Q3 2020 Dupont De Nemours Inc Earnings Call
Helps drive our strong free cash flow and operating earnings improvements.
We have moved faster and found additional pockets of GE and a cost to streamline enabling us to increase our expected cost savings from our 2020 initiatives from 180 million to $280 million.
I'm also pleased with the progress that we have made in advancing the Nbn I f. transaction as well as the divestitures of non core assets.
In August IMF shareholders voted overwhelmingly in favor of the transaction and we remain on track for first quarter 2021, close and we are targeting February onest.
With regards to noncore in September we announced the divestiture of the Tcs business, along with our equity interest in the hemlock semiconductor joint venture for $725 million.
Earlier. This month, we also signed a deal to sell the biomaterials business for $240 million.
These portfolio remained a refinement efforts contribute to value creation.
By increasing cash flow strengthening the balance sheet and focusing our portfolio in markets, where we expect to see solid growth opportunity.
Moving to slide three I'd like to provide more specifics on the progress we have made improving our cash generation and gionee productivity.
Free cash flow conversion on a year to date basis was 140%.
Through September we have delivered approximately 1.9 billion of free cash flow versus $1.6 billion for all of 2019.
This growth is primarily attributable to actions, we have taken to reduce our capital expenditures and improve working capital.
During the quarter, we significantly reduced inventory balances and the team is focused on reducing past due accounts receivable also yielded positive results as we reduced our past due balances as a percentage of accounts receivable to 4%.
We've also lowered planned capital spending for 2022, approximately $1 billion nearly $500 million less than 2019 levels. As a reminder, we did not reduced any safety related capex and have developed detailed plans for restarting our growth projects to ensure we are.
We are able to capture demand when markets fully recover.
We delivered more than 185 basis point reduction in non manufacturing costs as a percentage of sales in the quarter, mostly in GNS may have.
Well, the approximately $150 million or cost savings that we realized.
$100 million was structural in nature.
As I mentioned, we now expect our 2020 in period savings from current year actions to be $280 million versus our prior estimate of $180 million.
Our cost actions are targeted towards DNA expenses and are aimed at enabling a highly productive appropriately scaled cost structure gross.
Growth through innovation remains a key component of our strategy and we continue to invest in critical areas like sales application development and R&D. So that we will be well positioned to capture growth when we fully emerge from the current market environment.
Before turning it over to Laurie.
I'd just like to make a few comments on some of the sequential trends we saw in the third quarter, we saw a 15% increase and operating EBITDA as well as 200 basis point improvement and operating EBITDA margin versus the second quarter. This.
This rebound was most significant within TNF.
As global auto builds were up more than 60% sequentially.
Stronger than our expectations going into the quarter.
Additionally, our third quarter decremental margins was approximately 31% and.
And a proven of approximately 1400 basis points.
Versus second quarter led by strengthening topline and continued structural cost removal across the company.
Ill now turn it over to Lori to walk through some of the details for the quarter.
Thanks, Ed and good morning, everyone turning to slide four and the financial highlights for the quarter.
Sales for the quarter were 5.1 million down, 6% organically and act accordingly.
Folio with neutral as acquisition and water solution asset divestitures.
And non core likewise currency was neutral in the quarter.
Pricing was mixed across the portfolio with gains in Sep and noncore offset by price declines primarily MTN.
Price declines MTN.
Down mid single digits were in line with expectations, we expect similar to you and I pricing through the fourth quarter as nylon six six prices have generally stabilized in the back half of the year.
On a regional basis organic sales increased 3% in Asia Pacific versus the year ago period with declines in the other regions China.
China sales in our core segments improved 14% versus the third quarter 2019.
10% sequentially from second quarter 2020.
I'll provide additional color on our segment topline results on the next slide.
We delivered operating EBITDA of 1.3 billion and adjusted EPS of 80 cents per share well above expectations, driven by better than expected topline results in our Eni and Tms segments and more favorable product mix with continued strength in semiconductor tieback protective garments and.
Our biotic.
Once again, our teams maintain strong cost control.
To deliver operating EBITDA declined in line with the sales decline on a percentage basis.
Our decremental margin was approximately 31% also ahead of our expectations heading into the quarter.
Moving approximately $60 million of costs associated with temporarily idling facilities, primarily in key and I NSF fee as well as gains in both the current and prior year periods. Our decremental margins were in the mid single digits, a significant improvement from the second quarter driven by the improving topline and continued structural cost.
GAAP.
As Ed mentioned, we are also delivering on our cash targets.
Free cash flow of approximately 1.9 billion through the first nine months of the year led to a conversion rate of approximately 140%.
