latin America led by Rynaxypyr and delivered pricing gains in seeds inline with our plant for the season.

However first quarter agriculture segment sales were negatively impacted by several factors including lower plant at hybrid corn area in Brazil safrinha season expectations that farmers will plant less corn this spring in North America delayed farmer decision making in North America and reductions in herbicide sales primarily in North America.

Also as we discussed in January the earlier timing of seed shipments caused of that a $100 million of operating earnings to be realized in the fourth quarter of 2013 rather than the first quarter this year.

In seeds first quarter sales declined 9% to $3.3 billion due to shifts in timing and planted area driven by less favorable corn economies farmers in Brazil planted fewer hectares of hybrid corn in the safrinha season than last year.

With growers in North America continuing to demand our newest hybrids and varieties with innovative trade technologies we grew price and remain on track for modest price growth in the region.

Optimum acre max products are expected to be about 2/3rds of our corn volume and our innovative optimum AQUAmax hybrids are expected to be planted on over 10 million acres.

In addition we’re excited about our newest soybean varieties as we transition our line up to pioneer brand T Series soybeans and launch soybeans with the Genuity Roundup Ready 2 Yield trait.

North American growers recently signaled to the USDA they intend to plan less than 92 million corn acres or about 4 million acres below last year and commodity prices continue to favor soybeans acres. As a result, we’re seeing some farmers delaying crop decisions until closer to planning and as usual weather will be a final deciding factor for them.

Because our first quarter ends in a middle of a season delayed decisions by farmers will mean that some sales will shift from our first quarter to the second. This is unlikely accelerated pace of sales we saw in first quarter last year. I would like to move now to talking about innovation at DuPont Pioneer.

As you may know in February we launched Encirca services our next generation decision agriculture offering the response from growers has been very positive and Encirca services offer growers tailored, brand neutral whole farm solutions and Encirca services leverages pioneers advantage route to market working directly with the growers to analyze their data and provide recommendations based on individual needs and priorities.

As a result of our strong competitive position we expect to approach 500,000 acres of fee based variable rate seeding prescriptions in 2014 and preparation for the 2015 season we’re piloting advanced services for nitrogen, fertility and irrigation with wider availability of Encirca yield service beginning in third quarter.

Turning to Eastern Europe, we have a long history and a strong market position in Ukraine and while Ukraine represents a few percent of our sales in agriculture it's an important element of our growth plan. Given our uncertain political situation there and the tightened credit markets we’re seeing seed buying decisions being reduced or deferred.

Even though first quarter Ukraine’s seed sales were below our expectations. Europe delivered double digit sales growth in the first quarter and all of Eastern Europe remains a high growth priority for us. Switching gears we continued our growth in crop protection in the first quarter, sales were 3% higher at $1.1 billion.

Regionally we had strong crop protection growth across Latin America with sales up robustly at 60%. Insect pressure was intense in corn and soybeans which created strong demand for our Rynaxypyr, Avatar, Lannate insect control solutions.

In North America the cold wet weather and higher than normal herbicide channel inventories resulted in lower first quarter herbicide sales. This follows last year’s strong first quarter in North America herbicides.

Our crop protection business continues to be strengthened by innovation and we’re launching several novel products into new markets to meet the needs of farmers. This includes Lumigen seed treatments, Cyazypyr for insect control and our Picoxystrobin and Penthiopyrad additives expanded disease control portfolio.

As we look to the second quarter for the agriculture segment we expect modest sales growth and significant growth in operating earnings as crop protection continues to grow and delayed seed sales shipped into the second quarter from first quarter.

So for the first quarter which represents the majority of the Northern Hemisphere season, we expect flat sales however earnings should be up slightly despite the earlier seed shipments in the fourth quarter of 2013.

Also we expect to improve operating margins due to both price gains and lower seed input cost recovering the one point margin decline in last year’s first half. However our first half 2014 outlook is now lower than our view was in January as volumes will be further impacted by lower than expected corn plantings in Brazil, North America and Ukraine.

Despite the variability we’re seeing as agriculture markets transition from last year’s peak we remain enthusiastic about long term growth which will be driven by our innovative products and services, strong global positions and the ongoing need to sustainably increase AG productivity to meet worldwide demand. Now I will turn the call over to Ellen..

Ellen Kullman

Thank you Jim. On slide 10, I would like to share my perspective on the quarter in the context of progress we’re making against our overall growth strategy. We entered 2014 solid momentum, we delivered stronger earnings growth and margin improvement in the majority of our segments and we’re well positioned for future growth in key markets.

The value of our diverse portfolio and superior execution were highly visible this quarter as we delivered near record operating earnings per share despite short term head winds from the weather and a year-on-year shifts in AG markets that Jim described.

The positive trends we saw in the market this quarter and our results indicate the strength of our strategy and our team’s ability to execute. Directionally we see a compelling outlook for 2014 across our portfolio, we expect steady year-on-year growth in demand from key regions and markets.

For example demand in Europe continues to recover which will benefit our performance and materials, safety and protection and performance chemicals segments. In China, we continue to expect stable growth across most of our businesses.

In the U.S., we continue to expect gradual sequential improvement in demand from industrial, housing and automotive markets. By segment in agriculture we’re excited about our newest seed and crop protection products and are extending our successful insect control franchise into seed treatments.

We have launched Lumiderm in Canada for Canola and are in the prelaunch phase with Dermacor for soybeans in Brazil. We will continue to invest in, in advanced projects in both our seed and crop protection pipelines and leverage these across global production agriculture markets.

In nutrition and health we expect strong full year operating earnings and margin growth this year as we continue to enhance our product offering. Increase our cost productivity and pursue growth in higher value market opportunities like probiotics and cultures.

In industrial bioscience we’re making excellent progress against our strategy while at the same time delivering strong earnings growth. Since we acquired Genencor as part of Genesco two years ago, made investments in research and development in promising new enzyme spaces and we’re drawing and healthy dividend from that decision today.

For example our Axtra PHY animal nutrition, our cold water detergent enzymes and new ethanol offerings have positioned us well for future market share gain and growth. In parallel we expanded our global reach and now our broad market coverage is coupled with a fundamentally stronger portfolio.

We’re also planning to finish construction of our new cellulosic ethanol plant at end of this year. In advance materials electronics and communications delivered 53% and 116% growth for the past two quarters versus prior year largely from recovery of photovoltaic module production in China.

We continue to see the solar photovoltaic market as an excellent long term value creation opportunity for us. Our latest Solamet pastes products and enhanced Kevlar back sheets are vital materials that increase conversion efficiency while extending the life of the modules. Both critical elements of our value proposition.

In the short term we learned in 2012 that this market can shift quickly so we will continue to stay close to our large industry leading customers to accurately gauge future demand.

Also in advance materials we launched over 30 new product applications in the first quarter in our safety and protection businesses reflecting our strategy to strengthen our leading position in differentiated high value materials.

We introduced a new platform of Nomex electrical insulation products for high voltage applications in transformers and electrical motors. We’re increasing our penetration with Nomex in the hybrid electrical vehicle motors. We’re bringing to the mining industry a new light weight Kevlar for conveyor belts.

And we added last week a new generation of multi-threat and water resistant solutions made with DuPont Kevlar that will extend our range of protective solutions for the military, police and security markets.

And lastly in our performance material segment, we introduced new non-halogenated flame retardant nylon resins which offer best in class, high heat resistance with the advantages of being more environmentally friendly and safer to handle. And we’re seeing an increase in acceptance of renewably sourced resins in automotive fluid management systems.

This application underlines our strategy to develop products with lower cost, higher performance and improved carbon footprint, versus petrochemical alternatives. Moving into slide 11 in our operational priorities. Let me describe how our operational priorities are driving disciplined execution.

First, innovation, we’re committed to strong pipeline management, disciplined execution and increasing our return on research and development. There is no better results of this effort than delivering innovative, science based solutions that are first or best in class and catalyze revenue growth and margin improvement.

One example emerged from our DuPont innovation center in Troy, Michigan performance polymers team collaborated with Illinois Tool Works and Ford to develop a new automotive component. The result was a new coolant crossover part with DuPont Zytel high temperature nylon that lower cost and improved fuel efficiency by just placing metal.

