Q1 2022 Dupont De Nemours Inc Earnings Call
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Good morning, and welcome to the Dupont first quarter 2022 earnings conference call.
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After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time press star followed by the number one on your telephone keypad.
If you'd like to withdraw your question Press Star one again. Thank you Christina <unk> you may begin your conference.
Good morning, everyone. Thank you for joining us for Dupont's first quarter 2022 financial results. Joining me today are Ed Breen, Chief Executive Officer, and Lori Koch Chief Financial Officer, we prepared slides to supplement our comments. During this review, which are posted on the Investor Relations section of Dupont's website and through the webcast link. Please read the forward looking stay.
My disclaimer contained in the slides during this financial review, 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 uncertainties. Our actual performance and results may differ materially from our forward looking statements are true.
'twenty one Form 10-K as updated by current and periodic reports includes detailed discussion of principal risks and uncertainties, which may cause differences.
Unless otherwise specified all historical financial measures presented today exclude significant items. We will also refer to other non-GAAP measures a reconciliation to the most directly comparable GAAP financial measure is included in our press release and posted to the Investor page of our website.
I'll now turn the call over to Ed.
Good morning, and thank you for joining our first quarter financial review, we posted strong results this quarter, but before we discuss that I would like to thank each of our employees for their continued dedication and strong commitment to our customers there.
Their perseverance in the face of many obstacles is what made our results possible.
I would especially like to express our appreciation for our China based colleagues many of whom have endured weeks walk downs, but have continued to operate and get necessary worked on at.
Also our Hearts go out to those affected by the war in Ukraine and Russia.
Sincerely hope this conflict can be ended as soon as possible.
Our first quarter results from continuing operations included a strong 9% organic sales increase from the prior year or 14% growth, including the <unk> acquisition contribution.
Organic volume increased 3%.
Led by an 8% increase in the <unk> segment.
Overall customer demand remained strong across the vast majority of end markets led by low double digit volume growth in both semiconductor and industrial technologies.
By segment.
Mid single digit volume growth in water and shelter solutions within the water and protection business.
Top line growth, including 6% average pricing increases that we took to offset the continued cost inflation that we're experiencing.
We realized price increases in all businesses totaling about $190 million.
Fully offset raw material.
Thanks, and energy cost deflation.
I continue to be impressed by the job our teams are doing.
We remain.
Market to remain price cost neutral for the full year 2022.
Including the incremental actions taken in March largely in reaction to the conflict driven spike in energy related cost during the period.
Turning to slide four I'd like to update you on key focus areas for 2022 stakeholder value creation.
Including our portfolio transformation.
Our balanced approach to capital allocation and our continued focus on growth execution.
First we believe we are on track with what we noted previously regarding the timing associated with the M&A and divestiture to celanese.
Mmm transaction is anticipated to be complete around the end of the year.
We're also continuing with the process to divest the Delaware and business.
For the Rogers acquisition progress is being made on the required regulatory reviews.
While we remain optimistic by closing by the end of the second quarter the process could extend into early third quarter.
We continue to see no issues that would prevent a close of this transaction.
I'd like to reiterate that dupont's financial profile pro forma for these transactions will firmly position the company with top quartile revenue growth.
Operating EBIT margins and low cyclicality relative to top tier multi industrial companies.
Greater focus on secular high growth end markets and electronics water industrial technologies protection and next generation automotive.
Serve as a sound basis for our innovation led organic growth execution.
Regarding the layered performance materials acquisition.
We are also on track to achieve cost synergies of $63 million somewhat ahead of initial expectations.
<unk> has been a success so far including overall financial performance ahead of plan for both top and bottom line results and early progress to achieve commercial synergies.
Top of the cost synergies noted.
As one example, we are starting to see some nice synergies with layered process and equipment technology, enabling more effective solutions for downstream customers, including auto Oems as well as consumer electronics applications.
Regarding future capital allocation and namely the net cash we will receive from our planned divestitures.
We'll continue to pursue a balanced strategy that includes prioritizing the return of excess capital to shareholders as well as strategic M&A.
This is consistent with our actions taken over the last year during which we increased our share repurchase and dividend allocation as well as completed the <unk> acquisition.
Once the Rogers and M&A transactions are completed we will be poised to continue to improve our portfolio and financial position as well as accelerate capital return options.
Given the magnitude of the anticipated deal proceeds we expect that there will be room to execute substantial incremental share buybacks.
Disciplined M&A will also remain a key deployment priority.
Regarding our existing $1 billion share repurchase program authorized during Q1, we anticipate completing that authorization. During 2022 ahead of the one year duration initially guided.
Turning to core growth, we continue to focus on execution of our innovation based organic growth opportunities.
We are pleased with 3% volume growth in the quarter given project production constraints due to lack of raw material availability and supply chain challenges.
We are excited about the visible growth drivers enabled by our technical innovation teams and application engineered engineers, who are squarely focused on helping customers solve their most complex challenges.
And Eni continued topline growth momentum this year is being driven by growth in semiconductor.
Healthcare and displays and markets by cyclical recovery and aerospace markets and by new share gains and innovation wins muted.
Muted somewhat in auto by supply chain constraints.
Key examples of recent new product successes driving growth and strong margin performance include include newly launched mechanical plant organization pads for <unk>.
Semiconductor manufacturing as well as new lithographic photo resist the high performance computing market.
In <unk>, we expect growth in 2022.
Coming from each of the lines of business.
Safety has seen market growth across major segments, including aerospace electrical infrastructure oil and gas and healthcare, but muted by lower demand for protective garments.
Shelter continues to experience growth opportunities from strong construction and remodeling trends.
Water is experiencing strong mid to high single digit growth globally across all technologies.
Examples of new innovation drivers for this segment includes several new membrane product families within water to drive growth in desalination and wastewater markets as well as the launch of a new building installation product offering increase sustainability solutions for customers.
We also have a strong adhesives business is positioned well to capture growth with its product offerings and next generation auto electric vehicles, especially through the commercial synergy opportunities that we expect through the Rogers acquisition.
With that let me turn it to Lori to discuss the details of the quarter as well as our financial outlook.
Thanks, Matt and good morning, everyone.
Thank you Lisa continued strong demand during the quarter in key end markets.
Global supply chain and cost deflation persisted.
During the quarter due to the market.
In response to you in May.
We continued our strategic pricing actions, you are able to fully offset higher costs during the quarter related to raw material investments.
These factors along with our team's continued focus on execution contributed to net sale operating EBITDA and adjusted EPS results well above expectations.
Focusing on financial highlights on slide five for the quarter.
Net sales of $3 3 billion were up 9% on both an as reported and organic basis.
Versus the first quarter of 2029.
The acquisition of layered partially offset by noncore data.
Providing a 2% tailwind to net sale on currency with a 2% headwind.
Organic growth included 6% pricing gain.
3% higher volume.
Pricing gains reflect the actions taken to offset overall cost inflation.
Including the Spike in energy costs that we are seeing at our site.
Volume growth reflected continued strong customer demand order pattern remaining following electronics.
Electronics industrial technology water infrastructure end markets.
These factors resulted in organic sales growth during the quarter of 10%.
<unk> and Eni respectively.
On a regional basis organic sales growth with broad based globally with <unk> driving growth in North America, and EMEA and Eni driving growth in Asia Pacific.
From an earnings perspective, operating EBITDA of $818 million with that 2% a year ago period.
EPS <unk> 82 per share was up 19%.
The increase in operating EBITDA was driven by pricing actions volume gains and strong earnings from the layered acquisition.
Again, offset higher inflationary cost pressures as.
As well as weaker product mix and better guarantee and the absence of a gain on an asset divestiture and Eni last year.
Operating EBITDA margin during the quarter was 25%, which was better than our expectation that earlier this quarter.
60 basis points below the year ago period, which I'll explain further.
Navigating cost inflation with a key focus during the quarter and our success in doing so with a significant driver in our results.
The majority of the raw material inflation, we have discussed in the past remains the MLM businesses, which are now part of discontinued operation. Our remain co businesses also have inflation exposure and revised spike in energy costs during the quarter, most notably in WMC.
We fully offset about 190 million of cost inflation during the quarter, which kept our results Paul on a dollars basis.
While these pricing actions enabled us to maintain a neutral earnings profile price cost dynamics resulted in a 150 basis point headwind to operating EBIT margin during the quarter.
Our underlying operating EBIT margin adjusted to exclude prime contractors, with 26, 9% or essentially flat compared to the year ago period.
Further if you adjust margins in the prior period to exclude the one time gain related to the asset sale in <unk>.
Our underlying margin of $26, 5% would have increased about 70 basis.
Last year.
Another key metric that we track and incremental margin.
Reported basis incremental margin for the quarter with 6% from the year ago period. However, I indicated previously any important I mean evaluating.
And underlying basis.
He removed the impact of price costs incremental margin with over 20% and if you also include the headwind from the onetime asset sale on top of that incremental margin with almost 60% I mentioned these data points illustrate volume strength, we are seeing in the portfolio.
From a cash perspective cash flow from operations during the quarter up $209 million and capital expenditures of $259 million resulted in a free cash outflow of $42 million.
The cash outflow was the result of variable compensation payments to our employees.
The 100 million more this year than a normal path and higher working capital trade inclusion of actions taken to increase inventory in reaction to continued product supply constrained.
We expect significant improvement in free cash flow as we move towards the second half of the year consistent with our typical seasonal pattern.
Turning to slide six adjusted EPS of <unk> 82 per share with about 19% compared to 69.
Per share in the year ago period.
Higher volumes and strong results from Baird collectively provided a benefit to adjusted EPS in the quarter of 11 <unk> per share.
These gains more than offset other previously disclosed disclosed portfolio related accident weaker product mix and that E&P.
Additional cap time by start up costs and Eni totally nine per share in the aggregate.
Our share count and when do you think expense deleveraging accidents continue to benefit our EPS results.
Our base tax rate for the quarter was 21, 8% and we continue to expect our base tax rate for the full year trying 22.
In the range of Taiwan is running 3%.
Turning to segment results beginning with Eni on slide seven.
<unk> delivered net sales growth of 18%, including 9% organic growth and 11% portfolio benefit from there and a 2% headwind from currency.
Organic growth for Eni includes an 8% increase in volume and a 1% increase in price.
From the line of business view organic sales growth was led by semiconductor technology, which increased mid teen and robust demand continued led by the ongoing transition to more advanced node growth in high performance computing, and Pfizer's communication as well as share gains.
Okay industrial installation organic sales growth was up low double digits on a continuation of strong volume growth led by OLED materials for new film and television market.
<unk> strength for Calvin product offering that's underway for semi capex and strong demand for health care applications, such as Biopharma tubing.
Interconnect solutions sales decreased low single digits on an organic basis due to a slight volume decline volume.
<unk> Gainsborough gentlemen, mandates in certain industrial end markets are more than offset by declines in consumer electronics, primarily related to China as well as the anticipated return to more normalcy normal seasonal order pattern first markdown.
For the full year, we expect interconnect solutions to be up mid single digits on an organic basis.
Strong demand in the second half and additional capacity coming online later this year from our kept on expansion.
From a regional perspective, Eni delivered sales growth in all regions with high single digit organic growth in Asia Pacific in China was down slightly.
Operating EBITDA for Eni of $476 million increased 9% as volume gains and strong earnings from Baird and pricing actions more than offset the absence of a prior year asset sale gain.
Material and logistics costs, and a continuation of startup costs.
Integrated with our cap on capacity expansion.
Operating EBIT margin of 31% reflects sequential improvement from the fourth quarter of more than 200 basis points.
On a year over year basis, the primary driver of the decline in operating EBITDA margin with the absence of a prior year gain.
Adjusted margins in the prior year to exclude the one time benefit operating EBITDA margin was down 70 basis points year over year as a result of price cost and cap time start up cost more than offsetting volume gains.
Turning to slide eight.
<unk> delivered net sales growth of 8% consisting of 10% organic growth and a 2% headwind from currency.
Organic growth for Wip reflects broad based pricing actions across the segment implemented to offset cost inflation.
Volumes were flat as gains in counter and water solutions for offset by declines in safety.
Your line of business you organic sales growth was led by shelter solutions, which was up high teens driven by pricing actions and continued robust demand in north American residential construction for products such as tie back half rack.
As well as ongoing improvement in commercial construction Macquarie and surface products.
Sales for wider solutions are up high single on.
On an organic basis on volume and pricing.
Global demand remains strong for all water technologies and across all regions.
And then safety solution sales are up mid single digits on an organic basis as pricing actions were partially offset by lower volumes of tieback as we shifted production from garments to other end market applications.
These were up slightly for aramid fibers, continuing improvement industrial end market.
Operating EBITDA for <unk> of $341 million declined 4% versus last year due to a weaker product mix.
Operating EBITDA margin was better than our expectations that earlier in the quarter and the impact of price cost was about a 210 basis point headwind to margin.
Excluding the price cost impact operating EBIT margin was about 26% approaching more normalized level for <unk>.
Before I turn it back over to Ed I'll close with a few comments on our financial outlook on slide nine.
Despite the strong start to the year and solid demand the macro environment remains volatile with several key uncertain factors.
Based on our expectations and in consideration of these uncertainties, our full year guidance ranges for operating EBITDA and adjusted EPS remained unchanged at 325 billion to $3 45 billion and $3 20 to $3 50 per share respectively.
These ranges include a $35 million earnings headwind as a result of suspending operations in Russia.
We are increasing our guidance range for net sales to be between $13 3 million and $13 7 billion to reflect price increases needed to offset cost inflation, which we now anticipate at $600 million in year over year headwind.
Although underlying demand in key end markets, such as electronics industrial technologies and water remains strong we are.
Seeing further supply chain constraints, primarily from additional government mandated lockdowns in China.
Which will likely impact volume growth in the second quarter.
Based on these anticipated headwinds as well as an element of previously projected Q2 sales realized in the first quarter. We expect second quarter 2022 sales to be between $3 2 billion to $3 3 billion or up about 5% year over year at the midpoint.
Based on these same assumptions, we expect second quarter operating EBITDA between $750 million and $800 million and adjusted EPS between 70, and 80 cents per share.
At the midpoint of our guidance second quarter operating EBITDA margin is expected to decline just over 100 basis points sequentially and supply chain constraints are assumed to impact production rates.
We expect operating EBITDA margin in the back half of 2022 to improve on typical seasonal volume strength and improved plant utilization as we clear COVID-19 related production challenges impacting the first half of the year.
This outlook assumes moderating China lockdown impacts as we get into mid May given the positive trajectory in the Shanghai region, and our limited exposure around Beijing. However, further outlook risks could be triggered at the lockdown, Brad to Shenzhen and the probe River Delta region, given the concentration of manufacturing and shipping there.
For Dupont as well as our suppliers with that let me turn the call back to Ed.
Before we take your questions I'd like to highlight that we published our annual sustainability report this week.
Im really proud of the progress we made on our 2030 goals. Our sustainability strategy is grounded in three pillars innovation protecting people and the planet.
And empowering employees and customers.
Just note a few highlights Dupont.
<unk> is leveraging our innovation focus to help customers meet their sustainability goals.
Great example of that is the new formulations within our building installation products that helped to increase energy efficiency.
As well as new technologies from our water solutions business.
Reduced process energy intensity.
We're also focusing on renewable energy as part of our integrated climate and energy approach.
Last year, we signed a virtual power purchase agreements that will supply about 25% of dupont's total electricity starting in 2023.