In addition to the strong free cash flow Ed mentioned the progress we have made on the noncore divestitures, which enabled the reduction in commercial paper balances in the quarter. These actions have lowered our net debt position and improved our net debt to EBITDA ratio below three times.
Slide five provides more detail on the year over year change in net sale consistent strength across semiconductor probiotics following personal care private protective garments and water solution.
Coupled with improvement in automotive and residential construction markets led to an overall organic sales decline of 6%, which that reflects steady growth of the second quarter, though.
Several of our businesses have market, leading products, which enable them to succeed despite global challenges presented by the pandemic.
Within electronics and imaging semiconductor technologies delivered its third consecutive quarter of organic growth.
Likewise, with any attrition and bio sciences, our probiotics and home and personal care offerings continue to capitalize on robust global demand.
Each with double digit growth in the quarter.
Finally within safety and construction the Tyvek protective garment business is providing critical pp to our medical community and frontline workers and the water business continued to provide market leading innovation demanded by our customers.
In the third quarter sales in the water business are up low low single digits on an organic basis and up mid teens percent as reported due to the acquisitions, we have made in the space.
We also saw market improvement in other key markets in the third quarter, most notably automotive and residential construction, which contributed to the sequential improvement in the top line.
We estimate that global auto builds were down about 4% third quarter versus the same period last year, a substantial improvement from the historical lows and the second quarter and stronger than we anticipated.
Down 9% for the quarter, our T. and I volume performance is consistent with the improvement in market demand and the lag we expect due to the majority of our automotive sales going into the tier one and tier two suppliers.
They were also green shoots in residential construction market that represents approximately 40% of the shelf for business within S&P.
Our solutions to the residential residential construction market include tie back building wrap styrofoam insulation and great stuff insulating film.
Which has also experienced strong retail demand from an increase in do it yourself projects.
Despite tailwinds in residential construction, our shelter business was down versus last year due to ongoing softness in commercial construction, which makes up the remaining 60% at the shelter business.
Also contributing to the improving topline with demand for our materials that enable smartphone technology.
Nothing material content, which now accounts for up to $4 a phone in the top end model overcame an overall decline decline smartphone market and drove high single digit growth in our interconnect solutions business as premium phone manufacturers prepared for model launches and holiday demand.
Overall top line performance continued to be impacted by significant weakness in oil and gas aerospace.
So construction until like industrial markets.
These market dynamics are most prevalent in the safety and shelter businesses within FCC to health and bio sciences business within and Andy and across the noncore segments.
Before moving to the next slide let me comment on our year to date performance I.
I am pleased that our teams focus on execution and operational excellence to areas that Ed and I have been focused on since day one.
Through the first nine months, our sales have declined 6% on an organic basis and are focused on streamlining overhead structure has enabled us to better maintain your earnings.
At the same time period, our EBITDA margin has declined to 7% excluding costs associated with temporary idling facilities in the second and third quarters.
She didn't get Rami fight for cash with the right decision for the strength of the company and it is showing and the strength of our balance sheet and cash flows.
Turning to the adjusted EPS Bridge on slide six adjusted EPS 88 cents is down 8% versus the same quarter last year, driven by lower volume cost associated with anti idling facilities and the impact of noncore divestitures.
These headwinds were partially offset by the delivery of cost savings.
As Ed mentioned, our cost actions from the 2019 restructuring program coupled with incremental actions. We are driving in 2020 contributed to approximately $150 million of savings in the quarter.
The impact of portfolio actions isn't that headwind, primarily due to the absence of the gain on sale of the Dupont sustainable solutions business in the third quarter of 2019.
We realized three cents of benefit from below the line items, primarily a lower share count due to share repurchases. We executed in the second half of 2019, and early 2020 and lower interest rate enable by reductions in commercial paper balances.
These benefits were offset by a slightly higher base tax rate of 21%.
In summary, I would emphasize again, what Ed said at the start of the call. Our team is laser focused on execution and we are now consistently delivering on our earnings cash flow and cost savings commitments.
Through a period of significant uncertainty, we continue to progress our strategic priorities, which positions us well as we look ahead to 2021 to continue creating value for our shareholders.
As we show on slide seven we will continue to strengthen our balance sheet at the anticipated closing of the entity and I feel in the first quarter of next year as well as the closing of the biomaterial deal in the first half of 2021.
These actions alone will generate over 7.5 billion of cash proceeds nearly two and a half billion of which we will have available after planned debt repayments to use for creating shareholder value.
Additionally, we expect our strong free cash flow generation to continue into 2021.
As we said earlier, we have significantly improved our net debt position with a reduction of commercial paper balances and we do not have any debt repayments until the fourth quarter of 2023 beyond those that we intend to satisfy the proceeds coming in and be an ice appeal.