The new part design was named a finalist in the Society of Plastic Engineers, Most Innovative Use of Plastic’s Award. Another innovation center example is our exciting collaboration with Nike on materials that will enhance their footwear and golf ball products performance. DuPont Science is at the core of Nike Golf next generation RZN golf ball.

Most Nike Golf athletes have put the new ball into play in 2014 and to-date five Nike athletes including Rory McIlroy have won with the new RZN technology on the professional tours around the globe. Finally in March DuPont’s and Procter & Gamble were the joint winners of the 2014 sustainable bio-award for bio-based product innovation of the year.

The two companies were recognized for their pioneering effort to achieve the previously impossible providing the cleaning power of warm water while washing clothes at cold water temperatures. The new product delivers unprecedented environmental benefits to the detergent industry and appeals to consumer’s interest and energy efficiency.

These are just three examples from the quarter of the way DuPont translates our scientific capabilities into solutions that our customers deeply value. The second operational priority is to leverage our global reach in both developed markets and in fast growing areas like China, Asian [ph], Eastern Europe and Latin America.

In developed markets we continue to invest in applications development for strategic accounts those customers who are global industry leaders as a way to increase our market temperature rates. In fast growing developing markets we continue to invest in people and facilities to extend our reach.

As Nick reported we saw strong volume growth in the quarter in European and Asian developing markets as we capitalized on the continued rise of the middle class and demand for higher value products. When new markets open we capitalize by entering first with our agriculture products and then follow with our advanced materials products.

For example earlier this year we opened our first office in Myanmar and look forward to future growth in that country. Our third operational priority execution, this includes productivity, optimizing resource allocation and returning cash to shareholders.

Last quarter I mentioned we’re taking the opportunity in 2014 to review our total business support cost across the company as we approach the performance chemicals separation we’re currently evaluating our corporate core cost and we’re assessing how our businesses are deployed regionally and functionally to determine the most efficient structure.

We’re making good progress in our efforts to identify the right structure, to optimize resource allocation and increase returns on capital. We will keep you updated on our actions. In closing we’re executing well and advancing against our strategic and operational priorities.

We expect our plan to deliver attractive growth in value for our shareholders as it has done over the past five years and strongly position DuPont to deliver the next generation of innovation and with that I will turn it back to Carl..

Carl Lukach

Thank you Ellen. Now we will turn back to you John and accept questions from our callers..

Operator

(Operator Instructions). And our first question is from Kevin McCarthy from Bank of America. Please go ahead..

Kevin McCarthy - Bank of America Merrill Lynch

You indicated an EPS impact of $0.07 from inclimate weather. Can you speak to how much of that is gone forever versus how much you might be able to recover in the second quarter and to the extent you can’t recover perhaps you can speak to impact on individual businesses there sequentially..

Ellen Kullman

Most of it was cost base was increased energy and increased logistics cost to be able to move materials and that cost base is probably going to take us the rest of the year to recover it through additional productivity actions.

I don’t Nick, is there anything you would like to add with more specifics?.

Nick Fanandakis

No I think you covered I mean if you look at the areas where they are most impacted it was in our performance materials and in our performance chemical segment and Ellen characterized the types of expenses that we incurred. So you can get a sense of the amount that would be coming back and the amount that was at one time..

Kevin McCarthy - Bank of America Merrill Lynch

And this is a follow-up sticking with whether some other companies in the space have indicated an early spring in Europe.

Did you observe any benefits across your portfolio in that region?.

Ellen Kullman

Well I just got back from Europe last week and I can confirm that it was a heck of a lot warmer and more bugs on the trees than there it is here and I think Europe represented a more normal well it actually was a great volume because we’re seeing improvements there, but I don’t, we didn’t have the impact on whether things like that.

I don’t know Jim maybe you can comment on the AG side in Europe..

Jim Borel

For the most part of course we see a little impact from weather on particularly on the seed side, of course we’re moving into a time of the year when weather will play a bigger rule in terms of what actually gets planted and what happens. But fairly small impact today..

Operator

Our next question is from Jeff Zekauskas from JPMorgan. Please go ahead..

