Q4 2022 Dupont De Nemours Inc Earnings Call
Speaker 2: After the speakers are marked, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you, Chris McCray, Vice President and Investor Relations. You may begin your conference. Good morning, and thank you for joining us for DuPont's fourth quarter and full year 2022 financial results conference call.
Speaker 3: Joining me today are Ed Breen, Chief Executive Officer, and Lori Koch, Chief Financial Officer. We've prepared slides to supplement our remarks, which are posted on DuPont's website under the Investor Relations tab and through the webcast link. Please read the forward-looking statement disclaimer contained in the slides. During this call, we will make forward-looking statements regarding our expectations or predictions about the future.
Speaker 4: 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. Our Form 10-K , as updated by our current and periodic reports, includes detailed discussion of principal risks and uncertainties which may cause such differences.
Speaker 5: Unless otherwise specified, all historical financial measures presented today exclude significant items. We also refer to non-GAAP measures, a reconciliation to the most directly comparable GAAP financial measures included in our press release, and has been posted to the Ponce investor relations website.
Speaker 6: I'll now turn the call over to Ed.
Speaker 7: Good morning and thank you for joining our fourth quarter of the year 2022 financial review. We post a strong quarterly top and bottom line results in line with our previously communicated guys in an uneven global economy.
Speaker 8: Fourth quarter revenue included 5% organic growth versus the year ago period.
Speaker 9: Strong volume in water and water adhesives, as well as ongoing strength in industrial end markets such as health care and aerospace, help mitigate volume declines in consumer electronics and markets.
Speaker 10: and softening conditions in North American construction markets.
Speaker 11: Strong price and growth in the quarter reflects actions taken largely prior to the fourth quarter to offset persistent inflationary pressures in raw materials.
Speaker 12: logistics and energy.
Speaker 13: We saw over $800 million in year-over-year inflation headwinds for full year 2022.
Speaker 14: We delivered year over year operating, but it growth in the fourth quarter, despite a slight volume decline. Currently headwinds and the impact of portfolio of the vestitures.
Speaker 15: We also saw a margin improvement of 120 basis points, demonstrating solid operational execution, and focus on items we can control within the highly diverse end markets where we participate.
Speaker 16: The closing of the M&M sale was a milestone event in the fourth quarter and our last contemplated large-scale divestiture.
Speaker 17: The transaction for the transfer is our portfolio to concentrate on more stable, secular, higher growth, and higher margin and markets.
Speaker 18: As you can see on slide 4, our transformation actions have significantly strengthened our balance sheet, increased our financial flexibility, and positioned the company to continue to generate shareholder value through disciplined capital allocation.
Speaker 19: Following the M&M sale, we acted quickly in accelerating return of capital to shareholders.
Speaker 20: We authorizing the new 5 billion share repurchase program in November and launch an accelerated share repurchase transaction for 3.25 billion of common stock, allowing the retirement of about 39 million common shares of the fourth quarter.
Speaker 21: We anticipate completing this ASR in the third quarter of 2023 and plan to execute CHERI purchases under the plan's remaining authorization as soon as we can.
Speaker 22: In the quarter, we also retired 2.5 billion of long-term debt, which is due to mature in November 2023. And we do start commercial paper balance to zero as of year end.
Speaker 23: The long-term debt retirement, re-to-story financing risk, and generate pre-tax annualized interest expense savings of approximately $100 million.
Speaker 24: We also announced today an increase in our quarterly dividend to $0.36 per share.
Speaker 25: or a 9% increase versus last year.
Speaker 26: Going forward, we continue to target a dividend payout ratio of between 35 and 45% and expect to increase our dividend and we, alongside earnings growth.
Speaker 27: In total, we deploy more than 7.5 billion in capital in 2022 through significant sharing purchases, deleveraging and dividend payments, which reflects our overall balance capital allocation strategy.
Speaker 28: We exited the year in a favorable balance sheet and liquidity position, and we looked to further allocate excess capital over time to maximum value creation through both opportunistic M&A and incremental share of purchases.
Speaker 29: Our M&A focus remains on targets that fit within our growth pillars and are aligned with key secular growth trends that we have highlighted.
Speaker 30: Further, our disciplined approach to portfolio management will ensure that DuPont focuses on growing businesses where we are the best strategic owner.
Speaker 31: Regarding the Delaware and sale process, we continue to advance our Toronto work required to divest the business.
Speaker 32: We are being prudent with the deal process to ensure suitable market conditions and still expect to have a completed sale in 2023.
Finally, we also continue to invest internally in innovation and incremental operating capacity to fuel and support our organic growth.
In 2023, we expect the allocate cap-ex at about 5% of sales as we wrap up some larger scale projects this year. And we target our end-to-spending at about 4% of sales on a consolidated basis longer term, investing differentially within our business life.
based on growth potential.