I am excited for what's ahead and I commend our team for staying focused on execution to put us in a position to have the flexibility to capitalize on the opportunities for growth and shareholder value creation going forward.
With that let me turn it back to ask for an update on the Andy and I that transaction and some final comments on what we expect in the fourth quarter.
Thanks, Laurie and now turning to slide eight we highlight the progress we've made since announcing the SMB and ISS transaction.
During the quarter, we completed two additional milestones and.
In August by F. shareholders voted overwhelmingly in favor of the transaction with more than 99% of the votes cast in favor of the deal then.
Then in September and then be issued 6.25 billion of senior unsecured notes in a private placement.
Net proceeds from the offering are intended to fund part of MB special cash payment of 7.3 billion to Dupont.
The net proceeds are held in escrow until the deal closes the offering was more than five times oversubscribed and resulting in a very favorable cost of borrowing for these notes.
We continue to make progress regarding regulatory approval and Additionally, our integration planning remains on track as the teams work to a first quarter 2021 closing I remain excited about this combination and confident that the new company will be well positioned for growth and to deliver sustainable value for.
Sure holders.
Let me close with our financial outlook on slide nine, which we have prepared assuming no substantial change in the slope of the recovery due to the pandemic.
Obviously this is a fluid situation with increasing cases, and we are monitoring this closely.
We expect to deliver net sales for the year in the range of 20.1 to 20.2 billion and adjusted EPS in the range of $3.17 to $3.21.
Sequentially from the third quarter normal seasonal declines in Vienna.
From smartphone production cycles, and SMC from the timing on North America construction activity will be partially offset by improvement in Kenai as world demand continues to recover.
Although at a much more gradual pace as compared to the prior quarter.
Our forecasted earnings also reflects the absence of a 30 million technology sale, any and I and the loss of earnings from Hemlock, and Tcs, which were divested in September.
We will stay focused on driving improvements in working capital and delivering our cost savings commitments with that let me turn it back to Leland to open the queue and aim.
Thanks, Chad before we move to the Q and a portion of our call I would like to remind you that our forward looking statements apply to both our prepared remarks and the following Q and a.
We will allow for one question and one follow up question per person.
Operator, please provide the Q and instructions.
And if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure that your mute function is turned off to allow your signal to.
Our equipment.
And as a reminder, please limit yourself to one question and one follow up.
Again that is star one to ask a question.
And we like our first question from Steve Tusa with JP Morgan.
Please go ahead.
Hey, guys good morning.
Good morning, Steve.
Can you just maybe comment on the there was a bit of a change the language in the last you know a filing with regard to the idea that transaction.
Around.
Your decision on where they're going to spin or split can you maybe just talk about what your thoughts are there looks like maybe a split is more more likely but you want to obviously maintain the flexibility and optionality with the kind of whole cleanup spend dynamic maybe maybe just talk about what your latest thoughts are on that front.
Yes, Steve we will be making that decision by mid December and we truly have not made a decision yet I wouldn't put a leaning one way or the other on it we took some language change because we wouldn't do a hybrid type approach will pick one or the other and that was the change in language.
But no decision at this point in time I wouldn't read anything into it.
Okay, and then just the follow up would be on the Fourq you.
I think the implied a downside in the Fourq guide is a bit more than what.
What you're losing from noncore and that you know that gain in T. and I is there anything else sequentially that scene on an absolute basis kind of getting worse I guess, you mentioned seasonality in electronics, but what is his t. and I basically.
Did you over fill the channel before or is that.
You kind of like is it a timing dynamic where at some point in the next couple of quarters that will you know snap back to the to the kind of line and.
And we couple.
Yeah. So let me go first again the sequential so there's no there's no real change in market dynamics as we see it right now. So there is actually continued sequential lift in t. and I kind of in the mid single digit me if.
<unk> drop sequentially.
Sequentially in revenue EBITDA is more driven by seasonality normal seasonality, we see in our business. So primarily it hits and smartphones. So as we get ready in the third quarter for the holiday demand coming up we had a life sales in Threeq you did not you there in Fourq you just due to normal seasonality. Additionally, within our.
Construction phase third quarter tends to be high just with the summer months driving a lot of the construction so you'll see a little bit of deceleration there from a seasonal perspective.
So the decline that you're kind of getting at is roughly in the $100 million say sequentially Threeq to Fourq you.
About a third of that is related to the seasonal decline that we just discussed.
Another third of it is we did have a gain on a technology failing you nine threeq you that won't be there and for Q.
The rest the largest primary pieces the sale of the hemlock Tcs assets it was.
In November.
With that within 10, or we don't really see any level of channel.
