Q3 2021 Dupont De Nemours Inc Earnings Call
Okay.
[music].
Good day, and thank you for attending by and welcome to the Dupont third quarter 2021 earnings and strategic update conference call.
At this time all participants are in a listen only mode. After just speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone attached.
If you require operator assistance. Please press star Zero I would now like to hand, the conference over to your first speaker today head of Investor Relations.
Thank you. Please go ahead.
Good morning, and thank you for joining us for Dupont's third quarter 2021 earnings conference call.
On today's call. We will also discuss two strategic actions that we announced this morning.
We are making this call available to investors and media via webcast.
We will extend todays call to approximately 90 minutes to allow for Q&A related to both earnings and the strategic announcements.
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 Chief Financial Officer.
John Kim President of Electronics, and industrial will also joined for the Q&A session.
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 2020 Form 10-K and updated by our current and periodic reports include detailed discussion principal risks and uncertainties, which may cause such differences.
Unless otherwise specified all historical financial measures presented today exclude significant items we.
We'll 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 will now turn the call over to Ed. Thanks, Pat and good morning, everyone and thank you for joining US in addition to our excellent quarterly results.
Just on the opportunity today to talk about two significant strategic needs, we are making so far.
Further strengthen our portfolio and deliver long term value for our shareholders.
I will provide a brief overview of these announcements before Lori walked you through earnings and then I'll be back to go into more depth on our.
Our announcements today.
Our teams delivered outstanding results in the third quarter above the high end of our guidance ranges for sales operating EBITDA and adjusted EPS highlighted by the actions we took to implement price increases to stay ahead of raw material inflation.
Quarter, we delivered a neutral price cost impact for the company, which is a proof point and effectively managing the levers within our control to deliver strong results.
Market demand in nearly every one of our end markets were strong and our supply chain organization executed well in a challenging environment to deliver for our customers organic growth was up high single to double digits in every segment in the quarter.
I am pleased by the transactions are genes chalk position us to continue managing the supply chain challenges.
Raw materials cost pressure as effectively as we head into the fourth quarter.
Laurie will cover in a few minutes, we expect to fully offset raw material price headwind again.
Fourth quarter.
As I mentioned we.
We also announced two strategic transactions. This morning, the acquisition of Rogers Corporation, and our intent to divest a substantial portion of our mobility and materials segment will significantly strengthen <unk> position in our core high growth high margin markets.
They focus on electronics water protection industrial technologies and next generation automotive.
In addition to focusing the portfolio.
Strategic actions will accelerate our topline growth.
Operating EBITDA margins and significantly improve our earnings stability.
The combined transactions will allow us to benchmark extremely well against best in class multi industrial peers.
Thereby resulting in long term value creation.
I will cover the details of the Rogers and M&A transactions in a moment, but first let me turn it over to Laurie to discuss the quarter as well as our outlook for the remainder of the year.
Thanks, Brad and good morning, everyone as Ed mentioned customer demand across almost all of our end markets remain strong in the third quarter.
We saw continued improvement in many of the investor and market adversely impacted by the COVID-19 pandemic and the global economy continue their recovery.
<unk> growth in the quarter was about 16% versus 2020, we delivered net sales.
<unk> EBITDA and adjusted EPS above the high end of our third quarter guidance.
In addition, we had strong cash flow generation and returned 657 million of capital to shareholders during the quarter to $500 million in share repurchases and $157 million in dividend.
We now have $875 million in share repurchases remaining under our existing authorization.
Buyers next June and we expect to complete the full year 2021 with about 2 billion in share repurchases.
At the high end of the range that we provided earlier this year.
Net sales of $4 3 billion or up 18% versus the third quarter of 2020.
16% on organic basis.
Organic sales growth consistent 10% volume improvement and 6% pricing, reflecting the continued actions were taken to offset inflationary pressure.
Excluding the impact of metal price was up about 5% during the quarter.
A 1% portfolio tailwind reflects the net impact of strong top line result related to our acquisition of layered performance materials and headwinds from the noncore divestitures.
Currency provided a 1% tailwind in the quarter.
Overall sales growth was broad based and reflects high single to low double digit volume growth in all three of our reporting segments.
Does the organic growth within Asia Pacific Europe, and North America reflects continued strong demand in our key end market.
From an earnings perspective, we delivered operating EBITDA of $1 9 billion and adjusted EPS of $1 15 per share.
20% and about 90% respectively versus the year ago period.
Earnings improvement was driven by strong volumes across all three reporting segments and earnings uplift from the layered performance materials acquisition.
With with pricing actions that we implemented earlier this year in the face of raw material inflation continued to benefit our operating results.
For the total company, our selling price increases during the quarter again offset raw material inflation.
Gross margin was off about 160 basis points versus last year reflect the increases in both Eminem and Eni.
Operating EBITDA margin of 25, 5% was in line with our third quarter guidance expectation.
Reflects 50 basis points of margin expansion versus the prior year.
Incremental margins were about 28% during the third quarter.
Versus last year however.
The impact of price and cost our operating EBITDA margin for the quarter would have been nearly 27% and incremental margins would have been over 40%, reflecting very strong underlying operating performance.
I have also mentioned previously that we track our operating performance for our quarter result on an underlying basis versus 2019, given the unique nature of 2020 and certain discrete items impacted our operating results in the prior year.
In comparing our third quarter results to pre pandemic levels.
Sales for our core businesses were up 15% versus 2019 with operating EBIT leverage at one four times on an underlying basis. Despite the global challenges around supply chain pressures and raw material inflation.
From a segment earnings perspective, Eni delivered 13% operating EBIT improvement on strong volume and better than expected results from there as we continue to integrate this business with our current electronic offerings.
The year over year comparison includes the headwind, resulting from a technology sale in the prior year.
Adjusting for this item operating EBIT was up about 20% with margins essentially flat between both periods.
<unk> operating EBITDA increased 12% versus the year ago period on volume growth, primarily reflecting recovery in industrial end markets for aramid fibers and the absence of charges related to temporary idle facilities in the prior year.
We were proactive in implementing pricing actions during the quarter and Wip. However, these actions were more than offset by raw materials inflation and logistics costs, which resulted in headwinds to margin and operating leverage.
We expect sequential price improvement as we continue to implement increases in response to raw material inflation.
Mmm delivered 75% improvement in operating EBITDA or about two five times operating leverage compared to the year ago period.
The improvement reflects higher volumes across all end market net pricing gains in response to raw material inflation, and the Atkins and charges related to temporarily idled facility in the prior year.
For the quarter cash flow from operating activities was $842 million.
Capital expenditures of $208 million, resulting in free cash flow of $634 million free.
Free cash flow conversion of 112% without significantly compared to the second quarter.
Turning to slide four which provides more detail on a year over year changes in net sales for the quarter.
Strong customer demand across all of our end markets, including the continued recovery in many industrial end market.
The efforts of our supply chain organization drove organic sales growth of 16% during the third quarter.
And Eni volume gains delivered 9% organic sales growth for the segment led by double digit volume gains in both industrial solutions and semiconductor technologies.
Sales growth in industrial solutions reflects strong demand across all product lines.
Most notably an OLED display for new film and television market Med.
Medical Silicones in health care and tower rent deals within electronics, along with a continued recovery in aerospace.
Semiconductor technology continues to benefit from robust demand driven by the ongoing transition to more advanced new technology.
And growth in electronic Megatrend, and we expect these strong demand trends to continue in the fourth quarter.