Additionally, Apple just announced that Dupont was selected to join their supplier clean energy program, which is an example of Dupont working with industry partners to drive sustainability progress at scale.
We continue to advance our commitments to Eni, we're excited about the newest female nominee to our board of directors Kristina Johnson.
Also the strong gender and ethnic representation of our leadership team's continuous despite competitive labor markets.
There are many great examples of stories in the report of how our teams are delivering on our purpose and driving sustainability.
Overall, our teams have done a tremendous job.
With that we're pleased to take your questions. Let me turn it back to the operator to open the Q&A.
Thank you at this time I would like to mine everyone in order to ask a question Press Star then the number one on your telephone keypad. We will also one question and one follow up for Karla.
Your first question comes from Steve Tusa from Jpmorgan. Please go ahead.
Hey, guys. This is actually Sam yellen on for Steve. Thanks for taking my question.
Talk about the sequential trend from Q2 to Q H it looks like a big step up in EBITDA is that the China recovery or something else and is part of that maybe give us an update on the price cost spread on a quarterly basis. What are you expecting in Q2, and then in two weeks when comparing to the neutral you did in Q1.
And then hips or anything else, we're missing thank you.
No. Thanks, Ashley yes that second half ramp from the first half is really just a reflection of our seasonal volume improvement in the back half within.
Within Eni is primarily driven by smartphones as we go into the Christmas season American water a lot in the construction space as we see a ramp there so that.
<unk> volume is dropping to the bottom line and which are translating to the EBIT improvement and the margin improvement in the second half half as we drive leverage through the P&L.
On your question around net price will expect all year to remain neutral.
Price cost, we raised the midpoint of the guidance for the full year to reflect about another $100 million of raw material escalation on a full year basis. So we're not expecting somewhere in the range of $600 million and that will fully offset with price that won't change.
Coming out of the first quarter for the rest of the year.
Actually I would just add to Larry's point, the first half second half ramp as our typical seasonality. If you go back and look at last year, it's about a 7% sequential lift first half second half and that's typically what we do because of the items already mentioned so nothing unusual in the pattern there.
Got it thank you.
Thank you.
Okay.
Your next question comes from Scott Davis from Melius Research. Please go ahead.
Hey, good morning, everyone. Good morning, Laurie Chris welcome.
Welcome aboard Chris.
The.
Is there something can we talk in terms of like backlog or book to bill backlog actually grow.
In the quarter.
Or any metric I guess, you can give us to give us a sense of <unk>.
Topline pent up demand.
Yes, Scott.
Backlog looks great.
It's been staying at very elevated levels, we look at it weekly.
There was really no end market thats not feeling good.
As you know auto is down a little just because of auto production, but thats not a demand driven thing, it's just chip shortages and supply chain issues, but all our end markets from an order pattern standpoint feel good as im looking at it. This week so no issues there at all and really the only issue we're dealing with here again, it's not demand.
<unk>, it's really more centered around supply chain in China and Covid Lockdowns.
For the guide on the second quarter, but if.
We didn't have those issues are sales would definitely be higher in the second quarter, but that's what we're dealing with there.
Yes, it makes sense and is priced as we speak kind of now is price still going up because inflation is still going up or are we at a point now where we've kind of hit some sort of plateau.
It seems like we've plateaued Scott we all the price increases are implemented when war broke out we did a whole another round of price increases mainly because of natural gas lifting as significantly as it did and by the way other constraints in there, but that was the big one so we did a round of increases again.
At which we had just finished doing we did it again in every business and as we said we caught all the inflation in the quarter by regional one enrolls on logistics and on energy. So we caught everything with $190 million of inflation that we sold as Lori just mentioned a minute ago.
Think it's plateaued if it hasnt, we will do another round of price increases I feel like we can get it if we have to but it does appear to have plateaued. So.
We will have a decremental $600 million of inflation, if things hold where they're at for this year and we'll have that all covered with price.
Okay. It sounds great. Good luck, thanks, everybody congratulated.
Okay.
Your next question comes from Jeff Sprague from vertical research. Please go ahead.
Thank you good morning, everyone Hey, Jeff.
Yeah.
Ed on the.
Share repurchase.
Excuse me battling a little cold here hopefully its not COVID-19.
Yes.
Your language on share repurchase went from being important last quarter or two substantial incremental share repurchase.
I sense, a bit of a pivot there and your posture.
Maybe you could just elaborate a little bit more do you need to wait for the Eminem proceeds to actually do more or can you get.
A bit of a running start on maybe the incremental that youre talking about.
Yes, so Jeff I think summarized it well.
We're leaning much more towards a.
Decent large if you could call it share repurchase with where our multiples at.
I don't think this is where do pumps model will be sitting in the future.
And obviously softness in everyones stock price just because of the recent external events out there. So we're going to step on the $1 billion share repurchase a little bit quicker as we said in our prepared remarks by a quarter four months something like that and get it done early.
And I would expect as conversations with the board that we're going to look at a much larger share repurchase program I don't think we need to wait until the proceeds are necessarily in but I would like to make sure.
Nothing else Crazy is going on in the World. We do have the $5 2 billion outstanding loan on the Rogers.
Yes.