Hi, I'm with inventory levels in the channel. So if you see where we look year to date, our volumes are down about 15% in t. and I versus the auto builds are down about 23% on so I think that we're outperforming there. There is really if you look at where we sell into as we mentioned on the call we sell into the tier one and tier two players by me.
Really two it doesn't always exactly line up with the auto builds number you kind of got to look at it year to date I understand the lags them.
We're comfortable where we sit coming in no material changes from a market perspective, as we see it right now.
Yeah.
And we will hear next question from Scott Davis.
Research.
Hi, good morning, guys.
Hi, Lisa Lisa.
Hi, I'm.
Kind of curious you've been shipping at corporate and DNA really since we got involved in your story in it.
It's good to.
Kind of a.
And is there an end game I guess is this kind of every quarter you look at it just trying to take Wearables battery Opportunistically can or is there a certain goalpost of where you want to get too and then you're you feel like that's not a sustainable price level.
Yes, Scott I mean, I'd put it more in the category of Chipping away at it you know as we streamline some of our functions and capabilities. You know we can get you to do a little more streamlining on our overhead dumb you know, we're putting in some digital tools and we're going to do a central finance to me and things like that.
Really all help us out so I'm I think we're getting the best in class one RG in a.
You know when you look at pure companies at all I think we're doing a heck of a job there I would highlight one area.
We are not.
Touching or taking down at all as we said in our prepared remarks is clearly our sales people around the world our application engineering teams around the world and we're going to continue to spend at the level, we've been spending out on the R&D front. So we want to come out of the softness in this pandemic period real strong with lots of new product introductions coming so.
It's really going to continue to stay focused on the the GE in a piece of it and then I I would really say the next big focus and we're focused on it now, but we're really doubling down is going to be on the gross margin line and them or or factory efficiency or uptimes and again, we're doing a fair amount of digital tools are not overly.
Expensive to really look at the predictive analytics in our facilities.
A lot of AI capability, and we really think we can do some fair amount of improvements there and hopefully help the gross margin line. So that's where you'll see some of the kind of the effort is were going into 2021.
Okay. Good and then on the inventory side or another big draw down this quarter, where do inventories sit at kind of through the channel and are you do you feel like we've gotten to the.
It was a level, where you want them both your or your inventories and then obviously you know as you look through the channel.
Our inventories have a ways to go still now as far as sales pick up you know that'll give us a little bit here still in progress, but we're expecting nice progress again in the fourth quarter.
We still have over $500 million opportunity when inventory to get to where we think we can get to so that's kind of our bogey out there and.
We'll make good progress in the fourth quarter as far as inventory in the channel Oh God I actually feel very good about it right now as you know the auto.
History is you know doesn't have a lot of finished goods are snobs theres not any stocking in the channel going along and I really don't see it anywhere except maybe just a little bit in the electronics space I think there may potentially and I for some of our competitors talk about maybe a little pre buying from some of the Chinese players know nervous.
About whats going on geopolitically right now, but I don't even think that was a big number in the scheme of all of our sales in electronics, you know not significant but that'd be maybe the one area, where there is little bit of that.
And our next question will come from Bob Koort with Goldman Sachs.
Thanks, Good morning.
Good morning, John Yes, there is some on the T. Eni business you guys have been idling capacity in and obviously, that's hurting your margins, but hoping your working capital. If we look to next year and a more normalized world and I guess global auto builds are going to be up mid teens and GDP up.
Mid single digits can you talk about how powerful the.
Incremental recovery might be and where those margins might get to relative to the.
The 23% operating margin you just reported.
Yes, we can see nice portfolio around the mid Twentys from an EBITDA margin perspective in our markets and we've got some sequential upside as we head into next year really driven by the items that you had mentioned they were top line recovery.
Well as having a lot of be idled facilities behind us.
And is there any update on the the the discussions with cores in courts have Oh in terms of your separation indemnification agreements. Thank you.
Yeah, well first of all the arbitration is started up.
With wars won that and there probably won't be any decision on that until you know kind of mid next year. If you look at the timeline on it.
But we continue to talk to each other about the settlement in fact, Mark Vergnano the CEO more than I actually just for this one day.
You know the couple open points, we continue to get closer and then we'll see if we can get it to the finish line.
So that's paralleling along while the arbitration stores.
And our next question will come from John inch with Gordon.
[noise]. Thank you yes. Thank you good morning, everybody.
Hi, Good morning learning what are the cost savings that spill over from actions taken in 2020 into 2021 and are you planning for perspectively more restructuring or would that potentially be too disruptive given all of the restructuring that's already gone on against the backdrop of what I would describe as a fledgling recovery.