Jeff Zekauskas - JPMorgan

I think your U.S. dollar price change in agriculture was plus 1% year-over-year.

What would it have been in local currency?.

Ellen Kullman

Well price was up 2.6 I think it's a right number, Jim correct me if I’m wrong. Currency was negative 1.5..

Jim Borel

Yes that’s right. We had modest price increases across the AG segment..

Jeff Zekauskas – JPMorgan

And can you talk a little bit about your electronics segment, did you see a recovery at all in consumer electronic side of the business or was it really all in solar and how do you see the global electronics markets as it touches DuPont both on the solar side and on the non-solar side?.

Ellen Kullman

Electronics and communications had a good quarter, we saw nice growth. Most of that was due to PV and consumer electronics I would characterize it as expected that it's improving but it's not a standout from that standpoint. We had a good quarter in PV, Kevlar both and Solamet pastes we’re anticipating that the market is going to grow 15% this year.

But you have to remember last year in electronics, I mean it was a weak comparative so we still see this market is seeing lumpy or bumpy or whichever way we want to talk about it. We’re seeing that China is probably the wild card and future quarters around whether they meet their 10 gigawatts have installed.

The metal impact you saw on the top line so that kind of mutes the top line growth but they had great earnings progress for the year. So we’re positive in terms of what we have seen in electronics but as you know based on what happened in ’12 PV is something we watch very, very carefully..

Operator

Your next question is from David Begleiter from Deutsche Bank. Please go ahead..

David Begleiter - Deutsche Bank

Ellen just on the business support cost review, do you think you will be in a position this quarter to complete our review and the size and opportunity could be as much as that, $0.5 billion a cost would be taken out over a period of time?.

Ellen Kullman

Well we’re not going to size it right now for you Dave, sorry about that. Because we’re really right now in the process. So if you think about the fact that we sold coatings last year that we’re spinning chemicals next year. That’s a good portion of the company that won't exist in the second half of ’15. So I’m looking at it as a fresh start.

If we were to recast how we go about supporting our businesses and enabling them to achieve consistent sustainable growth, would we structure very differently. We’re going to be a very different company in the second half of ’15. The average size of our manufacturing plants is going to be smaller.

The allocation of our business both globally and by sector is going to be very different and so we’re actively engaged in those meetings and hard discussions right now.

The good part about this since we really control the timing of the spin that we’re here to have real work completed and discussions externally this year because we want to enter ’15 with momentum and so when we’re done and we’re ready and we got it cooked [ph] then we will bring it out to you guys.

But I think you will be pleased overall with what you’re going to see..

David Begleiter - Deutsche Bank

Understand and just on the cost also SG&A was down 6% in the quarter before this whole cost action, what’s driving the reduction right now in Q1 and for full year would you expect SG&A to be flat or down or up?.

Nick Fanandakis

Well what’s driving the reduction is the productivity work that we continue to have across the company and we’re doing that in SG&A as well and this is while at the same time investing in a lot of areas for growth in that same respect.

So in AG for example the programs we have the expanding of the channel, continuing to drive that channel access, all of those things growing in certain areas but the productivity gains that we have are really what’s driving some of those reductions..

Operator

And our next question is from Don Carson from Susquehanna Financial. Please go ahead..

Don Carson - Susquehanna Financial

Ellen I wanted to follow-up on the review of the business support cost and when you’ve had stranded cost in the past the roughly 200 million with coatings, 100 million with performance chemicals.

What is the nature of those stranded cost, does that suggest where you’re looking to an area where you’re looking to take the most cost out of it?.

Ellen Kullman

Yes I think if you think about it Don, let’s take an example, we filed tax returns in every country where we operate just because we’re spinning performance chemicals doesn’t mean we have to file any less tax returns but at the same time when you allocate the cost or understand the cost of those tax returns across the entire company on a smaller revenue base.

So on a per dollar revenue goes up. So the question is can we think about tax differently? Is our structure, our legal entity structure such that it helps our businesses succeed or do we have too many and should we consolidate it down and really then let this limit the amount of work that has to be done there.

I mean that’s just a small example versus many in terms of how we support the businesses regionally how we support them functionally. I mean that’s same thing, you can talk about whether it's paying bills or collecting cash or sourcing.