Within interconnect solutions organic sales declines in the mid single digits reflects the anticipated impact of the shift in demand related to premium next generation smartphone to the first half of this year along with softness in automotive end market due to the semi chip shortage.
We expect these headwinds to continue in the fourth quarter. However, we do expect organic growth of Ics to be up mid single digits on a full year basis.
Good morning.
Continued.
Covering an industrial end market, resulting in significant volume improvement for pneumatics and Kevlar aramid fibers.
Within safety solutions, which was up double digits on an organic basis.
Michelle through solutions continue recovering commercial construction led by demand for chlorine circumstance contribute to high single digit organic growth.
In addition, we saw continued strength in north American residential construction market for products, including styrofoam and private contract and the retail channel for do it yourself application.
Organic sales for water solutions were up low single digits during the quarter and global demand for clean liner technology remains strong however, logistics challenges do remain and have impacted our ability to meet demand.
<unk> gained from <unk> during the quarter reflect actions taken to mitigate raw material inflation, mainly within shelter and safety.
Eminem and top line results reflect another strong quarter with organic sales growth of 28% on a 16% price increase and 12% volume improvement and included double digit organic growth in each of engineering polymer performance resins and advanced solutions.
Throughout the year, our eminent segment has been the most significantly impacted by raw material inflation.
As such the 16% price increase reflects the continued actions we've been taking to offset these high raw material costs and also reflect higher metal pricing and our advanced solutions business.
Excluding the metals impact prices up about 12% during the quarter.
Looking ahead, our global supply constrain.
Constraints of key raw materials.
Improved and Eminem compared to earlier in the year and auto demand remained strong among consumers, we do expect softness in the fourth quarter as the global chip shortage continues.
Turning to slide five adjusted EPS of $1 15 with off about 90% from 61 per share in the year ago period.
Higher segment earnings resulted in a net benefit to EPS of about <unk> 20 per share driven by higher volume and strong results from Larry.
As I mentioned, we were price cost neutral during the quarter given the pricing actions, we have been taking to offset raw material inflation.
Our lower share count continues to provide a benefit to adjusted EPS, specifically, a 33 cent benefit third quarter.
Benefits from lower interest expense in the current quarter from Delevering actions earlier in the year was mostly offset by a higher base tax rate compared to the last year.
For full year 2021, we expect our base tax rate to be about 21%.
Turning to slide six I'll discuss our outlook and guidance for the full year 2021.
We expect strong underlying demand trends to continue in the fourth quarter and on the Oliver end markets and have seen signs of these trends in the month of October.
However, we are starting to see the ongoing semiconductor chip shortage impact our downstream customers the ability to produce.
This is creating some deceleration in order patterns, primarily in automotive end markets.
I'll give you an estimate for the second half have been cut by 17%.
Due primarily to the darkness attributable to the semiconductor chip shortage, we are lowering the midpoint and narrowing the range of our full year guidance for net sales operating EBITDA and adjusted EPS compared to our previous estimate.
At the midpoint of the ranges provided we now expect net sales for the year to be about 16, three 7 billion down from the midpoint of our previous estimate of $16 5 billion.
Similarly, we now expect operating EBITDA and adjusted EPS to be about $4, one 5 billion and $4 20 per share respectively.
This is not a demand for market share in Q or inability to continue to pass on prices for effectively manage our global supply chain.
As our third quarter results demonstrate we have successfully executed on each of these this is purely a result of the global semiconductor shortage, which is impacting our customers' ability to produce and thereby pushing out demand.
That let me turn it back over to Ed.
Thanks, Lori I'm excited to share with you more detail on the two significant strategic niche we announced this morning, which will further strengthen our portfolio and deliver long term value for our shareholders.
The announcement of an agreement to acquire largest corporation.
Our intent to divest a significant portion of our MRM segment are substantial moves to advancing our strategy to shift the portfolio towards higher growth and higher margin businesses, while significantly enhancing the earnings stability of the company.
The acquisition of Rogers will build on the layered performance materials acquisition that we closed July 1st adding another high quality business that expands our leading market position.
Highly attractive end markets.
Rogers is a market leader in each of their primary product categories and brings a world class organization with differentiated technology innovation capabilities technical expertise and deep customer relationships the same value proposition that differentiates for Dupont businesses.
Rogers operates in end markets, where we have already established leading transitions such as consumer and mobile electronics and others that are adjacent to our businesses such as <unk> infrastructure kind of electric vehicles, enabling us to offer an even more attractive total value proposition.
From a broader base of customers and creating the opportunity to compound over time, given the complementary products in mortgage.
Well <unk> has been the market leader in high performance plastics, chairman of automotive electronics, industrial and consumer markets.
That is no longer the best owner for this asset by separating <unk> from the rest of the portfolio, we are better positioning the business to expand our leadership position in these markets and control.
For you to tackle some of the industry's most critical challenges such as vehicle safety and fuel efficiency.
We will leverage existing tax attributes to complete a highly efficient cash sale of the <unk> business, providing funding to finance to Rogers acquisition.
Well as further M&A and share repurchases, while maintaining a strong investment grade credit rating.
We are a few key targets, which likely know Roger So we have been studying for a few years that would be excellent additions to our portfolio.
Following the completion of the intended Rogers acquisition and the planned divestiture of Eminem.
We focused on key emerging technologies and have enhanced top line growth.
Our participation in the auto markets going forward is much more connected to high margin advanced technologies, enabling long term secular trends like hybrid and electric vehicles as well as advanced driver assistance.
A large portion of our exposure would be aligned to evs and dash both of which are growing at a significant pace.
This improved balance in our end markets will drive further consistency in our results.
Now us to deliver best in class results, among our multi industrial peers strengthening our position in clean energy and electric vehicles combined with our existing positions and water safety and protection technologies and continue to advance our customer sustainability priorities.
Slide eight shows the modeling we have done a complete assuming the completion of both the divestiture and the Rogers acquisition, including full achievement of the planned cost synergies.
As you can see pro forma Dupont, we benchmark well above our top multi industrial peers on both organic growth and EBIT margin and in line with the site performed two are set and cyclicality, which we measure as which nearly two times degrees.
Great and could top peers.
This growth is driven by our exposure to high growth end markets for <unk>.
Yes.
Which is evidenced by the significant investments in new facts from here.
All regions anyway.
$3 billion semiconductors.
Leading positions and materials.
Each wafer production packaging.
To outgrow the market by two to 300 basis points.
Business operates in markets.
We expected to grow high single digits, driven by the global response to concerns such as water scarcity and circularity.
The acquisition, you're making also increases our exposure and high growth mortgage sensors, EV, which is a market growing at 30% per year Rogers fibrosis.
Performance elastomers specialty bus bars, and foremost substrates complement our existing materials, such as gap fillers diseases and nomex papers.
In 2020, our top lines for the core business declined about 5% compared to our top multi industrial peers.
Which which were down about 8%.
Our new portfolio.
Declined less than 3% during the worst of the recession in recent years a substantial differentiator.
Versus the peer set.
We have taken several actions to drive top quartile EBITDA margins at Dupont.
Adam Rogers transactions May deliver an additional 140 basis points of margin improvement on a 2021 basis, putting us well above our top multi industrial peers.
<unk> portfolio is a collection of specialty businesses underpinned by innovation customer relationships and manufacturing excellence combination that supports robust sustainable margins.
I'm also excited about the consistency these transactions will bring to our results strong ties the secular growth drivers will limit the earnings volatility throughout.