[noise], yeah. So I think the savings that will trickle into 2021 is around 120 million. So we're targeting now $280 million of interior Bhavan. So on a run rate basis, that's about 400 million as we activate so another 120 next year.
You know there are some headwinds that we'll face next year as well, obviously there will be some.
I don't want to comment on details cause you get pretty specific if there's not that many are gets out there so I won't get into that but the water business would be one you know there's some areas in the electronics business I will mention that when you know five G type stuff we.
Would be interested in and let me just say overall, we're really looking at things I would put in the category of bold on acquisitions, you know nothing on a bigger scale in 2021, but.
But you know it could be several a bolt on storing the year they make financial sense.
And our next question all kind of Comcast Spock with fair enough already parents.
I think.
Good morning, everyone.
Good morning, and maybe just a couple of follow ups on kind of segment level kind of dynamics first on TNI, just thinking about the price pressure. There I think is largely a function of kind of year over year dynamics, but I wonder if you could just give us a view on how you.
See pricing playing sequentially with the builds firming up you know do we moved to a little more constructive price environment, perhaps not as soon as a cue for but you know under the early part of next year.
Yeah, we do we do.
Marking second great environment, and I think the majority of the Nightline.
18 are behind US and we did you know we didn't see her every year headlines in that third coronary not snack near me or a headwind again in the fourth car right now.
Of the price declined from the prior year whenever it's still quite strong sequentially looking at about flat pricing as me look into 2021, obviously, we've done a nice salad, taking advantage, where we can of constrained environment and then you'll be able to keep keep our eye on that can be able to see.
See any games that we could possibly tech out there I think I'll stay within TNI just overall.
The market normalize it stabilizes, we do expect to get back to that one five times, Idaho balance outperforming.
Within that portfolio you you can see it ear to date. So as I had mentioned earlier are TNI volumes being down about 15% year to date versus that adults being down 23% year. They do you can see that outperformance and they'll look to continue that going forward and once the market fully recovered.
And on the on the semi side.
Specifically I mean, you're you're kind of spoke to the seasonal let up on handset within within I, but.
Some years kind of continued to surprised to the upside kind of all year here do you and there's a lot of consolidation starting to happen in that industry right do you see anything that kind of disrupture growth trajectory there and.
What's your view looking for kind of a quarter or two there in terms of the and demand environment.
Yeah, just I'll just comment on kind of October per because I I know that demand feels pretty good still on the semi side. So we're not really seeing any change from what we've been seeing in the last few quarters.
So at least so far going into the fourth quarter of that feels nice and again I just think the dynamics of work at home and what everyone's doing what data centers in nodes and all that.
Looks like potentially good momentum going into next year, but.
We'll see when we get closer to the end of the year I know one of our key competitors.
Very very good company and she was a good friend of mine. He taught very bullishly about demand going into 2021 also so.
That feels good and again, the only thing that electronics and you just mentioned it was a little bit of the seasonality on a smartphone cause we had such strong shipments in the third quarter for the shipments and launches of the new phones in the fourth quarter, but we feel good about the portfolio. We have one to five G side that was more phones are enabled five G going into 2020.
One, it's nice nice upside opportunity for us.
And our next question will come from John My Coffee with me I'm a capital markets.
Yeah. Good morning, Thanks for taking my question. So I guess the first one would just be like we've had about a month is kind of the covid resurgence, especially you kind of out of Europe and in a little bit less of that in the U S. Any changes in demand pull that you've seen either positive for maybe some of your health care related products or or negative as as just some of the economy shut down.
That we should be thinking about and trying to think about extrapolating going forward.
Well no change in any of the end market demand, we've talked about due to the rising cases, I'd say so far.
It's all the same ones I mean, obviously auto coming back really strong.
Residential construction, we're now seeing those green shoots coming back not surprising with what's going on in the <unk> market and all the areas that are down kind of significantly oil and gas aerospace.
Commercial construction, they've all come up a little bit, but not significantly so they're not dropping any more.
They're picking up slightly but they are still a very negative numbers. So now we haven't seen any change in October and patterns that we weren't expecting.
Got it okay no. Thanks for the color and then.
On the other side, you've you've gotten a lot of the non-core assets kind of out the pipeline.
I guess does that in terms of how you're thinking about going forward does that free up time to look at kind of bigger more strategic options or or is it really right now a little bit more about running the business and admittedly a pretty volatile time with a lot of kind of puts and takes going on how how should we be thinking about about where management, putting the time right now.
Yeah, No no John it's very much running the business I keep telling the team all hands on deck here.
You know we want to string together a lot of consistent results. We've been doing that we got a ways to go here Something's still to get the best in class performance on like working capital.
No it's more of that and it's more looking at bolt ons next year.
