Q4 2021 Dupont De Nemours Inc Earnings Call
Good day, and thank you for standing by.
Welcome to the fourth quarter 2021 earnings call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question. During this time, you will need to press star one on your telephone keypad.
I would now like to hand, the conference over to your Speaker today, Pat Fitzgerald from Investor Relations.
Good morning, and thank you for joining us for Dupont's fourth quarter 2021 earnings conference call.
We're making this data to the investors and media.
Yes.
We have prepared slides to supplement our comments during this conference today.
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 Mary <unk>, Chief Financial Officer.
Please read the forward looking statement disclaimer contained in the slides.
During our call we will make forward looking statements regarding our expectations or predictions about the future.
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 as updated by our current and periodic reports.
Detailed discussion of principal risks and uncertainties, which may cause such differences unless.
Otherwise specified all historical financial measures presented today.
Significant items.
I'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'll now turn the call over to Ed.
Thanks, Pat and good morning, everyone.
Thank you for joining our fourth quarter earnings call. In addition to discussing our fourth quarter results and outlook for 2022. This morning I'll also comment on the progress of both our intended acquisition of Rogers and our process for divesting a majority of the <unk> segment.
Our fourth quarter results were highlighted by 6% volume gains, including a 9% increase in Eni segment, and a 12% increase in wip.
Eminem deliver topline results ahead of expectations.
<unk> volumes are well ahead of global auto builds in the quarter.
Customer demand was broad based across the portfolio led by greater than 20% volume growth in semiconductor technologies.
And high teens volume growth and water.
Our topline performance also reflects significant pricing actions, we took to offset $250 million of raw material inflation in the quarter.
We are seeing increases in all businesses with about three fourths of the impact and Eminem.
Our teams have done an outstanding job monitoring our input costs and quickly translating that into price increases to remain price cost neutral for the year.
We are taking additional actions.
As we work to offset logistics costs, which during the fourth quarter were a $50 million headwind mostly in wip.
I want to recognize and thank our employees, who show up every day in our factories to keep our lines are running and supplying the necessary products and solutions to deliver results like we reported today.
Their unwavering commitment in the face of a relentless pandemic ongoing supply chain disruptions.
And logistic challenges deserves our gratitude.
Turning to slide three provide an update on our portfolio transformation and will review, how our focus on those strategic actions balanced capital allocation.
An innovation led growth position us extremely well heading into 2022 to.
To continue unlocking value for our shareholders.
Innovating for our customers.
And creating opportunity for our employees.
In November we announced our planned acquisition of Rogers Corporation, as well as our intent to divest a significant portion of our eminent segment.
These portfolio actions will position Dupont among the top of the multi industrial peer set with top quartile revenue growth.
EBIT margins.
And low cyclicality.
All hallmarks of top performing companies.
Going forward, our business will be centered around the secular high growth pillars of.
<unk> water industrial technologies protection and next generation automotive.
Our team see strong customer demand across these pillars, driven by megatrends, such as the transition to hybrid and electric vehicles.
Clean water sustainability and the move to five.
The preparation for the Rogers acquisition is well underway at.
And on track for the second quarter closing.
Several significant milestones in the path to closing have already been achieved.
In mid December the waiting period under the HSR expired here in the U S.
And regulatory processes in other parts of the world are underway.
Just two weeks ago on January 25.
Roger shareholders voted to approve the transaction.
Excitement is building for combining this business with our portfolio of electronics offerings, which includes our recent acquisition of layered performance materials.
Our teams are anxious to get to the point, where we can start working with the application engineers are.
R&D and sales teams at Rogers.
To map out the revenue synergy opportunities in the areas of next generation auto <unk>.
<unk> infrastructure.
Defense electronics and clean energy.
Combined with layer. These acquisitions increase the total addressable market of our Eni business by approximately 50%.
And we will deepen our penetration into markets, such as electric vehicles consumer electronics and industrial technologies.
A lot of work has been done to plan for the cost synergies associated with the Rogers acquisition, which we expect to be approximately $115 million.
We also have line of sight to about $63 million of cost synergies from the <unk> acquisition from last summer, which is ahead of our target.
We are looking across both of the acquisitions as well as our existing Eni business to maximize our synergies through G&A and footprint optimization, along with procurement savings.
We also announced that we have initiated a process to divest the majority of the MRM segment. Our work here is also on track and progressing well.
As I had expected there is a significant level of interest in this market leading asset.
I am pleased with how the process is progressing.
Our target is to have a signed agreement by the end of the first quarter with the closing in the fourth quarter of this year.
In addition to positioning the company as a top performing multi industrial these transactions enabled us to transform the portfolio.
While maintaining a strong balance sheet and continuing with a balanced financial policy.
Today, we announced that our board has approved a 10% per share increase to our dividend.
As consistent with our commitment for a dividend payout in the range of 35% to 45%.
And to grow the dividend annually in line with earnings.
