Q2 2021 Dupont De Nemours Inc Earnings Call
And then.
[music].
Good day, and thank you for standing by welcome to Dupont and second quarter, 2020, 1 earnings call and.
At this time, all participants are in a listen only mode and.
After the speaker's presentation, there will be a question and answer session.
And I ask a question during the session you will need to press star 1 on your telephone.
And please be advised that today's conference is being recorded.
Do you require and you've heard assistance Please press star zero.
I would now like to hand, the conference over to your first speaker today, Leland Weaver, Vice President of Investor Relations.
You may begin.
Good morning, everyone. Thank you for joining us for Dupont and second quarter of 2021 earnings Conference call. We are 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, Lori Koch, our Chief Financial Officer, and John <unk>, President of our electronics and industrial segment.
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 and involve risks and uncertainty our actual performance and results may differ materially from our forward looking statements. Our 2020 form 10-K as updated by our current and periodic reports include detailed.
And a 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 included in our press release and posted to the Investor page of our website.
I'll now turn the call over to Ed.
Thanks, Leland and good morning, everyone and thank you for joining us I.
I will provide comments on another overall strong quarter, including continued advancement of our strategic priorities is the premier multi industrial company and the growth and creating value for our shareholders, but first let me acknowledge the continued determination of our teams.
Navigate through unprecedented circumstances on the pandemic.
As a result of the principles and protocols that we adopted over the last year, we continue to operate safely and productively on site and remotely.
We are encouraged all employees to get vaccinated and where possible. We are working with local governments to facilitate access including on site vaccinations at some locations.
Our Wilmington based office locations have fully reopen and I have to say it is great to be back on the office with our teams.
Starting on slide 2 in line with our philosophy. The consistent operating performance is a key factor and creating shareholder value I am pleased and note that this morning, we announced another strong quarter with financial results above expectations.
Lori will take you through the specifics.
But in summary, broad based organic growth was driven by continued strength and our key end markets, including ongoing recovery and those most impacted by the pandemic.
Despite a challenging production environment with escalating raw material costs.
And continued supply chain and logistics constraints.
Strong operating discipline and quick pricing actions resulted in about 460 basis points of margin expansion versus the year ago period.
With strong order trends, continuing and confidence and our team's ability to continue to navigate through raw materials and supply chain challenges, we are raising our full year guidance for net sales operating EBITDA and adjusted EPS.
I will provide more details on our updated guidance shortly.
In addition to our financial results, we continue to execute on our balanced approach to capital allocation during the quarter.
And may we further de Levered, our balance sheet by redeeming 2 billion of bonds, thereby reducing our gross financial debt $10.6 billion at the end of the quarter.
Since the end of last year, we have paid down a total of $5 billion of debt and do not have another debt maturity until the fourth quarter of 2023, which further solidifies our sound liquidity position.
We also returned approximately $800 million and capital to shareholders during the second quarter through share repurchases and dividends.
During the second quarter, we purchased a total of $640 million and shares.
Which includes completion of our previous share repurchase program and the start of repurchases under our new authorization announced last quarter, which expires on June 32022.
Through the first 6 months of the year, we repurchased approximately $1.1 billion and shares and plan to be opportunistic with our remaining authorization as we move throughout the year.
And in July we repurchased an additional $125 million of shares.
With respect to dividends, we returned about $160 million and cash to shareholders during the quarter.
As we previously mentioned, we intend to work with the board to increase our dividend annually as we grow earnings.
Before I close I am pleased to note that in late June we closed on the previously announced divestiture of our supplement business for approximately $190 million.
And on July 1 we completed the acquisition of layered performance materials utilizing cash on hand.
The layered acquisition advances Dupont strategy of growing as a global innovation leader and strengthens our leadership position and advanced electronic materials.
Joining us today is the president of our globally and ice segment, John Count I am excited to have John on the call today and I'll now turn it over to him to provide further detail on how this acquisition complements our interconnect solutions business within Eni.
Thanks, Ed it's a pleasure to be on today's call and to share more information about the acquisition of <unk> performance materials.
And exciting transaction for Dupont that significantly advances our position in the electronics industry and accelerates the transformation of our interconnect solutions business into a total solutions provider.
<unk> been following layered for several years and have admired their capabilities as a leading provider of electromagnetic shielding and thermal management solutions and are excited to have added their capabilities and history of growth to our portfolio.
As a reminder, layered delivered $465 million of revenue with approximately 30% EBITDA margin in 2020.
And I and layered are both recognized for innovation quality and reliability and have strong relationships across the electronics industry is.
Combination brings together Dupont Premier applied material science expertise with <unk> industry, leading application engineering capabilities. It also adds more content on many of the devices that we're already in and.
We have already begun the process of integrating layered into our existing interconnect solutions business, providing opportunities to further optimize business structure and functional support and our global site network.
We expect $60 million in run rate cost synergies by the end of year, 3 with approximately 60% realized and the first 18 months, we expect to achieve cost synergies through a mix of G&A procurement and site consolidation initiatives.
The next slide I'll share some of the key benefits of this transaction and describe how the combination enhances Dupont <unk> position as a leading electronics materials provider.
The acquisition of layered expands our position as an essential partner of choice from major Oems.
