Q4 2023 DuPont De Nemours Inc Earnings Call
Operator: Good morning, and welcome to the DuPont fourth quarter 2023 earnings call. Please note that this call is being recorded. All participants are now in listen-only mode.
Good morning, and welcome to the Dupont fourth quarter 'twenty twenty-three earnings call. Please.
Please note that this call is being recorded all participants are now in listen only mode. After the Speakers' remarks, there will be a question and answer session.
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Operator: Thank you. I will now turn the call over to Chris McRae. You may begin your conference. Good morning, and thank you for joining us for DuPont's fourth quarter and full year 2023 financial results conference call. 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'll 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 or results may differ materially from our forward-looking statements. Our Form 10-K, as updated by our current and periodic reports, includes a detailed discussion of principal risks and uncertainties which may cause such differences.
Speaker Change: Thank you.
Speaker Change: I will now turn the call over to Chris Mcrae, you May begin your conference.
Chris McRae: Good morning, and thank you for joining us for Dupont's fourth quarter and full year 2023 financial results Conference call. Joining me today are Ed Breen, Chief Executive Officer, and Lori Koch Chief Financial Officer, we have prepared slides to supplement our remarks, which are posted on dupont's website under the Investor Relations tab.
Chris McRae: Webcast like please read the forward looking statement disclaimer contained in the slides during this call we'll 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 or results may differ materially from our forward looking statements our Form 10-K as updated by.
Chris McRae: Our current and periodic reports includes detailed discussion of principal risks and uncertainties, which may cause such differences unless otherwise specified all historical financial measures presented today are on a continuing operations basis and exclude significant items.
Chris McRae: Unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items. We'll also refer to other non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials, which have been posted on DuPont's Investor Relations website. I'll now turn the call over to Ed.
Chris McRae: Well I'll start for to other non-GAAP measures a reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials have been posted to pods Investor Relations website.
Speaker Change: I'll now turn the call over that.
Edward D. Breen: Good morning, and thank you for joining us for our fourth quarter and full year 2023 financial review. This morning's earnings release is consistent with the preliminary results announced on January 24th. And we have added our customary segment detail and in-market color while also providing incremental detail on our 2024 financial forecast. Broadly, we continue to see encouraging stabilization within electronics markets. Our semiconductor technologies business reported sequential sales growth of two percent in the fourth quarter, as expected, as the first sign of getting past the bottom in chip production.
Speaker Change: Good morning, and thank you for joining our fourth quarter and full year 2023 financial review. This morning's earnings release is consistent with the preliminary results announced on January 24th.
Speaker Change: We have added our customary segment detail and end market color.
Speaker Change: So providing incremental detail on our 2024 financial forecast.
Speaker Change: Broadly we continue to see encouraging stabilization within electronics markets, our semiconductor technologies business reported sequential sales growth of 2% in the fourth quarter as expected.
Speaker Change: The first sign of getting past the bottom of chip production.
Edward D. Breen: In InterConnect Solutions, we saw a return to year-over-year volume growth with volumes up 2% versus the prior year after sales bottomed earlier in 2023. However, as we finish 2023, we did see additional channel inventory destocking within many of our industrial-based businesses, as well as continued weak demand in China with incremental weakness in our China water business. This resulted in fourth quarter net sales, which declined 7% year over year, falling below our guidance expectation.
Speaker Change: In interconnect solutions, we saw a return to year over year volume growth with volumes up 2% versus the prior year if their sales bottomed earlier in 2023.
Speaker Change: However, as we finished 2023, we did see additional channel inventory destocking within many of our industrial based businesses as well as continued weak demand in China with incremental weakness in our China water business.
Speaker Change: This resulted in fourth quarter, net sales, which declined 7% year over year falling below our guidance expectations.
Edward D. Breen: We have already noted that we see a continuation of similar volume trends into the first quarter, and I will come back to this, but we are encouraged that we see signs of market stabilization, Spotting me of customer inventory, and a pickup in orders in the month of January that support a view of recovering sales and earnings through 2024. Fourth quarter operating EBITDA of $715 million was down 6% year-over-year, reflecting continued pressure across many of our largely short-cycle businesses. We remain very focused on managing what we can control, including discretionary spending levers and also executing the restructuring actions announced last November.
Speaker Change: We have already noted that we see a continuation of similar volume trends into the first quarter and I will come back to this but we are encouraged that we see signs of market stabilization.
Speaker Change: You mean of customer inventories.