Turning to slide five before I hand it over to Lori, I want to thank our teams who remain focused on operational execution in a difficult environment which allows us to produce solid revenue and earnings growth this past year.
I also want to thank our teams for the continued efforts made during 2022 in transforming our portfolio.
We are excited about the longer term growth potential of our business in its newly constituted form, centered around the secular high growth pillars of electronics, water, protection, industrial technologies, and next generation automotive.
Our end market mix is notably tilted towards electronics at about one-third of our portfolio.
Within electronics, we have a key presence in consumer-based end markets, mainly chips, films, displays, and printed circuit board materials used in smartphones, PCs, and tablets.
The bulk of our remaining electronics exposure is in areas such as data centers and telecommunications, as well as industrial and automotive applications.
primarily consumables used in the semiconductor chip manufacturing process.
Despite short-term volume pressure, we are pleased with our electronics market position and confident this exposure will help generate strong growth over time. Our presence in electronics is enviable with higher margins versus the company average and a solid competitive position across the key products we supply.
Likewise, our water business at 12% of our portfolio operates in markets that are expected to grow to mid to high single digits, driven by the global response to concerns such as water scarcity and circularity.
Additionally, our participation in the auto market at about 13% of sales is much more connected to high-growth, advanced technologies enabling long-term secular trends like hybrid and electric vehicles for items such as battery applications.
A solid portion of our other exposure is aligned to EVs which are growing at a significant
Given these and our equally strong market positions in many other end markets, including within our protection and industrial technologies pillars, we believe that our financial results over time will bear out the view that the new DuPont will grow and generate returns.
on par with the best industrial assets in the public markets.
In response to near term short cycle and market slowing expected in first day of 2023, we have been doing scenario planning for some time now and are proactively taking actions within our control to minimize volume impacts on margins.
As a result, we expect to be able to show the resiliency of the new PON portfolio this year. I look forward to providing you with updates as we progress through 2023. With that, let me turn it over to Lori to review our financial performance and outlook.
Thanks Ed and good morning. The quality of our portfolio was highlighted this quarter as strong top line results across the majority of our business lines offset weaker conditions in consumer electronics and construction.
The global economy remains challenging, but our team's focus on execution drove solid fourth quarter earnings growth and operating EBITDA margin expansion against the prior year period.
Turning to our financial highlights on slide 6, fourth quarter net sales of $3.1 billion decreased 4% as reported and increased 5% on an organic basis versus the year ago period.
Global currency volatility resulted in a 5% headwind from US dollar strength against key currencies, most notably the yen, yuan, and euro.
We also saw a 4% portfolio headwind driven by the impact of non-core divestitures.
Breaking down to 5% organic sales growth, 7% pricing gains were partially offset by 2% volume decline.
Continued strength in water solutions and over 20% volume gains in auto-adhesives were more than offset by further softening in smartphones and personal computing within Interconnect Solutions. A slowdown in semiconductor and construction markets.
As well as continued lower year-over-year volume from private protected garments within safety solutions.
As we exited the year, we saw lower volumes in areas we have highlighted, with total December organic sales up 2% year over year, including down high single digits in China, driven by acceleration of COVID disruption, and low single digit organic sales growth in the US and Canada.
due to muted demand and construction and de-stocking by customers.
From an earnings perspective, operating EBITDA of $758 million increased 1% versus the year ago period despite currency headwinds and the impact of portfolio.
Organic earnings growth was driven by pricing and disciplined cost control, which more than offset inflationary cost pressure and lower volume, including the impact of production rates.
Operating even a margin during the quarter of 24.4% increased 120 basis points versus the year ago period. CYCL?quickShip
Adjusted EPS in the quarter of 89 cents per share increased 16%, which I'll detail shortly.
Cash use and operations during the quarter of $126 million, less capital expenditures of $185 million, and transaction-related adjustments totaling $213 million resulted in a free cash outflow of $98 million.
The transaction related adjustments consist of $163 million termination fee related to the intended Rogers acquisition with the remainder from a tax prepayment for the M&M divestiture.
Further headwinds to fee cash flow during the quarter included transaction costs related to closing the M&M deal of about $200 million.
and an approximately $100 million cash outflow related to prepaid accounts payable in advance of the M&M deal closing, which was subsequently reimbursed to us at closing and reported as an inflow within investing activities.
I call out these items to provide visibility into our underlying cash flow performance.
Additionally, free cash flow included a working capital benefit during the quarter of about $120 million related to inventory reduction.
resulting both from our productivity efforts and from our decision to slow production in certain lines of business given the lower volume environment.
Turning to slide 7, adjusted EPS for the quarter of 89 cents per share increased 16% compared to 77 cents per share in the year-old period.
The SROM EPS growth came primarily from below the line items as organic earnings from our ongoing businesses were mostly offset by the absence of earnings from non-cortive investors as well as currency hedge funds.
Ongoing share repurchase continues to drive earnings per share growth, providing a 7% benefit to adjusted EPS.