We just need to think about are we leveraging standardizing the most common on the work and really putting our differential resources towards where they can really help the business. So Nick you have been in right in the midst of this big time..

Nick Fanandakis

Yes I think Ellen you characterized it really well just a second ago when you talked about fresh start.

Looking at how we’re going to be structured as a company with about 20% of our revenue now being gone between the spins and divestures and looking at that in a very clean slate sort of way and how we’re going to do a buildup of the infrastructure within the functions, where we could simply things, where we can change things so that we can operate more effectively and more standardized, digitized sort of way..

Don Carson - Susquehanna Financial

And just a follow-up on your guidance. You have maintained your EPS guidance but you’re more cautious on the AG outlooks, I’m just wondering where do you make up that short fall that you now see in AG versus your original expectations..

Ellen Kullman

Yes so I think if you look to the full year, we’re seeing stability and TiO2 from a market demand standpoint, volume growth in the performance chemical segment. It looks like it's going to be, it's a refrigerant comes into a season and things like that and really a good sign of TiO2 is reflected on a sequential basis.

Price did not go down and year-over-year it went down but on a sequential basis it was a little positive. So that’s a big uncertainty that’s becoming a little more certain as we go forward.

If you think about what we saw in Europe and the continued gradual improvement in demand in European markets and when you saw on the quarter that was really positive for performance materials, it was good for performance chemicals and safety and protection.

The third area point too is a stable China, there is a lot of noise about China out there but you saw in our results the automotive industry clearly there is leading yet but we saw positives there from again performance materials, performance chemicals, electronics and communications and safety and performance.

So industrial production is certainly enabling a lot of this in the U.S., industrial housing and automotive markets are allowing us to continue our penetration and moving our new products and new materials in there. I gave you some examples of those and S&P in my talk.

In AG overall I think it's as we go through the entire year as it unfolds I think we had a first quarter shifts, I think we’re still well positioned with good pipeline of products going forward. So we’re putting a little more pressure on our sourcing guys to claw back that higher natural gas costs in the first quarter, absolutely.

And we think we can bring it where we have it reaffirmed..

Operator

Our next question is from P.J. Juvekar from Citi. Please go ahead..

John Hirt – Citi

This John Hirt sitting in for P.J today. In seeing [ph] that you’ve got pretty good momentum down in Brazil particularly in corn where I think you gained three points of share last year both in the summer and the safrinha seasons.

Do you’ve any early indications as to how your share progression might have been this year?.

Jim Borel

First of all it's a little too early to start talking about share because the safrinha market is just finishing. We will able to talk share after we have had a chance to evaluate the entire season but we’re certainly confident about our competitiveness you’re right, we have had great momentum down there. So we will continue to drive ahead.

Obviously the reduced acres is unfortunate but understandable given the commodity prices at the moment.

You mentioned seed we also have some great momentum around the world but particularly in Brazil with our crop protection portfolio with some 60% growth down there, Rynaxypyr particularly had a strong quarter with (indiscernible) pressure that they were seeing.

We’re getting ready to launch, Dermacor is a seed treatment in soybeans we’re doing the work and seeing really great early results in corn also. So we do have a lot of momentum and gives us confidence for the future..

John Hirt – Citi

And with billion of share repurchases completed in the first quarter with that accelerated buyback, and only 1 billion left to complete your 2 billion target for the year.

Would you consider tapping into the additional 3 billion that you have authorized at some point this year?.

Nick Fanandakis

Right now we’re on track proceeding very well to complete as you say the 2 billion this year. We actually will complete the first half of that or little more than the first half of that by the end of second quarter.

Although by the end of the first quarter we had already retired about 13 million shares so significant amount was done in the first quarter but the total first half or little more than first half won't be complete until the end of the second quarter and then we will look to put in place for the second half of the year, our steps to complete the last billion and fulfill our commitment of the 2 billion in the year..

Operator

Our next question is from Robert Koort from Goldman Sachs..

Unidentified Analyst

This is actually Nielsen out [ph] for Bob. In Safety and Protection you said there is some softness in the public sector, a number of companies have called for some recovery with greater infrastructure and non-residential spending in the back half.