Speaker Change: And the pickup in orders in the month of January that support a view of recovering sales and earnings through 2024.
Speaker Change: Fourth quarter operating EBITDA was $715 million was down 6% year over year.
Speaker Change: Reflecting continued pressure across many of our largely short cycle businesses.
Speaker Change: We remain very focused on managing what we can control.
Speaker Change: <unk> discretionary spending levers and also executing the restructuring actions announced last November.
Edward D. Breen: This focus helped to contain margin impact in the period despite a 9% drop in volume. Looking into 2024, we continue to target annualized cost savings of $150 million, which we will begin to realize later in the first quarter and which should further bolster our go-forward margin profile. I am pleased we finished the year with strong cash generation as we continue to prioritize working capital improvement and discipline following the inventory build seen during the Supply Challenge 2022 period. For the full year, adjusted free cash flow was $1.6 billion, with conversion at 100% versus our target of greater than 90%.
Speaker Change: This focus helped to contain margin impact in the period, despite a 9% drop in volume.
Speaker Change: Looking into 2024, we continue to target annualized cost savings of $150 million.
Speaker Change: We will begin to realize later in the first quarter and which should further bolster our go forward margin profile.
Speaker Change: I am pleased that we finished the year with strong cash generation as we continue to prioritize working capital improvement.
Speaker Change: And disciplined following the inventory build seen during the supply challenge 2022 period.
Speaker Change: For the full year adjusted free cash flow was $1 6 billion with.
Speaker Change: With conversion at 100% versus our target of greater than 90%.
Edward D. Breen: This included fourth quarter adjusted free cash flow of $501 million, which represented a 133% conversion. Adjusted EPS for the year of $3.48 per share increased over last year as benefits from our ongoing capital allocation and share repurchases more than offset the substantial volume. Turning to slide four, we continue to execute on our capital allocation priority. First, this morning, we announced that we completed the $2 billion accelerated share repurchase transaction launched last September. At the conclusion of the ASR transaction, we retired an additional 6.7 million shares with the true option, bringing the total to 27.9 million shares retired under the $2 billion ASR. Completion of this ASR wraps up the $5 billion program that we announced in November 2022, enabling the repurchase of approximately 15% of our outstanding shares over this time period. We also announced that our board approved a new one billion share repurchase program, and we intend to launch a new 500 million ASR transaction imminently. We expect to complete the full one billion program by the end of this year.
Speaker Change: This included fourth quarter, adjusted free cash flow of $501 million.
Speaker Change: Which represented 133% conversion.
Speaker Change: Adjusted EPS for the year of $3 48 per share increased over last year as benefits from our ongoing capital allocation and share repurchases more than offset substantial volume decrements.
Speaker Change: Turning to slide four we continue to execute on our capital allocation priorities.
Speaker Change: First this morning, we announced that we completed the $2 billion accelerated share repurchase transaction launched last September.
Speaker Change: The conclusion of the ASR transaction.
Speaker Change: We retired an additional $6 7 million shares with the true up.
Speaker Change: Bringing the total to 27 9 million shares retired.
Speaker Change: Under the $2 billion ASR.
Speaker Change: Completion of this ASR wraps up to $5 billion program that we announced in November 2022.
Speaker Change: Enabling the repurchase of approximately 15%.
Speaker Change: Of our outstanding shares over this time period.
Speaker Change: We also announced that our board approved a new $1 billion share repurchase program.
Speaker Change: And we intend to launch a new $500 million ASR transaction imminently.
Speaker Change: We expect to complete the full $1 billion program by the end of this year.
Speaker Change: Finally today, we also announced an increase in our quarterly dividend to <unk> 38 per share.
Edward D. Breen: Finally, today, we also announced an increase in our quarterly dividend to $0.38 per share, or a 6% increase. We will continue to target a dividend payout ratio of 35 to 45 percent over time and expect to increase our dividend annually in line with earnings growth. We exited 2023 in a favorable balance sheet and liquidity position with an adjusted net leverage ratio of 2.1 times and with no long-term bond maturities due until November of 2025. We also repaid $300 million in debt due during the fourth quarter with cash from hand.
Speaker Change: A 6% increase we.
Speaker Change: We will continue to target a dividend payout ratio of 35% to 45% over time and expect to increase our dividend annually in line with earnings growth.
Speaker Change: We exited 2023, and a favorable balance sheet and liquidity position with an adjusted net leverage ratio of two one times and.
Speaker Change: And with no long term bond maturities due until November of 2025.