You'll get paid off so our leverage will be north of three and with that but when we get the proceeds from Eminem you kind of know the math, we're sitting on lots of billions of dollars a year. So.
So yes, you do see here a little bit of shift in tone.
Those are where the multiples at the market's a little bit tough right now for everybody in my gut is we're going to step on it in a bigger way.
That's great to hear and then also could you just maybe this is for Lori just how significant on the topline was China.
Kind of the Lockdowns and supply chain and Covid issues and.
How big a part of.
It's kind of the Q2 outlook is it.
Yes in total there are two major pieces that are impacting <unk> guidance, so far and they're both related to China. So first is a shift of sales that we had expected to land into key that landed in one two and that was primarily with customers pulling in.
Volume because of what was going on in China, We would size added about $35 million of sales.
And then as far as the shutdown that happened it started to get progressively worse in March and we're anticipating a mid may reopening we estimated we missed about $20 million worth of sales in there.
There's also an impact on our margins with our plant is not running at full capacity and we have two sites in China that went into a full lockdown mode in mid March and we expect them to be fully reopened by now and then we had some key raw materials within our electronics business that we source from China.
But to get full of supplies that we ran some of our domestic plants at lower rates and so that was impacting our margin profile in the second quarter as well yeah to give you a specific on what Lori said and circle, the Ohio, we make our cap, Tom which is a high margin product were fully sold out we get half of our monomers that we need out of China.
Had delayed shipments out of China. So we did have supply of the monomer. So instead of shutting running at full tilt and then shutting the facility down we just eased off the run rates. We know when we're now getting supply from China. So there is an example of kind of hit your rates for a month month and a half like that so it just these one offs because of that.
China, Lockdowns, which hopefully dissipate as we exited the quarter.
And I think the other piece, Jeff too with our with our guidance for the second quarter, but beyond just China and the production related effects with Russia. So we noted in our slides that we pulled Russia out.
On a full year basis, it's about $35 million of EBIT, probably about $80 million of sale that's impacting.
Primarily Q2 and beyond and then Jeff when you look at the full year guide.
We'd be by $90 million in EBIT in the first quarter kind of from consensus were down kind of $60 million in the second quarter off of <unk>.
You guys consensus all because of what Lori just described here, but then we have nothing in the second half Thats unusual it's our normal seasonal ramp that 7% that I mentioned, that's what we're counting on inclusion we will get some better unit rates from the things. We just described to you. So no real big change in order patterns for us that we would typically see.
<unk>.
Great. Thanks for that color I appreciate it.
Your next.
Question comes from John Walsh from Credit Suisse. Please go ahead.
Hi, good morning, and thanks for taking the questions here.
Morning, John .
I guess, just first thinking about a couple of end markets that you touch where there some investor angst I mean residential auto consumers.
Consumer smartphones can you talk about what youre kind of expecting there from volume and then what you're expecting from price either if you can break it out what's the inflation and then that price component that you have because of the higher value you are adding.
Two the customers offering there.
Yeah, I would say as far as demand is concerned the necessary in markets. You had noted we saw strengthening residential construction, we expect that to continue to be a fine of strength in the second quarter. We didn't note softness in consumer electronics, but that was primarily in China with respect to the lockdown.
And also a little bit of an impact of our own doing of seasonality with respect to when we do our normal smartphone shipments and we've telegraphed in the past it.
The first half will be weaker in the second half will be stronger because of a change in the seasonal patterns as we sell into the smartphone market, but on a full year basis, we expect that market to be up mid single digits and then in auto.
You've seen the revisions downwards, but just with respect to IHS auto dose I think now it's sitting at 4% on a full year basis, our RF and it would probably be a little bit later than that with respect.
What we think the market will do but the underlying demand remains strong and it's just really a matter of supply chain.
Specifically around the chip constraints that are impacting that but I think the highlight to you. There is we do need to see very strong.
Growth within the <unk> space and so for US a large portion of that comes from our adhesives business.
We saw really nice growth in our E. D related sales in Q1, and we expect that double those sales in Q2 in line with where the EV market is going in general.
We really look forward to the upcoming business from Rogers to pair with our business and really take advantage of the opportunity there.
On the price side I wouldn't say, it's materially different across those end markets. That's what we're seeing with respect.
To inflation by segment so within Eni.
Inflation is not as material as what it is with end up even piece and you see that in price that we got about 1% and Eni in price and about 10% in Wm piece are there is there is a difference there.
But nothing more than to surround that raw material inflation related items.
Great. Thank you and then maybe one quick follow up to Jeff's question around capital allocation, maybe can you just update us on what the deal pipeline looks like and if youre seeing sellers expectations change given what's happened in the public markets. Thank you.
Yeah, So Jack.
My gut is as we sit right now.
I don't see any deal that we would want to do until we are in this 2023 and I'm not saying that you know something thats available in 2023, but the waste stock prices are moving around right now at all it's just makes it a tougher environment. So I don't see anything happening until we get into 2020.
Three and quite frankly, we don't have any we have things were a couple of things. We're interested in as I said before but I don't see them actionable anytime.
In the near future so that could change so don't hold me to that but.
I can't see anything happening until we're nicely into 2023, if then depending on what's going on.
Great I appreciate it thanks for taking the questions.