In addition, our board has also authorized a new $1 billion share repurchase program, which enables us to continue returning value to our shareholders as we expect to complete the remaining $375 million under our existing authorization in the first quarter ahead of the plans exploration.
After paying down the financing associated with the Rogers acquisition.
We expect to deploy a significant portion of the remaining Eminem proceeds to do further M&A to build on our core areas of strength as well as additional share repurchases.
We will also generate strong cash flow. This year. In addition to the 240 million gross proceeds from the biomaterials divestiture, which is the last of our noncore divestitures.
Our strong balance sheet positions us well to deliver for all stakeholders.
Through investment in our business.
Dividends share repurchases and additional M&A.
Finally, we will deliver shareholder value through staying focused on innovation, which is at the core of Dupont.
The 6% volume growth, we delivered in the quarter and 10% volume growth for the year benchmarks well against our top peers.
For the quarter, our volume gains excluding Eminem segment were up 10%.
These results are proof points that the work of our R&D teams and application engineers, who spent countless hours working alongside our customers solving their most complex challenges as an advantage in the marketplace.
Our focus on innovation is also at the core of our ESG strategy through both innovation and our own processes to reduce greenhouse gas emissions at our factories as well as new product innovations that support and advance our customer sustainability goals in areas such as clean water clean.
Energy electric vehicles and connectivity.
The levers of portfolio transformation balanced capital allocation and innovation led growth is a powerful combination to create long term shareholder value at Dupont.
With that let me turn it over to Laurie to discuss the details of the quarter as well as our financial outlook.
Thanks, Sam and good morning, everyone as Ed mentioned customer demand in our key end markets remained strong in the fourth quarter, we continue to face unprecedented global supply chain challenges and rising inflation.
Pricing actions that we continue to implement our benefiting top line performance and maintain your earnings on a dollar basis.
These factors along with our intense focus on execution contributed to net sales operating EBITDA and adjusted EPS results above our guidance.
In addition, we have solid cash flow generation and returned over $650 million in capital to shareholders during the quarter to $500 million in share repurchases and over $150 million in dividend.
For the year, we were carrying more than $2 7 billion in capital to shareholders 32, 1 billion in share repurchases and $600 million in dividend.
Turning to slide four net sales of $4 3 billion were up 14% versus the fourth quarter of 2020.
13% on an organic basis.
Organic sales growth consisted of 7% pricing, reflecting the continued actions we are taking to address inflationary pressure and 6% volume growth.
Present portfolio tailwind reflects the net impact of strong top line results related to our acquisition of <unk> and headwinds from noncore divestitures.
Currency was a 1% headwind in the corner.
Overall sales growth was broad based and reflects double digit organic growth in all four regions and high single digit to double digit organic growth in all three reporting segments.
From an earnings perspective.
Fourth quarter operating EBITDA of $973 million and adjusted EPS of $1 eight per share up 5% and 54% respectively from the year ago period.
Our incremental margin in the quarter with pressured by price cost and logistics net of these impacts our incremental margin was about 33% forecast.
As mentioned earlier the pricing actions that we took throughout the year, resulting in an offsetting about $250 million of Brian Macquarrie of inflation in the quarter and we also ended the year price cost neutral.
The raw material inflation, coupled with about $50 million of higher logistics costs in the quarter were headwinds to our margin.
I'll provide more detail at the margin compression we saw in the quarter in a few minutes.
From a segment perspective, Eni delivered 10% operating EBITDA growth on volume gains and earnings uplift from Baird, which more than offset raw material and logistics headwinds as well as startup costs associated with our tax on capacity expansion.
<unk> operating EBITDA increased 7% as pricing gains and volume growth more than offset higher raw material and logistics cost.
We will remain disciplined in our pricing approach as we move into 2022 to address continued inflation.
Eminem operating EBITDA declined, 3% and net pricing gains were more than offset by lower equity earnings due to higher natural gas costs in Europe .
In the quarter cash flow from operating activities was $621 million in Capex.
With $184 million, resulting in free cash flow of $437 million free cash flow conversion was 100%.
In addition, we received gross proceeds of about $500 million during the quarter from our clean technologies divestiture, which was closed at the end of December .
Before we go to the next slide I would also like to make a few comments on our full year performance.
Full year net sales of $16 7 billion for 16% and were up 14% on an organic basis.
So organic growth consists of a 10% increase in volume and a 4% increase in price.
Organic sales growth reflects double digit growth in all four regions and in all three reporting segments.
Further all nine of our business lines had organic growth in 2021, and seven of the nine business lines grew double digits.
A 10% increase in volume for the year consistent gains in all three reporting segments.
And with an online business line, reflecting robust global customer demand and secular growth areas, such as electronics and water along with recovery in end markets negatively impacted by the pandemic and prior year, such as automotive commercial construction and select industrial markets.
Full year operating EBIT of $4 2 billion increased 21%, reflecting one three times operating leverage.
<unk> EBIT margin expansion of about 100 basis point, an incremental margin of 32%.
Operating EBITDA increased for all three reporting segments during the year.
Full year adjusted EPS of $4 30 per share was up about 95% from prior year on higher segment earnings a lower share count and lower interest expense.
Slide five shows the impact that price cost inflation had on our operating EBITDA margin in the fourth quarter.
Costs continued to rise throughout 2021, our fourth quarter results reflect the largest headwind quarterly margins for the year.
And total pricing actions fully offset about $250 million of raw material inflation, which was higher than our expectations for input costs coming into the quarter and mainly in the <unk> segment.
While our pricing actions have enabled us to maintain earnings the price cost inflation resulted in a significant headwind of about 150 basis points to operating EBITA margins versus the year ago period.
Additionally, higher logistics costs and about $50 million in the quarter, resulting in a margin headwind of about 120 basis points.
Offsetting the headwinds from raws and logistics with a 70 basis point improvement in operating EBIT margin, which includes volume growth in Eni and wip and the benefit associated with the word acquisition.
If you exclude the price cost and logistics headwinds.
Quarter on an ex Amazon segment basis, our operating EBIT margin was above 26, 5% in the fourth quarter further illustrating our strong performance and putting an emphasis on our planned portfolio actions.
Turning to slide six which provides more detail on a year over year changes in the net sales for the quarter.
As I mentioned earlier organic sales growth of 13% during the quarter consists of 7% pricing gains and 6% volume growth.
And Eni volume gains delivered 9% organic sales growth for the segment led by higher volumes in semiconductor technology of more than 20%.
Semiconductor technologies demand was driven by the ongoing transition to more advanced node technologies, resulting from growth in electronics Megatrends.
<unk> was up mid teens for the full year and we expect to continue to outpace MSI growth as we head into 2022.
We are seeing more investments in semiconductor capacity, which we expect to be a positive for us in the long term.
Industrial solutions was that mid teens during the quarter on volume growth, which was driven by ongoing strength for <unk>.
In electronics, and industrial end markets, along with strong demand for medical silicones, and Biopharma and health care application.
Organic growth for industrial solutions was up mid teens for the full year as well.
As expected organic sales growth for interconnect solutions was down in the quarter, reflecting the anticipated impact of the shift in demand related to premium next generation smartphones to the first half of 2021, along with softness in automotive end markets related to the SME kits shortage.
For the full year organic sales growth for interconnect solutions was up mid single digits, and we expect to return to a more traditional seasonality in 2022.
In addition, we recently completed our CAC ton expansion project here in the U S, which expands our production of polyamide films and flexible Circuit Board materials, we will begin qualifying materials in the first half of this year for high value applications, which will start to accelerate in the second half of 2022.
For W. P, 17% organic sales growth during the quarter consisted of a 12% increase in volume, including volume gains in all three businesses.
5% pricing gains.
Sales gains were led by high teens organic growth in safety solutions and continued recovery in industrial end markets resulted in significant volume improvement for nomex and Kegler aramid fibers.
Within water solutions high teens organic sales growth reflects strong global demand for water technologies, primarily in industrial and desalination market.
Sheltered solutions sales increased mid teens organic growth driven by continued strength in north American residential construction and continued recovery in commercial construction led by higher demand for Koreans surfaces.
Year over year pricing gains of 5% during the quarter relate primarily to actions taken in safety and shelter in response to raw material inflation and also reflects sequential price improvement from all three business lines within W. N P versus the third quarter.
For the full year, <unk> delivered 10% organic sales growth on 8% volume improvement and 2% pricing gains.
Safety in shelter solutions were up low double digits organically and water solutions was up mid single digits for the year.
The global demand for clean water technologies remained strong and expanding our capacity remains a priority for us.
For Eminem, 13% organic sales growth during the quarter was driven by a 16% increase in price offset slightly by a 3% decline in volume.
Dennis segment within our portfolio, most significantly impacted by raw material inflation.
The 60% local price increase during the quarter reflects continued actions taken to offset higher raw material and logistics cost.
Volume declines reflect softness in global auto production due to supply constraints, primarily semiconductor chip shortage.
For the year Eminem organic sales growth was 24% on 12% higher volume and 12% pricing gains all three business lines within Eminem delivered organic sales growth of greater than 20% for the full year.
Turning to slide seven adjusted EPS of $1 eight per share was about 54% from 70 cents per share in the year ago period.
Higher volumes and strong results from there more than offset higher logistics costs and other operating items, such as cat time startup cost.
Below the line items continued to benefit our EPS results compared to the year ago period, primarily a lower share count.
Lower interest expense was mainly offset by a higher tax rate.
For full year 2022, we expect our base tax rate be in the range of 21% to 23%.
Let me close with a few comments on our financial outlook on slide eight.
We expect continued top line strength across the portfolio in 2022 led by ongoing strength in semiconductors as the industry continues to operate near capacity to meet demand and consistent demand in areas such as industrial technologies smartphone sales housing starts and water filtration or <unk>.