Speaker Change: We also repaid $300 million of debt due during the fourth quarter with cash on hand.
Edward D. Breen: Finally, we also continue to invest in innovation and our Operational Excellence Program to support long-term organic growth. In 2024, we expect capital spending at about 5% of sales and target R&D spend at about 4% of sales for total DuPont. Regarding our innovation and growth pipeline, we were pleased during the fourth quarter with our electronics portfolio to be selected by a leading US OEM for our Microfil metallization product, which offers improved plating uniformity for advanced computing. In water, our team significantly advanced the commercialization of oxymembrane products for wastewater biological treatment.
Speaker Change: Finally, we also continue to invest in innovation and our operational excellence program to support long term organic growth in 2024.
Speaker Change: Expect capital spending at about 5% of sales.
Speaker Change: Target R&D spend at about 4% of sales for total Dupont.
Speaker Change: Regarding our innovation and growth pipeline.
Speaker Change: We were pleased during the fourth quarter with our electronics portfolio to be selected by a leading U S. OEM for our microfilm metallization product, which offers improved plating uniformity for advanced computing.
Speaker Change: In water our team significantly advanced commercialization of the oxy membrane products for wastewater biological treatment.
Speaker Change: Within industrial are calibrated business opened a new facility in Delaware to support growth for its global semiconductor products.
Edward D. Breen: Within industrial, our CalRes business opened a new facility in Delaware to support growth for its global semiconductor product. And finally, within adhesives, we launched a new structural epoxy adhesive specific for larger-scale energy storage systems. Before I turn it over to Lori, let's review our expected demand outlook by business based on active conversations that we have had with customers recently. For electronics, our ICS business serving printed circuit boards already bottomed in mid-2023 and continues to gradually recover alongside the global electronics domain. We expect utilization for our customers in this area to increase this year into the 60s on a percentage basis from the mid-50s in the first quarter. The Semiconductor Industry Forecast for Chip Production, which were pushed out several times in 2023 are signaling a firmer 2024 recovery. And our outlook assumes chip fab utilization increasing through the year to exit at a run rate around the low 80s on a percentage basis from the low 70s in This inflection also includes stabilization for in-market consumption in the smartphone, PC, and tablet markets.
Speaker Change: And finally within adhesives, we launched a new structural oxy adhesive specific for larger scale energy storage system.
Speaker Change: Before I turn it over to Laurie, Let's review, our expected demand outlook by business based on active conversations that we've had with customers recently.
Speaker Change: For electronics, our Ics business, serving printed circuit boards already bottomed in mid 2023.
Speaker Change: And continues to gradually recover alongside global electronics demand.
Speaker Change: We expect utilization for our customers in this area to increase this year into the <unk> on a percentage basis from the mid fifties in the first quarter.
Speaker Change: For semiconductor industry forecast for chip production.
Speaker Change: Were pushed out several times in 2023 are signaling a firmer 2020 for recovery and.
Speaker Change: Our outlook assumes chip fab utilization, increasing through the year to exit at a run rate around the low eighty's on a percentage basis from the low seventies and the first quarter.
Speaker Change: This inflection also includes stabilization for end market consumption and smartphone PC and tablet markets driven in part by replacement demand as well as improved data center demand.
Edward D. Breen: Driven in part by replacement demand, as well as improved data center demand, bolstered by AI-driven growth, these trends bode well for DuPont's strength within electronics materials, and our customers are pointing to improved volume in both SEMI and ICS during 2024. Within our industrial-based businesses, while inventory destocking impacts have continued into the first quarter, customer feedback indicates a positive order inflection as the year progresses. Let's review specific end markets.
Speaker Change: Bolstered by AI driven growth.
Speaker Change: These trends bode well for dupont's strengths within electronics materials, and our customers are pointing to improved volume in both semi nics during 2024.
Within our industrial based businesses, while inventory destocking impacts have continued into the first quarter customer feedback indicates a positive order inflection as the year progresses.
Speaker Change: Let's review specific end markets.
Edward D. Breen: First shelter, which saw a notable destock in 2023, now sits with inventory back to normal levels, and we expect a slight positive volume compare in 2024, beginning in the first quarter. In safety, we believe our customer's inventory is also close to normal at this point for Tyvek medical packaging, and we expect sales to recover during the second and into the third quarter. In addition, we expect a reduced de-stock impact within safety solutions across a couple of industrial end markets in the second half of the year. In water, we have communicated with our distributor customers in China, and we expect a sequential pickup in sales towards the end of the second quarter. Distributor inventories declined substantially from the peak last year.
