NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the Issuer Default Rating (IDR) of E.I DuPont de Nemours and Company's (NYSE:DD, DuPont) at 'A'. A full list of ratings is provided at the end of this release.
The Rating Outlook is Stable.
KEY RATING DRIVERS
The ratings reflect DuPont's strong business profile, robust liquidity, and positive free cash flow (FCF) generation. DuPont benefits from global reach, end-market diversification, and leading market positions. The company's product portfolio is primarily R&D based and often patent protected, enabling sustainable market advantages and high operating profit margins. The consolidated operating EBITDA margin for the latest 12 months ending June 30, 2014 (LTM) was 16.8%.
The Agriculture segment accounts for a third of DuPont's annual operating income. The segment had modest declines in revenues and operating profits in the first half on lower corn acreage planted and inventory write downs and the third quarter is typically weak. The fourth quarter should benefit from improved insecticide sales and advanced seed sales. Longer term, Fitch expects the segment to continue to show solid growth from its strong product portfolio and new product launches.
DuPont is proceeding with plans to spin-off its Performance Chemicals segment, since it does not conform to the company's long-term strategic plan. DuPont's Performance Chemicals segment accounts for 15% LTM segment EBITDA and roughly half of its sales are titanium dioxide (TiO2) products. DuPont is the largest TiO2 producer worldwide. The company is currently working to reduce post-spin stranded costs. While the spin-company's capital structure is unknown, Fitch expects the remaining DuPont to maintain its financial profile.
Other Segment Expectations
Performance Materials, at 21% of LTM segment EBITDA, is expected to benefit from strong automotive demand and resumed production at the company's Orange, Texas ethylene unit. Sales are expected to be flat in the third quarter as a result of the sale of the segment's Glass Laminating Solutions/Vinyls business on June 5, 2014 for $639 million.
Safety & Protection, at 14% of LTM segment EBITDA, is expected to continue to benefit from productivity improvements and stronger industrial demand.
Nutrition & Health, at 9% of LTM segment EBITDA, is expected to benefit from continued broad based volume gains and productivity improvement.
Industrial Biosciences, at 4% of LTM segment EBITDA, is expected to continue to show good volume growth and higher profit margins. Fitch expects Electronics & Communications, at 4% of LTM segment EBITDA, to be relatively flat.
DuPont generally manages its capital structure within Fitch's expectations of net debt to EBITDA of 1.5x or lower and total debt to EBITDA of 2x or lower. Net debt has been reduced with the proceeds of the Performance Coatings sale in the first quarter of 2013. At June 30, 2014, total debt/LTM EBITDA was 1.97x.
At Dec. 31, 2013, cash was $9 billion of which $3.9 billion was held outside of the U.S. At June 30, 2014, cash on hand was $4.3 billion. The bulk of the company's cash flow is generated in the fourth quarter and Fitch expects Dec. 31, 2014 cash on hand to be roughly $6.8 billion. The company has $4.9 billion of unused credit lines, of which $4 billion is due in May 2019. The facilities are used to back-up commercial paper and issue letters of credit. Short-term debt was about $1.1 billion at June 30, 2014. In January 2014, the board authorized $5 billion in share repurchases of which $1.1 billion occurred in the first half of 2014 and a further $0.9 million is expected in the second half.
Fitch expects DuPont to generate annual FCF after pension funding requirements, capital expenditures and dividends of about $1 billion on average. The company's defined benefit pension programs were in aggregate 78.8% funded at the end of 2013. There were no contributions to the main U.S. pension plan in 2013 and none is expected in 2014 but future contributions could be on the order of $500 million to $1 billion annually.
Near-term maturities of debt are $1.4 billion in 2015, $1.6 billion in 2016, $0 in 2017 and $1.4 billion in 2018.
Positive: Future developments that could lead to positive rating actions include:
--Total debt to EBITDA below 1.5x on a mid-cycle basis in combination with annual FCF over $1.5 billion.
Negative: Future developments that could lead to negative ratings actions include:
--Leveraging transactions such as debt-financed share repurchases, dilutive acquisitions, or spin-offs, resulting in total debt to EBITDA greater than 2x on a sustained basis.
--Substantially diminished cash balances while gross leverage remains above 2.0x;
--Weak or negative FCF leading to incremental borrowings.
Fitch has affirmed the following ratings:
E. I. DuPont de Nemours and Company
--Issuer Default Rating (IDR) at 'A';
--$3.5 billion unsecured bank revolver at 'A';
--Senior unsecured notes at 'A';
--Senior unsecured debentures at 'A';
--Short term IDR at 'F1';
--Commercial Paper at 'F1'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' May 28, 2014.
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage