Q4 2020 Dupont De Nemours Inc Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Dupont fourth quarter 2020 earnings Conference call. At this time all participants are in a listen only mode and later, we will conduct a question and answer session.

Thank you I would now like to turn the call over to Lima, and we worked to begin.

Good morning, everyone. Thank you for joining us for Dupont fourth quarter 2020 earnings conference call.

And we're making this call available to investors and media via webcast.

We have prepared slides to supplement our comments during this conference call. These slides are posted on the Investor Relations section of Dupont's website and through the link to our webcast.

Joining me on the call today are Ed Breen, Chief Executive Officer, and Lori Koch, our Chief Financial Officer.

Please read the forward looking statement disclaimer contained in the slides.

During our call we will make forward looking statements regarding our expectations or predictions about the future.

Because these statements are based on current assumptions and factors that involve risks and uncertainty our actual performance and results may differ materially from our forward looking statements.

Our 2019 form 10-K as updated by our current and periodic reports includes detailed discussion of principal risks and uncertainties, which may cause such differences.

Unless otherwise specified all historical financial measures presented today exclude significant items. We will also refer to other non-GAAP measures a reconciliation to the most directly comparable GAAP financial measure is including in our press release and posted to the Investor page of our website I will now turn the call over to Ed.

Yeah.

Thanks, Linda and good morning, everyone.

He will provide comments on the tremendous progress we made on several strategic priorities during the fourth quarter of 2020 and.

And the start of 2021.

First let me give my appreciation to our employees and partners around the world, who rose to the occasion day extra day and the face of extraordinary circumstances.

2020 presented us with the challenges of a global health pandemic.

Shall and political unrest and the worst economic conditions and many years.

Despite these challenges our teams remained focused on health and safety.

Delivering for our customers.

Strengthening and the financial position of the company and continuing to drive our strategic priorities for work.

It is because of our commitment of our employees, but today, we are able to announce and strong financial results as well as significant progress on critical milestones to make Dupont a premier multi industrial company.

Equipped for growth and value creation.

Starting on slide two.

On February one we announced the completion of the merger of our <unk> business with ISS.

Creating and $11 billion industry, leading company and the food and beverage.

<unk> personal care and health and wellness markets.

The new <unk> will have unmatched capabilities to deliver for customers with leading positions in markets such as nutrition.

Biotics soy proteins.

Waivers and fragrances.

And the combination of these complementary portfolios puts <unk> at the forefront of highly valued consumer ingredients companies that.

And that work closely with customers to meet the growing demand in areas such as all natural.

Clean label and sustainability.

Combined management team has planned and prepared for this integration and they are committed to delivering for all stakeholders.

They are already executing on a playbook to capture both the cost and revenue synergies enabled by the combination.

I am now and the <unk> Board and I look forward to coming into the lead director role. This spring to continue overseeing the transformation of ISS.

This transaction and also unlocks significant value for Dupont and our shareholders.

Earlier. This month, we received about seven 3 billion and cash which enables us to further strengthen our balance sheet by.

And by reducing our long term debt and gives us the flexibility to continue generating shareholder value.

As you know we separated the NMB business through a split off transaction.

And which Dupont shareholders were given the option to tender their Dupont shares and.

And exchange for shares and ISS at a ratio of <unk> 701, eight shares of Iff's.

For every share of Dupont.

The exchange offer was fully subscribed and all shares that were tendered were retired by Dupont.

The resulting and a reduction of 197 million shares.

For approximately 27% of our outstanding shares.

This was a very efficient process for Dupont.

Net shares out of the market was zero cash outlay and.

Closing customers are excited about the potential of this strategic combination can deliver in terms of being a partner of choice R&D capability and innovation.

Additionally, our and then B colleagues are energized by the opportunities before them.

And we wish them continued success as they embark on this exciting new journey.

Slide three highlights the impact of other actions we took throughout 2020.

To strengthen our balance sheet and positioned the company to continue generating shareholder value through a disciplined financial policy.

As Lorie and I came into our roles in February of last year and with the initial indications of a global pandemic. Soon thereafter, we quickly implemented actions to improve working capital and.

And pension capital expenditures across each business and function.

We achieved and $850 million improvement and working capital.

And reduced capital expenditures to $1 billion.

A reduction of nearly $300 million from our initial targets for the year.

Combined these actions enabled free cash flow conversion.

More than 150% for the year.

These actions combined with proceeds from non core divestitures enabled us to close the year with zero commercial paper balances a reduction of more than one $8 billion.

We expect to further reduce our debt balances by using 5 billion other cash received from the <unk> deal.

We have already retired or 3 billion term loan and plan to redeem the 2 billion notes in May.

We closed the year with greater than $2 5 billion of available cash and as I mentioned, we expect to have $2 3 billion and cash remaining from the <unk> transaction.

Combined with the continued strong cash generation and further proceeds from non core divestitures.

We are heading into 2021, and a very favorable liquidity position with no debt maturities due until the fourth quarter of 2023.

As we look to uses of our available cash and 2021.

Our financial policy will remain disciplined.

And balance maintaining a strong balance sheet.

Growing the company through investments and Capex and R&D.

Acting on strategic M&A targets.

And returning value to our shareholders.

We remain committed to maintaining our strong investment grade credit rating and.

And are pleased that we have a stable rating from all the major agencies.

We also look to continue our capex at about 5% of sales and.

And R&D spending and about 4% of sales for 2021.

With regards to dividends and we intend to maintain our current quarterly for.

Our share dividend and a 30 per share.

Going forward, we will target a payout ratio between 35 and.

45%.

And we will work with our board to increase our dividend annually as we grow earnings.

Finally share repurchases remain an important component of our financial policy.

And we intend to resume buybacks utilizing our existing plan, which still provides authorization up to $1 billion.

We are also actively evaluating a couple of acquisition targets.

Which will enable even further acceleration of growth and key end markets.

As we move through the year, we will redeploy our excess capital and ways, which maximize shareholder value.

Turning to slide four we also recently signed agreements to sell our clean technologies and <unk> businesses.

And we expect these transactions to close by mid 2021.

Combined with the sale of the bio materials business we.

We anticipate more than 900 million and pre tax proceeds from non core divestitures. This year.

Our priority of active portfolio management has focused our portfolio and generated significant cash for the company.

Since June 2019, we have divested or signed agreements to divest nine businesses and.

In addition to the separation of NMB Gen.

<unk> generating over $2 billion and gross proceeds.

Additionally, exiting these businesses removes a significant amount of cyclicality and the Dupont portfolio.

And eliminates much of the volatility that was often and our non core results.

With the agreements on Cleantech and Solomon.

<unk> divested a substantial portion of the non core segment.

We will wind down the non core segment reported in the first quarter of 2021.

And report our results and three reportable segments going forward as we announced last week.

I'll ask Lori to provide more color on our new segments as well as detail on our financial performance, but let me close with a few comments on the settlement agreement.

And that Dupont and core tablet.

Reached with <unk>.

I am pleased that we have reached agreement that I believe is and the best interest of all three companies.

For Dupont there were a few key principles.

First it was important that any settlement agreement capped our share of any potential liabilities at a defined amount.

We also wanted for long term agreement.

With the building of an escrow accounts over the term to provide stakeholders of all three entities the confidence that the parties did agreement, we will be able to satisfy their respective obligations.

If they were to materialize and the future.

The agreement, we announced met these principles.

And was a key step and reducing the uncertainty around potential legacy G fast liabilities.

The other aspect of what we announced a few weeks ago was the settlement of the remaining Ohio multi district.

Litigation.

Our portion of this settlement is $27 million.

To be clear, we continue to believe and your exposure for Dupont related to potential legacy fast liabilities.

Contained due to heritage Dupont limited manufacturer and use of <unk>.

And the fact that we never made firefighting foam.

Having an agreement with <unk> and core Teva.

It enables us to work together as we move forward with that let me turn it over to Laurie.

Thanks, Ed and good morning.

With the completion of the NMB transaction on February one and the substantial progress we made on non core divestitures.

Our new segment reporting structure for Dupont going forward we.

We will be aligned around three business reporting segments, and electronics, and industrial water and protection and mobility and materials.

Our new segment structure combined businesses and com.

And then financial characteristics and other and clear line of sight and more effective allocation of resources across the company. Each business has a meaningful growth profile with the management team that understands how to best execute on its priorities and deliver for shareholders.

We will maybe the following businesses to the newly named Electronics and industrial segment Cowboys that sow medical silicones and monitor each previously reported and our P&I segment.

We removed occasion films joint venture the micro circuit materials business and the toddler business to our P&I segment, which will be renamed mobility and materials.

Each of these as previously reported and our non core segment.

Safety and construction will be renamed water and protection for highlight our market, leading water business and we have grown and both organically and inorganically over the past few years.

As Ed mentioned, we will wrap up the noncore segment as part of our first core reporting.

We will report the results of the bio materials clean tech and so and that businesses and our corporate segment until the divestitures are complete.

And I'll cover our fourth quarter results on slide six as Ed.

And it earlier I'd like to acknowledge the significant efforts of our teams and delivering a strong fourth quarter and.

<unk> zone to what was an incredibly productive year.

Reset working capital and Capex targets and challenged our teams to enable the reduction of commercial paper balances zero at year end to improve our leverage heading into 2021, our teams delivered once again.

Net sales of $5 3 billion were flat versus the fourth quarter 2019 on an organic basis and ahead of expectations. We had set at the start at the corner.

Demand for our technologies and smartphones and semiconductors remained robust through the quarter with no seasonal decline and smartphones as we typically see and the fourth quarter.

Also contributing to the strong fourth quarter with further recovery and the automotive market.

At the start of the quarter industry benchmark suggested fourth quarter auto builds will be down low single digits.

However, with over 23 million automobiles produced globally for.

This quarter was the strongest production quarter of the year up 3% versus the fourth quarter of 2019, and now for about 14% versus the third quarter of 2020.

Our teams navigated a challenging raw materials environment across the polymer space to deliver volume growth in line with auto builds on both a year over year and sequential basis.

The end markets within FMC were very similar to the third quarter and consistent with our expectations.

And for our protective garments continues to be strong with garment sales up nearly 50% versus the fourth quarter of 2019.

Jeremy side of our safety business was up versus the third quarter on a sequential basis by.

And that continues to see year over year declines in volume as a result of the pandemic impacting demand for aerospace oil and gas and other select industrial applications.

Similarly, the environment and shelter solutions remained consistent with what we saw and the third quarter with strength and do it yourself applications and continued recovery in residential construction.

Net by softer commercial construction demand.

<unk> sales were up slightly on an organic basis and the fourth quarter.

And demand for water filtration technologies remains strong across the world, However, and our fourth credit results were impacted by the timing of some shipments at year, and resulting primarily from margins associated with capital projects <unk>.

We will capture this demand and our first quarter results and return to mid to high single digit growth.

Likewise results for the NMB segment were in line with our expectations with ongoing demand strength, and probiotics and home and personal care markets offset by the continued thoughtful and bio refinery and microbial control.

From an earnings perspective, we also delivered a strong quarter driven by improved volumes and the delivery of approximately $130 million of non manufacturing cost savings, which enabled expanded EBITDA margins and each of our core segments and the quarter.

Excluding approximately $160 million of discreet gains and the fourth quarter of 2019, we delivered operating leverage with mid single digit operating EBIT growth.

From a segment perspective, Eni delivered operating EBITDA margin of 31, 6% on strong volume and cost reductions.

And I delivered 310 basis points of operating EBIT expansion on higher volumes tight cost control and lower raw material costs offset by year over year pricing pressure.

Likewise, S&P drove operating margin expansion of 40 basis points through cost control and favorable product mix more than offsetting the impact of lower volumes.

And <unk> operating margins expanded 100 basis points versus the fourth quarter of 2019 led by favorable product mix and non manufacturing cost control more than offsetting raw material price increases and costs associated with the planned slowdown of production across the <unk> network to properly manage working capital.

Adjusted EPS of <unk> 95 per share was flat with the prior year.

Savings from both structural and temporary cost reductions and benefits from a lower tax rate were offset by pricing headwinds and a headwind of approximately 17 associated with the prior year discrete items.

We also delivered robust free cash flow and the fourth quarter, driven by controlling Capex and working capital improvements we closed the year with Capex on target at $1 billion, and approximately $850 million and working capital improvement well above our target of $500 million for the year.

Looking forward over the medium term, we continue to believe we have additional opportunity to improve our working capital turnover, primarily through better supply chain management through the use of data analytics.

Slide seven provides our financial outlook for both the first quarter and full year 2021, our guidance reflects Dupont on the new basis, excluding NMB as it will be reflected as discontinued operations. When we report our results.

We have provided recast first quarter and full year 2020 results, excluding NMB for comparison purposes.

Later this month, we will release fully recast segment results for 2018, and all quarters in 2019, and 2020, reflecting the segment realignment de elimination of the noncore segment, and reflecting and and be as discontinued operations.

Our guidance also includes a full year of results for the three non core businesses, we have signed agreements to sell and we will reset expectations as they close.

For the full year, we expect net sales of $15 four to $15 6 billion and increase of 8% at the midpoint and operating EBITDA of 383 to $3 93 billion and increase of 13% at the midpoint.

We expect operating EBITDA margin improvement of approximately 100 basis points driven by the impact of improved volumes and the remaining benefits of our structural cost actions, we put in place last year.

These gains will be partially offset by anticipated return of some 2020 temporary cost reductions.

Adjusted EPS of $3 30 to $3 45, and increase of 68% at the midpoint versus 2020, adjusted EPS of $2.01 per share.

<unk> stronger segment earnings and lower interest expense, which is enabled by the paydown of our debt balances, including commercial paper.

Our adjusted EPS also reflects the reduced share count, resulting from the exchange offer that closed on January 29th and connection with the separation and then Andy.

As a reminder, this took out about $197 million Dupont share there.

This results and a weighted average share count for the year of 555 million and it excludes the benefit of any future buybacks.

With that let me turn it over to Leland to open for Q&A.

Thanks, Lori before we move to the Q&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&A.

We will allow for one question and one follow up question per person operator, please provide the Q&A instructions.

Thank you and order to ask a question simply press Star then the number one on your telephone keypad.

That is star one to ask a question if at any point. Your question has been answered and you wish to remove yourself from the queue press. The pound key again, please limit yourself to one question and one follow up.

Our first question comes from the line of Jeff Sprog of vertical research partners.

Thank you good morning, everyone.

Good morning, Jeff Good morning.

Well congrats on getting a lot done and crazy tough pandemic year.

Question for me is really just thinking about kind of the.

The way the company now has reconfigured post then and be and Ed you mentioned M&A a little bit in your prepared remarks, I just wonder if you could elaborate a little bit more on.

And of the balance between opportunities for organic investment and the areas that you're strategically focused and what the M&A pipeline and what kind of magnitude of activity on the M&A front might look like.

Yes, Thank you Jeff.

Yes. It is.

Lori highlighted we're expecting 8% revenue growth and 2021, and so we feel like it's going to be a robust year for us.

Key for US is our 4% spend on R&D. So thats clearly number one and we're very focused on the secular growth areas within the portfolio, where we're spending the R&D. So we feel like we're going to have very good results organically as we move forward and the new configuration.

The way we're looking at.

M&A I'd say look there's two targets.

And that we're presently working on I don't know, if you'll be able to consummate them or not we're not going to stretch to get them.

And we're going to make sure the numbers workforce and we are going to make sure. The numbers work on the cost synergy side not taken into account revenue synergies, even though a couple that we're working on do have revenue synergies. So.

And we will see how that plays out we're actively in that right now they're right down the middle of the plate and and a couple of areas that we already participate and we're not going to do anything on the M&A side, that's a new segment or anything like that that we feel like there is some.

Good consolidation opportunities.

We have our strengths and right, where we have great relationships with customers. So that's how we're looking at it and as we highlighted.

Even though we just took 27% of our shares out of the market and not using any cash we.

We do have still a $1 billion open on our authorization. So we're going to get back in the markets and <unk>.

Start repurchasing shares we have a board meeting coming up and the next month and that will be a topic that we will have with the board.

Share buyback versus mix of M&A that we're planning on doing during the year.

Great and as a follow up actually unrelated different topic.

And our global semiconductor shortage fire drill and that's going on can you just kind of address how that impacts you I'm sure it's going to impact auto production builds that might hurt you on one side, but then you.

And there is kind of supply and the response on the other maybe you could just kind of tie that together for us.

Yes, well I think it's going to affect the auto builds I think the forecast out there is 650700 <unk>.

Yes.

Cars.

And that will be reduced by because of the shortages out there, but I mean, Jeff we're running full tilt.

And the semi side and.

Quite frankly, the whole electronics segment is running full tilt as Lorie had mentioned.

Even the smartphone demand, where we have additional content and now because of <unk> that did not even soften up and the fourth quarter and usually seasonally that decline so seeing.

And we're pumping out as much as we can.

And definitely there are some.

Slight slowdown, but the car production is still hot and heavy and you can look at that the 650000 unit reduction.

A reduction and hopefully that works its way those issues work its way through during the first quarter. So we're seeing a little bit there, but again I think our forecast is very solid for.

And what we're going to do and the electronics business and the semi we're also seeing some.

Headwinds.

Raw materials and the C&I business, so which also somewhat relates to the auto business. So we lost a little bit of volume.

And the fourth quarter, and we will lose a little bit of volume and the first quarter because of those constraints, but again our forecast still is very solid and we're pretty much running full tilt there also.

Alright, thank you.

Thanks, Joe.

Our next question comes from the line of Scott Davis of Melius good.

Good morning, guys and good morning, Ed and Lori.

Good morning, and good morning.

What changed.

That got you to keep the.

The non core businesses.

Chris Circuit at the <unk> and the for.

And on the JV.

Is it just a timing issue and that may still be for sale or.

And I'll just leave it at that how do you explain.

Yes, Jeff or Scott.

Look they they're businesses that are kind of down right now because of the end markets will take the <unk> business somewhat arrow space exposed.

There are good businesses, Laurie and I did.

Earliest study of all the non core businesses.

And decided we have some really nice upside and the businesses more moving into C&I our P&I.

The team is really great operators, which is exactly whats needed here. So we think there's a nice upside coming and these businesses it was not.

And it wouldn't have been productive to settle them I don't think it would have been good for our shareholders and we see some good long term trends there so.

And we made this decision strategically to hold on to them and don't expect them to be up for sale during the year, where that's not what we're doing we're putting them in there and we're going to run.

That's helpful and then.

And you just talked about C&I, having some.

Challenges obviously with.

Obvious things and Jeff brought up.

And.

Pricing headwinds I mean, you are able to I would imagine you're able to capture some of the.

Some of this back in price and just takes a little bit of time as it is much of a mix issue is price issue.

And when you say pricing headwinds or is in fact, just explicitly price.

So the headwinds and C&I or really.

The constraints raw material constraints that we're having.

And we're going to be.

Very nice first quarter and C&I, but we could add more upside I think we're going to we think we're going to miss out on about $60 million to $80 million and sales and <unk>.

P&I because of raw material constraints and in the first quarter now we think we will get a lot of that back we will lose it closed the whole industry is having a for.

Few issues, there, but specifically to your question on pricing things have firmed up very well, it's a constructive market for pricing as we've entered the first quarter I think youll see price increases in the industry across the board.

A lot of that won't kick in until you get it by the time you put it in place with contracts.

With customers, usually 30 days 45 days Youll, probably see more and that kicked in second quarter, but it has.

Turned very constructive at this point and time on per.

Right.

Alright, well good luck and 21.

Thank you Scott.

Our next question comes from the line of Steve Tusa of Jpmorgan.

Hey, guys good morning.

Morning, Steve.

Just following up on that last question from Scott on the price side.

I guess for the old teeth.

P&I segment.

What are you assuming for for price or if you just wanted to talk about the new mobility, how ever you want to however, you want to kind of look at it but what are you assuming for price mix for the year there.

Yeah, so for the quarter, maybe at the quarter first and what we had guided to and the slides for the new Mmm segment, we will see sequential improvement and nylon price and so and we were down about 4% and Q4 and we're looking at about 2% and Q1 for there is some sequential improvement. There. However, we still do expect to be down year over year just given.

And.

A bit of a nylon run and the first quarter of 'twenty and 'twenty. So.

We go through the year and that had mentioned that pricing environment and nylon is constructive for you.

And occupancy and that takes advantage of price. So we do expect as we get to that for all year that you could see positive price momentum and reported for the full year basis keep in mind and there are some raw material headwinds that Ed had mentioned that we're dealing with for some of that price and most likely will be offset by escalating rod and especially as oil prices are expected to.

And you take out there are some raw material headwinds that we will upset that day.

And so some of that price depreciation that we would see.

Got it so like flat kind of price cost for the year for you guys.

I mean, it will be kind to have and Ireland dynamic plays out yet so right now I think we could hedge and is staying at about flat.

And statements some upside and if the nylon and the end markets and auto continue to remain tighter I think a couple.

Recent forcemeat yours and the industry.

And the price environment, even more convinced and stuff.

Got it got it and then you mentioned that you are kind of running full out to keep up with some of the demand on the electronic side. I mean are you going to have to.

And capacity at all to keep up with this or are these just bottlenecks that you're there.

And a more temporary.

It's a combo of both.

Steve.

Sure.

Cranking out more and more free enough capacity with for a lot of moves, we're making and on the factory floor, but we're also and capacity with our biggest single Capex project is the cap on expansion and we're running flat out on comp time. So we're I mean, we could definitely ship more if we had more.

Sure.

Manufacturing capability.

And that comes online as we go into 2022.

And that's a big move portion of the capped on is what we used for the <unk> and the smartphones and also Thats a major expansion coming on.

And that we desperately.

Okay, great. Thanks, a lot for the info and I appreciate it.

Our next question comes from the line of Jonas Oxford of Bernstein.

Hey, good morning.

And gentlemen.

Wondering about the capital allocation. So you said youre going to seek.

<unk>.

Board approval for more buybacks.

Can I ask ask what kind of range of buybacks will you be seeking.

And Joe and it's don't don't fully know yet it's also partially going to be contingent on do we do some.

M&A during the year, I mean look and aggregates I mean, we're in a really nice spot here, we've got $5 billion to $6 billion of cash.

Available to us as we closed three non core sales that we've made but haven't closed them. Yet. So I think Lori mentioned, there is still $900 million growth coming in.

During the first half for the year and addition to the $2 3 billion excess from the Iff's transaction and two two and $5 billion. We have just coming into the year from non core sales and operating cash flow. So.

Really nice position to be and.

And so partially just in general and where we ended up on the M&A front.

Moving to sit on cash for that.

Net big number so.

And it'll either be M&A or buyback.

So.

Okay I appreciate that and then if L mind and ask so.

And you've been focused on the transaction getting the businesses back up and running so when you're thinking of for 'twenty one as the CEO what are your big focus areas for the year.

Operational excellence, if I just put it into words.

I think we have still a nice runway for a lot of improvement and wanted to areas that Lori and I are spending a lot of time on.

And is really our throughput at our facilities. We think we have gross margin runway.

To improve.

It's not I think we're best in class when it comes to the overhead cost structure. If you benchmark us against the very best peers, So thats not our opportunity, although always look for ways to.

Optimize that but the key for US is the gross margin line.

Want to move that up over time for 40%, we've been running kind of 35%.

And we're installing a lot of digital analytics at our facilities.

And we spent about $15 million last year and data analytics tools. This year, we budgeted 30 million and see kind of see how we're ramping there a lot of it so on the supply chain and manufacturing efficiency.

And we're putting in some tools on smart demand forecasting process optimization uptime, and we're seeing some real benefits from it so.

So that's a huge focus area for us this year.

Okay. Thank you thanks.

Thanks Jonas.

Our next question comes from the line of John inch of Gordon Haskett.

Thank you and good morning, everybody good morning, Jonathan.

Good morning, guys. How are you thinking about working capital improvements from here I think you had called out.

Correct me, if I'm wrong, a $1 billion long term potential, but you just did over or around $8 50 for 2020, and just working capital have to come back, let's say 2021 as your businesses cycled back, which I guess is probably a good problem to have actually.

Yes. It is a good problem, John but look we look at it.

I think when you're going back into and up environment tier I really look at it for them what are the churn is doing and.

And we took our turns from four points three terms going into last year, we exited the year at five two and.

And that $850 million improvement and.

And our plan this year is to slightly improve our turns from the five point too and not a lot this year, but slightly and that would be a victory for us.

With those areas, where the turns are higher correlate and with Europe.

What you just stated is the sort of five points of runway overall for gross margin. So.

And was going to ask me that too is the gross margin is it comparable by segment that five points to 35% to 40 or how does that delineate and across the three segments.

The biggest the biggest opportunity is asked and see.

And it's also got our heaviest manufacturing footprint.

So between Nomex Kevlar.

Kevlar.

And tie back there.

Our biggest opportunities and the business there our biggest facilities.

Are we definitely know we can improve our uptime and our turnaround times and.

That's the number one area, we're working on a battery it's across the board, but the biggest opportunity is there.

Now let me explain.

Same goes for working capital.

The opportunity still resides within inventory I think our DSO and <unk>.

Nice level and EPS for working capital, we can continue to improve and a lot of that back to the S&P or the new wip business.

And the robot and the opportunity lies.

No. It makes sense and then just as a follow up and what's your appetite for doing something larger and the deal front and the next year or so maybe I was thinking instead of just continuing to shrink Dupont and maybe even the possible asset swap with another company.

Well, John Let me just we always look at every opportunity. So I don't think anything will get bias, if theres something for us.

Thing.

Let me just highlight on zelle and the M&A side, maybe just to size it a little bit for you.

And we could spend up to $2 $5 billion on M&A.

Now things don't always work out and as I said, we're not going to stretch to get something so.

You never know, but we're kind of looking and that kind of range.

If it were to play out.

So just to kind of size a little bit for you.

Look we always look at other alternatives to we get calls every week.

If something makes sense, we'll scale yet.

Got it thank you.

Thanks, Joe.

Sure.

Our next question comes from the line of and fan of Bank of America.

Yeah.

Yes, good morning.

And when you were talking about.

And when you were talking about the.

For <unk> liability settlement.

We also commented that it's your view that your liability will be limited to the law.

Legacy Dupont facilities, giving you didn't ever manufacture of firefighting foams.

Is there anything you can do to solidify that view.

And the reason I ask it.

And the past Dupont.

Supportive.

<unk>.

And the initiatives to have the P fast grouping.

Regulated under Cercla and.

And under the old Superfund days cercla allocated costs.

According to the ability to pay.

Thoroughly to the contribution to the problem and thus is that a potential concern for you with regard to broadening this potential.

Cleanup liability.

Yes, So let me clarify that we have been supportive we've testified in front of Congress.

That.

If your designated as a hazardous substance we are totally in agreement with that we'd rather have a national standard and that restate doing their own thing, but remember under the circular the superfund designation.

It's very narrow who is responsible for and I mean, it's.

It's where you disposed of the materials and the party responsible either had to be the site owner.

For the past site owner when it occurred.

For the person that a range the transported through that location that is the definition under the circle of which is very narrow and you have to be one of the players that did that.

<unk> by the way, we have for sites, where we use the manufacturing agent and.

And we disposed of it on our own sites.

By the way approval to do that and one of our sites has 800 acres, one and one was 1500 acres and Thats why we had so much ground thats, where the disposals occurred. So we're very contained where we did it already cleanup going on with government authorities.

Approving what were doing and thats been ongoing for quite a few years and so and we never obviously disposed of firefighting saw them anywhere and and.

And the dump or anything because we didn't make it so I think look as the facts keep coming out.

And we'll get narrow and narrow here and then we'll as I've said before and I don't want to get into too much detail, it's a little bit proprietary.

But we will look at a way to hopefully contain the for.

Fire fighting foam issue, so our investors understand.

The limited or no liability.

And that sits there based on what we did as a company and.

And Barry and we're very focused on and as you can see we said there was a three pronged approach. We just did two other pieces with the announcements we made.

With the agreement between the three companies and settling the rest of the Ohio NPL for.

Really very little and the scheme of things and so now we will focus on the firefighting foam piece of it remember also we have been sued and states. We don't even have anything and the state state of Arizona State of New Hampshire, We don't even have a facility there.

You didn't do anything there so.

Factual keep coming out here and then hopefully we will get resolution and hopefully something by the end of 2021.

Okay. Thank you for that Ed and.

And now.

And then B has been separated and reshuffled the segments and.

We've accomplished a bunch and the last year.

Just curious how long do you see yourself remaining and the CBO and.

Is there a process underway that could change.

Well I just signed a three year contract.

And I don't know a month or two ago.

No.

So at least that period of time, so no we're not.

No process in place.

And I'm very excited for the next few years.

Okay. Thank you.

Yes. Thanks.

Our next question comes from the line of Bob Port.

Goldman Sachs.

Thanks, very much good morning.

Hey, good morning, Rob.

And Im curious maybe was asked and other ways, but when you think about.

And what your aspirational peer set was and there's some pretty good variance still and the and the valuations of your individual businesses, even though you've obviously made some great progress you've cleaned up.

And some of the non core stuff for portfolio you maybe.

Diminish the angst around Paphos.

What are you sort of see as the strategic options to narrowing that variance from evaluation standpoint.

And about it.

It's one of the reasons.

And when you're buying back shares.

Look at our multiple whatever it is 13 times and yes.

And I stare at ITW use and honeywell's.

Eaton and.

We are just as good a company.

I think part of it is.

And we got to continue to post consistent results I think consistency and people not having to worry.

Think means a lot and the multiple I've been doing this for a long time and I've been saying that for over 20 years. So.

And I think we just keep posting good numbers and.

And I think we continue to close that gap and <unk>.

I think we're going to benchmark very well this year, all our metrics vis vis those other very good competitors by the way and multi industry company. So.

There is a GAAP to the peer set for us for a 500 basis points and I truly don't believe that discounts should be there at all and.

And so we will continue to prove that outdoor and 2021.

And you mentioned a few markets that have been quite hot obviously, you've got a few and and the portfolio and markets that are maybe more of a post pandemic glide path.

Can you give us some update on how you see things progressing and energy are and maybe aerospace for some of these other businesses that are going to take a bit longer to recover.

Yes.

Scribe and high level, and maybe Lori wants to give a little more detail.

Some of those the oil and gas aerospace they dropped 30% to 40% on the revenue line and are good as we kind of glide back up get half of that back in 2021.

That's kind of how if you just put them all together and that's how we would look at it. So we still would be down from 2019 levels in those end markets and oil and gas specifically in aerospace as you mentioned would be.

Two of those.

And that's kind of how I would look at it.

Great. Thanks, so much.

Okay.

Our next question comes from the line of David Begleiter of Deutsche Bank.

Thank you good morning.

And Lori just on the sales guidance of up 7% and 9%.

<unk> segment, which would be above or below or in that range do you think.

So I'll give it to you and the current segment basis, and then we'll wrap it on the Q1 call when we have our free cash.

And to get to the new segment basis. So from the old segment basis, we would see P&I and probably a bit above that average 8% just given by other strength that we had mentioned earlier with the with the V shaped recovery and automotive and potentially some pricing tailwind for that could come our way.

And had just mentioned within S&P a bit more of a delayed recovery to for 2000 2019 levels within a lot of the elements and market that sell into oil and gas and air.

Aerospace for example, today with present day.

Perfect and.

With the electronic right now right around that average and so very strong and the first half as we see it.

We're watching the second half will see habits habit trends continue and across EMEA across.

And the <unk> infrastructure to see how.

How we continue to trend there obviously you posted very strong results in 'twenty and 'twenty up about 8% and that segment. So I would say that for you put it for P&I at the top right around the middle and F&B and probably.

Lagging the average for the company.

Very helpful. And then just how was January was it above or in line with your expectations and what are you expecting or seeing around Chinese new year.

Okay.

Yes, so and you hit the nail on the head with the lunar new year. So January it's hard to hard to gauge.

From how the quarter is going to play out because it was strong just given the timing of lunar new year from this year to last year. So we're still comfortable looking at January Bob with the Q1 guidance that we gave.

And we will and we will see how we had mentioned at nylon price continues to play out as well.

And the ability of raw materials within the P&I business to satisfy that demand and we'll see how much unconstrained demand we have at the end of Macquarie.

Thank you.

Yeah.

Our next question comes from the line of Chris Parkinson of Credit Suisse.

Great. Thank you very much naturally there are a few moving pieces heading into 'twenty, one as well as 22, but just given the current and market trends youre seeing and how they are setting up for that timeframe as it pertains to op leverage and mix.

And your efforts to for them for your overhead structure and improved your cost profile. How should we just generally think about incremental margins on a segment by segment basis over that period.

And how we used to think of and are there any major differences, we should really be honing in on thank you.

Yes, I mean, I think on a steady state basis, there shouldnt be a material difference between <unk> and 'twenty 'twenty one it will vary because of the recovery and the different shape of recovery and we talk and a total company level.

And based on the guidance that we provided you with the incremental margin sorted and the low forties for.

2020 lineup for 'twenty and 'twenty.

Total company.

Great and just as a follow up in terms of your water solutions portfolio, where do you see your largest strength heading into 'twenty, one and 22 in terms of product offering.

Also comment on just any additional substrates and you feel could potentially augment via M&A to further enhance the breadth of your offerings. So just just trying to get a better sense of the longer term strategy within the portfolio. Thank you.

Yes, so I think with the acquisitions that we made at the tail end of 2019, we now have the probably the most complete portfolio and industry and we've got technologies within ultra filtration and reverse osmosis and ion exchange and so and we look forward to capture opportunities there and we're looking to provide not only material.

And for those individuals basis, but also a solution set and escalation play and more along the lines of the complete offering and we look to M&A and we'll look for continued to round out that portfolio from both for enhancing existing businesses as well as all for potentially looking at a geographic play so obviously a lot of.