Speaker Change: Our shelter, which saw notable destock in 2023 now sits with inventory back to normal levels and we expect a slight positive volume compare in 2024, beginning in the first quarter.
Speaker Change: And safety, we believe our customers inventory is also close to normal at this point for tieback medical packaging and we expect sales to recover during the second and into the third quarter.
Further we expect to reduce destock impact within safety solutions across a couple of industrial end markets in the second half.
Speaker Change: In water, we have communicated with our distributor customers in China, and we expect a sequential pickup in sales towards the end of the second quarter.
Speaker Change: Distributor inventories have declined substantially.
Speaker Change: The peak last year.
Edward D. Breen: Finally, I would mention that we expect to see order improvement over the next several quarters in our CalRES business with industrial solutions, and Livio, by form of business, is anticipated to recover later in the second half. So we have firm signals from a wide range of businesses within the DuPont portfolio that support a sales bottom in early 2024. This is reflected in stronger orders during the month of January after continued weakness in December. To wrap up, we remain confident that our key end markets are well positioned for long-term growth.
Speaker Change: Finally, I would mention that we expect to see order improvement over the next several quarters in our <unk> business with industrial solutions.
Speaker Change: Our Livio Biopharma business.
Speaker Change: It is anticipated to recover later in the second half.
Speaker Change: So we are firm signals from a wide range of businesses within the Dupont portfolio that support our sales bottom in early 2024.
This is reflected in stronger orders during the month of January after continued weakness in December.
Speaker Change: To wrap up we remain confident that our key end markets are well positioned for long term growth and our teams are extremely focused on operating discipline and site level execution, which positions us well to accelerate growth as inventories normalized.
Lori Koch: And our teams are extremely focused on operating discipline and site-level execution, which positions us well to accelerate growth as inventories normalize. With that, I'll turn it over to Lori to cover the financial results and outlook in detail. Thanks, Ed, and good morning.
Speaker Change: With that I'll turn it over to Laurie to cover the financial results and outlook in detail.
Laurie: Thanks, Pat and good morning, our financial results in 2023, but clearly impacted by significant destocking and demand pressure in China.
Lori Koch: Our financial results in 2023 were clearly impacted by significant de-stocking and demand pressure in China, but our focus has remained on sound operational execution across the business. I'm very pleased that our team's effort to drive productivity and operational excellence clearly minimized sacramental margins and helped drive substantial cash flow improvements. In 2024, our continued proactive approach to managing the business will yield impactful cost reduction beginning later in the first quarter and building from there from the restructuring actions announced last November. We anticipate yielding at least two-thirds of the total $150 million in restructuring benefits in 2024, with the balance realized next year. Like Ed, I'm also encouraged by the expected trajectory of demand and volume based on direct customer feedback and data supporting the bottoming of channel inventory in key end markets.
Laurie: Our focus has remained on sound operational execution across the business.
I'm very pleased that our team's effort to drive productivity and operational excellence, clearly minimize Sacramento margins and help drive substantial cash balance.
Laurie: And 2024, our continued proactive approach to managing the business through yield impactful cost reduction beginning later in the first quarter and building from bear from the restructuring actions announced last November.
Laurie: We anticipate adding at least two thirds of the total $150 million and restructuring benefits during 2024 with the balance realized next year.
Laurie: I'm also encouraged by the expected trajectory of demand and volume based on direct customer feedback and data supporting the bottoming of channel inventory in key end markets.
Our current forecast assumes a bottom for total company sales and earnings in the first quarter.
Lori Koch: Our current forecast assumes a bottom for total company sales and earnings in the first quarter, followed by a steady recovery as the year progresses, with a return to year-over-year growth in the second half. I'll come back to the outlook later, but first, I'll cover our results. Regarding our fourth quarter financial highlights on slide 5, net sales of $2.9 billion decreased 7% versus the year-ago period as a 10% organic sales decline was partially offset by a 3% portfolio benefit due primarily to the Spectrum acquisition. The organic sales decline reflects a 9% decrease in volume and a 1% decrease in price.
Laurie: Led by steady recovery as the year progresses with the rich R&D year over year growth second.
Sure.
Speaker Change: I'll come back to the outlook later, but first I'll cover our results.
Speaker Change: Regarding our fourth quarter financial highlights on slide five net sales of $2 9 billion decreased 7% versus the year ago period, as a 10% organic sales decline was partially offset by a 3% portfolio benefit due primarily to the spectrum acquisition.