And you know I would think as we get in the next year will be having a serious conversation with the board about the share repurchase.
Where were trading at or new Dupont will be trading at his NMB goes out of the portfolio. So.
That's the mood we're in.
And our next question.
Bearing with bank of America.
Please go ahead.
Yes. Thank you was there anything in particular that provoke the house.
Environment Subcommittee.
Ask for some.
Nip these data from your <unk> from the legacy Parkersburg in the circuit Gulf facilities, and do you have a sense of where their where their diligence is going these days with respect to P fast contamination broadly.
Yeah, Steve I I didn't read anything into it.
We're going to supply all the information and answer all the questions. You know all of that data is obviously available and it's been supplied to many federal agencies already so I don't you know it just information we've given them before so we'll answered in a timely manner, but maybe I would go to a little bit broader to your questionnaire.
The EPA put some regulation in place, we're always asked that and make that might be part of the push here and we are actually for that we said that in front of Congress when we testify not.
Not everyone in the industry is for that but we think it would be great to have a national standard set on where those levels should be add instead of it being a patchwork by state and maybe by municipality, who knows and we actually think that would be very helpful. That we're all targeting the same thing as we.
Do remediation and all that so that's.
That's where we see a lot of the push at the federal level and we're all for that happening.
And just to follow up on that and as a national standard something that you think would would focus their attention on you know less on manufacturing sources and more on product to use as a as a source of of coupons contamination and does that where you see the potential Ben.
[laughter].
No no I, just think having a standard set out there that we're all marching to would be very helpful. Instead, I haven't literally 50 different standards being said.
And and by the way just to make a point that I make every one of these calls.
There's many more locations that had P fast, but remember how high high percentage of this is fire fighting film and I think you'll do pot.
We'll we'll let that play out here in the South Carolina consolidation year, and potentially will settle it or will let it go through the court system, but we never made the fire fighting phone so.
Our work is really remediation and some of our sites where we.
Did some manufacturing which is a handful.
And next I hear from Atlanta, Georgia.
Ah. Thank you at first on a cost savings what role the increase from the White 80 280 for the full year.
Yeah. So that was really a function that really clamping down on third party.
Consultants and the like and then we weren't able to accelerate a bang.
And then E afterall.
Think anymore.
Yeah.
Got it and it with the I F F transaction three months away from clothing, what do I pay a thoughts on what's next to the Dupont portfolio, specifically or perhaps lochner some value in in I too maybe another RMT.
Thank you.
Yeah David.
As I said, a few minutes ago, we're we're operationally going to run new Dupont. The way, we are we want to clean up the non-core some more so.
So we're very focused on that also from a portfolio standpoint.
We will be in an interesting position going into next year with the cash we're receiving from the iaff transaction.
Lori mentioned, we will have at least two and a half billion $3 billion of excess cash available. So.
As I said, we'll be talking to the board about how we're going to deploy that to create shareholder value.
In 2021.
And I would expect you know a few baby bolt on acquisitions would fit in there next year, if they make financial sense for us to do.
And our next question will come from my exercise in West Charles Town.
[laughter].
Hey, good morning, nice corner.
Camden Nutrition Biosciences, you EBITA graph is is up high single digit. So this year, you know tough sales comps so.
If you think about getting that.
Getting better growth in that business next year, where do you think EBITA gonna should sort of a b as as volume this return.
Yeah. So we've always thought that the NMB portfolio could get closer to accompany average memorizing perspective, they're looking at 26.
So they've got continued outside a lot of that come from.
A higher fee and it really makes no I think well are they on X I think around with their enzyme portfolio.
Rather they're neat neat marken those are out there a high margin product lines that are what's the Oklahoma.
Right click follow up then you know see if if you do get to close the business on February 1st how how do you feel about the integration of synergy potentially you've had a year here to plan for it is there upside and if there is what we're could that be.
Well I will talk about if there's upside I should probably leave after the iff's team when they do their earnings would not be fair of me, but but I feel good about it we've got multiple teams as we did when we did they'll do pot and all that working on all the integration efforts.
We're right on track Byway, I I must say I'm surprised we're doing as well as we are considering everyone's working at home but.
You wanted to work streams is right on track Laurie and I review it literally weekly with the I F. F team. So we're ready to go on the synergy work.
That we've outlined publicly and we will get off to a very quick start.
And next to me like a French horn Roberts.
Okay. Thank you staying on MTV for a second here food and beverage sales were down probably close to the 4% decline. The overall segment can you give us some regional and maybe application granularity on the decline in food beverages.
Yeah. So.
Big pieces of decline was driving by.
Let's face that you meet that's about 5% until.
Figure out anything within the food and beverage segment ethnic downtime.
