Q2 2022 Dupont De Nemours Inc Earnings Call
Good morning, and welcome to Dupont to Q2022 earnings conference call.
Since I've been placed on mute to prevent any background noise. After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question Jenglish time Press star followed by the number one on your telephone keypad, if you'd like to withdraw your question Press Star one again.
Q, Chris Me, Craig you May begin your conference.
Good morning, everyone and thank you for joining us for Dupont's second quarter 2022 financial results. Joining me today are Ed Breen, Chief Executive Officer, and Laurie <unk> Chief Financial Officer.
We have 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 statements disclaimers 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 2021 Form 10-K.
Updated by current and periodic reports include detailed discussion of principal risks and uncertainties, which may cause such differences.
That's otherwise specified all historical financial measures presented today exclude significant items.
Refer to other non-GAAP measures a reconciliation to the most directly comparable GAAP measures are 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 second quarter Financial review, we posted strong quarterly results above expectations.
For cold environment.
Top line revenue growth of 7% versus the year ago period.
<unk> had solid organic growth of 9%.
Overall customer demand remained strong across our key end markets.
<unk> delivered a 6% volume increase driven by ongoing strength in semiconductor technologies and industrial solutions.
In terms of inflation.
Reising actions continue to fully offset higher costs associated with raw materials logistics and energy.
Early in the quarter, our expectation for full year 2022 was about $600 million of increased cost and that number has now risen to over 700 million, mainly due to higher energy and logistics cost.
We still expect to remain price cost neutral in the second half and for the full year based on pricing actions we have taken.
Yeah.
Overall, our second quarter results reflect year over year or sequential earnings growth.
These results highlight the strength of our end markets and our team's efforts to successfully navigate the challenging macro environment.
Which was further complicated by China's COVID-19 lockdowns during the quarter.
We were very pleased that the Lockdowns alleviated by mid June and then our China based colleagues, who operated diligently under difficult circumstances.
Unable to return to some form of normalcy.
More broadly our focus on execution continues to drive results as we increase our use of digital tools and other plant site and investments to drive additional productivity and capacity release.
Finally, with regards to the sustainability I am pleased to highlight that last month, we announced our commitment to setting targets to reduce greenhouse gas emissions.
Aligned with the Paris Accord science based targets initiative or Spi. This is an important step towards reducing our overall climate impact and it builds on our existing commitment to protect the planet by reducing the carbon footprint across our value chain in partnership with customers and suppliers.
Turning to slide four.
To update you on key initiatives for 2022 stakeholder value creation, namely our portfolio transformation and our balanced approach to capital allocation and.
In addition, I will highlight our continued focus on growth execution on the following slide first as it relates to the Rogers acquisition progress is being made on the required regulatory reviews with China being the last jurisdiction outstanding.
We expect the deal to close during the third quarter.
Regarding Rogers first quarter 2022 performance, we were satisfied with top line progress for the business with growth in the high single digits, and we were especially pleased to see new wins.
The ongoing growth in the electric vehicle space.
Rogers business in the period was impacted by a price cost gap and several operational challenges that held back full earnings potential, but we remain confident in the actions that the Rogers team has taken.
And we expect improvement as we move forward.
For the <unk> transactions, we are on track regarding timing associated with the Eminem divestiture to celanese with a completion anticipated around year end.
We continue to make the necessary progress to separate the business and we were pleased to see <unk> secured permanent financing in the last few weeks.
We also continue to move forward plans to divest the Delaware business and affirm our expectation for completion around midyear 2023.
This past July one marked the one year anniversary of our acquisition of layered in performance materials. I've commented previously on how successful. This acquisition has been for US, including overall financial performance ahead of plan on both the top and bottom lines.
We also continue to advance commercial synergy opportunities on top of cost synergies previously noted.
Finally, we completed the sale of the biomaterials business at the end of May which was the last of our previously announced non core business divestitures. Since 2019, we generated gross proceeds of over $2 2 billion.
Divesting noncore businesses, which collectively produced lower growth.
Our margins and overall higher volatility in earnings.
We received solid value for these divestitures selling them.
So double digit EBITDA multiple.
Shifting to capital allocation.
Continue to pursue a balanced strategy that includes prioritizing the return of excess capital to shareholders as well as bolt on M&A.
During the second quarter, we repurchased $500 million of shares.
Bringing our year to date total to $875 million.
Which represents two 5% of total shares outstanding.
We anticipate completing the $500 million of authorization remaining on our existing share repurchase program during the remainder of this year.
As I noted during our last earnings call.
Given the magnitude of anticipated proceeds from the Eminem divestitures.
We expect there will be room to execute substantial incremental share buybacks, while disciplined M&A will also remain a key deployment priority over time.
As we continue to seek accretive opportunities.
Nick transactions that can leverage our existing growth even further.
Finally, our balance sheet remains strong and this remains a key priority, particularly an uncertain and volatile macro environment.
Turning to slide five another key value driver for us as innovation led growth.
Greater focus on secular high growth end markets and electronics water protection industrial technologies and next generation automotive will serve as a sound basis for our organic growth execution.
We continue to invest actively in both advancing the technology within our existing product portfolio.
And also introducing new products around the pillars highlighted here.
With an overall R&D investment rate of around 4% of total sales.
In line with best in class peers.
This investment is coupled with substantial application engineering focus where our technical personnel have a seat at our customer's table in the design phases.