Are you seeing something similar?.

Ellen Kullman

On the public sector one that I saw every time I try to call it I call it wrong but what we’re doing there is with new applications and new functionality to help with that, right? Because the public sector needs a reason to change or to replace or to expand and certainly additional protection and things like that.

Now we’re seeing the slowness in the U.S, Europe is still going very well especially on thermal protection and things like that. So we’re seeing very different markets around the world and we’re expecting improvement.

As we take a look at garments, we’re seeing second quarter is going to be stronger and so I think we’re seeing that but I’m always little hesitant to declare victory in the public market because you just never know what’s going to happen..

Unidentified Analyst

And then on the ethylene cracker outage are you seeing an opportunity there to maybe squeeze out more capacity or work some debottlenecks during the maintenance?.

Ellen Kullman

We have squeezed just about everything we can out of this turnaround and our focus right now is more on getting it back up and running because coming out of these round around’s is never for the faint of heart and we can bring it up a day early or three days early that’s real volume and that we can use this year.

So we have got that focused on time because it has been closure to seven years and six years on this turnaround and we just got to get it opened up the planning, the guy is doing a great job as far as the front end loading of this turnaround and our goal, I’ve got that team under a lot of incentive to overachieve on the time thing.

I think we would have the biggest benefit to us this year. .

Operator

Our next question is from Laurence Alexander from Jefferies..

Laurence Alexander – Jefferies

In developed Europe what was your growth excluding the AG segment if you can just give us a sense for what you’re seeing in those markets?.

Ellen Kullman

Well AG group in Europe and so Nick?.

Nick Fanandakis

Well, developed Europe in total is about 9% growth year-over-year from a revenue perspective..

Ellen Kullman

Yes and so what we saw was growth in Europe in AG along with I think most of our segments grew in Europe and try to think -- maybe electronics didn’t because there is not much business..

Jim Borel

Yes but AG was up about the same as the whole overall region was. I would say that if you exclude that it doesn’t really change the number in the region, it's still going to be above that 9% sort of number..

Ellen Kullman

Yes I mean the biggest drivers for Europe were automotive and our performance materials business and TiO2 was a strong quarter in our performance chemicals segment..

Laurence Alexander – Jefferies

And then on the enzyme side you have had some announcements during the quarter in the detergents area, do you expect to be gaining a significant amount of share in that business over the next couple of years or how do you see the competitive landscape shaping up?.

Ellen Kullman

I think that’s one where it's share is hard because the markets growing and changing because for instance the new products that are coming out are allowing us to expand the footprint, right. So we’re really well-positioned for growth.

Our focus is on making sure we have the right capacity in the right places of the world to be able to deliver against it and I think the team has done a great job there. But we’re looking at our applications to really expand utilization of enzymes as opposed to just kind of fight over the same space that exists today..

Operator

Our next question is from Frank Mitch from Wells Fargo. Please go ahead..

Frank Mitch - Wells Fargo

I want to follow-up on performance materials, you said that that you’re expecting the second quarter to be down modestly given the turnaround but I would have thought that with the new Nike Golf ball that would more than offset that. I mean it's very exciting news..

Ellen Kullman

Frank I want to know whether you have tried the golf balls or not yet?.

Nick Fanandakis

Frank, not everyone uses golf balls around us as we might..

Frank Mitch - Wells Fargo

Sure. Look I know weather demand hurt the quarter but it certainly hurt my golf game as well so I’m looking forward to trying it out absolutely.

Just on the turnaround, do you have an order of magnitude as to how much you expect that’s going to impact the quarter? What sort of order of magnitude that would be?.

Ellen Kullman

If you look at it from a top line basis the ethylene outage reduces are segment sales of few percent in the second quarter and that’s in our guidance so that’s already put into our forecast going forward..

Frank Mitch - Wells Fargo

And obviously the balance sheet is very strong and you talked about how different the company is going to look in the second half of 2015. Might the company look a little bit different driven by M&A and how would you characterize the M&A environment and opportunities in Europe owing as to participate at the present time..