And the opportunity within the water space and more of the emerging regions and there is some M&A play that we can utilize and take advantage to solidify our footprint and cemetery GAAP.

Other fees.

Thank you very much.

Thanks, Chris.

Our next question comes from the line of John Mcnulty of BMO capital markets.

My questions just a follow up on the on the water treatment side of the water solution side. So you indicated there were some order delays just around around capital projects being delayed I guess can you can you quantify that a little bit or kind of frame it for us a little bit and and also can you speak to the visibility that you have and this business how far.

You can actually see and how how you see 2021 as a whole playing out this year.

Yes, so if we size kind of the headwinds that we saw in Q4. There was as we had mentioned the catheter delays there were office and logistical delays and the quarter too.

And they are already to get shipping out the door. It was probably about $15 million for the fourth quarter. So as we look at January results. They were strong day were again up about 6% and we're looking for the quarter Terry to return to that mid to high single digit growth within water.

And for the year generating at that level as well, so we're confident and the and the go forward portfolio. There, we just had a little bit around.

Our capital project delay and as I had mentioned logistics as far as visibility is concerned.

But we have.

Back and loaded order patterns and so a lot of and sales go into large capital projects that tends to be pushed to the back ended the quarter and so our view.

His ability there on those larger opportunities and a little bit more limited than some of the shorter term opportunities and selling materials into like I had mentioned and adverse estimates and ion exchange.

Got it fair enough. Thanks for the color on that and then just a follow up on and.

Your comments earlier around the hope of getting the gross margins to at some point getting them pretty close to 40% or above.

And with a lot of that tied to or it sounds like.

Proportionate amount tied to FMC, So I guess just back of the envelope.

Says SMC starts to see margins at some point.

And the low to mid thirties, which is which is up and obviously a notable jump from kind of where we are I guess what are the is it just operational improvement that gets you. There is it is it mix improvement and some of these higher margin businesses like water really start to accelerate I guess, how do you get to those types of levels, if thats what youre.

Targeting out and say whatever over the next two to three years.

Yes.

And see I would targeted more towards the high twenty's.

EBIT margin because not all of the opportunity is in that business, but it is the biggest single piece and I would say the single biggest thing then and there is the factory optimization are up times.

Our throughput.

On those assets. So that's the biggest area and Thats, where were putting a fair amount of focus on digital tools going into to.

To help us there, but I think that business should be a high twenties.

But the type of business.

For the medium term here.

And we can definitely run it there, but it's mostly on the factory optimization piece.

Got it thanks very much for the color.

Yes, Thanks, Joe.

Our next question comes from the line of John Roberts of UBS.

Thank you.

And do you have to reset some of your sustainability targets here would be and and base business going away because obviously that was the greenest of the Dupont businesses.

Yes, no we don't John I mean, we have our targets laid out by segment and barring Theyre public. Obviously, so you can go and look at all of them. So no. It doesn't really change what we're doing and what we've laid out but I guess for overall it does for Dupont because youre taking share.

30% of the EBITDA for those businesses.

But we have targets laid out by by Division and then totally for the company. So.

And it's a big focus area for us this year.

We've actually I don't think we've said this publicly but we've actually put sustainability and our.

Bonus structure this year, it's a modifier of 10% and either direction.

And what the bonus payout would be for the company based on targets that we set with the board so im happy and.

And I'm glad that we put that in place also so all of our employees know the importance of it to us to hit the goals that we've laid out.

And then can you quantify at all what the raw material inflation number might be for 2021, what percentage should we expect year over year and what are the couple of things that are going to be above the average.

To push that high.

Yes, so in total I would quantify and about $100 million.

Of a headwind in 2021 with the predominance of it being within P&I and some of the guidelines Inc.

Thank you.

Thanks Chuck.

And ladies and gentlemen, it looks like we have time for one more question. Our final question will come from the line of Mike Sison of Wells Fargo.

Hey, good morning, hope, it's warmer and Wilmington, and that is in Cleveland, but.

Yes, just one question, I guess and transportation and industrial and a lot of companies and polymer lands is talked about recycling sustainability and our risk.

Cycled plastics and that type of offering.

Just maybe give us your thoughts on where you participate in and that trend and then is it maybe potentially and area for acquisitions to beef up that part of your portfolio.

Yeah.

Yes, I'll answer the second part first so around the M&A opportunities right now I would say theyre more bias for the electronics space.

Within automotive and they could be bias towards more and getting us more of a footprint within the electric vehicle space.

And then obviously within as we had mentioned earlier and the water space rounding and rounding out that portfolio taking advantage of it.

Underlying growth trends within that space.

I think as far as the.

Alright, thanks for ability within within that space.

Don't see that as a large challenge for our business I think that more within the plastics space I don't see that as a material driver of the overall new Dupont company.

Great. Thank you.

Thanks.

Thank you everyone for joining our call for your reference a copy of our transcript will be posted on deposits website. This concludes our call.

Okay.

Thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.

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