Lower net interest expense provided a five cent benefit to adjust the EPS driven by those interest income resulting from additional cash on hand from the M&M divestiture and also lower interest expense resulting from the paydown of 2.5 billion of senior notes during the quarter.
Our tax rate for the quarter was 22.2%, notably from 18.6% in the yearbook period, resulting in a 6 cent tax headwind to adjusted EPS driven primarily by key graphic mix of earnings and currency.
Our full year based tax rate for 2022 was 23.2% and our 2023 outlook assumes the base tax rate in the range of 23 to 24%.
Turning to slide 8.
Just to note a few metrics on our full-year basis, that sales of 13 billion in 2022 increased 4% for the full year.
On an organic basis full year sales increase 8% due to a 7% increase in price and a 1% increase in volume.
W&P and E&I delivered organic sales growth of 11% and 5% respectively, and net sales in all four regions increased organically.
Further, we delivered high single digits or better organic sales growth in five of our six lines of business as well as in the retained businesses within corporate, led by auto adhesives. Interconnect Solutions was the only business lying down organically due to the slowdown in smartphones and personal computing since last summer.
Full-year operating EBITDA of 3.26 billion increased 3% due primarily to volume gain as pricing gain for mostly offset by continued pressure associated with higher raw material, the gif-6 and energy costs.
offering you with a margin of flat at 25.1% inclusive of price cost of about 150 basis points.
Full year adjusted EPS of $3.41 per share increased 12% vs. 2021.
The increase was driven by a lower share count from share repurchases, higher segment earnings, and lower net interest expense, which was partially offset by a higher tax rate.
Cash flow from operations for the year of $588 million, less capital expenditures of $743 million, and transaction-related adjustments totaling $328 million for items that I mentioned earlier result in a free cash flow for the year of $173 million.
Full year to three headwinds included in free cash flow totaled about $650 million, which mainly reflect transaction costs.
Turning to segment results beginning with E&I on slide 9.
E and I fourth quarter net sales decreased 8% as organic sales declined 2% along with currency and portfolio headwind of 5% and 1% respectively.
The organic sales decline reflects a 5% decrease in volume, partially offset by a 3% increase in average price.
The organic sales decrease for ENI was led by a 10% decline in interconnect solutions driven by volumes linked to further weakening in smartphone, PC, and tablet demand, along with channel inventory desocking and the negative impact of COVID-related disruptions in China.
In semi-conductor technology, lower volumes resulted from reduced semi-sav utilization rates due to weaker end-market demands along with channel inventory be stocking. End-market leads into a scene mainly in smartphones and personal computing.
In industrial solutions, volumes were muted as lower demand in consumer printing and weakness in LED silicones for conventional lighting in China, more than offset ongoing strengths in broad-based industrial end markets, including best-sell product lines in aerospace and for applications in healthcare markets.
Operating EBITDA for E&I of $407 million decreased 4% in the quarter as volume declined for partially offset by discipline cost control, with operating EBITDA margin up 150 basis points from the year ago period.
For the full year, E&I net sales of 5.9 billion increased 7% versus 2021, up 5% on organic basis as a portfolio benefit from last year's layered acquisition, as partially upset by currency headwind.
Organic sales growth for the year of 5% consisted of a 3% increase in volume and a 2% increase in price.
From a line of business to you, organic sales growth was led by semi-tech up low-devil digits and industrial solutions of high single digits. Partially offset by mid-single-digit decline in their connect solution related to weakness in smartphones and personal computing and markets during the second half.
of 2022. Full year operating EVICA of $1.8 billion increased 4% as volume gained, a full year of earnings associated with the layered acquisition, and higher pricing more than offset inflationary cost pressure and weaker mix in interconnects.
Turning to slide 10, W&P fourth quarter net sales increased 6% as organic sales growth of 12% was partially offset by a 6% currency headwind.
Organic growth reflects broad-based pricing actions taken across the segment to offset cost inflation as WP volumes were flat.
Organic self-growth was led by water solutions, which increased over 20% on strong global demand for water technologies, led by reverse osmosis membranes, as well as capacity increases and pricing gains. It is critical that morning UniveRead
Water continues to be an area of consistent strength with long-term top-line growth expectations in the mid to high single digit.
Sales for safety solutions were up high single digits on an organic basis as pricing actions were somewhat offset by lower tie-back volumes given the demand shift from garments to other applications and the resulting impact of line changeovers on production efficiency.
Excluding the year-over-year garment headwind, total W&P volumes increased approximately 2% in the quarter.
In shelter solutions, sales were up high single digits on an organic basis as pricing gained for partially offset by volume decline primarily in North America construction.
Operating EBITDA for W&P of $360 million increased 11% as pricing actions and discipline cost control more than offset inflationary cost pressure and currency headwinds, with operating EBITDA margin up 100 basis points from the year ago period.