Throughout the cycle you can see the earnings volatility.
Volume was significant in 2019 to 2020, primarily associated with the <unk> segment. The same is true as we look back further where the cyclicality and the portfolio was driven by M&A.
For our portfolio, we have minimal exposure to commodity feedstocks and as a result, our cyclicality, which significantly improved by 700 basis points to be in line with the top peers.
In addition to comparing to our top multi industrial peers said, we also looked at how the new portfolio will benchmark against the entire set of 24 multi industrial companies. The results are the same we will benchmark well above the median of the entire multi industrials rank in both growth and margin in Q items.
Reality.
With a more clearly defined portfolio and by improving the top line growth EBITDA margins and cyclicality of the company to be well above our peer set I am confident the quality of our businesses will be recognized which will translate into evaluation comparable peers.
Getting to positive. This point has been a multiyear journey with decisive needs align with our value creation levers are active portfolio management, the best in class operating model and disciplined capital allocation.
Slide nine shows the actions we have taken to transform the Dupont portfolio through a combination of world class businesses centered in long term secular high growth areas.
Our strategy was intentional and included strategic decisions to shift the company to higher growth higher margin businesses with less cyclicality, while also pursuing acquisitions to strengthen our leadership position and innovation capabilities and the secular growth areas of electronics water protection industrial technologies and Nextgen.
Generation automotive.
Our portfolio transformation started with the identification of non core businesses, where our innovation and technical expertise and close customer relationships no longer drove a competitive advantage within the Dupont portfolio.
We have been successful at identifying great owners for a majority of these businesses and our work continues.
We expect to close the sale of our Cleantech business before the end of the year for around $510 million.
Earlier this year, we finalized the separation of the NMB business and an RMT transaction with volume.
Creating a powerhouse in the food beverage health <unk> Biosciences markets.
Operationally the NMB provided a lift to the top line growth.
Operating EBITDA margins at the Dupont portfolio than it was at the low end of the portfolio on both measures.
This was an unmatched opportunity to advance the Dupont strategy, including the receipt of $73 billion in tax free proceeds, which we redeploy degreed shareholder value and position <unk> for future success.
Todays announcement of our intent to divest a significant portion of the <unk> segment is the next step to advance our transformation strategy by increasing the resiliency and earnings stability of our portfolio.
Throughout we are carefully assessing acquisition targets, which can strengthen our leadership positions in the secular areas of electronics water protection industrial technologies and next generation automotive.
I have said before we are strategic in our approach and only pursue targets that can be justified financially and operating our existing markets to minimize integration and execution risks.
Prefer acquisitions that provide significant synergy opportunity similar to what we saw with the water acquisitions. We completed in late 2019 declared acquisition earlier this year.
<unk> acquisition of Rogers, we also only pursued targets, where innovation and our technical capabilities set us apart, which is the case for both layered in Rogers.
Our transformation strategy has also been underpinned by operational improvements we have made fundamental changes in the way Dupont has run we had before.
The full P&L accountability into the businesses by meeting oversight of manufacturing operations and R&D under our business Presidents, we spend approximately 4% of sales on R&D and we no longer operate a central R&D function. Instead, we've empowered our businesses to allocate R&D dollars to the projects that are most.
Critical to their growth and then hold them accountable for delivering results. The same is true for capital spending the majority of which has been focused on capacity constrained areas.
Throughout our transformation to strength of our balance sheet has been and remains a priority. Following the NMB separation delevering, our balance sheet to maintain a debt to EBITDA ratio and credit rating that provides us flexibility. We also continue to control our costs at both our manufacturing facilities as well as our corporate functions we have been.
Prudent taking cost out of our G&A line and today you have a best in class cost structure.
The work on our manufacturing facilities is ongoing through continuous productivity and asset reliability improvements using digital tools, which is an integral part of our operating plants today, the combination of focusing the portfolio and operational improvements had been part of our strategy to unlock shareholder value and strengthen.
Accompany the Mmm and Rogers announcements are significant strategic steps in our transformation.
I'll move to slide 10 to provide more details in the Rogers agreement.
Our modeling of Rogers is based on our 2022 estimated EBITDA of $270 million, which.
Which we are highly confident the business will achieve based on a thorough diligence process.
A detailed review of their projections and assumptions.
Purchase price of about $5 2 billion represents 19 ex EBIT multiple based on 2022 estimates before synergies.
Multiple is expected to be below 14 X. After cost synergies, we are highly confident in the synergy number of approximately $115 million.
And our ability to achieve most of the forecasted synergies by the end of 2023 within 18 months of closing.
We expect Rogers to be accretive to top line growth operating EBITDA free cash flow and adjusted EPS upon closing we.
We expect sizable revenue synergies from the combination of Eni layered and Rogers are consistent with how we justify all deals we have not assumed any revenue synergies in our modeling.
We expect closing to take approximately six months, putting us in the second quarter of 2020 to be taking Rogers transaction will close before we expect the Eminem divestiture close and funding the acquisition, we expect to prioritize pre payable debt, which can be retired upon receipt of the M&A proceeds to return our leverage.
To more normal levels.
Slide 11 provides more detail on synergy opportunities Dupont is in a unique position to extract value from this combination synergy.
The synergy opportunity that comes not only from having one of the largest electronic materials businesses in the industry, but also from the acquisition of Alere that we completed a few months ago.
We looked across all three organizations.
Germany, where.
There were synergy opportunities as is the case in many of our transaction, where we combined businesses. We have complementary product off recent similar segments, we expect significant synergies and procurement spend as well as G&A costs, because Rogers as a public company. We will also realize savings associated with folding them into <unk>.
Our structure.
Our anticipated Rogers cost synergies of 115 million combined with the cost synergies, we anticipate from the layered acquisition total approximately 6% with a combined revenue of our interconnect solutions business layered in Rogers, which is a very achievable synergy target.
I mentioned, we expect to achieve most of these synergies within 18 months of closing.
Turning to slide 12, I'll provide more detail on the business.
Rogers Corporation, as a $950 million business with broad end market exposure.
We expect Rogers topline to grow in the high single digits accelerated by leading physicians in the rapidly growing categories in electric vehicles and advanced driver assist systems the.
The benefits of the planned synergies.
We'll deliver uplift to the EBIT margins across all three businesses.
Rogers has two operating segments with leading positions in each the first segment is advanced electronic solutions, which includes the high frequency Circuit Board laminates business and the power electronics business.
Roger Second segment is elastomer materials solutions.
The high frequency Circuit Board laminates business complements our existing printed circuit board business with and interconnect solutions.
Approximately $300 million business that manufactures copper clad laminates for high frequency circuit, choosing any national radars <unk> base stations and military communications.
Also included in the advanced electronic solutions segment, and the power electronics business, which includes both ceramic substrates and specialty bus bars for high power conversion use in applications such as electric motors for trains ships automobiles and wind turbines.
Specialty bus bars are used instead of Jabil artist systems and high power conversion applications when highly stable and reliable power conversion is critical this is about a $250 million business today are poised for significant growth with exposure to next generation technologies, including <unk> applications for <unk>.
In electric vehicles.
The second segment is the elastomer materials solutions segment of approximately $400 million business, which manufactures precision phones and silicon materials with high reliability and high purity for cushioning sealing impact protection and vibration management across a number of growing end markets.
This segment also has high exposure to electric vehicles for battery applications.
On slide 13, you can see the significant offerings and the combined entity through the examples of the electric vehicle infrastructure.
Tumor electronics and clean energy.