Their products.
This past quarter, we had a number of highlights which we noted on the slide.
But I would emphasize that we are proud to have won for Edison awards across different technology platforms, and we continue to make progress in introducing new technologies.
Such as applications and EV batteries, which are strong growth potential.
With that let me turn it to Lori to discuss the details of the quarter as well as our financial outlook.
Thanks, Ed and good morning, everyone. As Ed mentioned, we saw continued strong demand during the quarter and key end markets with volumes higher than our expectation coming into the quarter.
Cost inflation intensified further compared to previous estimate and additional pricing actions are anticipated to fully offset these higher costs.
These factors along with our team's continued strong execution focus.
Contributed to both top and bottom line results well above expectations for the quarter. We also.
<unk> delivered a consistent operating EBIT margin on both a year over year and sequential basis.
Okay. Thank our financial highlights for the quarter on slide six net sales of $3 3 billion increased 7% as reported versus the second quarter of 2021 and increased 9% on an organic basis.
The acquisition of <unk>, partially offset by non core divestitures provided a 1% net tailwind to net sales while currency was a 3% headwind during the quarter.
The us dollar strengthened against key currencies, including the euro and the yen.
Organic sales growth included 8% pricing gains and 1% higher volume volume growth reflects continued strong demand in key end markets. Many semiconductor.
Baxter General industrial water and construction needed primarily by lower volumes for protective garment within safety installation.
These factors resulted in our organic sales growth during the quarter at 9% for Debbie 98% for Eni and 15% for the retained businesses of the former Eminence segment report incorporate which predominantly for flagstar adhesive portfolio tied to next generation.
On a regional basis, we delivered organic sales growth in all four regions globally, including volume increases in Asia Pacific North America, and Latin America, and China organic sales growth was up slightly versus the year ago period and volumes in China were at low single digit sequentially from first quarter.
Government mandated lockdowns and parts of the country into early Jan.
From an earnings perspective, operating EBITDA at $829 million was up 6% versus the year ago period.
EPS of <unk> 88 per share increased 11%.
The increase in operating EBITDA was driven by pricing actions stronger earnings contribution from the word acquisition and volume gains.
Which more than offset higher inflationary cost pressures.
Operating EBITDA margin of 25%, but slightly better than our expectations that earlier this quarter and flat on both a year over year and sequential basis.
Our pricing actions have fully offset cost inflation on a dollar basis, but have impacted EBIT margin.
Operating EBIT margin adjusted to exclude price cost was 26, 6% or 150 basis points higher than a year ago, driven by productivity and higher volume.
Our incremental margin was 22% on an as reported basis, excluding the impact of price cost incremental margin for our core businesses was almost 60% demonstrating strong cost discipline and operational productivity.
From a cash perspective cash flow from operations during the quarter at 86 million and capital expenditures of $135 million, resulting in a free cash outflow of $49 million.
Working capital was an additional headwind during the quarter as we continue to secure inventory given tight supply chain and incur higher inventory costs related to inflation.
We expect improvement in free cash flow during the second half of the year consistent with our typical pattern and factoring in a reduction of working capital level.
As we separate the M&A business, we continue to incur transaction related expenses with over $100 million of transaction costs incurred during the second quarter and about 700 million in costs related to the separation is expected in full year 2022.
<unk> cost combined with higher working capital related to the eminent business that we are divesting our significant headwinds to your exponential.
Turning to cash flow.
Turning to slide seven adjusted EPS of <unk> 88 per share increased 11% compared to 79 cents per share in the year ago period higher volumes and earnings from Blair. It provided a benefit to adjusted EPS in the quarter of 11 cents per share Steve.
These gains were partially offset by weaker Mexican WMC related to lower production and kept on plant startup cost totaling <unk> <unk> per share.
A lower share count from ongoing share repurchases provide a force that benefit to adjusted EPS.
Either below the line items, including higher tax rate and exchange gains netted to a 3% headwind.
Base tax rate for the quarter was 22, 6% up slightly from 21, 8% in the first quarter and up notably from the year ago period, given certain discrete tax benefits recorded in the prior year, resulting from tax law changes.
We are maintaining an expected base tax rate range for the full year 2022 of 21% to 23%.
Turning to segment results beginning with Eni on slide eight.
Eni delivered net sales growth of 16%, including 8% organic growth and 11% portfolio benefit from there and a 3% headwind from currency.
Organic growth for Eni included a 6% increase in volume and a 2% increase in price.
Your line of business your organic sales growth was led by semiconductor technologies, which increased mid teens as strong demand continued led by the ongoing transition to more advanced node technologies and ongoing high semiconductor fab utilization along with growth in five key communications and data centers.
Within industrial solutions organic sales growth with that high single digits led by continued demand for OLED materials for displays.
On the strength of our Calvert semi capex related product offerings.
Basketball products, serving recovering aerospace markets and for health care applications, such as Biopharma tubing.
Interconnect solutions sales decreased low single digits on an organic basis as expected due to a slight volume decline.
Volume gains for films and laminates in certain industrial end markets were more than offset by lower smartphone volumes due to the anticipated return to more normal seasonal order pattern compared to last year.
<unk> softness in China's smartphone.
The business was also impacted somewhat by lower global PC and tablet demand and continued constraints in automotive production.
Looking forward, we expect similar growth patterns for semiconductor technologies and industrial solution to continue into the second half of 2022.