<unk> assumes these market dynamics will lead to solid volume growth in 2022.
In 2022, we are planning that raw material and logistics costs will remain at elevated levels with approximately $600 million of year over year headwind versus 2021, primarily in the first half.
Once again, the raw material inflation will be predominantly in our Eminem segment.
In response, we are implementing more price increases in all businesses, which will enable us to offset raw material and logistics costs on a full year basis, but we will lag in the first quarter we.
We expect our operating EBIT margins to improve throughout 2022, driven by volume growth productivity acquisition synergies and full implementation of pricing actions.
In the first quarter, we expect net sales between $4, two and $4 3 billion and operating EBITDA between 940 and $980 million.
At the midpoint of our guidance range, we are anticipating first quarter operating EBITDA margin to be about flat sequentially with the fourth quarter 2021.
We expect sequential improvement in Eni and Eminem to be offset by W. N T as manufacturing cost increases stemming from the Omaha and variant.
And ongoing logistics cost headwinds lead to sequential margin declines.
For the full year net sales of $17 four to $17 8 billion and operating EBITDA of approximately $4 4 billion at the midpoint reflects volume growth and acceleration of additional pricing gains throughout the year to offset the impact of both raw material and logistics cost increases we.
Operating EBITDA margins in the back half of 2022 to return to more normalized levels as impacts from them are prime variance of size as well as gains from volume improvement productivity actions acquisition synergies and full implementation of price increases.
In closing I want to note that our guidance is based on the current Dupont portfolio today, including the businesses and scope of the planned <unk> divestiture.
Once we signed the deal the in scope Eminem businesses will move to discontinued operations and we will reset the guidance for remain co. If you talk.
With that let me turn the call back to Ed.
Thanks, Lauren let me close by summarizing why I am excited about 2022 of Dupont or <unk>.
<unk> demonstrates that our businesses deliver the solutions our customers demand.
In a tight supply chain and challenging logistics environment, we delivered 6% volume growth.
Ahead of our expectations coming into the quarter. Our teams continue to work closely with our customers to understand their complex material challenges in the wind business by delivering.
Innovative and sustainable solutions.
You can also see our teams are managing every lever within our control. This is evidenced through our delivery of pricing gains to offset every dollar of raw material inflation in 2021.
These actions continue into 2022.
In addition to have on our fundamentals in place we are on track to complete a few substantial steps in the transformation of Dupont in 2022 with the planned Rogers acquisition and the <unk> divestiture.
These transactions as well as the potential for additional M&A and strategic areas position Dupont is the premier multi industrial company focused in the areas of electronics water industrial technologies protection and much generation of auto.
And finally because of our ability to complete this transformation, while maintaining a strong balance sheet will be in a position to generate value for all stakeholders through organic and inorganic investment in our businesses and buying staying committed to our dividend and share repurchases as we announced today.
Forward to providing you updates on each of these areas as we progress through 2022 with that let me turn it to Pat open the Q&A.
Thanks, Dan 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.
Please provide the Q&A instructions.
Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Jeff Sprague with vertical research.
Thank you and good morning, everyone. Good morning Laurie.
Morning.
Two questions for me first just on Eminem.
The.
The tenor of the discussion around valuation.
Still in the ballpark of what you were thinking back in November kind of given the market turmoil that we're looking at.
Yes, no change to the comment I made last time.
I'm feeling very good about the process multiple people very interested in the asset and we're moving along as quickly as we can here.
We'll have a deal.
To announce before the end of the first quarter.
Great and then just thinking about the portfolio after this.
There are a lot of the benchmarking work myself and the company does look a lot different when this is behind you, but I was just wondering if you could give us a sense of what you think.
The organic growth profile of the company is once you get these two moves done.
And.
Should we be expecting kind of other portfolio moves or we're moving more into maybe.
I don't know maybe bolt on acquisition mode with a focus on organic growth perhaps.
Got a couple of comments.
And by the way I think it really does transform the portfolio into a premier multi industrial.
We get a look at just the fourth quarter results, if you take Eminem out.
The portfolio grew volume about 10%.
It was 6% with them in a minute and by the way. If you look at the EBIT margin profile. It was it would improve by 190 basis points with Eminem out so as we said before with this move we're making we're definitely going to improve our top line and the stability of it we're going to improve our EBITDA margins and we're clearly significantly re.
Domestic cyclicality on the portfolio and then finally I think in Lori's comments or my comments, 70% of our raw material increases. This year were in the <unk> segment. I believe we are getting significant price and covering it but somewhere down the road as commodity costs online the pricing on lines into teams into two.
<unk> portfolio by the way, our organic growth rate a little carnival for a year, even though the <unk> business is a phenomenal business and a great cash generator. So it really fixed is a lot of things and there's been a corresponding larotid Rogers finally, the consistency of those secular end markets that we're adding are very nicely alright give you an overall comment when you.
Look at the Pie chart on new Dupont. After these moves are made by way of assuming maybe another key acquisition happens.