Enough.
Mid teen.
Really selling into sports arena cafeteria, and secondly, the industry.
Hi, Michael Mann.
Nothing nothing.
Nothing underlying there beyond that and a lot of that.
I think Europe planes, one of the market.
And the enemy part.
Back pain.
Hi, I'm also another impact that we thought I had one wish it has travel had paint down we had a large market and kinda like the human basic and our sweetening portfolio last travel less people coming through airport that impacted.
And then do you think your report your ear and before February one clothes or after and do we get an M. B as a discontinued up and <unk>. If you report after February one just trying to.
Figure out the information flow, we're gonna get you over the next few months.
Yeah. So I would look at most likely to be after the second one.
We can report kind of on every main candidates.
Finally report desktop.
When we met.
Okay.
And I fully and that doing a split.
You have to do this guidance earlier and he ended up doing it and you can get Scott.
Memories.
Yeah.
And as a reminder, that a star one if you would like to ask a question. Our next question will come from.
Carlos.
Please go ahead.
Yes, hi, good morning and unloading.
Hey, there is a big Green movement happening in Europe parts of Asia, California.
With both D V as in hydrogen how is Dupont position for that trend in terms of your portfolio and particularly can you address the E P market.
Yeah, So I haven't seen mostly need within TNI and there is also plays I can S&P and Eni as well into the electric vehicles that worked very well positioned obviously is that conversion continues for high bright electric light our car.
Advantages are TNI portfolios, you take out metal and replace them with polymer.
Within that can see we have a nice opportunity within the battery play we have I used to have our nomex paper as a separator and then obviously like any nista enhanced electronics.
Really nicely there I'm trying to think of anything full electric vehicles are a small section of the calendar.
Now for next year today that very very quickly.
I'm happy with a portfolio that we have.
Great. Thank you and I just have a follow up on Eni.
You know Indian has had some well publicized issues at seven nanometer nodes and companies like B S. M. C are getting sure can you talk about your position related to your customers and.
What kind of wins or losses have you had excellent nanometers. Thank you.
Yeah. So.
Customer level, but you can see by every now and he's a cigarette machine really nice pro format. So in the last quarter alone. There at eight 9% now we've got a nice experiencing me play with all of the big players.
No I think consolidation continues we're still continue to be well positioned in.
And also add the layer that you had mentioned.
More and more can slack that advance our portfolio said, the more layers and more and more polishing that has to be done the more cleaning that has to be done.
More complex layers get with advance notice that advantages our portfolio within as well. So I think we're 90% should be taken advantage in Afghanistan.
And our next question will come from Chris Parkinson with credit please.
Ahead.
Great. Thank you very much you've done impressive job on the cash conversion from you know I think we're all aware of the rough conversion targets every time, which is good.
Mentioned in the past, but you any brief updates on this for instance, given some of the portfolio changes as well as the ongoing incremental efforts on working capital. Thank you.
Yeah, So I think you're asking about our free taxi personal temporary can you cut out a little bit and I couldn't quite hear it uhm, yes, we've made really nice progress there. So we're asking about 140% year to date, we are actually putting up against 200% in the morning.
But by that strong grant and 300 million dollar marking catalog that activity that will look to keep that free cash listeners and number writer and greater than 90%, we've been right around 100% for the past several years. So I don't see any material headwinds there and there's no real change in that metric asset portfolio change in each business.
Generating nice free cash smoking version.
R. I C perspective at all that we've had is to deliver 100 basis points have been improvement mm annually.
Annually, we're looking to get to get that added Wow. That's one important he said that it wants the separation happen mid last year, we started to put into our continent smack in a lot of neat.
Executive pay magic, there's a piece of our I T thought Anthony that will drive continues okay, along with it the management.
Deep down he type of thing that.
[laughter] that's helpful and just have a quick salt.
You know the ultra been doing a pretty thorough job on the cost Friday, including the recent increase and also the percent that will be structural which you hit on a little while ago, how should we be thinking about the further cadence as we enter 2021 and are there any consideration for based cost inflation. If we're just trying to kind of figure out the net benefits on a per annum.
<unk>. Thank you.
Yeah. So we'll have another 120 million roughly on a run rate basis as savings into tiny tiny one there will be off of it like we had mentioned.
We are right now cleaning for a merit increase we didn't have one and 2020 and we've got to get back on track with that in 2021.
Well plan for a full bonus payout in 2021, so that'll be ahead of and it's funny plenty of everyone handful bona and teeny is another Pete.
We will control the snapback, we've seen any fun that down about $1 million a month.
Right.
Family in a month so.
So we will see some snapback they haven't we're looking to try to mitigate that for any significant me really cutting more so down on the internal travel a nurse in the customer Nathan cattle.