Speaker Change: The organic sales decline reflects a 9% decrease in volume and a 1% decrease in price.
Lori Koch: Lower volume included the impact of channel inventory to stocking within W&P's safety solutions line of business, most notably for Tyvek medical packages. We also saw an accelerated volume decline within water solutions in China, driven primarily by distributor de-stocking and weaker demand. On a segment view, W&P and E&I organic sales declined 15% and 7%, respectively, while organic sales in corporate declined 4%. From a regional perspective, DuPont sales decreased on an organic basis globally versus a year ago period, with North America, Asia Pacific, and Europe down 13%, 11%, and 9%, respectively. China sales were down 14% versus the prior year.
Speaker Change: Lower volume included the impact of channel inventory de stocking within WP safety solutions line of business.
Speaker Change: Notably for Tieback medical packaging.
Speaker Change: Also accelerated volume decline within wider solutions in China, driven primarily by distributor destocking and weaker demand.
Speaker Change: On a segment view wip and Eni organic sales declined 15% and 7% respectively.
Speaker Change: Organic sales incorporate declined 4%.
Speaker Change: From a regional perspective, Dupont sales decrease on an organic basis globally versus the year ago period, with North America, Asia Pacific and Europe down, 13%, 11% and 9% respectively.
Speaker Change: Sales were down 14% versus the prior year.
Lori Koch: Fourth quarter operating EBITDA of $715 million decreased 6% versus the year-ago period, as volume declines and the impact of reduced production rates to better align inventory with demand were partially offset by lower input costs, discrete items, which benefited earnings by about $40 million, and spectrum earnings contributions. About $25 million of the discrete item benefits were reported within the W&P segment, reflecting a land sale and other credits, with the remainder reflected in corporate. Operating EBITDA margin during the quarter of 24.7% increased 30 basis points versus the year-ago period. In the fourth quarter, driven by continued challenging construction market conditions coupled with ongoing channel inventory destocking, we recorded a non-cash goodwill impairment charge of about $800 million. The charge relates to our Protection Reporting Unit, which consists of the Shelter and Safety Solutions lines of business within W&P and is excluded from our adjusted operating results.
Speaker Change: Fourth quarter operating EBITDA of $715 million decreased 6% versus the year ago period, as volume declines and the impact of reduced production rate to better align inventory with demand, partially offset by lower input costs discrete items, which benefited earnings by about $40 million.
Speaker Change: <unk> earnings contribution.
Speaker Change: About $25 million of the discrete item benefit are reported within the W. P segment, reflecting our landfill and other credits with the remainder reflected incorporate.
Speaker Change: Operating EBITDA margin during the quarter at 24, 7% increased 30 basis points versus the year ago period.
Speaker Change: In the fourth quarter, driven by continued challenging construction market conditions, coupled with ongoing channel inventory destocking.
Speaker Change: The noncash goodwill impairment charge of about $800 million.
Speaker Change: Charge relates to our protection reporting unit, which consists of the shelter in safety solutions lines of business with him Wip and is excluded from our adjusted operating results.
Lori Koch: As a reminder, the carrying value of the legacy DuPont assets and liabilities was marked as fair value, and significant goodwill and intangible balances were recorded in connection with the Dow DuPont merger. Despite the write-down, we maintain long-term confidence in the protection brand offering, and our market-leading positions remain strong. We continue to invest in and expand our application development expertise in these markets, and we have taken actions to improve our cost structure to enhance our competitiveness on these stock exchanges. Regarding cash flow, we are very pleased with our continued cash flow improvement as we worked hard in 2023 to optimize working capital performance and especially to right-size our inventory levels following the supply chain disruptions of 2022. On a continuing operations basis, cash flow from operations of $646 million plus capital expenditures of $145 million resulted in adjusted free cash flow of $501 million in the fourth quarter, a significant increase versus $188 million in the year-ago period. Adjusted free cash flow conversion during the quarter was 133%, significantly ahead of last year.
Speaker Change: As a reminder, the carrying value of the legacy Dupont assets and liabilities Mark to fair value and significant goodwill and intangible balances are recorded in connection with the Dow Dupont merger.
Despite the write down we maintain long term confidence in the protection brand offerings and our market leading position remained strong.
Speaker Change: We continue to invest in and expand our application development expertise and deep market and we have taken actions to improve our cost structure to enhance our competitive with destocking.