Larry serves a broad set of overlapping and complementary end markets across consumer electronics, telecommunications automotive and other industrials with a similar geographic representation to the rest of the interconnect solutions business with a particularly strong.
And in Asia.
And the second way it enhances our position is through innovation. This acquisition strategically aligns us to critical needs across thermal management signal integrity power management miniaturization and high reliability.
And it enables us to have early engagement with Oems and both system design and materials specification, creating both greater product differentiation and higher margin.
The next benefit of the acquisition is that it broadens our portfolio of solutions with layer 2 unique multi functional capabilities, we will leverage and expanded customer base broad product portfolio global scale and deep technical expertise to increase speed to market create new efficiencies and the develop.
<unk> have integrated and multi functional solutions and provide high value next generation products that will deliver additional growth in the next several years, we believe customers will see and media benefit as the combined Eni organization and gauges of cross value chain to address the increasingly comp.
Plex challenges in the industry.
Our combined organization will advance our leadership to help customers accelerate solutions necessary for the adoption of high performance computing artificial intelligence, <unk> communications, and smart <unk> vehicles, and the Internet of things, we will be well positioned to capture growth and these.
Key secular growth areas. In addition, we expect revenue synergies from cross selling into complementary accounts and channel.
New and faster product development for multi functional solutions and deeper design and co development partnerships with Oems.
With that I'll turn it over to Lori to provide details on our second quarter financial performance.
Thanks, Don and good morning, everyone I will cover our second quarter financial performance beginning on slide 5.
Ill turn the corner and reflect the diversity and strength and our portfolio and our team's continued ability to execute and the face of escalating raw material costs and global supply chain and logistics headwinds.
Net sales of $4.1 billion were up 26% versus second quarter of 2020 at 23% on an organic basis.
The organic sales growth resulted from a 20% increase in volume and a 3% increase and price.
Currency provided a 4% tailwind in the quarter, which was slightly offset by a 1% headwind and the readout of non carb business divestitures and the prior year.
Overall sales growth was broad based with double digit growth on an organic basis, and Australian operating segments and across all regions and and.
Most notable increase for instance, a year ago period, and then our Eminem segment, reflecting the sizeable change and the global automotive market versus the prior year and disciplined pricing action.
I will provide additional color on our segment topline results on the next slide.
From an earnings perspective, we delivered operating EBITDA of 1.16 billion and adjusted EPS and $1.06 per share up 53% and about 248%, respectively, a year ago period.
Earnings improvement resulted from volume gains, most notably reflecting ongoing recovery and key end markets adversely impacted by the pandemic and the absence of approximately $150 million and charges and hated that temporary idling certain facilities, partially offset by the absence of a $64 million gain associated with that joint.
Sure.
And divested.
Strong operating EBITDA leverage drove operating EBITDA margin expansion of 460 basis points.
Incremental margin for the quarter were about 43%.
Given the unique nature, and 2020 and the discrete items that impacted our operating results and the prior year and.
Important to evaluate our year over year operating performance for our core results on an underlying basis.
Specifically operating EBITDA for our core results during the quarter was up about 40% versus last year. After excluding the impact of the $150 million and item mill incurred and the prior year with about 240 basis points of margin expansion and operating leverage of 1 and half time.
Similarly, I continue to track our growth versus 2019, given the significant impact on pandemic and.
Mark it's last year and.
And comparing our current second quarter results came more normalized performance for the pandemic.
Our reported sales and the quarter were up 6% versus the second quarter of 2019 and up 10% versus that same period for our core sales.
Operating EBITDA for our core results during the quarter was up 15% from second quarter of 2019, or 1.5 times leverage.
From a segment perspective, Eni delivered operating EBITDA margin of 32% with 190 basis points of expansion driven by broad based volume gains.
Mmm delivered significant operating EBIT improvement driven by an overall recovery and automotive markets and the absence of approximately $130 million and charges associated with temporarily idling polymer capacity and the year ago period.
Operating EBITDA margin for the quarter was 23%, reflecting volume growth and net pricing gains resulting from actions taken ahead.
Raw material costs.
And <unk> operating EBITDA increased 4% versus the year ago period, operating EBIT and margin and leverage were adversely impacted primarily by 2 key drivers.
First given contractual commitments that customers local selling price increases lagged the headwind from raw materials and supply chain cost escalation. We expect this to resolve and the second half as price increases start to kick in.
Second production volume for tieback protective garments were at peak levels and the year ago period, given the company's response to the pandemic.
It enabled us to minimize manufacturing changeover to either tie that grade, resulting in an overall increase and production rate.
And I think outlet shifted from protective garments and multiple.
Other applications, and resulting increase and expected changeover and the current quarter decreased production rates leading to lower volume.
For the quarter cash flow from operating activities and free cash flow of $440 million and $224 million respectively.
While these amounts have improved since the first quarter cash flow and conversion are not where we need them to be the headwinds. We faced are related to increased working capital levels and capital spending in excess of DNA as we advance critical capacity expansion projects.
With respect to working capital we saw an increase in inventory due to our efforts to create a more stable supply chain for our customers given the strong demand environment and numerous raw material and logistics constraints.
And the second half of the year, we expect higher cash flow and conversion rates as the global supply chain and logistic environment stabilizes.
Slide 6 provides more detail on the year over year changes and net sales for the quarter, starting with Eni organic sales were up 17% on 17% volume growth with double digit volume growth increase it and all regions.