For the full year, W&P net sales of $6 billion increased 7% versus 2021 as organic growth of 11% is partially offset by a 4% currency headwind.
Organic sales growth for the year consisted of a 12% increase in price, slightly offset by a 1% volume decline.
Excluding the year-to-year Garment Headwinds, total WP volumes increased 2% for the year.
From a line of business view, organic sales growth was driven by mid-teens growth in shelter solutions, low teens growth in water solutions, and high single digit growth in safety solutions.
full year operating eBITDA of $1.4 billion increased 3% attire pricing and discipline costs more than offset inflationary cost pressure as well as currency headwind.
I'll close with a few comments on our financial outlook and guidance for 2023 on slide 11.
We expect solid top line growth trends to continue into 2023 in businesses such as water and auto adhesives, as well as stable demand across diversified industrial and markets, including aerospace and healthcare.
We do have our anticipate lower volumes during the first half of 2023 in consumer electronics and semiconductors resulting from decreased consumer spending, infant or ED stocking, and COVID related impacts in China, largely within E&I. We also expect ongoing softness in construction and markets with the latest data.
down then cyclical digits on an organic basis versus the year-ago period.
As 2023 progresses, we assume stabilization of consumer electronics demand, normalization of customer inventory levels, and improved China demand to drive sequential quarterly improvement and operating results, most notably in the second half of the year.
Within the Interconnect solutions business, where the printed circuit board market has been down since mid-2022, we anticipate that channel-D stocking and customer production rates will begin to improve during the second quarter.
Within semiconductor technologies, fab utilization rates are also expected to bottom during the first half of this year and improve around mid-year.
As a result of these assumptions, coupled with expectation of improvement in China across our product line, we expect full-year 2023 net sales to be between 12.3 billion and 12.9 billion.
In response to the expected lower volume environment, we are focused on minimizing decremental margin impacts.
To achieve this, we are focused on the operational levers within our control, including appropriate actions to increase productivity at our plant sites, reduced discretionary spending, and realization of savings enabled by cost actions initiated during the fourth quarter.
For first quarter 2023, we expect operating EBITDA of about $710 billion.
For full year 2023, we expect operating EBITDA to be between $3 billion and $3.3 billion.
Expecting the whole full year operating even a margin flat at the midpoint of the range is provided compared to last year.
These same midpoints imply a decremental margin of 27% for the full year, despite a mixed headwind resulting from volume pressure in our higher margin business, namely semi.
Our first quarter, adjusted EPS expectation of about 80 cents per share and full year adjusted EPS guidance range of between $350 and $4 per share assumes continued growth from below the line benefits related to a lower share count and lower interest expense.
The midpoint of our full year adjusted EPS guidance implies growth of 10% versus last year driven by these benefits from our ongoing capital allocation strategy.
With that, we are pleased to take your questions, and let me turn it back to the operator to open the Q&A.
At this time, I would like to remind everyone in order to ask a question, press star, then the number 1 on your telephone keypad. We ask that you please limit yourself to one question and one follow-up.
Your first question comes from a line of Scott Davis from Mealius Research. Your line is open.
Hey, good morning everybody.
Mori's got.
If you don't mind, I'd love to get a little bit more color on the inventory levels. When you think about two different businesses with the Interconnect and the...
the semiconductor side, but how high did inventories get? Meaning how above normal were they and where would you characterize them today versus where perhaps they were maybe a quarter ago?
Yes, so when I see us, as Laurie had just mentioned, Scott, that started its downturn, actually mid-middle of 2020, year 22. So that's been going through a downturn. Now, by the way, it's obviously lower demand, and a lot of that lower demand, by the way, is trying to relate it.
lower the man because of COVID and lockdowns and all that. And so we have talked to our 10 largest PCP customers, mainly in China. And it looks like they're going to begin their ramp in the second quarter. We're thinking more the middle of the second quarter.
and maybe to give you a couple numbers behind it. Their PCB fabs usually run in the high 70% utilization rate. They've been, they're all a little bit different, but they've been running kind of between 40 and 60%. And they expect the second half of the second quarter to be kind of up to 60 to 65% and then we're...
I mean, nobody, none of the consumers were shopping. So I think, you know, just trying to coming back on its own from kind of this artificial COVID thing alone is going to help with the demand to remember we're high on electronics in that market in general. So I think we'll see a boost there. And then...
If we're right with our customers on the PCB side, we'll start seeing that the middle of the second quarter. And then on the semi side, I think that's pretty public knowledge, but you know those fabs were all running kind of 95% They're now running in the low 80s.
Now remember, a lot of that is de-stocking going on. Most of the CHIP guys are saying, you know, the down, the biggest down quarter is the first quarter. We think it's the first and second quarter. So in our planning, as Laurie mentioned, that's what we plan that we start seeing our ramp towards the end of the second quarter.