Speaker Change: Regarding cash flow, we are very pleased with our continued cash flow improvement as we worked hard in 2023 to optimize working capital performance and especially to right size our inventory levels.
Speaker Change: Following the supply chain disruptions at 2022.
Speaker Change: On a continuing operations basis cash flow from operations of $646 million with capital expenditures of $145 million resulted in adjusted free cash flow of $501 million in the fourth quarter, a significant increase versus the $188 million in the year ago period.
Speaker Change: Adjusted free cash flow conversion during the quarter with 133% significantly ahead of last year.
Speaker Change: Turning to slide six adjusted EPS for the quarter at <unk> 87 per share decreased from 89 in the year ago period, lower segment earnings and certain below the line items, including a <unk> <unk> headwind from foreign exchange losses led by devaluation of the Argentinean peso more than offset an 8% benefit from <unk>.
Lori Koch: Turning to slide 6, adjusted EPS for the quarter of $0.87 per share decreased from $0.89 in the year-ago period. Lower segment earnings and certain below-the-line items, including a $0.05 headwind from foreign exchange losses led by the devaluation of the Argentinian peso, more than offset an $0.08 benefit from a lower share count and a $0.03 benefit from a lower tax rate. Our tax rate for the quarter was 19.2%, down from 22.2% in the year-ago period and lower than our previously communicated modeling guidance, driven by certain discrete tax benefits. Our full-year tax rate for 2023 was 22.8 percent, and our 2024 outlook assumes a base tax rate of 23 to 24 percent.
A lower share count and a <unk> <unk> benefit from a lower tax rate.
Speaker Change: Our tax rate for the quarter was 19, 2% down from 22, 2% in the year ago period, and lower than our previously communicated modeling guidance driven by certain discrete tax benefits.
Speaker Change: Our full year tax rate for 2023 was 22, 8% and our 2024 outlook assumes a base tax rate of 23, 24%.
Speaker Change: Turning to segment results beginning with Eni on slide seven.
Lori Koch: Turning to segment results, beginning with E&I on slide 7, B&I fourth-quarter net sales of $1.4 billion increased 1% as the spectrum sales contribution of 8% was mostly offset by an organic sales decline of 7%. The organic sales decline reflects a 5% decrease in volume and a 2% decrease in price.
Speaker Change: Eni fourth quarter net sales of $1 4 billion increased 1% at the spectrum sales contribution of 8% with mostly offset by an organic sales decline of 7% the organic.
Speaker Change: Organic sales decline reflects a 5% decrease in volume and a 2% decrease in price.
Lori Koch: At the line of business level, organic sales for semiconductor technologies were down high single digits versus the years of the previous period, resulting from reduced semifab utilization rates as customers worked to reduce finished inventories. We did see sequential improvement within SEMI as sales increased 2% in the fourth quarter, signaling stabilization for the business. Our customer interactions and reduced channel inventory levels point to continued recovery expected in SEMI during 2024, with sequential sales up slightly in the first quarter and an increased lift from the second quarter onwards. However, within InterConnect Solutions, organic sales declined mid-single digits as low single-digit volume gains were more than offset by price decreases driven by lower metal prices. Demand continues to stabilize, and this is the first quarter since the downturn started where we saw year-over-year volume growth. However, organic sales for industrial solutions were down mid-single digits due primarily to channel inventory destocking within our Livio product lines for biopharma markets and for products such as CalRes O-Rings, which are primarily used in semiconductor equipment.
Speaker Change: At the line of business level organic sales for semiconductor technology.
Speaker Change: <unk> high single digits versus the year ago period, resulting from reduced semi fab utilization rates as customers work to reduce finished inventory.
Speaker Change: We did see sequential improvement within semi as sales increased 2% in the fourth quarter speculate stabilization for the business.
Speaker Change: Our customer interaction and reduce channel inventory levels point to continued recovery expected in semi during 2024, the sequential sales up slightly in the first quarter and increased slipped from the second quarter onwards.
Speaker Change: Within interconnect solutions organic sales declined mid single digits as low single digit volume gains were more than offset by price decrease is driven by lower metal prices.
Speaker Change: Demand continues to stabilize and this is the first quarter since the downturn started or we saw a year over year volume growth.
Speaker Change: Organic sales for industrial solutions were down mid single digits due primarily to channel inventory destocking within our Livia product lines for Biopharma market and for products, such as <unk>, which are primarily used in semiconductor equipment.
Speaker Change: These declines were partially offset by continued strong demand for OLED display material.