Within interconnect, we expect to return to positive organic growth in the second half given the seasonal strength and added capacity from a capstone expansion.
For the full year, we expect interconnect solutions to be up low to mid single digits on an organic basis. This reflects a slight decline from our previous expectation and supply chain constraints and softer consumer demand are expected to meet volumes for smartphones Pcs and tablets.
Operating EBITA for Eni of $480 million increased 13% at strong earnings from Baird volume gains and pricing actions, partially offset by higher raw material and logistics cost.
Operating EBITDA margin of 31, 4% reflects sequential improvement of 40 basis points on a year over year basis operating EBITDA margin was down 70 basis points due primarily to a 100 basis point headwind from price cost.
Turning to slide nine Wip delivered net sales growth of 6% as organic sales growth of 9% was partially offset by a 3% headwind from currency.
Organic growth for WMC reflects a 12% increase in price and a 3% volume headwind pricing.
Pricing gains reflects broad based actions across the segment, most notably in shelter in safety solution.
Volume declines were driven by safety submission.
From a line of business view organic sales growth was led by shelter solutions, which increased high teens driven by pricing actions and continued robust demand in North America residential construction.
As well as ongoing growth in commercial construction and strength in repair and remodel related demand during the quarter.
Within safety solutions sales were up mid single digits on an organic basis as pricing actions were partially offset by lower tieback volumes given the shift from governments to other end market applications and the resulting negative impact of increased manufacturing line changeovers on overall production.
Sales for water solutions were up mid single digits on organic basis on pricing gains and continued steady demand for water filtration technologies.
By supply chain constraints in Asia Pacific due to Covid Lockdowns in China, and an earthquake in Japan impacting our production.
Operating EBITDA for W. N P or $348 million declined 1% versus last year as pricing actions taken to offset higher costs were more than offset by volume declines.
Operating EBITDA margin of 23, 2% with 170 basis points below the year ago period.
The impact of price cost with an approximate 200 basis point headwind to margin.
Excluding the price cost impact operating EBIT margin with over 25%.
I'll close with a few comments on our financial outlook on slide 10.
We are still seeing solid demand in our order book is down in most of our end markets. However, future uncertainties continue to exist in the macro environment, driven by inflationary pressure challenging supply chain and U S dollar strength.
Our teams remained focused keenly on execution and we are concentrated on a leverage within our control in order to continue to drive value for our shareholders.
For the full year 2022, we are narrowing our adjusted EPS range, while maintaining the midpoint of our previous range. We now expect full year adjusted EPS in the range of $3 27.
Two or $3 43 per share versus our previous range of $3 20 to $3 50 per share.
We are updating our full year 22, net sales guidance range to be between $13 billion and $13 4 billion, reflecting a few hundred million of incremental foreign currency headwinds along with the removal of about $120 million and net sales related to the biomaterials business given its divestiture at the end of May.
We continue to expect organic sales for the year to be up high single digits.
After adjusting the high end of our operating EBITDA guidance, primarily for incremental currency headwinds and the removal of the biomaterials business.
We now expect full year 2022, operating EBITDA to be between 325 billion and $3 three 5 billion.
For third quarter 2022, we expect net sales to be between 317 and $3 three 7 billion and operating EBITDA to be about $810 million.
We expect third quarter net sales and operating EBITDA to be slightly weaker than the second quarter as sequential volume increases are expected to be offset by further foreign currency headwinds and the absence of the biomaterials business.
We are also expecting impact during the third quarter on operating EBITDA of approximately $15 million from unplanned downtime at our WMC Spruance site in Virginia associated with an unforeseen utility disruption from a third party supplier on a year over year basis, we expect third quarter net sales to be up 2% at the midpoint and up high.
Single digits on an organic basis.
We expect third quarter 2022, adjusted EPS of approximately 81 per share.
With that we are pleased to take your questions and let me turn it back to the operator to open the Q&A.
Thank you at this time I would like to remind everyone in order to ask a question press star one on your telephone keypad, who will also one question and one follow up on me. Your first question comes from Jeff described from vertical research. Please go ahead.
Thank you good morning, everyone.
Jeff.
Hey, good morning, everyone.
<unk> could you just comment on kind of the visibility on the top line in the back half kind of around some of the economic worry points right U S. Rosy.
Some of the consumer electronic.
Cell phone and the like.
What youre seeing from your customer and channel partners there and.
Your comfort level that that's all dialed now properly relative to the guide.
Yes, Jeff.
So we look over the weekend at our order rates as of the end of last week and across the board. Our order rates are hanging right in there, where we would expect them to be.
The only softness we've seen which we've mentioned before.
As smart phones in China demand is down and I don't know how much of that is because of the lockdowns versus just true demand and we're seeing some lightness on the PCB board side, which is really for Pcs tablets, and things like that not significant but a little bit of a downdraft there it would be.
Sides that everything in Italy.
Based on our order rate is holding in.
Now remember we have a really solid look I would say on our orders out about 30 days and the bulk of the businesses some of them longer than that like the water business is actually some months.
So we're a little bit shorter cycle on the order rate but.
As we sit today it looks like things are hanging in there.
We have seen no downs, where you have just to your specific point on the construction side.
Both the resi was order rates are good and the last week. The commercial was good in the do it yourself piece of that business was still good alright, having said that Jeff we're not naive we see data points out there and obviously were doing recession planning just to be ready if things do soften up but at this point in time not seeing it.