Increased opportunity in electric and autonomous vehicles and accommodation later to Rogers.
Dupont <unk> existing materials offerings into the electric vehicle.
In a segment that is growing 30% per year. This is a tremendous opportunity to increase our share of wallet with offerings, such as gap fillers adhesives, and nomex paper from Dupont High performance Elastomers specialty bus bars, and thermal substrates from Rogers and electromagnetic shielding to thermal management.
She is from later.
Likewise layered in Rogers expand our offering in consumer electronics, where Dupont is already a leading materials supplier through all three businesses within the Eni segment. So.
The conductor technologies interconnect solutions and industrial solutions.
Shielding thermal interface materials, and multi functional solutions from layer as well as high performance elastomers from Rogers will make us an even more complete materials supplier to leading Oems.
Buying application engineering and design expertise will be unmatched in the industry.
We are very excited about the technical skills that we transferred to Dupont through both of these acquisitions, which will enable the business to continue working with customers solve their most critical challenges using our combined portfolio of advanced technologies.
Mark of all three companies customers in these industries demand this level sophisticated innovation and partnership.
You can see how the acquisition of layered and Roger supports our strategy to expand our presence in high growth secular end markets and creates opportunity for compounding growth across related products and markets.
Slide 14 shows the combination of the <unk> acquisition and the Rogers acquisition is highly complementary and can expand our addressable markets within key electronics segments by 50%.
The addition of layered in Rogers provides an entry way into markets, such as clean energy wireless infrastructure and defense electronics, where we previously have little exposure that will now have distinct competitive advantages.
See further opportunities for growth by leveraging that Dupont technologies across these additional electronics markets.
The timing could not be better to enter these markets. The world is making significant investments in <unk> infrastructure clean energy and hybrid and electric vehicles to name a few.
These investments are leading to rapid growth in these areas.
<unk> has been making significant investments in these areas and has a rich pipeline of offerings that will support the next generation technologies. The acquisition creates an exciting opportunity to capture this growth, which we think will be compounded by leverage of the combined Eni layered Rogers platforms.
Moving to the intended M&A and divestiture on slide 15 at Dupont, we have a proven history of adapting the best owner mindset for each of our businesses, we constantly scrutinize our portfolio to ensure fit with our business objectives and to create as much long term value as possible for our shareholders customers and employees.
By announcing that we have initiated a process to divest the majority of our MRM segment. We are committing to do just that finding the right owner for tremendous asset the business to be sold predominantly includes the engineered polymers and performance resins lines of business.
Approximately 700 million of current year revenue Eminence segment is not included in the scope of the divestiture and includes the automotive adhesives, and multi based businesses, which align nicely with our offering for Evs and industrial technologies.
The portfolio to be divested is expected to generate revenue this year of about $4 2 billion and about 1 billion of EBITDA.
<unk> is an industry, leading combination of high quality businesses with best in class technology and application development deep customer relationships brands and manufacturing excellence. The business is well positioned to capitalize on the continued transition to hybrid and electric vehicles and other emerging megatrends that business is also fully.
The outperformance peers through the cycle with a lean G&A structure efficient manufacturing processes.
Liable supply chain of key raw materials.
We expected the divestiture process will move quickly.
We will launch a marketing process in the coming days, we have considered multiple deal structures as part of the strategic review, we believe the transaction that maximizes the net cash proceeds to Dupont will enable us to build on our core areas of strength like Atlanta Rogers transaction.
Create significant value for our shareholders.
Look forward to updating you as our process advances.
I'll wrap up with a few comments on why Im excited about their future Dupont on slide 16, with the completion of the Rogers acquisition and the <unk> divestiture.
We'll be building around our core foundational pillars, including electronics water protection industrial technologies and next generation automotive.
Each of these areas is experiencing rapid growth.
As a result of significant secular tailwind with long term growth drivers from high frequency connectivity and the most advanced technologies to water scarcity in some of the most remote parts of the world.
Technical demands of our customers are high and we have a unique advanced technologies to partnering with them to solve these global challenges.
The actions, we have already taken along with gauge we announced today enable us to strengthen our leadership position in each of the markets we serve.
Confident this will lead to significant opportunities for employees and unmatched solutions for our customers.
We are also creating an opportunity for significant value I'm pretty sure for our shareholders as I mentioned previously the combined transaction to enhance our financial profile through higher growth higher margins and significantly more stability.
We'll be positioned to outperform throughout the cycle.
These are indicators of a strong healthy and vibrant company and I am confident we will benchmark with the best of our multi industry peers are.
Our capital allocation will remain balanced returning value to our shareholders through a consistent dividend that we expect to grow with earnings and share repurchases as well as the strong balance sheet has been and will continue to be priorities for Dupont.
We will also continue to invest in our business to grow organically and support their growth through select and targeted M&A with that let me trying to pack to open to Q&A.
Thanks, 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 one question and one follow up question per person.
Operator, please provide the Q&A instructions.
As a reminder to ask a question you will need to press star one on your telephone.
I had a question are you asking a question has been answered.
Please standby, while we compile the Q&A.
Your first question comes from the line of Scott Davis from Noise Research. Your line is now open.
Good morning.
Good morning.
Laurie.
And John.
Good morning, good morning.
Quite sounds like you guys have been busy.
[laughter].
I'm.
Kind of asking at kind of technical question here I mean.
The process that youre going to run on on mobility, if it doesn't come out as you would like would you consider spinning the business is that one of the options that.
That's in play here.
Yes look we're highly highly confident.
It will be a sale here or there as we already know people are interested in this asset we've had many calls.
Even in recent times about the asset so.
It's going to sell we're starting literally starting the process in the next few days.
One of the great things about the sale of this it's really extremely tax efficient for us which makes it very attractive.
<unk> leakage on this deal will be mid single digits to high single digits. So it's pretty incredible.
Being able to accomplish that so.
So I'm highly confident that it's going to sell.
I would say and by the way I would say just targeting for your thinking that we closed a deal like that around October of next year.
Finally, I also I'm highly confident which is kind of surprising and everyone's sum of the parts of Dupont Eminem is by far the lowest multiple in the company.
Yet we will sell it for more than the multiple that Dupont trades at today.
I would also say because if you.
Just benchmark.
Dsm's coming to market I think a lot of you guys are the analysts haven't gone for at least 11 times, our asset is a way better asset it's better on growth it's better on margins.
It's much more global bigger and so I don't.
I'm confident it will sell for even more.
Literally currently trades at now.
Good and then as a follow on can you talk through the synergies with with Rogers as the standard kind of G&A stuff or is there something kind of more of there that is.
You can talk us through.
Yes.
It's pretty similar to our other deals and buy rates, it's a very achievable number for us as we said in our prepared remarks, we took Ics, which is one of our.
And this will be in in the EMEA segment, we used Ics we use layered.
The Rogers deal.
And adding in the layered synergies by the way at 6% of revenue.
So we're highly confident we've been scope in the south for a long time one of them.
Nice things here I guess, they say nice as a public company. So all of those costs go away, which are pretty significant obviously and that just happens.
And then a big chunk of it is G&A and functional cost streamlining it into our structure, we get some procurement savings also and then we've got some facility consolidations. We've got sales offices all overlapping each other globally. As an example, so we've scoped it out in a lot of detail, obviously, we'll get more detail once a week.
Sit down.
Even more with the team and I would also add.
We had just closed on the <unk> deal July one and we had announced 60 million of synergies with flared and that team is now at 63 million and that's literally line by line who's doing it when are we getting it what's the payback. So we have line of sight.