Volume gains were led by mid Twenty's percent growth and industrial solutions, reflecting broad based demand strength across most product lines.
Most notably for OLED displays for new film and television launches.
Medical silicones, and healthcare and Cowboys sales within electronics.
Interconnect solutions also delivered organic growth over 20% with high teens volume growth and.
Volume growth was driven by higher material content and premium next generation smartphones, partially resulting from timing shifts and select OEM demand shifted from the second half this year, along with some share gains for printed circuit board.
Semiconductor technologies continues to benefit from strong electronics demand and advancements and key growth areas, such as <unk> high performance computing and electric vehicles.
During the quarter, new technology ramps and advanced nodes within logic, and foundry and higher demand for memory and servers and data centers drove double digit volume growth.
Continued recovery of key end markets with nwfp drove organic growth of 11% driven by volume increases.
Sales gains were led by a recovery in construction with the shelter solutions reporting organic sales growth of more than 30%, which reflects continued strength and north American residential construction from product X styrofoam and tie back half ramp and and retail channels for do it yourself applications.
Marshall construction recorded higher sales and the quarter for Korean surfaces as global demand continues to improve.
Within safety solutions organic sales were up high single digits, reflecting strong volume improvement for aramid fibers, and industrial and oil and gas and automotive end market.
As previously noted lower production volume for tieback reduced overall safety volume.
And water solutions broad based demand for wire technology remains strong however, logistics challenges primarily in our ultra filtration business impacted our ability to supply, resulting in a low single digit volume decline versus the year ago period.
We expect organic sales growth for the year for water solutions to be in the mid to high single digits.
The most notable increase and top line improvement within our M&A and segment, which had organic sales growth of over 50%.
The improvement Mr. Ivan by the continuing recovery of the global automotive market, which represents about 60% of the segment from an end market perspective, and helped deliver strong volume growth across all 3 lines of business.
Local pricing gains of 13% also contributed to organic sales growth, reflecting our actions taken to offset raw material costs and higher metals pricing and the advanced solutions business.
<unk> metals pricing local price was up about 8%.
Within engineering polymers global supply constraints of key raw materials continues to improve and are expected to remain tight through the end of the year. We continue to expect to recover lost volume related to these disruptions as the raw material constraints are alleviated.
Turning to slide 7 I mentioned earlier that adjusted EPS of $1 <unk> per share was up over 240% from 31 per share and the year ago period.
Segment earnings resulted in net and net benefit totaling over 40.
This net benefit resulted mainly from higher volumes and the absence of idle mills recorded in the prior year offset slightly by portfolio changes, which includes the absence of the gain recorded in the prior year and corporate.
And also providing a significant benefit to adjusted EPS versus last year with an approximate <unk> <unk> per share benefit due to a lower share count.
Benefits from lower interest expense and the current quarter as a result from our region.
And Delevering accident, and was mostly offset by higher base tax rate compared to last year.
Our base tax rate for the quarter of 19, 8% was higher than the year ago period due to the absence of certain discrete gain benefiting the prior year rate.
For full year 2021, we currently expect our base tax rate to be closer to the lower and our expected range of 21% to 22%.
That I will now turn it back over to Ed.
Thanks, Laurie let me discuss our financial outlook on slide 8 which includes our view on the third quarter and full year 2021.
We are raising our full year guidance range for net sales operating EBITDA and adjusted EPS.
Along with the underlying improvements that we are expecting compared to our previous estimates are revised guide also reflects the acquisition of layer and the divestiture of the supplement business.
In addition, this morning, we announced the change and how we will treat intangible amortization expense beginning in the third quarter for purposes of determining adjusted EPS.
At the midpoint range provided we now expect net sales for the year to be about $16.5 billion and operating EBITDA to be about 423.5 billion.
Also we now expect adjusted EPS to be $4.27 per share at the midpoint of the range provided.
And which reflects about 20 <unk> underlying raise to our original estimate.
<unk> benefit from the portfolio changes and <unk>.
On the 27 and 7 full year benefit related to the amortization reported change.
And the third quarter 2021, we expect net sales to be about $4.2 billion operating EBITDA would be about 1 point of those 7 billion and adjusted EPS to be about $1.12 per share while at the mid points on the ranges provided.
Before opening up for Q&A I'd like to provide some highlights on our commitment to ESG and what we are doing to sustainably grow and operate our businesses for the long term.
In June we published our 2021 sustainability report, which reflects our first full year progress against the 2030 goals that we set in 2019.
Our reported highlights more than 50 examples of how our teams are addressing the environmental and social needs of our customers and communities.
On the highlights from this.
Report are reflected on slide 9.
And as a fundamental to our core.
Core long term strategy, which is why the board of directors and I made the decision to incorporate the progress on our sustainability goals into our incentive compensation program beginning this year.
As an innovation leader, we believe our biggest lever to affect economic environmental and social progress.
Through working directly with our customers.
Today, our R&D investment is focused on the intersection of key market trends and the needs of sustainable development.
1 example of how we are doing this is and the area of addressing the global need for clean water. Our water solutions business recently launched its be free technology. This pretreatment solution enables a significant improvement and the reliability of reverse osmosis desalination plants.
Another example is within advanced mobility.