I think not not with 120 million and benefits that will see in the office. We had just covered will probably have a slight headwind from a cost perspective heading into 2021, probably nothing like.
Maybe the other than the space, just driven by our dedication to get any structural cost out there.
Especially at the temporary that maybe some others have been doing.
And our next question will come from Iran.
Army C capital markets.
I had.
Thanks, Good morning.
Yes. My first question is on S. M C. You've directed somebody rear capacity towards garments could you just talk about the tradeoff. There my understanding is that those are higher margin, but maybe you from participating as much in in residential and then as well maybe you can just address the commercial markets and what you're seeing there.
<unk> and construction sex.
Yeah, So I think within five extra over all the entire tieback enterprise in the corner, but not in the low twenties and so obviously, we continue to see nice strengths I N K P that was that 50% black.
Within the tie that building onto let's just get into seasonality went and when the construction really takes place we didn't see nice growth are several thought about 20% credit in residential try that.
The volume like taken from with more in the medical packaging space and that's really just a function of the reduction in elective procedures dampening their demand may air but.
But overall, 20% plus we have been able to enable additional production to come out leaf or second sequentially they were down a bit.
Take the I sat down for about.
Weeks or so at year over year, we are having more by that coming out on the line when we're actually bringing up what we call line one an older line that we had.
It's not costing us too much to get that up and running so we're bringing up for incremental volumes. So that's helping us.
Thanks, and then as a follow up he also just talk about your plans for the proceeds I know that I'm from the N. B a separation I know that you've talked about you know buybacks are 2.3 billion of it and do everything for the rest is that so your current thinking or how are you thinking about that deploying that capital. Thanks.
Yeah, Yeah, five $5 billion of that money from iaff and and be will be used the delever and pay down debt. So it will be in a great shape balance sheet wise open that occurs.
Then I I would think as I mentioned I don't want to get into the exact numbers, but I would think we're doing share repurchase with where are multiples at.
As we get into next year, and we still want to gauge the effects of Covid in cases picking up and all that but that would probably be early evening alone with some bolt on M&A if.
If I could just add onto that kind of that conversation. So we really did a nice job and went to highlight in the corner of reducing commercial came back and so we were able to use the proceeds from the hemlock and teeth transaction as well as organic cashflow generation to take that down.
It gets under $400 million for the Florida, we've taken it down even since that border.
You can do that for that that'll be a nice tailwind heading MK 2021, not only from.
Expense perspective, I think is giving us flexibility D C.
2.3 billion and proceeds for either M&A or a shareholder.
Our goal is to get the C P down to zero very quickly.
And we will take our final question from Frank much worse for me in research. Please go ahead.
Thank you so much and a nice a nice quarter I you know I just wanted to follow up on on Iff's since part of the Dupont value proposition is tied up in I F F share price and obviously, we've seen a 20% decline over the past month.
And in your discussions with management there, what's your confidence level that that that can turn around any any thoughts that you can share there.
Yeah, Yeah, it's like I don't Wanna get into too much detail, but I think there's some technical what's going on right now with.
That you know I've seen some reports I think one of the.
Analysts on this call wrote a nice to report the other day. So I I think there's some things going on short term maybe.
Maybe overspin split that.
Create some pressure but.
You know look these sets of businesses the iaff sets of businesses the NMB, they do very well.
When there's distress in the system because of the end markets that were in so these are consistent performers yeah there'll be pockets of weakness like we saw because nobody's in airports by and chewing gum and all that but generally speaking they're going to do very well through this and we got a lot of synergies coming up here to create additional value for sure.
Older. So, but my my blood is all that settles down here.
Rather quickly as we get closer and closer to getting the deal done.
Terrific very helpful and and just to ask a question on the the guidance for the fourth quarter.
You know I you know, obviously yesterday, we saw of France, and Germany implement Lockdowns, how do I, how should we think about the.
The you know the quote unquote wave to lockdowns being embedded into that guidance you know how much of that was factored in any any any thoughts there.
Well, we knew German he was talking about Lockdowns when we when we just gave the guidance it looks like France might be.
Going now, but I I think look at all of Europe, Lockdown and there were locked down to the U S. That's going to affect everybody out there. So no we're not counting on that and the guidance that we gave we see pretty far into the quarter now but.
There was massive lockdowns that would probably affect December type numbers.
And we just have to see but as we sit today and as long as there's not massive lockdowns. That's the way we gave the guidance.
Thank you everyone for joining our call for your reference a copy of our transcript will be posted on the <unk> website. This concludes our call.
And that's cool cause today's conference. Thank you for your participation and you may not disconnect.
Yeah.