Great. Thanks for that color and then just.
Wondering back to the ultimate deployment of cash, particularly as it comes to the <unk> proceeds.
Is it still your bias to wait until that cash is in the door.
Or now that Celanese has secured funding and maybe we're a little bit further down the kind of regulatory path.
Perhaps there is some comfort to get a running start on some of that.
Yes, Jeff So we're talking to the board about it and just to reiterate the prepared comments, we made were clearly thinking.
Heavy on a share repurchase here with the amount of cash available.
But and I wouldn't say the cash has to be in the door I just wanted to see kind of like I'll use the term green lights through town.
Timing is what we think we're going to be ready to do this.
By November one with all the internal work both we're doing in Celanese is doing but my God is by the time you get through regulatory we in our comment was kind of ended the year right.
Right at the first of the year of 2023, so, but you never know with regulatory and Covid Lockdowns.
You don't know for sure. So I just wanted to get closer and then we'll make a final decision.
Great. Thanks for the color.
Yes.
Your next question comes from Scott Davis from Melius Research. Please go ahead.
Hey, good morning, everybody good morning chip.
Good morning.
Ed you mentioned in your in your remarks, Rogers, having kind of a challenging.
Price cost I think you said gap is it off the deal model then for 'twenty two is it materially off where it impacts kind of your 'twenty three look at it.
Yeah. So.
There's a good and a bad I guess I'll just put it that way the good as the revenue line is right on.
What the planning assumptions were.
And the win rate is looking really really nice.
The EBITDA is off the planning model.
I'd say, it's worth putting price cost aside which you can catch up on.
Which will happen there were four or five operational issues that have been hitting them.
That are really impacting the EBIT percent buy rate all fixable, all within the control of.
The team did to fix those so we expect improvement to come on Bobby I'll. Just give you two one of them is not really even something they can control their being shorted as the whole industry is on the silicone side and it's a very high margin application for them. So obviously, we're trying to they're trying to secure more.
Silicone supply and at some point here that will even out.
That's off and then just to give you. One. Other example, they use more contract manufacturing because they are bringing up a facility that they had had a fire in it.
We're bringing that back up online, but in the meantime to satisfy the customers that are using contract manufacturing, which is really eating into the margin.
That business. So that's two examples but there's three other ones.
So those things that's being worked on and they're getting ready to launch that facility again and bring the production back in house. So it's items like that will work through that my hope My hope is we'll be in good shape going into 2023.
As we get these operational issues fixed.
Oh, Yeah. That's helpful and then just wanted.
Yes.
I'd point to on that no problem.
On the top line one of the areas that we're really impressed with is their penetration in E V and so they have seen really nice growth there and we'll continue to take advantage of the opportunity, especially that combined opportunity in Dupont and then we put it together with our with our EV applications. I think we mentioned in the past that your portfolio is generate about $400 million of revenue today. So.
We're excited to get those two together and see what we can do.
Okay, and then just on.
And layered I assume based on what I see on the slides here that layer. It is a little ahead of its deal model yes.
Yes, both revenue and earnings are ahead.
And we got good synergies out of that we're getting we're probably about 80% through that we've identified real solidly $63 million of synergies, but what I'm more excited about on layered in I think the same is going to play out with Rogers is.
Really the revenue opportunities between the two as Laurie was sort of just alluding to.
We just had another one in European auto.
Customer, who layered had a direct relationship with them, we were able to use some of our existing Dupont technology and an application to resolve an issue for them and it seems like a nice new revenue stream with that customer. So that's the really exciting with the kind of putting these this toolkit together.
Yes.
Sounds good best of luck. Thank you. Thank you.
Yeah.
Your next question comes from Steve Tusa from Jpmorgan. Please go ahead.
Hi, good morning.
Thank you.
Hey on this.
The price cost side.
What's your estimate for the year now I think you had $350 million in raw material headwind prior this quarter.
Obviously inflation is tough, but this quarter seemed a bit higher than I was expecting and then also are you, including logistics and that and if not I think you'd given like a $225 million headwind. Prior maybe just an update on those two.
Yes, so we're now expecting between raw materials logistics and higher energy costs about 700 million. So it's about $100 million increase from where we were sitting with me did the prior earnings call, but we still expect to fully cover that with price increases that will be net neutral on the bottom line and just create the headwinds on the margin profile is.
We have pellet telegraphing. It was about 150 basis points in total this quarter. So underlying we held flat on margins year over year, but if you take out that doubts that we were actually up about 140 150 basis points, a nice nice leverage through the P&L, Steve so as that but.
Yes.
For you because I think you were just using roles the breakdown of the inflation is about 60% of his roles, 20% is logistics and 20% is energy just to give you a kind of a feel for it and about 70% of our inflation is in the <unk> segment, where you can see we've got phenomenal pricing.
Yes that energy cost was that previously recorded through the raw materials line.
I don't recall, you guys kind of breaking that out explicitly.
We had that been running through that raw materials number.
Prior quarters.
It wasn't there was that a new line item yeah. It wouldn't have been in Iraq, but it would've been in the total 600. So it's not it's not new in total but the increase from the prior 600 to the current 700 is really primarily the increase in energy costs and then the knock on effect to logistics as we see higher fuel costs.
Okay that makes that makes lot of sense and then just one last one on the W and P business I guess, how do you.