Adoption of electric vehicles is fundamental and addressing climate change through leveraging our broad portfolio of expertise and battery Assembly and thermal management for electric vehicles are Dupont Eminem team collaborated with general motors to develop and advanced adhesive solution for use and electric vehicles and <unk>.
June as a result of our close collaboration.
And I recognize the Dupont team with a GM supplier of the year Award.
How're of customer partnerships to drive sustainability is a key element to our long term growth strategy and iron.
Confident that we will continue to deliver these types of wins and the future with that let me turn it to Leland to open the Q&A.
Thank you Ed 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 1 question and 1 follow up question per person operator, please provide the Q&A instructions.
Okay, and then as a reminder to ask a question again, you wouldn't need to press star 1 on your telephone and it's really.
A question, France, and the turnkey again that is star 1 basketball question.
Please stand by while we compile the Q&A roster.
Operator, do we do we have any questions.
Your first question comes from the line of John Walsh with Credit Suisse. Your line is open.
Okay.
Hi, good morning, everyone and thanks for taking the questions.
Hey, John.
And maybe just.
First question is around your gross profit margin improvement and the quarter I know, there's some moving pieces there with the Eminem idling, but.
By my calculation, you're up almost still almost 200 basis points year on year. So just curious how much of that you think is sustainable maybe what's driven by some of your longer term programs versus what might have been benefits from the year ago comp or something else there to call.
Out.
Yes.
And at margins were around 36% and the second quarter. If you look to the back half and the guidance that we provided to me and to remain around that range and so thank you.
Laid all of the 1 timers out of 2000 and Suwanee, we were around 35% and we thought about 100 basis points of improvement underlying we mentioned in the past that we see a few hundred basis points from the improvement in gross margin getting closer to that 40% range over the next few years and we continue to execute against that commitment.
And as you had mentioned is just from this year's improvement and just from the stronger volume, resulting with higher yield for our facilities and and higher results on but we're also driving improvement and reliability, enabling from digital sales across the organization and higher throughput throughout our organization with the 1 exception as we had mentioned.
Within our seismic operations and so we did see gross margin deceleration there really just a result of the fact that last year moving over to run on the tieback medical grade.
In order to be able to meet the pandemic response and this year.
Demand wanes and returned to other grades and buybacks and resulted in margin and therefore.
From yield and volume hits, but overall, we're on track with our commitments to get closer to that 40% range over the next couple of years.
Great and then maybe just as a follow up was curious if you could be a little bit more explicit with your views on kind of the timing of smartphone demand and shipments and the back.
1 of your competitors is expected to see a decline there.
Just curious if you could provide a little bit more color there.
Since we have John with Us So I will let John take that 1.
And John Good question. So in the in the first half of the year, we definitely saw some acceleration of orders from smartphone customers really as a result of a couple of factors. There was a late timing to device launches in the back half of last year strong demand move.
Some of those orders into the first part of this year and then you had a lot of folks just trying to secure supply reliability and the face of some of the raw materials and logistics challenges. So in general we think smartphones are going to grow about 10% over the course of the year.
Not quite as steep a seasonal curve of maybe what we've seen and the last couple of years. So the curve is flattened bed general demand continues to be strong.
John you might want to mentioned further growth.
This is part of Ics kind of the mix of Icf's growth its model smartphone, yes sure at the.
And the interconnect solutions business is about 25% driven by smartphone demand about 30% of the demand is other consumer electronics, whether thats laptops computers tab.
Tablets.
And the smart devices about 20 percentage automotive, 20% broad industrial demand and and the rest and telecommunications.
Yes.
Great I appreciate the color on and I will pass the baton.
Thanks, John.
Next question, we have Jeff Sprague with vertical research your line is open.
Hey, Thanks, good morning, everyone.
Hey, Jeff.
Good morning.
And our war and could you just elaborate a little bit more on what youre thinking on cash flow, how that working capital might kind of unwind over the balance of the year here and.
Could you give us a range of what we would expect actual free cash flow to be.
Yes.
Yes, Jeff look we purposely have.
Hold on some inventory. So obviously look our receivables are up with sales were very good on payables. We purposely took a turn here to build some inventory buy rates really in 3 categories semi finished wall and a little bit of finished goods inventories you will see when we come out with our Q.
And it's mostly and the eminent and business and Bobby on the wall side, we've taken and inventory and in many cases, we're ready and waiting for glass fibers to do our compounding and finish it but we wanted the supply and house just because of all the challenges out there and the supply chain. So we purposely and allowed that to build all the inventory.
Tori by way is good and we'll ship that out so our free cash flow conversion of first day up is not what we would normally run as a company obviously.
Clearly improved fairly significantly and the second half of the year and I think Jeff will give you a little more guidance when we get to the third quarter on where we think we'll land for the year, but we definitely took a little bit different tack to kind of.
Be able to satisfy our customer base.
And.
And this kind of a challenging environment.
Mark point to note on net headwind to us that is and the Capex and.
Vs DNA, so where revpar casting around $900 million and Capex that compares to roughly <unk> 50 on depreciation.
And dancing select capacity high return on investments will wrap up the cap time came for investment and second low this year and we continue to advance the tieback line 8.
Expansion, and Luxembourg, which are causing us to be a little higher than.