Speaker Change: Operating EBITDA for Eni of $378 million was down versus the year ago period, due to volume decline and lower operating rates to better align inventory with demand, partially offset by spectrum earnings contribution.
Lori Koch: These declines were partially offset by continued strong demand for OLED display materials. Operating EBITDA for E&I of $378 million with DAB versus the year-ago period due to volume decline and lower operating rates to better align inventory with demand, partially offset by Spectrum earnings contribution. Turning to slide 8, W&P fourth quarter net sales of $1.3 billion declined 15% versus the year-ago period due to volume decline. Within safety solutions, organic sales were down 20% on lower volumes driven mainly by channel inventory to stocking, most notably for Tyvek medical packaging products. Within water, organic sales were down in the high teens driven by distributor inventory destocking and lower industrial demand in China. Shelter solution sales were down mid-single digits on an organic basis. The year-over-year decline has continued to improve, and we believe channel inventory stocking for construction has been completed based on distributor inventory now being back at normal levels. Operating EBITDA for W&P during the quarter of $314 million decreased 13% due to lower volumes and reduced production rates.
Speaker Change: Turning to slide eight WEP fourth quarter net sales of $1 3 billion declined 15% versus the year ago period due to volume decline.
And then safety solutions organic sales were down 20% on lower volume driven mainly by channel inventory Destocking, most notably for tieback medical packaging products.
Within water organic sales were down high teens, driven by distributor inventory destocking and lower industrial demand in China.
Speaker Change: Shelter solutions sales were down mid single digits on an organic basis. The year over year decline has continued to improve and we believe channel inventory stocking for construction has been completed based on distributor inventory not being back at normal levels.
Speaker Change: Operating EBITDA for <unk> during the quarter of $314 million decreased 13% due to lower volume and reduced production rates.
Speaker Change: Partially offset by lower input costs and certain discrete item benefit of about $25 million.
Speaker Change: Turning to slide nine I'll review, our first quarter 2024 outlook at full year guidance expectations for.
For the first quarter of 2024, we expect net sales of about $2 8 billion and operating EBIT of about $610 billion.
Lori Koch: Partially offset by lower input costs and certain discrete item benefits of about $25,000. Turning to slide 9, I'll review our first quarter 2024 outlook and full year guidance expectations. For the first quarter of 2024, we expect net sales of about $2.8 billion and operating EBITDA of about $610 billion. On a volume basis, we are seeing similar inventory destocking trends from the fourth quarter continue into 2024, driven by water solutions in China and in several of our industrial-based businesses. Recovery timing is expected to vary by end market as the year progresses, but we expect first quarter to be the lowest on a consolidated basis. The expected sequential decline in operating EBITDA includes the absence of discrete items, which benefited fourth quarter, as outlined earlier. The first quarter outlook also includes certain costs that further impact period margins, primarily within W&P, related to new capacity and safety, as well as the impact of lower volume.
Speaker Change: On a volume basis, we are seeing similar inventory destocking trends from fourth quarter continue into 2024, driven by water solutions in China and in several of our industrial based businesses.
Speaker Change: Timing is expected to vary by end market as the year progresses that we expect first quarter is the bottom on a consolidated basis.
Speaker Change: The expected sequential decline in operating EBITDA includes the absence of discrete items, which benefited fourth quarter as outlined earlier.
Speaker Change: The first quarter outlook also includes certain costs that further impact period margin, primarily within wip related to new capacity at safety as well as the impact of lower volume for.
Speaker Change: For the second quarter, we expect mid single digit sequential sales improvement and an approximate 10% increase in operating EBITDA from first quarter.
Speaker Change: This assumes volume improvement driven by reduced inventory destocking impacts in fiber solutions and medical packaging continued electronics recovery and favorable seasonality in Ics and shelter sequential.
Speaker Change: <unk> sequential EBITDA should benefit from this volume growth and additional realization of restructuring cost savings.
Speaker Change: The full year 2024, we expect net sales to be between 11, nine and $12 3 billion with operating EBITDA expected to be between $2 eight and $3 billion.
Lori Koch: For the second quarter, we expect mid-single-digit sequential sales improvement and an approximate 10% increase in operating EBITDA from the first quarter. This assumes volume improvement driven by reduced inventory destocking impacts in water solutions and medical packaging, continued electronics recovery, and favorable seasonality in ICS and shelters. Sequential EBITDA should benefit from this volume growth and additional realization of restructuring cost savings. For the full year 2024, we expect net sales to be between $11.9 and $12.3 billion, with operating EBITDA expected to be between $2.8 and $3 billion.