Your next question comes from Chris Parkinson from Mizuho. Please go ahead.
Great. Thank you so much.
There are a lot of moving parts to the Dupont capital allocation thesis, just including the net proceeds from deals.
Base free cash flow generation working capital and then obviously your stated buyback goals.
It's all set and done and I appreciate your remarks for the deals that the outlook for 2023.
Absent anything new in 2022, what is the kind of the base range that you based on the current buyback that you believe youll have cash on the balance sheet, just plus or minus thank you.
Sure are you talking after the considering the proceeds from the <unk>.
Yeah, Yeah, yeah yeah.
Yeah. If you look at the proceeds from the <unk> sales the cash flow generation in 2022, and 2023 as well as where our leverage targets.
<unk> 75 times, probably where we would expect.
You quickly get to the $10 billion to $11 billion range of cash to deploy accurately pay down. The road here is that as we had mentioned on the call it significant.
And then we will look to take.
Take a balanced approach to driving significant share repurchases as well as.
M&A opportunity.
Okay got it.
And the second question I have just.
Obviously over the last couple of weeks, there's been a bit of noise across global electronics some of your peers.
It has been pertinent to the semi side.
Base consumer electronics demand a lot of that driving from China, but just can you just give us a quick update overall about how your team is thinking about your relative sub segments within the Eni just given the current demand environment and then also how you had projects youre relative performance versus some of your core U S peers. Thank you.
Yes.
Very strong demand continuing in electronics and so we had very strong results in Q1 on a full year basis, we expect to be up pushing double digits within electronics between price and volume and will obviously add to that as we close the Rogers transaction.
Later this year, so we see a lot of strength, we see a lot of opportunity. If you look at we do a lot of detailed analysis about our results versus peers in a couple of them have already been out before us and we stack up very nicely when you compare like for like product lines and so.
We also stack up very nicely when you compare our results versus some of the key benchmarks out there. So for example, MSI is one of the key components of the semi business people are expecting that to be up 7% to 8%.
And that we should outperform by two to 300 basis points and if you look at our Q1 results in <unk> were in line with that expectation so.
We are very excited about the portfolio will let's say continue to see where we can offer to opportunistically broaden and strengthen that portfolio with that.
Thank you as always.
Mhm.
Your next question comes from Steve Byrne from Bank of America. Please go ahead.
Yes. Thank you.
Are there any water treating technologies that are really deficient in your platform would you consider.
Acquiring or developing anything you don't have and maybe more broadly in water would you consider moving downstream.
Two are essentially utilized your expertise and the breadth of water treating technologies you have to provide service to customers as a as a downstream expansion.
Similar to ecolab.
Yes, I would say two things Steve.
Our portfolio, we feel very good about and it's a fairly broad portfolio. So we've touched most of the water filtration markets out there wastewater hold.
Home applications, which are big for us in China desalination as we mentioned in our prepared remarks. So we feel good about the breadth of what we have and the technology, we have behind it and we continue to bring new products out to market. The one area that we would look at it that doesn't mean, it's an acquisition that could be organically.
Don as we need to expand our manufacturing footprint.
We need a bigger presence with the manufacturing in the Asia market, which is a very fast growing market for us. So we've been studying very hard a project there to bring up a facility in the next couple of years in that area. So that's a high priority for US and then there's this kind of goes to the second part of your question there the one.
Opportunity, we have potentially have on our R&D teams and applications teams are looking at is digitizing the water business. So we know when replacement components are needed ahead of time, and it's kind of system of ties and that could be a real opportunity for us.
Satisfy our customers.
By doing it that way and that opportunity we've been studying hard for the last year.
Thank you for that and maybe any update from you on on key SaaS issues anything any trends that you're observing any any changes the inbound inquiries that you can comment on.
Yes, nothing nothing new has changed in the landscape, except I would.
Just say we continue to be in conversations.
With the plaintiffs down in the <unk>.
I feel like we will make progress this year.
On that.
Either way the judge has continued to encourage us to judge down there in charge of these NPL cases has actually encouraged us and the plainest talk in and coming up with the settlement and so I'll.
I'll just leave it at that for now but.
But nothing new besides that.
Thank you.
Yes.
Your next question comes from David Begleiter from Deutsche Bank. Please go ahead.
Good morning.
Good morning, David Rogers EBITDA tracking your earlier expectations, given what you've seen in both Q1 and Q4 I believe the EBITDA view was $2 70 for the for this year.
Yeah.
Yes.
And their first quarter they were under the impact of the same things that we were with respect to the China Covid situation.
We're really looking forward to the second half Amit will we will own M&A have a pretty sizable expected ramp is though.
And Mark is really open up coming out of the China recovery and they continue to see a nice growth opportunity within the space and so I think if you look at the second half trajectory is being planned by Rogers.
More in line with our expectations were on a full year basis for that portfolio. They have the backlog a lot of it is in the EV space. We've looked at it. So it's just a matter of getting over the.
The lockdown issue in China, and then actually accomplishing the ramp in their production rates, but we think second half of the year there'll be right around the ZIP code of where we would have expected.
Great and then Lori can you comment on what was Eminem EBITDA in the quarter.
Yes, so that'll come out Friday and nephew.
So in the cave deconstruct the discontinued operation summary that we've reported today.