And then depreciation as we advance those initiatives, but we still have cash will continue on the buyback path and the second half week noted on the call that we did $125 million and July we'll be getting back in the market here shortly and continue to execute against that opened $1.5 billion plan.
Great. Thanks for that color and then I guess, maybe just the natural follow on to that then.
And obviously, all the puts and takes going on and this year, but on the on the new EPS construct would you expect to be able to put on a normalized converting and the and the low ninety's on.
On the Cps Comscore.
Free cash flow.
Thank you.
Yes, I think.
I don't know that we will get to the 90% this year and I think with the headwinds that we're seeing and working capital as well as the Capex and excess of DNA I think 90 will be and be tougher. This year I think if you normalize our we've been in the past.
It's very strong and we had 170% roughly last year and its previous couple of years are right around 100% Mark and it seems we get through this.
This difficult.
We're on material and supply environment, and we'll get back to our EBITDA run rate, but I don't see it this year.
Great understood. Thank you.
Thank you.
And next question, we have Steve Tusa with Jpmorgan.
Hey, good morning.
Hey, good morning.
You may have addressed this but I guess and get into kind of incremental in the second half.
Kind of mid to high <unk>.
Reported and then I think you add.
A few idling kind of residual idling impact so kind of.
The core Incrementals and maybe be a bit.
Below that is that am I looking at the math, the right way or maybe theres. Some other puts and takes.
You are yes, sir and the right ballpark and and.
And really that deceleration from the incremental margins and then we saw on the first half is really just the impact of the pickup and raw material escalation. We are getting it all in price and that as you know it will hurt margin percent and then day incremental margin, maybe a little bit weaker as we navigate that and Nebraska.
Got it that's helpful. And then just price on and mobility materials, I mean like a huge number obviously this quarter.
Does that kind of sustain itself and in the low double digit range and the back half the price mix impact.
It does yes, we see a strong again in Q3, and we'll see how Q4 plays out and we'll also start to get price with N. W. And P. As we had mentioned so we didn't have price and WMC and QQ will look to have.
And low to mid single digit price improvement and W. P..1. Thank you be careful on this is the metals impact so that really pleased with the results running through corporate and then the results running through and and am So.
And silver price for example that impacts the Eminem portfolio rises we've got contractual pass back that we get the price, but it does impact the Cogs. So that's 1 piece. So if you normalize that out from the and minimum results, which are as reported 13 thereabout closer to 8%. So that's more of like the underlying polymer and driven price.
Increases Okay, and then just 1 quick 1 on that last 1.
If these raws.
Start to fade.
Do you give that price back.
Is it is it that kind of contractual aware that that price would go in the other direction as we look out to 'twenty 2.
So on the metals piece, yes, so it would move directly with the metal price within the overall polymer portfolio.
I would envision that we would have to start to give it back if we see the nylon feedstocks for example, and start to reduce we would imagine it and we will be getting back at that price.
I don't know about the exact timing of it we would obviously try to hold price and festival and we can.
But it would be a headwind for us start to T.
Decelerate margin hanging margin and and they're obviously, Steve in that environment.
It's online they won't price tie quarter to quarter exactly but you would give it up over a year period got it.
Got it okay, great. Thanks, a lot for the color Super helpful. Great. Thanks, Steve.
And the next question, we have Scott Davis Melius Research your line is open.
Hey, good morning, everybody.
Hey, Scott.
Great.
And we've talked about the water business, a little bit I mean the.
Comment on.
And then next just.
Water technologies.
Net due to.
Due to logistics and then what.
What is it about that business in particular that made it harder to get price and.
We've seen price pretty broadly I think across the industrial segment. This is this.
This quarter, so what is it about that business structurally and.
Can you capture it and and.
And real time are you kind of perpetually behind hereon on <unk>.
Price or can you catch up pretty quickly and.
And the upcoming quarter.
Yes, Scott.
Pardon me overall and Lori made this comment just overall the water business seems very healthy as we move forward and as Lorie had mentioned.
Our topline should be mid to high single digits. This year.
Yeah.
And the logistics issue fiery was also on corn and export issue out of.
1 of our product lines, and Germany that held us up at the end of the quarter. So we couldnt get it out the door with a fairly significant project shipment we were doing so.
And so that'll come out and the third quarter and we should have nice revenue growth and the third quarter and then I would say just generally this is true of the water business, but WP and general we put pro.
Rice increases through during the second quarter.
But a lot of them, especially on the water business because there is some project driven business, we have locked contracts for some period of time.
Usually about a quarter by the way so the price will lag about that much before we can implement it. So we expect to see positive price and the third quarter and the whole WP sector in general, which we didn't see and the second quarter, because we put the increases through will start to actually see it kick in and the third quarter.
Okay. That's helpful. And then since we've got John on the line and are there more deals like layered out there and then on electronics and I don't really know.
I don't think many of us are on the liner.
And the weeds and that particular business, but if you can help us understand how fragmented that.
Perhaps if theres more deals like that out there.
Yes, Scott Thanks.
Obviously, we've seen a number of deals across the electronics industry I think it's an industry characterized by a with a fairly fragmented supplier base across a number of core technologies. We're obviously interested in continuing to build out our portfolio in places where the technology is.