That we add into one of these secular areas, we talked about our five areas you have about 45% of the portfolio.
Outgrow GDP and about 55% of the portfolio, probably somewhere around GDP, So youre really very much tweaking that.
End market secular exposure, we have to have a really consistent nice higher organic growth rate in the company.
Alright, thank you.
Thanks, Joe.
Your next question comes from Scott Davis with Melius research.
Good morning, Laurie good morning, good morning.
Good luck with Eminem looks like we're going to get an announcement another couple of months, but.
Want to switch over to W. P. Because it seems to be back on track pretty.
Pretty big.
Our growth numbers, even excluding price.
What.
It was it your ability to meet customer demand in the quarter the change or the actual customer orders go up substantially.
In the quarter and as this business just a little lumpier than perhaps we may think it is and you're going to have some ebbs and flows.
Couple of things Scott first of all the order rates have continued to go up in the last couple of weeks, we've had really nice order input in the business.
So the advanced continuing on a nice trend in almost every one of those end markets that lorie touched on in your prepared remarks, but we also in the quarter did a nice job getting through some of our past due backlog by the way one of the areas. If you all remember this this quarter, we had 19 person.
<unk> growth in the water business and the two quarters before that we highlighted to you that we are having a tough time getting some shipments out the door in the water business and we had low single digit growth in the.
If you combine the second and third quarter and it obviously should have been higher in the second and third quarter. So we really got a lot of the logistics cleaned up the ports cleaned up.
Little bit in some of the areas, where we ship our water products and we've got 19%. So we flushed out a lot of that second and third quarter, having said that the water.
Orders coming in still look very robust. So we're we're feeling good about what we're getting out the door to satisfy our customers and the order intake still coming into the company. So.
On the point I made a minute ago to Jeff if you combine <unk> and Eni, which will be the new portfolio, 10% volume growth in the quarter on top of us getting pricing.
Right.
Ed is the strategy to price around raws or pricing that Raj plus logistics.
The initiatives to get Jeff Scott, it's to get both what I think's happened to everybody.
See your input costs on the roles and we've been getting pricing, but like we said we covered at 100%.
2021, but <unk>.
Fixed costs, especially ocean freight just started going bonkers around October November kept going up in December .
And it wasn't even up and staying up it was continuing to go up in some of the Osha freights literally up seven or 800%. It's crazy. So I think everyone's still chasing that and that's really a big part of our story in the first quarter Nwfp, where we're implementing more pricing what probably we weren't playing more pricing.
<unk> across the portfolio, but were really going at it wanted to W. P side, because they have more of our logistics cost than the other two businesses and we are putting through more pricing. There. So as we get into the second quarter for WPZ will start to see margin.
The improvement it keep building as we go through the year.
Okay. That's helpful. Good luck everybody. Thanks Raj.
And your next question comes from the line of Steve Tusa with Jpmorgan.
Hey, good morning, guys.
Alright.
Are you still thinking kind of the same and I know the market has been a little bit volatile but.
Any update on your expectation for the multiple for Eminem.
Ultimately.
Starting with my comments that I made last time I think what I.
I made the comments for our 2021 multiple was a little shy of 11%.
We will get more than that for this asset, but I think our multiple now still a little shy of 11% to fund 2022.
And I'll stick with my comment that I made last time.
Great and then just.
Kind of price cost dynamics first half second half I am sure that.
Part of the.
Of the kind of seasonal ramp I know its a little bit tough to tell.
He's out what normal seasonality here is for this new portfolio, but maybe.
Put that in the context of the <unk> EBITDA guide if you could I'm sure that's an aspect.
Yes.
We still see logistics as a headwind to earnings so probably in that same range that we call. It out for the fourth quarter at a $15 million or so so as the year goes on we will expect to offset that to land neutral on a full year basis on those raw material escalation and logistics. So that's a piece of our sequential margin improvement as the year goes.
So I'm kind of getting back into more normal normal patterns in the second half another benefit that we'll see as the year goes on it's really just the volume and so we will expect sales to increase coming out of it.
To get to the full year guide at the midpoint of $17 6 billion and beyond that just the lift that we're expecting around productivity.
So the reaction get more synergy that alere transactions that we're doing really well there was actually up to our expectations slightly from $60 million when we announced the deal to now we're targeting closer to $63 million from the layered synergies and.
So all of those things combined I watch is giving us confidence in that and the margin ramp coming out of Q1.
Great Alright, Thanks, a lot guys appreciate it.
Thank you.
Your next question comes from John Walsh with Credit Suisse.
Hi, good morning, everyone.
Good morning, John .
Yeah.
Maybe just circling back to the guidance.
If we look at 2021 you outperformed your initial guide by about 8% on EBITDA at the midpoint in the face of a lot of inflation inflationary pressures as we think about 2022 and how you kind of set the initial guide is it really just.
<unk>.
Running forward some supply chain.