And hopefully we're being conservative here on the combo with a $115 million of synergies for Rogers.
Yeah.
Okay. Your next question comes from the line of Steve Tusa from Jpmorgan. Your line is now open.
Hey, guys good morning.
Good morning.
So just.
Quickly on the results.
It sounds like kind of the majority of the <unk> cut is really kind of auto production related and then I have a follow up on.
Yeah.
The strategic stuff yes.
Yes.
Steve its all auto it's all centered on the semiconductor we did not see it in the third quarter as you could.
<unk> prepared remarks, we had a very robust third quarter still going along.
Seeing a little bit of order pattern on the auto and go down.
We're just expecting it has through the rest of the quarter because of auto builds are down 17% in the second half of the year. So that's pretty much how we modeled it out and said we will probably see it here in the fourth quarter.
And hope you all know.
Sumer demands there.
Auto builds are supposed to be up 11% next year. So we should be in good shape.
2022, but I think we'll probably take a little bit of a hit here in the fourth quarter and Thats, what we guided to there is no softness anywhere else in the portfolio. As you can tell every one of our sub segments is up nicely except for one so out of nine segments, eight or more up nicely and the only one that wasn't it was related to this.
Smartphone market and we knew that we already had highlighted that to everybody because if demand came earlier in the year of the tee up for the production will fall.
Second half of the year, it would be softer and it'll be fine again next year, so demand perfect everywhere else by the way our supply issues with force was yours.
<unk> substantially.
So we're not dealing with that we're really dealing with just the semi thing and of course everyone's dealing with logistics and shifting at all of that.
Right.
And then just lastly.
I'm kind of like looking over the cash you're bringing in or you expect to bring in.
From these from these sales.
And I mean, it's a pretty big number well in excess of like the $5 billion.
You are spending.
You still have a couple billion dollars of cash generation.
Some divestitures that are bringing in some cash here in the fourth quarter.
Getting to our pro forma year end 'twenty two cash number that's like.
I don't know.
Six $7 billion something in that range.
Is that like is that math off maybe it's five I don't know, but it seems like you guys have like a ridiculous amount of excess cash after the dust settles on all this stuff I offer my math somewhere there.
And so I think the only thing Youre off is on is on the timing of the receipt of the cash from the divestiture and we ended the third quarter with about $1 7 billion in cash we generated $600 million in change in free cash flow in the third quarter.
It's kind of are posting in the fourth quarter.
We also continue to be active in the market like our share repurchase there's probably about $500 million.
Incremental <unk> in the fourth quarter.
Thanks, you about maybe just shy of $2 billion at the end of the year and then you'll get next year.
<unk> from the mine via M&A and proceeds from the divestiture and then paying for the Cardinal acquisition have already we already have the funding in place for that.
And then one item outside of free cash flow that we will get in the fourth quarter as Ed had mentioned is that kind of fee income that clean tech divestitures, they would actually be about $470 million after tax that would be incremental to the roughly 2 billion I had previously mentioned for ending the year yes.
At the end of the day, if you go to the end of 2022. Your numbers are clearly in the ZIP code there.
We highlighted in our remarks, there are a couple of eliminate targets, we love we've been looking at.
Literally two or three years and we also are going to stay very balanced with share repurchase, but we don't need to make any of those decisions now we won't get the cash for the M&A business pull about October one of next year, and we'll see where things are at that point in time.
Okay.
Your next question comes from the line of John Walsh from Credit Suisse. Your line is now open.
Hi, good morning, everyone.
Morning, Jeff.
Alright.
Wanted to know if we can keep that.
Train of thought going.
You talked about wanting to maintain a healthy balance sheet a lot of stuff going on moving part several <unk>.
Company is also reporting today.
Can you just kind of help us.
What's the ZIP code do you think you'll have your net leverage at when you kind of pro forma for.
All the divestitures and also for the acquisitions, where do you have shaken out.
Yes, so we still target to be around that $2 75 times by the close of the completion.
The divestiture of the MRM business payment for the acquisition of variety Harrison an idea or a another acquisition.
A and receiving the proceeds from the transaction that they havent come back to that $2 75 times.
Around mid to end of 2023.
Gotcha. Thank you.
And then maybe just another question around capacity just the organizational capacity to kind of continued.
To do M&A, you talked about a couple of deals some assets you were excited about.
Do you have the bandwidth to kind of do all of this at the same time or should we think that any kind of larger addition is as you kind of talked about post kind of the <unk> divestiture.
If there was anything of this size like Rogers or something just to give you a feel it would be at least around the time or after the proceeds for Eminem.
So we're going to put this pre payable debt in place here just in the interim period, we can pay that off when we get the proceeds as Lori said and then we will have as Steve Tusa was alluding to there. There's some billions of dollars available at that point in time. So it will really be looking hard at is it share repurchases are an M&A opportunity.
<unk> and <unk>.
One of the sweet spot for us and we'll make that decision, but I wouldn't expect that you would see us do anything before we are close to or around the timing of getting those proceeds in the fall.
By the way.
Team is very capable it's a separate team that's doing a lot of the work on the separation of Eminem.
<unk>.
We can get a transaction place for Eminem in the next three to five month timeframe.
Clothes deal, but then we can spin it until we do all the separation work, which is why I say October of 2022 to get all that done where the cars are done and the separations are all done on the tax works all done where we can separate it. So that team is extremely good at doing it you've watched us do the R&D and all that and Johns team is.
Very far in very quickly into the integration of <unk> and this will just overlay on to that so I don't see any issues from a bandwidth standpoint on this company.
Okay.
Your next question comes from the line of Steve Ryan from Bank of America your lifestyle.
Yes. Thank you.
When I look at the Rogers products.
We're generally derived from either Fluorinated polymers polyurethane silicones and just had a couple of questions on those on that first bucket.
These laminate.
Better.
Chlorinated polymers.
Do they source any material that.
Aqueous and thus could have a P fast wastewater issue.
And then maybe overall do you see.
Raw material cost pressures.
Basket of product.
Consistent with your interconnect.
Solutions business, where would you say it could be a little more like Eminem.
Hey, Steve This is John Thanks for that and thanks for the question Rogers hybrid market, leading high frequency laminates as you alluded to they they do use some floral product. Some some floral polymers in order to help achieve some of that performance. It's a world.
Class supplier, they've got a diversified supply base.
Blue chip companies globally recognized suppliers of that who are actively involved in all of the.
Regulatory and other industry activity, they are sort of leading the way on that.
In terms of how we address some of the Fluoro materials. Our teams have done a detailed diligence on the agent AD environmental the product stewardship components of that and we're comfortable with what that product line is doing and how it's performing right now.
Supplier base for those materials as it relates to kind of the inflationary pressures of the raw materials pressure, it's very consistent with our electronics business.
<unk> business today, and the fact that you don't see a lot of the run up and that we experience and some of the big commodity mode. These are value based materials and you've got.
You've got some exposure to obviously copper used in laminates and silicon, but not not any different than what we have in the rest of the portfolio in it and it has been.
It seems fairly comfortable with our ability to manage that proactively Steve.
Overall for Dupont to your line of question.
We've highlighted to you that we've had over $400 million of raw material inflation. This year 300 million of the 400 is in the <unk> division from the feedstocks, there and that.
Again, it's a great business, but thats what jurors the results around most of our pricing by the way. It was in the eminent division because we needed it to cover the raw material inflation. So if you take the whole rest of the Dupont portfolio, we only had $100 million raw material inflation, that's a pretty nice place to get to from that angle also.