See that performing through.
Let's say you have kind of a consumer.
Recession warehousing takes a bit of a hit I mean can that business grow through that on a volume basis or is there kind of too much cyclical exposure in that business. How do you look at that business do that type of recession.
Well remember Steve one of the first of all just depends how deep recession and so it's hard that's a hard one to answer but remember that the cap.
Tieback product line, which is one of the biggest segments in there.
Thats a sold out asset.
So we can divert.
<unk> product to other end markets for instance, we are shorting right now Unfortunately.
The medical market medical packaging market, we're trying to work through that backlog as we speak so we have other applications for it in a sold out asset.
And finally, I think the water business just to use W. P. I think the water business will hold in there pretty well in a recession.
Yes.
So yes, we will see some effect of it you know nomex would probably go down a little bit on kind of alarm might go down a little bit but.
I think we can hang in there pretty well.
Thank you Brad if I can it get to be sure. So the residential.
Residential piece of construction is about 40%.
The rest is 40% commercial and then about 20% repair and remodel.
The commercial the largest end markets underneath there are more on the.
The health care side, and the restaurant side, so that make up the bulk of the commercial opportunity for <unk>.
Excellent. Thanks, guys I appreciate the color. Thank you.
Good.
Your next question comes from John Walsh from Credit Suisse. Please go ahead.
Okay.
Hi, good morning.
Good morning, John .
Just following up to Steve's question, there, maybe we could talk a little bit on the pricing side, you highlighted strong pricing there in <unk>, but as you look forward, where do you think you have the most structural pricing and then where might you have to give back as potentially we see some material deflation.
<unk> in the future.
Yes, well John that is a great question, we talk about it all the time, so we made it.
That's a strategic decision that all the price increases we did were all baked into the product price. So we did not do surcharges that are tied to some index or something like that.
So I feel good about the approach that we took.
And obviously our goal if a recession hits and commodity cost come down would be to then get a GAAP maintain a gap going forward. We're obviously, we're maintaining more price than the decrease on the commodity.
And we're finally, we've been working on the scenarios for the last month with our teams like where do we feel and how much can we hold in each of our end markets, but our goal is going to clearly be to old GAAP. So that we can help our EBITDA margin percent, which as Lori just mentioned, obviously has been hit the other way with the price cost.
Thing, but where we can benefit from it so.
Yes.
I wont get into each end market, but I think we have the opportunity to do what I, just said to what extent, we will see as it plays out.
But.
That's one thing and this if a recession hits.
That's the one thing that is very very different for companies like ours and many others were in the past you didn't have this dynamic you'd had a recession you were cutting your cost or whatever.
You did and this time you have this is the probably the single biggest dynamic the improved financial performance that clearly we have in many many global companies have.
Yeah.
No that's very interesting perspective, thank you and then the $15 million headwind.
Youre going to see in Wm Pea in Q3 does that fully reverse out in Q4 and kind of what's the confidence level.
That third party can get.
Beyond their disruption.
So we're already getting past the disruption we've been bring in lines up this week this problem hit a week and a half ago.
And it's just it's a safety issue by the way we have to methodically go through look at all of the lines and what they ended up being conscious called stuck in.
When it went down so it's a little bit of a process, but we were bringing some lines up a day ago and later today, we bring a line up again. So we know we're out of the problem here over the next few days.
But we don't make that up because for instance, <unk> is one of the products big products. There. It's a sold out asset. So we can only make so much and we're sold out but by the way just.
You sequence from the third to the fourth quarter, you see a little bit of a lift which is not necessarily the seasonal pattern, but what's happening there is we have.
Spruance not being down so you don't have that third quarter to fourth quarter problem will be running full tilt. There we have a new water line that we've been telling you about that's coming up at a diner, which will give us incremental volume. One is sold out business also our reverse osmosis product line and then remember we have the cap.
Timeline coming up at our electronics business and our circle Bill facility and they all hit in the fourth quarter.
And give us the incremental volume and cap ons also sold out asset. So we're not expecting a sequential third to fourth necessarily a change in demand in the marketplace. They just happened to be the sold out assets, where we start getting some production out of them.
Okay.
Great. Thanks for taking the questions I'll pass it on.
Thanks.
Your next question comes from John Mcnulty from BMO Capital markets. Please go ahead, yes.
Yes, thanks for taking my question.
I believe about 20% of your sales come from the EMEA region can you give us a little bit of color as to your exposure to Germany and any precautions you are taking or any levers that you can pull if there are any issues with regard to gas and power as we kind of progress through the rest of the season.
Yeah, right now, we're not expecting any material impact if they start to ration energy in Germany.
One plant site and our existing go forward portfolio that doesn't use it and so we don't see an impact there.
Businesses that we retained from Eminem.
<unk> does have a plant in Germany, so that they could be impacted minimally if there were some RASM going on there, but as we see it right now we don't see.
A headwind from from a utilization perspective, and we'll obviously continue to watch the European natural gas prices, which.
Have an impact on primarily W. N P and the remain co portfolio is they've got a few plant sites in Europe .
They are up again, I think they were 210 or so.
As of the last couple of days. So we will continue to keep an eye on that as the theme at Acme.
Got it okay. Thanks for the color and then just in the in the tieback garment business I guess, how far back to normal or reversing kind of that big surge would you say we are in it sounds like you had some incremental headwinds that aren't just on the mix shifts but also are on the line shifting I guess can you can you break that out in terms of how much of.