Adding value to help our customers solve problems, especially those that are aligned with leading edge technology and semiconductor <unk> materials and even in the and in our industrial solutions business with some of the precision parts and medical silicones continuing to strengthen those we believe that there will continue to be on.
<unk> for us to continue to add and build on to that part of our portfolio.
Fantastic. Thanks, Good luck, John and thanks, everybody.
Thanks, Rob.
Thank you next question, we had on David Begleiter Deutsche.
Noise from Bank your line is open.
Thank you again and good quarter.
And for John John given the new revamped and strengthened portfolio what are the underlying growth of this business over the next 3 years.
Yes, David Good question. So obviously, it's been a really strong demand environment for the last couple of years 2020, even and that pandemic environment was was strong and we were able to grow nicely 2021 is also shaping up and see the continuation of those trends.
Overall broadly we would expect it to be mid to high single digit growth over the over the kind of the time horizon.
And then there'll be puts and takes along the way, but really strong robust demand conditions across all 3 of our businesses going forward.
Very good and then how is the M&A pipeline and the non electronics area areas of the business.
Yes, David I'm, not going to get into specifics on it but we do have a few targets were seriously spud and I'd say a little bit bigger than.
Bolt on but on the bigger and the bolt on and if I could.
And use that term.
Barry I know I've highlighted before we were looking at 1 water assets that was tuck in and we worked on that we didn't think the economics worked well for us.
So that's off the table, but there is a couple of other areas. We're interested in but it would be something that we're already in and like electronics for instance, John just talked about where we get add on some technologies and grow. So if there is a couple of areas. Besides electronics, we're looking at but again balance sweet spot of what we know how to do.
Thank you.
Yeah. Thanks, David.
Thank you next question, we have Vincent Andrews with Morgan Stanley.
Thanks, and good morning, everyone.
Just maybe Ed how are you thinking about the fourth quarter in terms of maybe seasonality as well as sort of what you think happens in terms of raw material costs and availability just help us understand what's baked in there.
Yes, sorry.
This year, the seasonality would be a little bit different Vincent will start to recover some of the volume that we couldnt ship because of supply constraint and so I think that'll plug and a little bit more on the fourth quarter and I think if you look at the Guy and we gave you kind of see that here.
And overall picture as we went into the second quarter thinking the raw materials.
And out of $300 million.
And we now estimated to be $400 million.
A headwind again as Lorie had mentioned, though we will get price and won't tie quarter to quarter here, but we will get price to cover that and you can see obviously, we got a nice price and Eminem this quarter, and we'll start getting price and wip.
Next quarter, we think we will see some a little bit more escalation enrolls and a few areas and <unk>, which will hold the margins back maybe a little more than we would want.
Going into third quarter, but again still solid about where we were and the second quarter and then Mike Mike.
And I'll say my personal opinion is the roles of kind of got 80, 90% peak to where they were at here.
And our guide plans that they hold through the year at these higher roll levels, but again, we get price.
Okay.
Very helpful. And then maybe just as a follow up.
A few weeks ago, you did a settlement with Delaware and <unk>.
And maybe you could just speak to any update to the broader <unk> settlement strategy have whether we should be anticipating further state by state settlements or.
And what states, where maybe you don't have manufacturing capabilities I thought.
The idea was just to concentrate on where you did but just broad broad update on.
And what's your thinking.
Yes, so look Delaware ended up costing us $12.5 million and.
And remember Delaware was 1 of the ones that I would say, where we manufactured because our big plant is literally right across the Delaware River and the state of Delaware actually owns and controls the Delaware River basin and that area.
I think the good news is we have a really good agreement between the 3 companies <unk> core Teva and Dupont, So we're holding hands and working together really well and I think the day.
<unk> 1 was a great example of that so we have a few other states, where we did have manufacturing locations.
Let me just say obviously we're in conversations.
I think you could probably use Delaware as a blueprint.
And there is some other states that have wrapped up and do.
Legal issues, where we absolutely didn't do anything at all I would point out per month is 1 of them, we have nothing there and nothing even close to being there. So each 1 is a little bit of a different strategy.
And we're very focused on trying to resolve.
More and more of those issues and I think Delaware was a first step you can kind of see what we're up to.
Great. Thanks for the clarity on that appreciate it yeah. Thank you.
Thank you next question, we have Stephen Byrne with Bank of America.
Yes. Thank you.
And I was curious as to hear your views on what you think the opportunity is to utilize your suite of water treatment.
On technology.
<unk> technologies, and direct lithium extraction, and assuming anything Brian deposits out there that you might be able to treat that others can't do you think the best way to go.
Realized value of your technology.
And continuing to sell materials or would you consider more of and investments.
And in that business.
Yes, we're looking at the operating right now with our water filtration business and the lithium ion battery space and so it's early days on the Adam on working with some partners as well and to understand the opportunity.
I know that we would do it investment and and area outside of our current technologies Inc.
And of that right now continuing with AMC and that's the right decision based on actually capacity constrained so everybody up against and the water business day.
And some high return and wider capacity expansion efforts right now and actually emulator and Minnesota on 3 things.
And our current operations and to understand.
Opportunities so we're on plan.
And.
And potential opportunity landscape and we'll continue to study it.
Thank you Laurie.
And just a follow up on your comments about your settlement with the state of Delaware and your focus on trying to resolve.
P fast issues associated with your manufacturing plants.