Okay very good and then on the divestiture of the Eminem businesses.
Do you have.
Our level of confidence you can share about getting the 10 X multiple and if.
If you can give us.
This is a keeper.
No first of all I would be very disappointed if we saw them in them for a climax multiple by way of an obvious comparing to welfare amusing us at 11 multiple.
By way Theres been assets out there not as good as this one that is sold for 12 and a little above 12 times.
In the marketplace.
So we're going to get a good number for this one I will stress again.
<unk> had phone calls from people that have interest in this asset I think the private equity world is going to be extremely interested in this asset by the way I think there is a very interesting opportunity out there because there's publicly noted DSM is going to market with it assets that would fit beautifully with this to create an unbelievable company. So.
I think youre going to see a lot of interest around this and it's going to garner a nice multiple which by the way back to my point, it's the lowest multiple of some of the points on our company and we will get more forth into powertrain Jack.
Yeah.
Your next question comes from the line of David Begleiter from Deutsche Bank Your line.
Thank you good morning, Ed why not spin out Eni and keep Eminem avoid any possible. He says overhang on the high multiple businesses.
Yeah, David first of all look I'm not worried about pathos side look you know I want to get it resolved I know, there's a little bit of a cloud still lingering out there we will get it resolved.
The last announcement, we did was a settlement that cost was $12 $5 million in the state of Delaware.
We're actively working it off comfortable we're going to get there and we'll clean that issue up for the company. So that's number one.
Number two.
Spinning Eni out you really got to go through the analysis of what that trade for and I agree it would trade higher.
What will the new Dupont trade at on a bigger EBITDA base.
With what we've put together here and we're taking.
Taken up our top line growth rate, we're taking up our EBITDA margins were taken out the cyclicality in the portfolio. There is no way that doesn't benchmark well.
Against some of these premier companies that we use so.
You get some multiple uplifted do pod.
It indicates the multiple uplift from Eni, which is a smaller EBIT debase.
Also say I get asked a lot about because I've done a fair amount of RMT stuff I always get asked that there is no partner for Eni. The business. There is nothing that matches up inside even pre Blair deal by the way.
That makes sense and it would be pieces of Eni, which was Eva yes.
A portion of business in Dupont.
Take the rest of it out.
And then by the way the beauty here again remember the tax leakage is literally mid single digits to high single digits, depending on what price we get for it.
Rare situations be it so it makes a lot of sense for us to do Eminem.
Got it makes sense as well and lastly, Ed what's the let's talk about the growth synergies and the organic growth that would be new enhanced AI business.
Yes, I'll, let I'll, let John cover that.
We're excited about it but let me highlight we did not put it in our.
And our analysis of the deal, but the combo of the three.
And I layer in and Rogers has us really excited and I think we had a pretty neat chart.
With Doctor to want to go back and look at it puts on why don't you talked a little bit yeah, David maybe I'll give you kind of two quick examples here when you when you look at it Rogers really add complementary materials and components that really build on dupont's position in the industry. Today. If you use just a if you pull out.
Two specific application areas.
Round, five G and applications and smartphones wireless infrastructure military and defense electronics and automotive radar system.
Pottsville.
The leader and flexible laminates.
And layered has the EMI shielding in thermal management solutions, Roger how is the market leader and Richard PCB substrates, and so with that enhanced offering not only can you cross sell customers and expand your share of wallet with our global customer base, but one of the things we're really excited about and we're already.
Starting to see this with the layered integration process by the way is engaging with customers to co design and it help address some of their most challenging needs.
To give you one specific example, there.
Everybody is trying to make electronic devices smaller and one of the ways you get smaller if you use.
Hybrid rigid flex construction on the circuit Board and now we've got a market, leading flex circuit business, our market, leading rigid business and those complex hybrid rigid flex substrates become a lot easier to work with our customers and they are already asking for it.
Switchover to the electric vehicle space, we've got quite a bit of content and automotive electronics today, but we really didn't have a lot of exposure prior to layered or or Rogers and to things like the automotive.
Adas systems or the battery and layered brought with the EMI shielding with some of the absorbers.
Great position in Adas systems, Roger's built on that with their high frequency laminates and then what we're really excited about the opportunity that they have with the specialty bus bars in the specialty pharma performance forms to really address some of the critical needs in the battery packs and power Assembly power electronics part of the <unk>.
Electrode vehicles. So you put all that together with our adhesives business, what the rest of our automotive electronics and will really be a preferred partner with both the tier one.
The Oems as well as the Oems themselves to design, the hybrid and electric vehicles of the future, Yes, and David I think the chart that exits are referring to in the backup is the Pie chart on your end market exposure and if you look at that over half of our portfolio between electronics Nextgen Auto, Let's redefine Act.
Battery in Adas applications and wider.
Portfolio mix.
Mid single digits, and then from a growth.
Perspective, so really nice round out kind of pro forma coupon perspective.
Your next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is now open.
Thank you and good morning, everyone.
Could you talk a little bit more about the tax strategy on Eminem and I guess, what I'm asking is sort of what are the mechanisms that limit the tax leakage and is this is this an opportunity for tax savings that you can only really harvest because of a sale of the asset or these tax opportunities that would accrue to the overall Dupont enterprise.
In the absence of an eminent but might have taken more time to realize over any number of years.
Yes.
Let lori comment of Aqua.
I wanted to do that.
And it really kind of found that going back to the Dow Dupont transaction, and we were able to step up the basis.
Heritage Dupont assets, which are all Boeing expired at the end of non cat accident.
Is there any parameter for <unk> com.
Heritage Dupont and therefore have the benefit of the fact that apex from Mcafee.
Thank you.
Okay, and just as a follow up.
When you think about an Eminem.
Obviously, the fourth quarter is going to see some some some issues with the chip issue in auto build.
How confident are you that that trues up in <unk> versus potentially lingers into <unk> or the first half of next year and maybe you could sort of give us an assessment of what you think auto builds are going to look like.
Into 2022.
That'd be helpful. Thank you.
Yeah. The current estimates as you head into 2022, it really just shifting out.
IHS is estimating 11% growth in Ida balance next year and that still doesn't get you back to where we were kind of pre trade war pre pandemic at an 88 or $89 million on it.
So we're confident that growth is just getting pushed out and the demand is definitely there you couldn't get a card now if he tried and so I think there is definitely still a lot of pent up demand for assets. There. So we have confidence in sort of like a timing issue, it's not a share I can't that's not enough underlying.
It seems kind of like consumer perspective, it's really just.
When theyre anybody auto makers are able to get the check that complete the production of the cars.
And by the way just on the M&A front going into next year. We've continued during the fourth quarter and implements price increase actions to make sure we keep covering the.
The raw materials. So I think 2022 would be you have to be a solid year for the business.
Your next question comes from the line of John Mcnulty from BMO capital markets. Your.
Your line is now open.
So on the on the acquisition.
Can you speak to the competitive landscape in terms of in terms of the businesses and how the growth rate for.
For the business has been over the last say three to five years versus the versus the broader market as it outpaced it or are you gaining share in that area can you give us a little bit of color on that.
Yeah sure John when you when you look at it.
Really kind of different based on the individual product lines in the different divisions of the business. When you look at the high frequency laminates business.
Our primary competitors there are companies like Asahi glass Adcs and you did a couple of acquisitions in the last couple of years to.
To build up their portfolio in that space.