And if you look at the MSI data, it's kind of minus 10 and then minus 12, first, the second quarter. And then it improves and gets actually positive in the fourth quarter. And then of course, our demand will happen slightly before that MSI numbers. So, you know, I think we, the way we laid it out, we're sequencing it properly.
in 2023 and the water business will grow mid to high single digits. So that's kind of a lay of the land to how we put it together. Yeah, if I can just add too, we referenced that a market research inventory index for semi to get an understanding of what inventory exists in the channel. And right now usually it says it kind of goes into surplus mode when the inventory
2018, 2019 down frame, it was much higher. So it doesn't feel like we have the same dynamics going on as we had back then. But there does feel like there is more more in the channel than where we were definitely last year at this time. We were kind of at a below one level with respect to the inventory index.
Okay. I'm going to stick to one question that's a main issue for me. Thank you and best of luck. Thanks Scott. Good to hear from you.
Your next question comes from a line of Steve Tusa from JP Morgan. Your line is open.
Hey guys, good morning.
Hey, good morning Steve So just looking at the guide, I think you guys have like 60 cents or something like that of tailwinds.
You know, off of the 340 base kind of gets you just above four bucks. The low end of the range at 350 just seems like, you know, what's embedded in the low end of that 350 range? I feel like the math gets us to something a little bit higher, at least at the low end.
Yeah, so the low end on both the top and bottom line really assumes not much improvement coming out of Q1. So a little bit mainly driven by seasonality, but not a lot of recovery in the end markets that we had spoke about. So, you know, it is more on that pessimistic side. We believe a lot of the indicators that we're seeing in the conversations that we're having with our customers would suggest that wouldn't come to fruition, but we wanted to bucket it on the low end just to be.
cautious. Yeah, I mean, Steve, it would be more a global recession scenario, so we're just bracketing it, but I would point you to the midpoint of our guidance is where, you know, we're obviously trying to zero in at.
Yeah, that's where we are anyway. I saw some news on unemployment.
Contract I got a lot going on this morning, but can you just maybe give us a little color there for you? Yes, I had a contract in place. I think it was a three-year contract that ends at the end of this 2023 Calendar year and a question I get pretty frequently from investors Is that your retirement date because that's when your contract expires so the board and I wanted to take that off the table I'm going to continue
employment after the end of the year and I don't need a contract anymore because some of the stipulations were back in it from the Dow Dupont days and so you know I'm just and that will employee but excited to continue after the end of the year.
Okay, great. Thanks a lot, guys. Thanks, Dean.
Your next question comes from a line of Vincent Andrews from Morgan Stanley . Your line is open.
Thank you and good morning everyone. You guys had really strong pricing in 2022, obviously, to get after that $800 million of inflation. How do we think about that price-cost relationship in 23? Presumably, there'll be parts of your business that will hopefully see some deflation.
and then maybe wages and stuff are still a headwind, but how should we be thinking about carryover pricing into 23 and how you'll manage pricing where you might see some deflation?
Yeah, so we haven't seen any positive impact yet in our numbers, but I would expect on the logistics.
and freight side, maybe we'll start to see something towards the end of the second quarter there. We've baked very little into our 2023 business plan for any benefit from price cost. A little bit is in the second half of the year, but not much. When we start to see it, we'll highlight it obviously and, you know, look at our forecast again.
increases that we drove happened in Q1 of last year, so you'll pretty well lap that in the first quarter.
Okay, and then Laurie just to follow up, do you have a sort of rough guide for free casual conversion for 23? I mean, it's very clear there was a lot of moving parts and noise in the 22 number, but how are you thinking about 23 at this point?
Yeah, obviously 2022, as you had mentioned, was noisy with the transaction cost coupled also with the supply chain environment that caused us to hold more inventory than what we normally would. So we don't see that repeating, obviously, on the transaction cut side from that perspective and the working capital situation should get better. So we should target to be at that 90% conversion rate.
the Delrin divestiture. Okay. And we did start to bring in, we did start to bring inventory down in the fourth quarter. So, you know, we're going to start hopefully trending here now that supply chains are kind of.
moving back to sort of normal. Okay, great. Good news. Thank you.
sort of normal. Okay, great. Good news. Thank you. Thanks.
Your next question comes from a line of Christopher Parkinson from Mizuho. Your line is open.
Great, thank you so much.
You posted pretty solid results, water protection, specifically in water and safety. Can you just go over some of the guide framework you hit on a lot on ENI? Can you hit on some of the guide framework as it pertains to W&P and just speak about kind of what's driving that and as well as the sustainability as we think throughout 23 and even into 24? Thank you so much. Thank you!
Yes, from an organic basis, we'll continue to see strength within water. So we had really nice performance in the water segment in general in 2022 with organic sales up kind of high single digits and we would expect similar performance this year.