Nick Fanandakis

So Frank we’re always looking at M&A opportunities in the company. We’re very selective about where we look though as you know, we want to look at things that reinforce the strategic priorities, the directions we’re going in.

We will continue to be looking for M&A opportunities that will enhance our technology position, our market access, those types of things and we have very rigorous and hurdles that we have from a financial performance perspective that we’re going to require of acquisition opportunities but it's something that we’ve always look at and we will continue to look at.

The strength of the balance sheet is certainly a positive on that but the balance sheet has always been in place and for quite some years now as you know where we have and enjoy this single A rating and even during the Danisco acquisition we were able to maintain that single A rating during that time period after 7 billion.

So I wouldn’t characterize it as the deciding factor on M&A is just going to be the balance sheet and the strength of it. It's something we’re looking at all the time Frank..

Frank Mitch - Wells Fargo

All right so you can maintain this position of being underlevered for the foreseeable future in addition, I mean obviously you got the share buyback as a use of cash and your dividends and so forth but we could see this condition continue for the foreseeable future of your being underlevered..

Nick Fanandakis

Well you say underlevered and so obviously you’ve to -- if you’re looking at just the debt EBITDA sort of thing you might come to a conclusion of underlevered when you adjust the debt and you add in that pension on funded piece I feel we’re in the right place from a leverage standpoint, that pension liability can change as you saw it changed last year by about $5 billion that can change with a discount rate changes.

So we will continue to evaluate those situations and we will take the appropriate actions depending on what external forces and how they are impacting us..

Ellen Kullman

Frank, since it's Nick's birthday today I think that you should make sure you reinforce his point of view on that..

Frank Mitch - Wells Fargo

Well that’s fantastic Nick I will send you a sleeve of Nike Golf balls in honor of your birthday. Thank you..

Operator

Our next question is from Vincent Andrews from Morgan Stanley..

Vincent Andrews - Morgan Stanley

Just wanted to ask a bit about your kind of acreage expectations.

I get corn acre is going down and Brazil is a headwind because the soya offset isn't that much but as we think about if there are going to be issues in the Ukraine and I would love to get sort of a greater characterization of what you think is going to go on there in terms of what the plant and how it will get financed and if you can participate in that but if they do indeed do fewer corn acres there is your expectation that they are going to get made up in the U.S.

or other parts of Europe or do you just think those get lost this year and there is no sale opportunity?.

Jim Borel

There are several pieces to that, so first of all in the Ukraine it's very difficult to predict what’s going to end up happening there but because of the political situation but we’re seeing some reduction in corn because of credit issues but also some delays and possible reductions just because of uncertainty among farmer.

So and Ukraine is last year it was only a few percent of our global sales but it's really an important growth opportunity. We opened the plant in Stasi early last year. We’re setup well for growth there. So certainly it's our hope that stability returns and we expect that to be a good market overtime.

The reductions in corn acres or hectares in Latin America and also in what we’re expecting will happen in North America are likely gone for now.

We will see what happens in the second happen both in terms of corn prices, what that does to restimulate demand et cetera but it's really way too early to know what the South America production will look like in the second half of the year until we get through the North America season..

Operator

And our next question is from John Roberts from UBS. Please go ahead..

John Roberts – UBS

Nick I hate to ask you a tax question on your birthday, you said you’re taking a fresh start look. I think your approach to integrating global taxes and hedging exchange gains and losses is kind of unique, I think it came in actually with the Conoco acquisition a year ago.

Is it a good time to take a fresh start, look at that approach?.

Nick Fanandakis

Yes, John we’re going to look at a fresh start on a lot of different things. We’re going to look at currency, local functional currency versus U.S. dollar functional. We’re going to have a lot of things that we’re going to explore as we make the spin here and look at the company as it stands in the future.

So yes your touch on an area but trust me there are many areas that we’re going to be exploring to drive simplification across the company which will help drive out some of the cost and would put us in extremely competitive position..

Carl Lukach

Thank you everyone. That concludes our call today. Our Investor Relations team will be available to answer any follow-up questions that you have. Thank you all very much for joining the call..

Operator

Thank you ladies and gentlemen. That concludes today’s conference. Thank you for participating. You may all disconnect..

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