You've got some Panasonic is there so primarily Japan based competitors and then you've got some local folks and in China, who are doing some of that as well largely because of some of the geopolitical situation. All of that is kind of outside and we were kind of that's in the rearview mirror now and the company's really.
Well positioned and continuing to grow that on the on the ceramic thus far then.
Substrates and specialty bus part.
That's a pretty fragmented business, you've got companies out there like that.
<unk> and multiple others, it's a fairly fragmented landscape what differentiates this technology is really.
The quality of the ceramic thermal substrates in the energy Thats created with Silicon carbide power module, especially for electric vehicles.
And so when you combine that with a similarly with the specialty bus bar, that's going to replace things like the wire harness that then a power system as Ed alluded to in his prepared remarks. The quality. There is really what allows the step up in the growth acceleration really driven by electric vehicles on the elastomer side.
Companies like <unk>, who are really.
Woodbridge needed dango are kind of a few names there.
Across the board in each each of these kind of three businesses Roger.
As a leading market share.
They are among the leaders, they're winning in the market they've got a great pipeline of opportunities, especially on the automotive the advanced mobility side with EV and Adas. They are working with all of the power electronic Oems.
A lot of those are by the way our eni customers as well so we'll have great relationships across the industry to be able to do.
Deliver some of those growth synergies any upside on our historical growth rate.
<unk> kind of been growing mid single digits and with the step up from automotive opportunities in electric vehicles, which are markets that are growing anywhere from mid teens in Adas systems to 30% to 30% on the EV side.
They will see a nice growth acceleration as those start to scale over the next few years.
John May have very nice wins, we did a lot of we've been hearing in the marketplace and obviously studying them for three years, but we've done a lot of due diligence around the pipeline of the wins and they are very well positioned as John said on <unk>.
With wins in a lot of.
Design opportunities that they're working on so we feel very good about a high single digit growth rate going forward for the business.
Hugely hugely helpful.
And just as a follow up on the mobility asset sale or divestiture. However ends up going can you speak to how we should think about any stranded costs. How quickly you may be able to exit those if there is much in the way of anything that would be would be left anyway.
Yeah, I mean, we're very good at getting our stranded cost quickly so with Paragon. He said he had we will get at it I mean look at the transaction Holistically. So you'll have the M&A portfolio going out Rogers coming in and then and then another transaction coming in sometime later in the fall and so we have line of sight to get pricing from the M&A and divestiture. So.
Benchmark best in class from a G&A perspective, we'll continue to benchmark best in class post that transaction.
Okay. Your next question comes from the line of Chris Parkinson from Mizuho. Your line is now open.
Great. Thank you very much just regarding slide 11, you do have a history of exceeding expectations on cost synergies and clearly are already embracing the potential for revenue synergies as well. So just taking that 14 times post synergy multiple in integrating how youre assessing the long term aggregate synergy potential based on your various buckets can you.
We just discussed the potential to further reduce the price paid and what the investment community should be monitoring during the first let's say 18 months just given your progress, which you've just highlighted on layered. Thank you.
Yes.
We're looking we're talking about cost synergies hopefully be conservative and we can beat those numbers as we are already are on later in my life.
So.
We'll keep updating you as the year.
A year goes on by random multiples actually.
The industrial but its 13 six times and if we find additional synergies we reduced it from there.
Well just keep up the amount of we can sit down.
And actually with the teams in more detail that you can see what we can really sharpen the pencil.
Really look at what else we can do it.
Doing that over the next.
Two months, so highly confident we can get that amount.
Well.
We've always been in the past so let me just say that.
Understood and just as a quick follow up just shifting to the macro.
Your team has done a fairly good job just driving pricing controlling the raw materials as you highlighted at least $100 million ex Eminem, but also transportation logistics headwinds.
So based on what Youre seeing right here right now.
We're already in the fourth quarter, just what should we think about the pricing algorithm versus raws as well as transportation logistics.
Heading into 'twenty two 'twenty three I mean is there any expectation if we get if we do in fact receive relief you will get a structural margin uplift in certain businesses. Thank you.
Well most of that would be in the <unk> business.
Can you try to hold pricing as long as you can right when raws come down so you might get some benefit there, but I would say over the more intermediate time track. Each other so you wouldn't have a margin problem, but you know deferrals do come down significantly as you can give us on price, but you hold it as long as you could.
The logistics issues, I don't think or getting any better out there.
For some issuers did get better as we said so the raw materials supplies into Eminem is substantially improve which is great and we're able to catch up a little bit last quarter with our customers and orders we couldn't ship in the first and second quarter.
But but yeah, we're looking right now and additional surcharges one free.
That has continued to go up, especially ocean freight and all that so I don't think we would probably be the Bourbon and do some here were actually I have a meeting in the next couple of days, where we're going to do a surcharge instead of a price increase on the actual product itself. So people know.
Because of the freight increases so we want to be positioned well going into 2022.
Yeah.
Yeah.
Your next question comes from the line of John Roberts from UBS. Your line is now open.
Thank you two questions. Your 2022 Rogers EBITDA estimate is 10% above consensus is there any significant new product development that you uncovered in your due diligence.
Yeah. So we estimate it to 70 for next year.
Largest incremental growth related to its coming from the top line and you've got the benefit from they have made a small acquisition of the Silicon Engineering I think just announced recently you had the benefit of that.
That was about.
Mid teens growth from an organic perspective.
Coming finally to strengthen the pipeline that John has highlighted earlier said about 30% of their revenue is in advanced mobility, which is eight actually keeps growing kind of in the 19th and then battery that you picked up break that 20% plus.
And then finally, they did have a fire at one of their facilities in Asia.
Acting recovery there.
'twenty two 2022 over 2020, one so that isn't really the key drivers as the top line they are dropped.
Dropping to the bottom line and giving us that confidence it will get to keep 70 next year.
And then.
Don't take this the wrong way, but this seems to set up an end game for Dupont and you step back once from the CEO role to these transactions focus Dupont enough that you might consider stepping back again.
No.
Thanks.
Okay.
Your next question comes from the line of each age of the car from Citi. Your line is now.
Yes, hi, good morning, it unloading.
Yes, I'm wondering if you can talk about your volume growth in China.
And wondering if you've seen any weakness related to housing and construction activities as we've been reading. Some headlines here can you just talk about the big picture there.
Yeah. So.
Really the only pullback that we potentially will see in China in the fourth quarter and the third quarter, our organic growth in China was about 11% that put us in a low 20 percents year to date and in the fourth quarter right now, we're expecting high single digit growth in China organically. So.
Yeah.
Sequential deceleration, it's really just a reflection of the semiconductor shortage highlighted earlier impacting primarily our auto sales.
<unk>, our electronic sales and then the timing shift that we've been highlighting around the timing of the smartphone batteries that favored the first half.
I would say no no overall structural change our expectation of being up organically, 7% in the fourth quarter is ahead of where GDP is expected to be right now for China as well So we'll continue to outpace.
Yeah, and our exposure lumped in kind of the house and commercial sector in China is minimal that's a bigger business for us on the residential side in North America.
So really no impact there.
Okay. Thank you and then clearly Rogers sees a high growth company in areas, such as Evs and wireless infrastructure.
And I know Youre frustrated with your own multiple I can hear that in your voice.
But maybe you can talk about your thoughts on how did you triangulate on the multiple of 119 times.
<unk> 2022, EBITDA for Rogers and just your overall thoughts there. Thank you.
Yes sure.
No.