I can give you a high level that they were impacted obviously by the China COVID-19 situation as well and the auto end markets, obviously being the largest.
Back to you, but they did continue to do a really nice job of getting price.
Great. Thank you very much thanks, David.
Your next question comes from Aleksey <unk> from Keybanc capital markets. Please go ahead.
Thank you good morning, everyone.
Update us on the.
On the.
How the Delaware in sale process is going.
Yes.
Dover and by the way, we've been putting the data room together and all of that work just getting ready to launch one that and we would expect the Delaware will take about a year just like the other part of Eminem to actually close the deal so.
We'll get a deal done at a four five month window, and then regulatory approval a little kind of take.
A year so data room is getting finished up.
And obviously, we've had inbound phone calls about it but we haven't really gone into deep engagement, yet, we're just getting ready to do that.
Kind of in the next couple of weeks.
And add you provided initially sort of expectations for a valuation during the sale of mobility business would you care to do the same about dollar and maybe in broad terms what are your expectations for the multiple.
No I am not going to do that because we sold we sold 90% of ended 14, one time, so I think what we said.
More than happened and I will say double rent is a very good business. It's.
It's a very high EBITDA business.
So we're looking forward to a nice sale there.
Fair enough. Thanks, a lot.
Yes.
Your next question comes from Josh Spector from UBS. Please go ahead.
Yeah, Hi, this is Josh Spector.
So just a question on <unk> and pricing.
Alright and margins, particularly.
In the past that segment margins have been mid to upper 20% now you're kind of more low to mid 20% very clear that you're getting pricing to offset inflation, but do you have any visibility to get pricing more than inflation over the next 18 months two years <unk> margin is expect margins to expand in the <unk>.
Look over time thanks.
Yes, so that the underlying margin as we look at it excluding pricing cost with closer to 26% in the quarter as we noted on the call. So starting to get back to the more normalized margins that you would expect for the segment and the upper Twenty's.
So and in normal times to outside that inflation, we would expect to get 1% to 2% of price out of that portfolio that does drop to the bottom line with respect to the new product innovations and favorable mix as we move into the more higher margin segments. So.
We will continue to see headwinds on as reported margins as we go out there.
The year, just because of the price cost and we will continue to let you know what that adjustment looks like so you can get to more of an underlying margin basis opportunity for the WMC segment.
Yes.
Okay, but I guess, we could take that to mean that this if inflation stays where it is and your pricing towards that this becomes more of the new normal and then its normal incremental margins youre not expecting accelerated pricing to persist to drive margins back up in the segment over time, that's not your expectation. So I think what would occur as well.
Fully commodity prices come down and we hold obviously some of the price because of the products that we have I would think that's the more.
Rational way things could play out here and you are not incorrect. This business can run at like 28% EBIT margin. So we're certainly not pleased in 'twenty six but 26, we don't feel bad about in this environment, but we would certainly strive to be more in that 28 range and we have been.
There before.
So as Lori said part of it you'll just get by if you just take all of this price cost out for a second.
Because it's not normal times will get a couple of points of pricing every year with our new product introductions, we don't get feed like Youre doing electronics that we truly can get incremental net pricing in the business, which will help but our biggest opportunity as we've highlighted in the past is continued to get capacity released from these these bigger assets like tieback.
<unk> got a lot of programs around that and that will drive the throughput through those facilities, which really has an impact on the numbers. So we do think this business should run a couple of hundred basis points higher.
We will get there.
Okay. Thank you.
Yes.
Your next question comes from Vincent Andrews from Morgan Stanley . Please go ahead.
Thank you and good morning, everyone.
You're asking and safety solutions.
Where you are sort of on I guess, what would be considered hard COVID-19 comps with tie back into health care.
And it was that part of what was driving sort of the weaker product mix in the overall segment.
Yeah that was that was it so it was a function of last year, we were producing full on tie that government until we were limiting changeovers on the lines just given that we weren't making.
Other end markets like medical.
And other types of end market users for tie back and so as you now go into a more normalized environment, you'll have more changeovers. Therefore, your production is a little bit less and that was what was driving the impact that that meet your mix within AWP segment.
Okay, and just as a follow up Loren, maybe this will make more sense alright easier to follow once we have the queue, but just looking at sort of what corporate did on an EBITDA basis in the quarter versus.
If I look at slide 14.
Corporate expense of 135 stranded costs of 50, which would total up to the <unk>.
185, and then you've got on quantified results of retained business isn't biomaterials. So can you give us a little bit of a help on sort of how this is going to progress over the year, presumably you start making progress on those stranded costs. The corporate we can kind of.
Run rate, but what about that third piece of the retained businesses and biomaterials.
Yes. So the there are three buckets as you had mentioned and so the retained pieces. The margins I would say are in the mid teens. Once you get on an upward trajectory as we get outside of the Covid Lockdown. So the largest piece of the retained businesses adhesives business and it did see an impact in the quarter with respect to them.
The China situation.
The biggest season, when we leave I'll disclose the revenue I would have retained businesses in the Q on Friday, when you get that you'll be able to calculate kind of what the margin profile was that I see.
With respect to normal corporate expenses and those will be on the range of $135 million on a full year basis as the cabin.
Couple of metal guidance, and so you would expect you know around $25 $26 million for the quarter.