Continuation of the current environment or is there anything thats Dupont specific that we should be aware about when you set that guidance.
No I wouldn't say, there's anything Dupont specifics.
Obviously, we still have caution in the first quarter around not being able to cover the logistics headwinds.
As well as primarily within our W and P segment, some impacts on production because of the crime.
Seeing some lower production rates in January primarily in our <unk> business, which has large facilities here in the U S C.
<unk> isn't there yet.
Leading to lower production on assets that usually runs, though it out as well as higher labor costs as we deal with them over time. So the margin profile that we have at the midpoint in Q1 of $22 eight and we expect to escalate as the year goes on landing more than a 25% on a full year basis, but to your question I wouldn't say, there's anything different in their methodologies.
How we provide guidance for.
For the full year versus any other company I would add one other comment also Laurie and I plan that raw material inflation stays where it's at for the full year. So that's an assumption that we have in our planning. So again, we've got to continue to get the price to cover the logistics and any other raw inflation that we see and we are again in <unk>.
And across all the portfolio as we enter.
The new year here that continues but we're making that assumption that it stays up here, we got to get it covered.
Yeah, So what I'll say, we're expecting <unk> 50 in Q1.
Year over year, probably about the same range Q2, and we expect it to plateau not decline, but plateau back in the second half.
Great. Thank you for that color and then maybe just a follow up on.
How youre thinking about volumes by geography, or major countries, however, you'd like to speak on it as we think about 2022.
Yes.
Yes, we expect continued robust growth again across the different regions.
So in 2022, if you look at our guidance for it.
And if I make one on a total company basis, but if you take out the headwind that's in non core from the divestiture of the clean Tech business, we're actually at about 8%.
Total total growth in 2022, so we see strength again in North America, and Europe Asia Pacific.
I'll kind of up.
In the high single digit range with a little tempering in Latin America, but again Latin America, not a huge portion of our footprint.
Great. Thanks for taking my questions.
Yes.
Your next question comes from David Begleiter with Deutsche Bank.
Thank you good morning.
Just good morning, just on WP pricing this cycle, how sticky do you think it will be this time around.
Versus maybe prior cycles.
Yeah, I mean, we're looking to get kind of in the mid single digit price increases in this year. So we had 5% in Q4, we'll look to maintain that pace through the first half and obviously will temper a bit in the second half on a year over year basis as you lap the price increases that we started in Q3 and picked up in Q4.
So I would say the WOTC price stickiness is a little bit stickier than what we would see any eminent business and we expect that to turnaround once the raw materials start to recede, but we're hoping that we can maintain those price increases, but we'll see what the raw material inflation environment looks like as we go forward.
Just on <unk> any update on this issue and what progress could you hope for this year in terms of removing the overhang. Thank you.
Yes, David.
I think we're going to make very good progress. This year I'll just give you a couple of things.
More supportive and Dupont are working extremely well together.
I'd say were very synced up one wanted to get some outcomes here in.
In the first half of 2022, so and I've mentioned that David was one of the issues. We had a year ago before we signed a cooperation agreement and the structure we put in place between the three companies. We were just wasting a lot of time talking internally within the three companies and wasting.
Reflecting valuable time not be synced up because we didn't have that agreement in place we're really.
Every single week now in discussions with third parties to resolve issues worse literally synced up on weekly calls and it feels really good that we can make progress obviously, the big focus would be getting the water district cases settled.
On the <unk> side of things with a few states that will do.
Do some settlements with like we did in Delaware.
And so we're feeling very very good to make some progress and again a lot of conversation is going on presently.
And.
And it's productive.
Thank you.
And then Barry it's very high on been breached personal list.
I understand the importance of getting that stuff resolved in.
Personally spending a lot of time on it.
That sounds great. Thank you.
Okay.
Your next question comes from the line of Chris Parkinson with Mizuho.
Great. Thank you very much just very quickly could you speak to the current backdrop.
Semiconductors for 'twenty two given the recent such a noise the competitive environment and just also how.
We should be thinking about the current capex cycle flowing through your outlook for 'twenty, three and even potentially longer term. Thank you.
While the kind of the Capex piece as we've said we're going to be.
On the higher side for about a year and a half here still is when we've got a couple of these big expansion projects going on we were just winding so by the way we're going to run about 6% on Capex, we would like to over the medium term run that more a little bit under 5% mid fours four somewhere in that range.
We're just finished up the cap top program, but we've got some water expansion stuff, we're looking at and obviously, we have the big ties.
Expansion, which is our single biggest capex program going on over in Luxembourg, right now, but still goes on for about a year and a half so we're going to run a little bit higher but pretty much where our capex is going is where we need capacity, which is maybe a good problem to have.
Yeah, and I think on the semi Capex, Brian obviously, the industry is running I think at about 98% capacity right. Now so contributed to the really strong growth that we saw overall semi semi in 2021 was up 15%, we'll look to Hep C. Shrinks again, maybe at a high single digit low double digits in 2022 so.
And as a <unk>.
