DuPont Q3 2020: N&B projected for continued growth with IFF deal on-track

02 Nov 2020 --- Pandemic-induced disruptions in the foodservice sector forced DuPont Nutrition & Biosciences’ (N&B) organic sales to decline by 4 percent during Q3 of 2020.

Nevertheless, CFO Lori Koch said the N&B portfolio has “continued upside” in a company Q3 earnings call. Therefore, the business is expected to increase in value in the future.

Notably, N&B’s operating EBITDA US$379 million increased by 7 percent from operating EBITDA in the year-ago period.

Meanwhile, the company reports it is on track to close its IFF acquisition by February 1, 2021, maintaining both IFF and N&B are “consistent performers.”

N&B rising?
N&B reported net sales of US$1.5 billion, down 4 percent from the year-ago period on both an as reported and organic basis driven by lower volumes. Price, currency and portfolio impacts were each neutral versus 2019’s Q3. 

Operating EBITDA for N&B was US$379 million, an increase of 7 percent from the year-ago period.Koch detailed that this was impacted by the closure of gastronomical and event industries mainly in Europe – but “nothing underlying there beyond that.”

In terms of N&B’s increased EBITDA, Koch says that the company has “always thought that the N&B portfolio could get closer to the company average from a margin perspective, so looking at 26 percent or 27 percent.” 

“A lot of that is going to come from just a higher favorable mix. As it grows probiotics, its enzyme portfolio and its meatless meat market, those are all very high-margin product lines that will lift the overall margin in the segment,” she highlights.

Volatile F&B market
Within Health & Biosciences, double-digit growth in both probiotics and home and personal care markets was more than offset by continued weakness in biorefinery and microbial control. 

“Within N&B, our robiotics and home and personal care offerings continue to capitalize on robust global demand, each with double-digit growth in the quarter,” Koch affirms.

However, in the Food & Beverage segment, pricing gains were more than offset by weaker demand primarily in emulsifiers, sweeteners and cellulosics. 

This was driven by declines in foodservice and lower consumer demand for mints and chewing gums in travel and convenience stores. Pharma Solutions sales were flat with the prior year.

Travel restrictions were also a headwind. “We have a large market in the chewing gum and mint space within our sweeteners portfolio, so as less travel and fewer people go through airports, that impacted the business,” Koch explains.

Closing the IFF deal
In terms of DuPont’s ongoing acquisition of IFF, Breen stated that two milestones occurred in Q3.

In August, 99 percent of IFF shareholders voted in favor of the transaction and the company remains on track for a first-quarter 2021 close. 

“I think Europe was one of the markets that were hit hardest within the N&B portfolio,” Koch said in the earnings call.A month later, N&B issued US$6.25 billion of senior unsecured notes in a private placement. 

The net proceeds from the offering are intended to fund part of N&B special cash payment of US$7.3 billion to DuPont and are held in escrow until the deal closes. 

The offering was more than five times oversubscribed, says Koch, and resulted in a “very favorable cost” of borrowing for these notes. 

The company further continues to make progress regarding regulatory approval.

Integration synergy with IFF
Concerning DuPont’s integration synergy potential with IFF, DuPont’s CEO Ed Breen said he “feels good about it.” 

Whether there is an upside to the IFF acquisition, however, remains subject to the IFF team “when they do their earnings.”

“Every one of the workstreams is right on track. [Koch] and I review it weekly with the IFF team. We’re ready to go on the synergy work that we’ve outlined publicly and we’ll get off to a very quick start,” he maintains. 

The closed IFF deal is projected to generate over US$7.5 billion of cash proceeds, nearly US$2.5 billion of which N&B will have available after planned debt repayments to create shareholder value.

DuPont is targeting to close the IFF deal by February 1.“I remain confident that the new company will be well positioned for growth and to deliver sustainable value for shareholders,” says Breen.

Q4 forecast
DuPont N&B’s probiotics sector has notably reported growth throughout the first and second quarter of 2020. 

The company expects this segment’s strength to continue in probiotics, as well as in home and personal care. The biorefinery and microbial control sectors “remain challenged,” while the delivery of cost reductions is driving operating leverage.

“We see pretty far into the quarter now, but if there were massive lockdowns, that would probably affect December type numbers. But I think if all of Europe locked down and there were lockdowns in the US, that would affect everybody out there. We just have to see,” concludes Breen.

Edited by Anni Schleicher