The one end market that will be weak for us, as Ed had mentioned, is shelter. So in the first quarter, we do see shelter down kind of in the mid-teens. That will moderate as you go through the year down into the mid-single digits, potentially on a full-year basis, but we don't see a full recovery in shelter within the 2023 timeframe.
And then generally in safety, those are industrial and market for the most part. Minus maybe a little bit of desocking that's happening, some of the big, big distributors that should generally perform in line with industrial production on a whole year basis.
Yeah, and on the shelter side, remember there is seasonality in that business. So the first quarter is usually the lowest. So we've planned kind of a recession scenario for construction throughout the whole year, but then you will get some seasonality lift as you're in the middle of the year, just naturally off of a tougher bottom. Got it. That's very helpful.
You know, you also hit on some, you know, remarks regarding just the Delrin timing and just how do we think about that. Do you have anything else that you'd be comfortable adding at this time in terms of just the process, where you stand, your confidence level versus a few quarters ago? That would be very helpful. Thank you so much.
Yeah, so you know we've done all the clean room work, that's all set. We've been doing some education on the business externally. If I had to kind of guess at this point, I think we're going to launch.
but more formally at the end of this quarter that we're now in. We think the markets are better than they were in the fourth quarter. There's probably strategic and private equity interests, so that's why we were being careful on the timing. And so my gutters will launch around then and the business looks like.
know, we should be able to close that obviously in 2023.
with that obviously in 2023. Very helpful. Thank you so much.
Your next question comes from a line of Mike we have from Barclays. Your line is open.
Great. Thank you. Good morning.
First, I just wanted to go back and talk about the expected cadence for full year earnings. It sounds like, reading between the lines, you're indicating late in two queues, things start to pick up, inflecting in electronics and some input deflation. So, should we model a pickup really starting in the second quarter or does the recovery begin more notably in the third quarter in your view?
You'll get some lift in the second quarter and I would say predominantly because of China coming back kind of online if I say it that way. So I would model, you know, we've given you the first quarter, I would model some sequential improvement.
but the bulk of it would be the third and fourth quarter. And again, it lays out, we think the middle of the second quarter, the ICS business start, the fabs start ramping up. So most of that benefit you'll see third and fourth quarter, a little bit in the second quarter. And then we don't, we're not planning on semi picking up until the third quarter. Maybe it'll happen in the middle of the second quarter.
to maybe an arm midpoint that we've guided to for the year.
Great, that's super helpful. And then quickly just a second question, just on M&A, we've seen a few transactions start to pick up a bit as of late. Can you just talk about what you're seeing from the potential acquisition, says?
Yeah, we're looking at a couple things we've been interested in at my height.
My gut is we will do a bolt-on acquisition this year, but that's not a given. We're in no rush. We want to get it at the right price, so we'll see, but we're definitely looking and zeroed in on a couple things, but I put them more in the bolt-on.
size from a spend category and it would clearly be in one of our growth pillars where we have the expertise and what we really want to do is pick up innovation in R&D and technologies in core areas to build out a couple of the platforms.
Great, thank you. Yep, thank you. Your next question comes from the line of Alexey Yefremov from KeyBank Capital Markets. Your line is open. Thank you, good morning everyone. In E&I you're discussing several new products launched in both Interconnect and the CIO.
semiconductor technologies. So wonder how are your customers looking at adoption of new technologies? Things like, you know, new notes for your FAP customers. Is it getting pushed out or is policy interaction on that?
No, I mean the interactions still remain very robust and they're a key portion of our out-delivery of top-line growth, especially within CEMI. So we would still expect that 200 to 300 basis point out performance versus the end markets. And the discussions are still very frequent and common for us to be able to continue to drive that relationship.
Yeah, I mean, and let's keep in mind that when the semi thing picks up for the second half of the year on, the next decade looks pretty incredible for the semi business. You see all the announcements on the fabs. Almost all of these fabs are the denser, smaller, high end chips. And that's why we, as Laurie just mentioned, we get the two to 300 basis points.
overgrowth from the market is because we get to participate more and more on the advanced node side. So, you know, we're going to have a couple of softer quarters here, but the outlook over the next decade is pretty incredible in this space. So, we stay very much up on the R&D and we're very close to the top.
semiconductor customers doing design and work with them. Thanks a lot. Yep. Your next question comes from the line of Josh Spector from UBS. Your line is open. Yeah, thanks for taking my question. Just your guidance doesn't appear to really factor in any further buybacks beyond the ASR you have on.
So our, you know, our guidance that we provided for EPS has a reduction in the full year versus the first quarter outlook and that reflects getting started on that second tranche of $2 billion that we have remaining on the authorization. But we also have the ability to still purchase over the top on the existing ASR should we feel it prudent. So we have some volume that we can purchase.
As needed, while the current ASR is open, generally try to keep your volume under 15% of daily purchases so that you don't work against yourself and our current contracts on the ASR allow us to do a little bit over the top.