Just a couple of weeks ago, there was a.
Who is it falls New York case.
<unk> chose not to settle that.
Is that.
Downstream manufacturing employment from you.
Are you on materials supplier with a plan or do you just not want to open that door to the.
The other settlements.
No.
Yes, I would say a combination of.
I know the settlement came out 3 other companies were involved and the settlement.
And we decided not to settle.
Some point, we will but the precedent of even that low number you saw from the others is not something we were willing to do because we didn't we didn't do anything there.
And we're not going to set a precedent that's inappropriate for the company. So even though it was single millions of dollars.
We still felt that was not appropriate and I'll just leave it at that we're well on top of that we have a strategy and.
And we'll let it play out.
Thank you.
Yes. Thank you.
Okay. Next question, we have John Mcnulty with BMO capital markets.
Taking my question I guess for the first 1 just with given like the supply chain disruptions that you saw from the freight related issues can you quantify what the impact was on your sales and is it fair to assume that whatever was was roster or misplaced. This quarter, you can make backup and.
<unk> is there any risk that some of those sales just have disappeared how can how should we be thinking about that.
Yes, I think it breaks on really across.
Eminem and W and P and and M&A and it's more raw material constraints. So we saw a $100 million on top line and the first quarter and another $100 million and the second quarter.
To eat away at that and the second half, but I don't know that we'll get all of that and the second half it depends on raw material availability and most of them have generally resolve themselves with the exception of glass fiber, which goes into a significant amount of our polymer and so we'll see how the glass fiber market continues to evolve and as we see it right now we don't see the fall.
<unk> hundred million dollars and the second half and I will trickle into 2022 that we intend to get it all back overtime and if not if not life sales and Thats really just shifted and then and W. And P. It was more on the logistics side hitting on water business and Ed had mentioned, we had some logistical constraints and Europe.
And around $25 million and bus ticket.
In fact this year.
Got it fair enough and then maybe just to speak to the semiconductor industry I mean, the cycle. It seems like it's it's heated up we're starting to see significant investments.
Especially with concerns about security and National security and that kind of thing. So we're also seeing further investment in the U S and maybe away from the more traditional Asian regions. I guess can you speak to how that how that opportunity presents itself for Dupont and if there are incremental challenges just given some of the diverse.
Or some incremental benefits and how we should be thinking about that in terms of your investment going forward there.
Yes, great Great question, and when we think about the semiconductor market clearly really strong investment trends by all of the leading Oems and multiple regions. So you see the tier 1 fabs, who are investing and.
And aggregate hundreds of billions of dollars over the next 2 or 3 years.
And the U S and Asian market, some in Europe to expand and build capacity most of that capacity is going to be built to accommodate leading edge, both and the logic foundry side as well as on the memory side we.
We see that as extremely favorable to our business dynamics when you make those investments at leading edge foundries.
And then that increases the number of it increases the manufacturing complexity as well as the purity of the materials all of which plays into the sweet spot of what we're able to provide for our customers and our portfolio was broad enough that we are really touching every step of the manufacturing process for the wafer.
And so the partnerships that we have with the Oems are strong we continue to work together on qualifying materials for all of those next generation, leading edge solutions and as we start to see the wafer start to come online and we've already and some benefit this year and a new wafer capacity will continue to see wafer.
Capacity ramp up over the next couple of years and some of those investments start to come online and we're really well positioned to capitalize on those trends.
Thanks, very much for the color I appreciate it.
Thanks, John.
Thank you next question, we have court with Goldman Sachs.
And very much good morning.
And Bob and I wanted to talk about.
And sort of a characterization of the company I know when you came on board and <unk> and spun out and separated Dupont there was an ambition to be a.
Our services provider and not necessarily a chemical company, but.
It seems like the last few months, you've created a lot like a chemical company you get some devaluation and yes.
Raw material issues that hit you.
Why do you think the market is not willing to look at 2 more through that multi zone and then secondly, I know you looked at.
And at the time, you on ITW Honeywell, 3 and that's kind of a name.
We benchmark versus them say over the last 6 or 9 months, how do you feel you're stacking up thanks.
Yes. So look we look at every on market, we're in and do an analysis versus all of the multi industry companies and.
You can do and I'm sure Bob you've done it I think we stack up extremely well.
And I think part of it is and I don't disagree with your overall comment.
And we've created.
A little more like a dollar of lyondell.
Obviously at a higher multiple but I think over time, the consistency of our results will prove out that we're a premier multi industrial company. It takes some time.
We've had a year and a half of very consistent results I think 1 thing we prove that if I heard Laurie and I heard this a lot, especially from people to follow multi industry companies is how would dupont react in a downturn and when the pandemic hit I think our decremental margins were literally about DBS, but best in class with the top tier.
Companies are on our top line and the worst dropped 10% and our decrementals from rate and there. So I think we proved and a lot of people, Florida Chemical company.
You just kind of do and general comment and you think we're going to drop pretty significantly and the downturn and we did not so I think that was a big proof point the through the cycle, we can perform very well and obviously, we're performing very well with great incremental margins now on the upside as the revenue.
Comes back, but if you really look at the pieces on the company.
There is very little and what you recall direct chemical commodity exposure and the company anymore.
John sitting here next to me and look at our electronics business at a steady mid to high single growing industry.