Invest capacity and Capex in the semi space that obviously benefits our portfolio. So we tend to outpace MSI. So the amount of wafers produced by two to 300 basis points. There with that number continues to show strength in the coming years from all of the demand and the capacity that is going and we'll participate in that uplift as well.
Yes, part of it would be part of our growth by way of a nice piece of it if you remember from the two trends that John .
There is a lot more of them more complex semiconductors more layer chips and all of that and that plays to our advantage. It gives us growth but growth is that you. All know has been a little tougher Dolores comment right now because we need the fabs to come onboard so.
It looks like a nice business to be in over the next decade as new Fabs come on and we've seen a couple of announcements recently.
In the U S, where some fabs are going on so it looks like a nice trend for the next decade.
Okay.
You hit on all this all in context on WPS.
Some prepared remarks.
I just wanted to ask something else in terms of just give us some of the pricing outlook.
Let's say, the eventually abating and labor related cost headwinds.
And then the growth outlook for lets say safety protected versus shelter can you just remind us and just give us your updated thoughts on normalized margins for that segment going forward, Let's say 234 weeks. Thank you.
Yes, so is that what you might see as we had mentioned we'll see sequential margin deceleration from Q4 into Q1 really driven by the items that we had called out if you exclude the raw material and logistics net headwind and it hasn't haven't that we're seeing from a production perspective <unk> margins in the quarter.
There should be.
This 500 basis points better than what we may post because of those headwinds and so youre getting up more into the 26% range I think going forward that those margins should be in the 26, 27% EBIT margin profile.
Thank you very much.
Your next question comes from John Mcnulty with BMO capital.
Yes, thanks for taking my question.
It looks like Youre going to have a mountain of cash once mobility.
Hold off can you speak to what Youre seeing in terms of the M&A pipeline. It sounds like you've got some chunky targets out there.
With the volatility that we've seen in the market have you seen those multiples come in at all or are they still hanging in there I guess, how should we be thinking about that.
Yes, I mean, I think generally the multiples are hanging in there, but we'll see how the year goes were drawn most likely won't do.
And that acquisition until after we get the proceeds from Eminem, which will be in the fourth quarter and were not missing out on something we want by waiting in that time window. So.
We will see where things sit at that point in time.
We're in what we're looking at are things that are right in the wheelhouse of those five core secular growth areas that I mentioned.
Not looking at something Thats all on another leg on the stool or something like that we really feel we can be.
Our opportunities in existing customer bases and expand customer bases and technology areas that we already know we sell into and we can expand it and add to it and I think finally, Larry Rogers are two perfect examples of that.
Not saying, it's in that area, but something like that that fits we will get a ton of cost synergies out of when we do it. So that's kind of our timeline of what we're thinking that as we exit next this year we're in now.
The possibility for an acquisition or to buy.
This number could be give or take $1 billion, but we'll probably be sitting on the.
Between cash flow selling Eminem buying Rogers capex everything else that kind of goes into the Kt will probably be sitting there just for planning purposes was like $6 billion.
Excess cash somewhere in that ZIP code as we.
Consummate this year.
Got it.
That's helpful. And then just a question on the raw material and inflation front I guess at this point do you have actual constrained from a supply chain perspective, where youre not youre being kind of held back from putting out product at this point like whether its force matures or logistical challenges or what have you.
You pretty well squared away at this point announced just it's just the inflation that you have to worry about and when when will that maybe settle down.
Yeah, I would say in general the raw material constraints are pretty much behind us or is that there are some force majeure is that we're dealing with but they're not holding back our production what is holding back our production is what I had mentioned earlier.
Some of the omicron.
Absenteeism in some of our sites in the U S. Thats, primarily impacting the W. And P segment. So we had planned our Q1 guidance.
That doesn't materially get better versus what we saw in January because that's really the only place where we're seeing constrained production and we would think thats really a one quarter versus the way AUM across now coming down.
Our key production facility, we missed two days of production I think it was two weeks ago.
Lack of staffing.
We're back up on the third day, it's things like that we're paying everyone overtime to work more hours and that's costing us money.
A lot of that we obviously plan will subside here sometime in the first quarter, but from a planning purpose. We just made an assumption that January February and March will all look the same because of homochrome on those type of issues.
Got it thanks very much for the color.
Thank you.
Yeah.
And your next question comes from Steve Byrne with Bank of America.
Yes. Thank you would you attribute the.
The 9% volume growth.
Eni to your customers just running harder in some capacity expansions or is this also compare gains and its the ladder.
What precludes you from not getting more price in the segment.
Only possible with a price mix shifts.
And can you can you preclude the legacy products from from declining in price.
Yeah.
Yeah. So I would tell you. It is a combination of just a really robust end markets within eni as well as some share gains primarily in the semi space and so are our semi.
Segment with about 22% in the quarter mainly volume.
Back to the earlier comment around the Fabs running full out as well as some share gains on our point and also some benefit in the mix of.