Josh, as a reminder, page 16 of our slide deck has some additional modeling guidance, including share count, but don't miss the fact that we took quite a few shares out in the fourth quarter associated with the ASR that was enacted in mid-November. So you may have been missing that effect in the fourth quarter.
then the guide for 23 on the year-over-year. No, got it, I appreciate that. And just, Ed, I guess to follow up on, you know, the contract you have in place to keep going beyond this year, I guess it's become a bigger question for investors around long-term transition planning. So I guess where would you say you and the board are in terms of thinking about kind of the next step for DuPont? You know, maybe it's multiple years out, but...
where are we in that process? Yeah, the board is well aware of internal candidates being developed and
go through their career. So the board is clearly aware of who internally is an option for the next CEO role, but we're also not at that point, but we do discuss it regularly in the development plans for the internal candidates. So I'll just leave it at that.
Okay, thank you. Thanks John . Your next question comes from the line of John Roberts from Credit Suisse. Your line is open.
Thank you. You didn't mention the US China trade technology restrictions, including the new Huawei controls. Is that an immaterial issue for DuPont? Yeah, it's 50, it's on the reason we didn't, I know we mentioned it last quarter, but it's about 50 to 60 million.
revenues. So it's not that significant though, but we did bake that obviously into our forecasting that we did. And so you know whether you can take that as you know you can extract that down to EBITDA, it's not not that big in the scheme of things, but that's definitely in place, yes.
Yeah, and that's on the same side on the direct Huawei exposure. There's really not much there. So we don't have exposure there. Right, that 50 to 60 is semi. Yeah.
And remind us when the first PFAS trial is scheduled in any update on the negotiations there. Yeah, John , it's scheduled in June of this year and we have ongoing conversations for a settlement. By the way, I think having a...
the judge appointed a mediator. I think that was around the time we did last earnings call, if I remember. And I would say that's very helpful to the process. So I'll leave it there.
Thank you. Yep. Your next question comes from the line of a room Viswanatham from RBC Capital Markets. Your line is open. Thanks for taking my question. Just kind of understanding kind of the back half cadence what you'll be exiting the year on. So if you think about the guidance you offered, does it look like maybe the back half is?
You can leverage. Thanks. Yeah, so you're pretty well spot on on the second half EPS trajectory. And it really is all impingent upon the pace of the recovery and the M-marks and markets that we highlighted. So seeing the semi-D sock in the demand return.
seeing the smartphone and consumer electronic D-stock stop and the demand return. And then obviously, the continued China reopening will have a positive impact on our business. So, you know, that impacted us in December , and it will impact us on Q1 as they continue their reopening. But remember, we've got 20% of our sales into China. So a nice opportunity as they continue to recover from the full COVID lockdown.
So it's really the shift between the first half and the second half is really all from the top line and the expected recovery. Yeah, and you do get, Chris, you do get a nice lift in margins and it benefits from mix in part. I mean as E&I comes back, you know, remember you've got a nice margin lift. So you're...
You're kind of in the mid 24s on a margin in the first half and then you're up in the low to mid 25s in the second half. Again, benefiting from that mix and the timing of that E&I rebound from first half to second half. You end up averaging the overall margins for the year end up being relatively flat, but there's a nice lift on a run rate basis when you're in the second half there.
And just as a follow up then, if you look at 24, you will be facing easier comms, especially in the first half in E&I. We returned kind of to a double digit EPS growth rate in 24. You know, again, would you be inclined to increase the repurchase activity to reach that level or it's needed? Thanks.
I mean, I think it's a little early start looking at 24. Obviously, this year we've got nice EPS growth from the capital allocation decisions that we've made and we'll see that carry into 2024 as well because the second half, the second piece of the existing authorization really won't be put in place until the fourth quarter. So you won't get the full benefit on a full year basis from that. But
Yeah, in a normal environment, we should drive really nice top and bottom line growth. We've got end markets that would suggest in total you would be in that mid single digit range on the top line if they perform.
in a normal macro perspective. And then I think we've proven that we do a really nice job of driving margin improvement and leverage across the P&L. So we wouldn't see any material change there from that dynamic.
macro perspective and I think we've proven that we do a really nice job of driving margin improvement and leverage across the P&L so we wouldn't see any material change there from that dynamic.
Your next question comes from a line of John McNulty from BMO Capital Markets. Your line is open. Hi, good morning, Ed and team. This is Pavel Sardaya for John . Thank you.
In your guide, you have a cautious outlook on the construction and market pretty much throughout the year. Is there a way to quantify what the year we are, even our impact is from the downturn? And then I realized it's early, but when do you expect to get more clarity on on a potential trajectory of recovery there? Yeah, so for the shelter segment.
back into what we believe the EBITDA headwind will be to W&P and the total company from shelter in 2023.
Then in highlighted cost can yeah sorry please.
Can you highlight it cost and yeah sorry please. No go ahead.