The 19 times, we'd never do it Standalone and 19 times I can tell you that but we comfortably have it down to $14 six.
Times with the synergies we know we can get them as I said a minute ago, hopefully we can get some upside to that so.
So I feel very comfortable buying it.
Very high quality company, and one of the things, John and I and lower.
Love about it it really is high and technology expertise their scientists.
The products a developer on the cutting edge its exactly what Dupont does so the barriers around that that we like and it's always to our existing customers and it also expands our markets, where we think we can leverage our products as John said into these other markets.
So it's just it's a very high quality asset again, we've watched it for years and seriously for three years.
The beauty about this at the $13 six times, we feel like they with the funnel. They have there on the cost of some real secular growth areas.
We're getting in one of early with them by the way we feel like we did that was layered in.
We're already seeing it in the performance of layer there nicely outperforming what we said we would do so we have literally bought layered in now if you just use the numbers theyre running at this year, we bought layer at 10 times I think when we announced it we said it was 11 times.
The performance, we're going to end the year at a layered has already brought that down to 10 times. So and then again a very high quality asset we got at a great price. We think we're right at that point with Rogers.
These secular growth areas on the Adas is growing 15% Evs are growing 30% just the name of the auto industry and Rogers is very well positioned there and these things are just beginning to really ramp.
Okay.
Your next question comes from the line of Alex Yao Raimo from Keybanc. Your line is now open.
Thank you.
Hi, everyone.
And Laurie.
I would agree that end markets are very attractive for Rogers.
And the products look strong.
Margins are lower than Dupont legacy electronics business.
Due diligence how did you think about that.
In terms of maybe the technological differentiation barriers to entry or opportunities for improvement.
Yes, Alex I'll go I can take that when you've got kind of the way to think about it is you've got two thirds of the portfolio with established products that have very attractive margin profiles that closely match the types of things that we have in the rest of the portfolio and then you've got kind of one third that is in that power.
Electronics space that is really just starting to scale up based on the EV.
Great technology with a differentiated position it has a slightly smaller margin profile today as the volumes are starting to scale up for those applications as we add the volume in the margin drift up nicely and then you layer synergies on top of that and you'll have a really solid very attractive.
Margin profile for the overall business.
Yes.
Thank you as a quick follow up on the supply constraints and mobility.
Supply of raw materials.
100% is completely normal supply may be zero percent.
Worst point before it and just where do you think it would be in fourth quarter and first half of 'twenty two.
Yeah. So the raw material constraints have really basically alleviate and so compared to anywhere in the first half with a free and tech stack. We're light years beyond that so everything is generally back to normal with respect to raw materials supply what we're what.
What we're facing right now is really check that semiconductor shortage impacting the OEM that are pushing them lower demand back to act as if they werent tweaking.
Thank God that funding conductor shortage challenge probably sometime into the next hear back from our normal environment.
That's really not Rod assembly check any shortage.
Yeah.
Your next question comes from the line of Mike Sison from Wells Fargo. Your line is now open.
Hey, good morning.
Nice transaction, a couple of transactions I guess, but.
It might be a little bit early but when I think about 23 EBITDA.
But youre going to do this year in 'twenty, one minus the billing for Eminem plus Rogers, the synergy and I assume we get pretty good growth rate.
For the next couple of years, it's kind of a base case for 2003 to look like 'twenty, one if not a lot higher maybe not a lot higher but it certainly is a possibility of 'twenty three but that could be higher in 'twenty one.
Yeah, I don't know that answer.
Something out in 'twenty, three but look I think we've teed up a portfolio as we said it's going to be higher growth.
And then very little volatility in itself.
Balance sheet dependent if we do another acquisition or we do more share repurchase.
Pencil on that also because I think it was back to speak juices comment. So there is there some billions of dollars sitting here at the end of 2022.
We redeploy that degree.
To create shareholder value also so theres still some big moving pieces, but.
Again, we expect nice growth in 'twenty, two and the core portfolio.
We expect nice growth in 2023, where you had mentioned.
40% of the portfolio was clearly nicely growing right way nicer than GDP, because they're in the secular growth areas like our water business.
Pretty much the whole eni sector.
Into account there just to name two of them and you know what the layer now and Theyre in the Rogers in there you get a nice part of our portfolio growing at a nice clip.
Got it and just a quick follow up I understand the potential to be compared to the bolt.
<unk> folks.
The portfolio is getting a little more simplistic two major businesses, but dupont tends to be put into chemical indexes for the sort of major fund. So will this trend with these transactions allow you to move.
From a C code or something like that to two two and.
Real code where I.
I think you could get a little bit more attention for for the for the comps that you want to be competitive.
Well first of all.
Comps finally.
Really hard good comps because if you take the broad bucket of multi industrials.
The markets. We're in are all the key end markets a lot of the other multi industries. So we're not dropping off with something else here. That's different in fact, I would say the one thing that was different actually from the compare was more revenue.
You know that was probably most people would lead to more towards the chemical industry.
<unk>, a multi industrial with the portfolio now lined up end market very very well.
So we'll work that issue on the bulk industrial over time.
Action plan together.
Got it.
Indeed, our investors to focus on that we need to talk to the right people at the right funds within the big companies that invest in us.
We'll work that issue, but I think over time, we will be.
Fair enough.
Benchmark really nicely against that group.
Your final question comes from the line of Ireland, Vishwanathan from RBC capital markets Your line.
Great. Thanks for taking my question I guess two questions. So first stuff.
On the Q2 'twenty two expected close.
Is that a little bit later than you expect is there any regulatory issues that you expected. This process and similarly for October 22 for the divestitures that also seems like a ways away.
Building in some extra cushion there.
The 2020.
So the closing the Rogers deal.
I don't see any issues.
We've always studied the anti trust extremely deeply.
So don't see any issues there.
Could that close a little bit sooner included.
But you know, we're just targeting the second quarter it would be safe.
Faster I don't think any of them will be faster than October one because the long pole in the tent as more of the work we have to do internally.
Separated.
We'll announce a sale to somebody way sooner than October one.
But we won't be able to actually separate it out of the company.
Until that point in time.
Okay, Thanks, and as a follow up.
You've clearly been on a path to move towards.
Higher growth higher margin businesses.
In the hopes of getting some multiple uplift.
What can you do to accelerate that if that's not shown in the market will you continue to March down this path of separation and streamlining.
Is there.
It looks like Theres more announcements coming potentially in water is that the next area of growth that we should think about.
Well it did.
Down to the slot Fiat platforms like we mentioned.
Related to any of those.
We love that market and the.
Waters.
Hi.
Growth rates.
One for many many years.
Hum.
We can help solve for people so that we do like that space.
Let's see how this year goes on.
I'm highly confident people will recognize what's in this portfolio I will also add I think which would be very helpful for everybody.
Are they doing the teaching some John did one on semiconductor.
So we'll go we have one coming up here shortly and we're going to walk you through every key piece of the portfolio and I think it'll really highlight the value in.
<unk> are used to companies we have felt in <unk> and I don't think anyone has a clue what those businesses are like and how often they are and how good the growth trends in those businesses just to name two that we didn't even talk about today. So I think the teachers will be very very.
Powerful when people see what we have and the value of the technology that we have in the company.
I think that's gonna be helpful also.
Thanks, and thanks, everyone for joining the call for your reference a copy of our transcript will be posted on Dupont's website. This concludes our call.
Yes.
Okay.
Okay.
Thanks.
Thank you.
Okay.
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Okay.