That's all chips that are written for those kids that have more advance nodes favor our portfolio and as far as price we are getting price.
Netting out to a slight headwind because there is a normal fee that goes on with me electronics segment, and we sized that at about 1% annual fade and Eni stagnant it happens across the electronics industry, that's not something that.
At Dupont factor that goes on across electronics, and so if you take that out we actually get some price.
To be able to offset the raw material headwinds that we're seeing and eni, but back to the Pie chart that we provided in our slide Eni.
Small portion of our portfolio that has headwinds on the raw material front that would be about 10% of the headwinds that we saw.
Of the $2 50 in the quarter with from Eni.
And in your remarks, Lorie, you mentioned above.
Water technologies focusing in on.
Industrial end markets in desalination. So you clearly have the platform for clarification Mike.
My question for you do you have the right technology or do you need to bolt onto it.
Span from purification to extraction, such as extracting minerals out of Brian like lithium.
We're let me just answered this already.
We would love to do an acquisition in the water area.
You'd probably pick up some technologies in that area.
There are technologies, we would like to add.
In the portfolio.
By the way, there's not a ton of water assets out there.
But as you know.
We did four acquisitions I don't know.
She had a 19 I'm, losing track of time here. They were all smaller but now we're growing at a really nice so that as a potential path for us if theres not something a little chunkier that we really really like that space. We just feel the next couple of decades are great secular growth areas and we've got great technology already we'd like to add to our river.
Very similar again to layer it in Rogers coming into Eni.
That adds on to existing technologies, we have so definitely an area of interest and could pick up some of those technologies in the construction area.
Thank you.
Especially.
Your next.
And comes from John Roberts with UBS.
Thank you.
<unk> had uneven quarterly comps and Interconnects in 2021 due to the smartphone launch timings automotive any insights into the quarterly comps as we go through 2022, where the really uneven comparisons.
Anthony will go back to in a more seasonal pattern in 2022, so that does create a headwind in Q1, because in Q1 of 2021.
Hi.
And that will resolve as the year goes on and create a tailwind in the back half that overall that seasonality in <unk>.
Normal with Q3 being the highest as we supply material into the smelter smartphone space in advance of the Christmas sales.
And then on slide five can you help us understand the headwinds that stay with Dupont.
Continuing Dupont versus Eminem smoke how much of the logistics 50 billion is continuing Dupont versus Eminem.
In the part of imminent that stays with Dupont is it performing in line with the rest of eminent losing outperforming overall.
Yeah. So on the logistics front of the $60 million about $40 million gain in Dupont with the biggest piece of that being about a U N. P. So only about 10 of the $15 within Eminem.
As far as the business hits gain with coupon, it's primarily adhesives and multi base heritage Dow businesses.
Our margin profile is lower than the M&A segment today, they saw some significant headwind on the.
Price cost in 2021 will look for that to improve heading into 2022. The air margin profile is slightly below where I'm at on it.
Thank you.
Your next question comes from Vincent Andrews with Morgan Stanley .
Alright, Thank you and good morning, just a couple of cleanup questions here I know you laid out sort of the shape of your raw materials expectations for 2022 on logistics have you called out the crazy numbers that we're seeing in ocean freight are you assuming that that stays the same through the year or are you, allowing for that to correct a little bit in the back half.
So it corrects in the back half primarily in the fourth quarter as we lap that $50 million headwind that we saw in <unk> 2021 so well look for them to remain elevated Q1 through Q3 on a year over year basis, and then Q4 moderate the one difference coming out of Q1, as we can expect to get price.
Coming out of Q1 into Q2 and beyond to offset that headwind and logistics.
Okay, and then just on the on the <unk>.
And maybe just going even into the tier the tiers and the auto customers.
There's chatter out there depending on who you are listening to that maybe there is some double ordering in <unk> or maybe the tiers of built up inventory waiting for the auto production to come back, but as you look across your businesses and your customer relationships and what youre seeing and hearing.
What's your point of view on any of that stuff.
Yeah, we're not feeling any inventory build.
It would create a headwind as you head into into 2022, I mean keep in mind, there is a little bit of a timing disconnect between every golf with Eminem segment from a volume perspective in auto builds and so in 2021, we significantly outpaced.
With with volumes up 12% versus out of about 2% for that could moderate a bit with respect to our performance versus auto builds in 2022 that overall don't feel like any inventory building in the channel and on the semi front I think it'd be hard to be building inventory in semi just given the market's constrained so.
We don't feel it there either.
Thank you very much.
Mhm.
Ladies and gentlemen, we have reached the allotted time for questions. Today I will now turn the conference back over to Pat Fitzgerald for closing comments.
Thank you everyone for joining our call for your reference a copy of our transcript will be posted to the Dupont website.
Please join US on March 3rd for our next teaching which will include the industrial solutions line of business within our Eni segment I Hope you can join us. Thank.
Thank you again this concludes our call.
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation you may now disconnect your lines.
Okay.
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