The hit that might've been on the margin and how we should be thinking about that going forward through the rest of the year.
Yeah. So in the second quarter government volumes were down about $40 million. So we were able to make up a little to that with increasing sales in the medical and other end markets, but in total garments were down $40 million, we expect that to be.
Again in <unk> on a year over year basis in the fourth quarter, we start to.
Get out of that year over year comp headwind.
Hum.
Two on the production side and he.
So much of demand because you can shift the demand to other end markets from the government that's more around the product produced that you net out to it to a headwind and so when we were making garments were able to get some Brian garments, the entire time and minimize the changeovers on the lines now that we're back to them.
On the product mix, we're having to have more change, Arizona, we had last year. So therefore translating to lower lower pounds produced.
Got it okay. Thanks, very much for the color.
Your next question comes from Christopher Parkinson from <unk>.
Please go ahead.
Great. Thanks for taking my question.
Pretty much a corollary of the last two and a half questions or so.
Can you just give us your updated thoughts on the intermediate to long term margin outlook for WP just given.
Question about structural price increases improving reliability across the asset base.
<unk> mix and so on and so forth just any updated color there and your confidence in those numbers would be very helpful. Thank you.
Yes.
Yes, I'll give you a really both of them.
The bigger businesses here I think.
And you've seen us do this ex the price cost.
We should be able to run that.
<unk> 32, 33% EBIT margins in this quarter, we weren't far off of that.
And then a little bit of price cost there and I think that's about where that will run.
And then pretty consistently have been there.
In the W. MP business, we really think we can get that over time to kind of more of a 2728% EBIT business now by the way we're planning on getting some of that is commodities.
Point, your drift down and we maintain as I mentioned, a minute ago, some incremental pricing above that but them internally in our own control is really capacity release.
Our facilities and that would be specifically on tie back.
Our water assets and our nomex product line would be the big ones for continued capacity release and in our prepared remarks, Chris one of the things you see we've been working heavily on is working on a lot of digital tools that we're implementing at our facilities that are helping us on the reliability side. These are big heavy assets on the <unk>.
<unk> side, so you get a 1% improvement.
You get quite a bit of throughput. So we're really spending our time working with kind of our operational excellence playbook and that's what will really help us on the WP to keep ingram any of that up.
And I think as we look towards the second half, we don't see any material margin movement.
In the second half versus the first half we're around 23% more like 25 26, when you take away the price cost headwinds in the first half and so as we look to the second half we would expect that same 23 per cent roughly underlying and then 25 ish, 26% when you take away the price cost headwind.
That's very helpful and just as a very quick follow up to the extent you can can you just give us a little bit more color on the expectations for dollar and versus your commentary over the past few quarters in terms of price number of suitors and so on and so forth. Thank you.
Yes, Chris So what we've been doing on Delaware and as we've been working on standing it up it was a division in a division so that was all.
A little extra upfront where for US we finished up the data room.
We're going to actually really launched the process here in the in the early fall were just waiting to get through the summer. So I can't give you any color commentary on.
A detailed number of people, but I would think it's more strategics that are going to be interested in this asset by the way. It's a business that has 3% EBITDA margins, it's doing very well still in this environment.
So thats, probably the timing of it and that's why we said so fast the timing by the time you get to two.
To close the deal Youre, probably about the middle of 2023 and that would really be the end of.
The kind of the divestiture and getting the portfolio, where we want it now remember that assets already in discontinued operations.
So very helpful. Thank you so much.
Yes.
Your next question comes from Steve Byrne from Bank of America. Please go ahead.
Okay.
Yes.
Okay.
Okay.
Steve Your line is open.
Sorry about that I wanted to ask you a little bit about your semiconductor business and a couple of potential <unk>.
Longer term drivers one being.
Whether the product mix.
Potentially shifting within the us.
Semiconductor fabs that used to support where they are shifting to other products is that is that possible is that or is that a way for those businesses to remain.
Uh huh.
Pretty robust and then the other driver being.
The new semiconductor Fabs under construction do you do you have already some.
Awarded business for <unk>.
Fabs that are coming online in the intermediate term.
Yes, I think.
As to your first part of your question I don't see them changing their product mix that they make on on the fabs that they can kind of shift around the end markets and so we've seen them move away as there has been some weakness in the consumer electronic space to more of the data center application for the demand remains very very robust, which is favorable to our portfolio.
Just given the.
The higher advanced technologies associated with those end market data center applications and so you can see in our results in the second quarter. We continue to post very strong very strong results.
And we're well positioned as we go forward to take advantage of the increasing in the fab.
Through the construction is taking place and so.
Right now I believe over the next few years they'll bring on an incremental of about 7% capacity when it comes to wafer starts and we're very well positioned.
Got great relationships with the majority of those fabs that are putting in capacity and so you know while it's hard to say have you won any new capacity from those new lines coming on.
And I know there they actually have all of that in place, but we will continue to maintain very strong relationships with both large players that are putting in capacity.
We said in the past it will be about two to 300 basis points ahead of MSI growth. We're posting those results. This year. So I don't see any reason why we wouldn't continue to do that and I think it's important to know.
The semi market.
And the revenue that is posted as a function of both price and volume and our exposures to the volume piece and so price can be volatile in the semi market that doesn't impact. Our result is really a focus on the wafer starts in the MSI. So that's done.