And then the third piece or the net stranded costs and we continue to be in the range of about a net $50 million on a full year basis, and that's our target to get after.
As we look to eliminate those going forward.
Okay. Thanks very much.
Your next question comes from Mike Sison from Wells Fargo. Please go ahead.
Hey, good morning.
Just I guess, a quick follow up on Roger's I guess, if if if if they are being affected by China.
Q <unk>.
Sequentially EBITDA, probably does improve a lot and then if we get on the run rate that you noted for the second half, we're probably somewhere in the low 203, EBITDA and I know you don't I don't you don't own the business yet but.
So just as a follow up.
Why do you think things will improve in the second half and then any updates on synergies that you can accelerate given it seems like 'twenty two is going to come in a little bit short for Rogers This year, yes.
Rogers will not run around $200 million in the second half of the year. They have the demand is there we know them to be.
Book.
By the way again muted.
Pretty significantly by Covid, China, and don't forget it's auto related a lot of the business so that.
That not being as hard as it showed even though end market demand is there, but there'll be running at a much more significant right.
In the third quarter, assuming again, the Covid stuff is all cleaned up lockdowns.
<unk>.
We have.
Your line of sight, where we're allowed to talk about synergy work on the cost side of $115 million, we're highly confident in and on a percentage basis with the combo of that coming in with our life business. It's not a percent that's on the high end at all so.
Like layer 60, we now have line of sight detailed detailed a 63. This one we have we're really rack and stack and where we have a lot of it identified so we'll get at it really quick.
Remember one of the things that will happen immediately on the Roger synergies as you know there is corporate expense of some significance because it's a public company and that will be cleaned up very very quickly and then we'll start on the rest of the synergies so.
But it will run at a very different rate in the second half of the year.
Right. So for 'twenty, three we should really be thinking about $2 70, plus whatever growth that the industry should provide us kind of a base case.
Or when the modeling Rogers for 'twenty three.
Yes, I think Thats fair.
Great. Thank you Ashish.
Sticking with the synergies then you got them kicking in and we will hopefully move fast on that.
Understood. Thank you okay. Thanks, Greg.
And your next question comes from Iran. First one anthem from RBC capital markets. Please go ahead.
Great. Thanks for taking my question.
I guess I just had a longer term question. So several years ago. Your electronics business faced a lot of pressure in China.
Around innovation and.
With us on that pace product I know thats been disposed of but do you see that kind of issues cropping up in any of your markets.
In the future.
That'd be my first question. Thanks.
No I don't at all there is nothing in the portfolio actually enough.
95% of the portfolio is cutting edge technology.
If you haven't had the chance we did all that <unk> recently on the electronics business I think we're in a very strong technology position and we're constantly innovating by it's a SaaS based innovation and electronics books, we're innovating literally monthly coming out with new products in the marketplace. We're always on the cutting edge. So I don't see that I think what.
You were mentioning was solvent based which yes. It was more of a commoditized business.
That was <unk>, but that's not where the portfolio is headed and certainly not in addition to the acquisitions with Laird and Rogers Theyre very key positions, we have and great technology plays.
Okay. Thanks for confirming that and then.
If I could is there any update you can provide on any.
Of the PFS diner.
Dynamics do you expect any kind of settlement by year end with the water districts or what are you. What are you working on on that side, yes.
No we've been as we've mentioned before we've been talking about settlement with the plaintiffs.
Mostly obviously around the water cases.
And as I mentioned, a few minutes ago, the judges even encourage both parties to be talking to each other.
That was made public.
A month or six weeks ago. So.
Hopefully good progress this year.
Thanks.
Great. Thanks, Rick.
And the last question for today comes from Laurence Alexander from Jefferies. Please go ahead.
Hi, I guess a question about your degree of visibility.
In terms of how customers are sharing development schedules and order books and the shift in dupont's portfolio, how many quarters out do you feel you have good visibility at this point.
Yeah, when we do look at that to see how our order patterns are I would say on average we have about 60 days visibility to orders that come in in combination between Eni and nwfp, if a little bit longer in wm, even than what it is and Eni.
As we had mentioned earlier in the call. When you look at that 20 day order pattern every week and it has not changed in any significant for the past several months and so we continue to see very strong underlying demand some of our backlog with in the water space and with any adhesive space have started to build with.
The dynamics that we're navigating with omnicare, China Covid situation, but overall demand remains very very strong and then finally I would just give you one other angle. Obviously, we look at very hard and you sort of I think just made this comment we work very closely with our customers on design wins by the way as those layered and Rogers is a very key.
One of the business. So we can see again, which is the overall demand out six months, but we can see where trends are developing where we're going to have a nice lift in business. So with Lori just mentioned in our <unk> business, we are bidding on and working with design and on a lot of applications in the battery and the.
Auto next generation auto market, and we know where we're getting wins or were close to getting wins. So that is something we track very very closely to look at those trends same within semiconductor same thing the water business. So thats important to us to look at also.
Thank you.
Thank you.
I will turn the call back over to Chris Macrae for closing remarks.
Alright, thanks to everybody for joining the call and just for your reference a copy of the transcript will be posted on our IR website shortly.
This concludes our call. Thanks again.
This concludes today's conference call you may now disconnect. Thank you.
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Okay.
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