You highlighted cost control measures initiated during the fourth quarter and those clearly helped from the margin perspective. Is there a way to quantify the benefits and do you need to do more of these in 2023 or maybe what's built into your guide around these? Yes, so we took cost out in the fourth quarter.
to drive productivity. So we've got further room under the research room program if we would need it to be able to continue to drive margin and the decriminal margin that we target. As of now, there's nothing planned or baked into the guiding incrementally, but we have the flexibility if we need to.
Go ahead, thank you. Your next question comes from Lyne of Mike Ciccim from Wells Fargo. Your line is open. Hey, good morning guys. Nice end of the year. In terms of your outlook for construction, are you hearing from your customers now that
actually reported numbers that were kind of nicely better than were expected with decent backlog actually. So I think it's mixed out there. I think certain regions of the country, if you look at the detail, are doing better in construction, some of the southeast and southwest areas. But...
Having said that, you know, again, we're also in a deleveraging mode here right now and remember some of our Construction materials go into big box reach, you know for do-it-yourself stuff and there is clearly D stocking going on there so that part of it will end but you know, we're in a deleveraging mode here right now and there is clearly D stocking going on there.
We've just planned with interest rates where they are at the macro on, you know, the shelter business right now. Just assume the whole year stays at about the level it's at. And, you know, Laurie mentioned the percentages. So I think it's just prudent planning on our part. Right. And then for E&I, the geographical districts come in every year, and then that will go back. E&I is always one little box. So anyone in the crowd in our area, whether they might have to go home and don't want to live their life or had two children and
It does seem like you need some volume growth in the second half to hit the midpoint. How much of that is from new products and some of your innovation that you've done and maybe wins on new nodes and memory?
Well, let me just give you, overall, our new products that have been launched in the last few years are like 30% of our sales. So we track that very, very closely. We're constantly bringing out new versions, I would say, of our technology.
you know, all the time. And that's what keeps us ahead of the pack on, for instance, the advanced nodes in semi on As I so it's constantly happened. But I wouldn't say that it's not going to have a material effect on where our revenue ends up. That's just a month by month. That happens. Yeah, I think back to the app performance that we highlight. So currently the full year.
are down mid-simo-vigit MSI number would be to be down low single digits. So we would still expect that out performance, that out performance by the innovation engine that we have that allows us to be able to be more exposed for the high end nodes and continuing to build relationships with those customers. And that again, that low mid-single digits for MSI is very negative in the first quarter and builds during the year and gets positive.
sure you think about incremental margins in the back half of the year?
Yeah, we would expect in the back half of the year the overall EBITDA margins to be more in that 31-ish percent range that we would expect from the E&I perspective. So they will be a little bit muted in the first half and we would expect a return from the EBITDA margin profile in the second half. So why does that imply for incrementals in the back half of the year?
Yeah, we would expect in the back half of the year the overall evid amargins to be more in that 31-ish percent range that we would expect from the E and I perspective. So they will be a little bit muted in the first half and we would expect a return from the evid amargin profile in the second half. So was the employer for incremental in the back half of the year? Are there any other materiities or higher?
The little higher, yeah, mid 30s, maybe upper 30s, incremental margins. They shouldn't be too different than the, you know, obviously the gross margin you would see within the E and I think. Understood. And just in WMP, what drives earnings higher in 23?
I mean, I think if you see a little bit of deflation that would drive earnings higher, we had mentioned in 2022 and the current expectation for 2023 is there is about 100 basis point headwind from net price cost. We haven't baked any material benefit in from that perspective, so that would be one tailwind that would help to drive the EBITDA margins higher.
Frank Mitch from Firmium Research. Your line is open. Thank you so much for squeezing me in under the wire. I appreciate the granularity on China, your expectation that you're gonna see it pick up by the mid second quarter. Just curious, what are you seeing here real time post Chinese New Year in turn of economic activity there? Yeah, I mean, obviously we can see January's also a little hard to see through given the timing of Lunar New Year. So they should...
but definitely the lockdown appears to be well behind them and they're turning to some form and normalcy. Very helpful. If I could stick to the geographic theme, your volume declines and Europe moderated from the third quarter here in the fourth quarter, so I'm just curious toruk vacuum murderer, where it's just though.
What are you seeing on the ground in that part of the world and what are your expectations are for 23 over in Europe ? Yeah, so Europe does feel a little bit better as they get the concerns around the access to energy behind them. And obviously the energy rates are our tailwind for everybody. So you've seen it really material pullback in the European natural gas.
in Europe fairly significant.
Got you. Thank you. Mm-hmm. And this ends our question and answer session. Mr. Chris McCray, I turn the call back over to you for some final closing comments. Yeah, thanks, thanks everybody for joining our call. We appreciate your participation and for your reference, our transcript will be posted on our website. This does conclude our call. Thank you. This concludes today's conference call. Thank you for your participation. Thank you.
You may now disconnect.