The square inches of wafers per day.
Thank you Lori and Ed just curious if you can comment on any update on PFS litigation settlement discussions.
Yes.
<unk> conversations and as you know the judge is going to encourage that.
To go on but I don't have anything new to say, we continue to have pretty consistent conversations to try to.
Resolve the issues.
I'm still optimistic.
But nothing is nothing new to say.
Thank you.
Yes. Thanks.
Your next question comes from David Begleiter from Deutsche Bank. Please go ahead.
Thank you good morning.
Brian just on on your EV exposure with Rogers, how large will be and what type of growth are you looking forward to going forward.
Yes, so we see the opportunity and easy between our portfolio and Rogers portfolios to be about $250. A car. So really nice content number as I had mentioned earlier today, we had about 400 million of revenue between the two portfolios. So about 200 coming in from Brian here isn't about 200 and our existing.
Portfolio, which is predominantly made up of adhesives.
And then we haven't nomex paper application for the E motor piece.
Very nice opportunities I had mentioned.
For the two companies that come together to continue to drive opportunities in our space.
So really high growth rates as we've mentioned before too so you know EV applications or <unk>.
Overall growing in the mid teens Adas applications, even higher than that we've got a nice eight asset portfolio today with the incoming Merritt acquisition for lots of opportunities for growth.
Great. Thank you and you just saw on tie back between now and when line eight comes online.
Is there anything you can do to.
Bring out eke out more capacity or further improve the mix in this business to keep on growing earnings until the new capacity is on stream.
Yeah, that's a key opportunity for us is to continue to get capacity to release also so without assets into during a pandemic and recall that we brought line one back up and we were able to bring on a little bit of incremental capacity line once the oldest line.
In the portfolio. So it doesn't have as much production as the newer lines, but it was incremental capacity for us and we'll continue to try to get more pounds off of off of all the lines between both ruins and Luxembourg as we await the new tieback asset, which we expect sometime around the end of 2023.
Thank you very much.
Your next question comes from Vincent Andrews from Morgan Stanley . Please go ahead.
Thanks, and good morning, everyone.
Ed.
Well articulated that your preferences for share buybacks with the proceeds but.
You still mentioned bolt ons. So if you could just give us an update on what's out there and then maybe give us an update on I think in the past you've sort of size bolt ons.
So maybe you just want to redefine what a bolt on could look like on a go forward basis.
Yes. Thanks.
Thanks for the question Vincent.
So.
Bolt on that we would do first of all would be on one of the five pillars that we talk about and.
We've been looking at things that are let me say bolt on would be more like <unk> not as big as Rogers.
That one 2 billion type range and it would be something that would bring additional technology to play and one of those pillars.
Back to the Electronics example, just give us some more tools in the toolkit.
Resolve issues for our customers because we're so strong in application engineering, and we're really seeing the benefit of that with layer tied together with the Dupont electronics portfolio I know, we're going to see it with the Rogers from them. So it would be something like that.
In one of those pillars.
That we would look at.
Okay, and then just maybe less of an issue for further refined Dupont portfolio now, but in the past when we've been in these tricky macro outlooks, we'd get into <unk> and <unk>.
Customers could destock more than they typically do seasonally just sort of to manage uncertainty going into year end are you picking up any whiffs of that in your sort of.
C level C level conversations or anything that we should be thinking about.
We're not at war with Trust me, we are watching it closely.
But no we're not seeing that.
Okay. Thanks, very much everyone.
Thanks, Jim.
Your next question comes from Aleksey <unk> from Keybanc capital markets. Please go ahead.
Thanks, and good morning, everyone and your Eni segment overall and <unk> in particular is your outlook for third quarter.
Better or worse or about in line with normal seasonality.
I would say it's in line with normal seasonality.
With the one exception of we will start to return to posting growth within the interconnect solutions business on a year over year basis.
Just given that last year was a little odd with respect to the smartphone shipments of what they normally do this year, it's more in a normal pattern. So you saw the headwind in the first half as we posted volume declines and we expect to have volume increases in the second half of America interconnect solutions, and that's a year over year basis, but sequentially no no material change to our usual pattern.
With the one exception as Ed had mentioned that the online coming on which I'll provide some incremental revenue in the back half of the year.
Makes sense, thanks, Laura and to follow up on WMC. Your margin comments that margins would be similar in the back half compared to the first half is this also a function of the outage that you see because I seem to remember you were expecting higher margins in the back half is there still an expectation.
<unk>, maybe just delayed into fourth quarter or first quarter of 'twenty three.
Yeah, I mean, I think maybe coming into the year, we had expected some margin improvement as we went into the back half, but the lag.
Last quarter and this quarter, we have seen there was more flattened out it's a it's a function of one the incremental price headwinds that we've seen so a lot of it is that so.
Back when we originally gave guidance for the full year, we thought overall raw material raw materials logistics and energy would only be $350 million that number has now went to $700 million as we have mentioned in the majority of that increase is N W and piece of that create as reported margin headwind for us.
Thanks Laurie.
Uh-huh.
Your next question comes from Josh Spector from UBS. Please go ahead.
Yes, hi, Thanks for taking my question I guess within safety solutions can you comment on how the business. Excluding tieback is running I guess is there anything materially different there we should be thinking about from a volume perspective that might be better or worse relative to industrial production or any other metrics, we should be looking out for.