Should be pretty consistent along the way. So I think over time, we will get the valuation Bobby I think for our multiple sites versus the better multi industry companies I think we got a lot of runway in front of us.
So I think consistency going forward will prove the day.
Yes, perhaps old perceptions, just die slowly, but lorie I wanted to ask you..1 thing you mentioned and tie back that a year ago.
And you guys were really pumping out the personal protection.
And maybe you had more efficient runs through your plants was there also and issue where those were higher margin sales or was it just a function of you had better operating utilization and Thats, what gave you a better profitability there.
No. It was it really just came down and the amount of days on production and so the margin profile across the different end markets. It is the same and was really just teva and <unk> gone out and protective garment and not have the changeovers and enabled assets really reduce our our downtime and I think the protection got you. Thanks, so much.
Thanks, Rob.
Thank you next question, we have Vijay Kumar.
<unk> with Citigroup.
Good morning, just wondering if you Jeff good morning on another question on electronics.
And talk about advance nodes and your semiconductor business can you talk about your market share and these advanced nodes and then what happens with pricing because typically these new node you get better pricing well pricing tends to.
Decline overtime and the base business.
And you didn't get much pricing this quarter, so generally talk about pricing as well as you talk about on advanced nodes and <unk>.
Market share there. Thank you.
Yes P. J. Good question. So the advanced nodes are obviously are critical for us I would say the bulk of our portfolio is positioned to be able to help our customers solve for solutions at the advanced nodes, whether thats kind of below 20 nanometer and below <unk> 70.
And 5 and now even 3.
And when they talk about market share, obviously, each fab and each customer is different and I want to stay away from customer specific comment, but in general our portfolio is.
Is weighted more towards the advanced nodes and probably a little bit more on the logic side versus the memory side, although we definitely participate broadly across both segments of the market.
On.
On the pricing question so the typically.
On the electronics segments, and general we'd be about -1% a year based on the cost down and performance expectations of our customers and where we really are able to capture price is on the next generation products and they tend to be fairly fast cycle launches of new technology. So we typically get.
Rice on new technology, and then that technology pricing will erode over time constantly.
Placed with the next generation of products, where we get price. So in general we see price.
And the head down half a percent to maybe 1.5%. This year pricing is relatively flat so we're actually holding price.
And pretty well in this environment and I think as Lori alluded to earlier, we will continue to see positive price and a flat to positive price for the rest of the year.
Great. Thank you and Ed.
And you saw the NMB then bought land.
Should we expect sort of a phase of consolidation here.
And maybe you make some small bolt on acquisitions and steady the ship on.
Or do you think a bigger divestiture could be on the cards for the next 12 months. Thank you.
Yes look we've been looking at some other acquisition targets as I mentioned earlier.
And again theyre going to be and the sweet spot of what we do.
Put it right and the layer category by the way.
So.
The numbers and the math has to work force So we'll see.
And what occurs and look we're always open to looking at things that will create value for our shareholders. So I would never say never on something bigger but.
It's not on the forefront of our thinking at this point and time.
Thank you.
Okay. Thanks.
Okay and last question, we have John Roberts with UBS. Your line is open.
Thank you.
And this is are still down the most versus pre pandemic.
And <unk> for oil and gas and aerospace come to mind, maybe printing solutions may be still down meaningfully from pre pandemic.
And is left to go in terms of recovery.
Yes.
And hit breakeven and it looks like Youre looking at 1 of our charts.
And oil and gas is still down from 2019 by 15% Aerospace is down 23%, but by the way just to give you and theyre all off their bottom and oil and gas and the second quarter of 2020, which was the rough quarter was down 50% now it's only from 19 now it's only down 15%.
<unk> aerospace was down 31% and 'twenty again, only down 23, now and everything else on a revenue was positive to 19 across auto smartphone semi.
Vivek General industrial are all positive 2019 levels. So they're the 2 remaining ones, but again lifting really nice off the bottom and construction and total is on.
Also up about 5% from 19 level. So nice recovery there that was another 1 a quarter ago, we were still negative yes, and on the auto side. Our revenue is back on and if you look at the volume side risks and weaker if you look at Idaho power and Q2, and a write down 15%, we still see them being down for the full universe at 19 and not back from.
$89 million barrel level, so upside as we head into 2020.2 at that market continues to stabilize them.
Okay, and then it sounded like you didn't look at co venture I don't know, whether Thats, a question for John or somebody else, but.
And since you have some industrial and the electronics and industrial why wouldn't that it made sense.
So.
And we've got a really strong <unk> business, we are well positioned in that industry. We look at a lot of different target. Our plating portfolio is more focused on the consumer electronics as opposed to some of the more industrial applications that you may see from some of our plate and competitors.
And.
And just strategically it wasn't as strong a fit for us as maybe some other folks and the industry.
Okay. Thank you.
So thanks, everyone. Later this quarter, we will kick off a series of Webinars to highlight some of the different lines of business within our reporting segment. Our first session happens to be on the 22nd on September while John will cover semi semiconductor technology. So I hope that you all will be able to join us for that thanks for joining today's call and for your reference a copy of our transfer.
It will be posted on our website. This concludes our call. Thank you.
Ladies and gentlemen, and this concludes today's conference call. Thank you all for participating you may now disconnect.
Okay.
[music].