Yeah, no those are generally performing well, we had a little bit of a shortfall in the second quarter with access to raw materials within our no Max line. So it really wasn't a structural demand as sheila or an operational issue. They sleep, we couldn't get access to some of the key inputs to make that nomex products, but.
Nothing to work through on the air side as far as.
Asset utilization like we are seeing on the tieback side with the increased changeovers I see back through that the government change.
I guess just on the demand side as well anything changing through the quarter or are you seeing any weakening with customers maybe pulling back on spending or is demand it's still relatively steady.
No demand stuff and market them.
Okay.
Thank you.
Your next question comes from Mike Sison from Wells Fargo. Please go ahead.
Hey, good morning nice quarter.
In terms of Rogers can you remind us what type of sales growth do you expect 2022, it sounds like it's.
Coming on plan and it looks pretty good and then if there is a shortfall versus the $2 70 in EBITDA.
It sounds like.
As you head into 'twenty three the bulk of the shortfall will be somewhat within their control to close the gap.
The items that are have an operationally.
All are in their control I would say except for.
The silicone supply.
Which obviously.
We're having the same issues appear so we understand it.
But the others are under control so that they can work through those as you said and hopefully tee up well for.
223, the modeling by the way for them was for growth in the high single digits in 2022.
<unk>.
They took that obviously in the first quarter I can't say anything about the second quarter.
Mountain <unk>, but we would expect them to perform high single digits. This year on top line. So that's nice into Lori's point, a few minutes ago. They are really seeing nice.
Opportunities as we are on the EV side.
<unk>.
So feeling good about that work through the operational issues.
Got it and just a quick follow up at the mid point full year 2022 guidance would imply that the fourth quarter could be up sequentially versus the third quarter, that's seasonally difficult I guess when you look back historically.
So any thoughts on why it could be better fourth quarter versus third if you were to hit the mid point.
Yes, so that math youre getting to is about.
$30 million sequential increase from three two at approximately eight to 10 and then you're back into about 840. So it's really coming from three primary drivers. One is you don't have the headwind.
From that out it gets through and since then we entice added 15 million, so you're able to get that volume back in the fourth quarter and then the other two key drivers are the capacity additions that we have from the water asset that we spoke about earlier and then kept on getting production of that capped online.
So no underlying change in market shifts those three items.
Great. Thank you mhm.
Uh-huh.
Your next question comes from P. J <unk> from Citi. Please go ahead.
Yes, good morning.
Are you seeing.
Thank you what are you seeing in terms of semiconductor shortages and how quickly can automotive production come back do you think it's a snapback next year or is it more of an extended recovery in 'twenty three and 'twenty four.
Yes, I mean, I think the expectations right now are for 86 million cars produced next year. That's off of 80. This year, so we're still well below that.
High Ninety's wherever it used to be say still some opportunity to see continued strength and growth heading into 2024, obviously it'll all depend on.
As to the semiconductor chip shortage resolving itself, but even beyond that I mean, the third quarter is expected to be up 22%.
7% sequentially. So it feels like things are getting a little bit better there.
As we as we resolve some of the supply chain issues.
I had also mentioned back to points Laurie was talking about earlier too.
Very much Carol.
About production on the EV side of things with the new portfolio, New Dupont portfolio is very much weighted towards that and not the ice engine.
More ice engine related and I'll say.
Because of the Eminem portfolio, which probably Eminem will also so much in the east.
But.
This new portfolio was very event driven so the growth rate of that becomes way more important obviously, we'd like the overall growth rate of all of those to go up but it's even very weighted towards that piece.
Great and then quickly one other question on China.
You talked about slowdown in smartphones, but what about the property market, there, which has been under pressure and I know the government is trying to revive it what are you. What are you seeing there and what sort of exposure to the property market in China. Thank you.
Yeah, we actually saw sequential improvement in China.
<unk> and that was on top of you know without an extended lockdown. So we were pleased with our results there to your specific question on the construction market. We don't really have a construction footprint in China. So it wouldn't impact our overall business.
The majority of our construction is in the U S and in Japan within Asia.
Thank you.
Hmm.
Your next question comes from our last caller for today, Frank Mitsch from Fermium.
<unk> research. Please go ahead.
Hey, good morning, and thanks for squeezing me in just a follow up on <unk>.
China actually you did 6% organic growth in Asia, obviously, the data on PMI that just came out with somewhat concerning.
What are you actually seeing right now in the third quarter as you as you.
<unk>.
And that part of the world.
Yeah, we expect to see improvement.
China again into the third quarter and so while we still year over year, probably seen at about flat, we see sequential improvement as you go from Q2 to three week here great.
Great and then overall you expect volumes to be up <unk> versus <unk> is most of it is kept on the big driver. There are there other businesses that you are seeing volumes materially pick up sequentially in <unk>.
No I mean, Catherine is a piece of it that the smartphone seasonality as well so usually we see very high smartphone sales as we head into the Christmas season within the Eni segment in <unk>.
<unk> electronics in general as they prepare for the holiday.
Fantastic. Thanks, so much.
Right.
I will turn the call back over to you Chris Macrae for closing remarks.
Okay. Thank you everyone for joining the call today for your reference a copy of this transcript will be posted on Dupont's website. This concludes our call. Thank you.
This concludes today's conference call you may now disconnect.
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Okay.
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