Speaker Change: Year over year sales growth in the second half is expected to be driven by ongoing electronics market recovery, including improvement in semiconductor fab utilization rates.
Speaker Change: Continued utilization improvement for PCB manufacturing within ICF.
Speaker Change: Along with further abatement of channel inventory Destocking in our industrial businesses.
Speaker Change: For a second half earnings drivers include volume improvement outlined above alongside expected mixed benefits as well as ongoing realization of cost savings.
Speaker Change: Our current outlook also includes a neutral net impact from price cost for the year as slight price declines are expected to be offset by the carryover benefit of lower input costs.
Speaker Change: We expect full year adjusted EPS in the range of $3 25 to $3 65 per share, which assumes the benefit of a lower share count, it's mostly offset by lower interest income higher depreciation and a higher tax rate as detailed on our outlook slide.
Operator: Year-over-year sales growth in the second half is expected to be driven by ongoing electronics market recovery, including improvement in semiconductor fab utilization rates and continued utilization improvement for PCB manufacturing within ICF, along with further abatement of channel inventory destocking in our industrial business. For second half earnings, drivers include volume improvement outlined above, alongside expected mixed benefits, as well as ongoing realization of cost savings. Our current outlook also includes a neutral net impact from price costs for the year, as slight price declines are expected to be offset by the carryover benefit of lower input costs. We expect full-year adjusted EPS in the range of $3.25 to $3.65 per share, which assumes the benefit of a lower share count is mostly offset by lower interest income, higher depreciation, and a higher tax rate, as detailed on our outlook slide.
Speaker Change: With that we are pleased to take your questions and I'll turn it back over to the operator to open the Q&A.
Speaker Change: Thank you at this time, we will open the line for questions. As a reminder, if you would like to ask a question. Please press star one.
Speaker Change: Kindly ask that you limit yourself to one question and one follow up question.
Speaker Change: Your first question comes from Scott Davis with Melius Research. Please go ahead.
Scott Reed Davis: Hey, good morning pattern.
Scott Reed Davis: Morning, Scott Good morning.
Scott Reed Davis: Okay.
Scott Reed Davis: Good morning, not a lot I mean, no huge surprises here, but some of the commentary around kind of price versus cost seemed a little bit incrementally cautious.
Scott Reed Davis: Is that just a function of kind of weaker demand.
Scott Reed Davis: General Gist.
Sloppy demand thats out there or is it kind of a mix just given how weak China is.
Scott Reed Davis: Just level set maybe I'm over reading this a little bit. So if we can just talk about kind of pricing power versus maybe what youre expecting over on 24 that'd be helpful.
Speaker Change: Yeah. So overall full year, we have about a 1% price decline in total on the top line and we expect carryover benefit from further raw material logistics and energy savings to offset that to be neutral from a spread perspective for a year.
Operator: With that, we are pleased to take your questions, and I'll turn it back over to the operator to open the Q&A. Thank you. At this time, we will open the line for questions. As a reminder, if you would like to ask a question, please press star 1. We kindly ask that you limit yourself to one question and one follow-up question. Your first question comes from Scott Davis with Melius Research. Please go ahead. Hey, good morning, Adam.
Speaker Change: I wouldn't say, it's any material change we had always been in that camp.
Speaker Change: In the raw material side with the pricing, maybe we're being a little bit cautious just based on where the volumes set in the first half, but overall no material change in that.
Scott Reed Davis: Good morning, Scott. Thank you. Good morning.
Speaker Change: 1% total prices all that material to the total company Scott I'd also say I think we should have less service call. There's a couple of end markets. We would probably have to give up a little price to maintain our market position I don't want to get into the details of what they are.
Edward D. Breen: Not a lot, I mean, no huge surprises here, but some of the commentary around kind of price versus cost seemed a little bit incrementally cautious. Is that just a function of kind of weaker demand? Generals.
Lori Koch: Sloppy demand that's out there, is it kind of a mix just given how weak China is? You know, just level set. Maybe I'm over-reading this a little bit, so if we can just talk about some kind of pricing power. Yeah, so overall, for the full year, we have about a 1% price decline in total on the top line, and we expect carryover benefit from further raw material logistics and energy savings to offset that, to be neutral from a spread perspective for a year. So, I wouldn't say it's any material change. We had always been in that camp on the raw material side.
Speaker Change: But but generally speaking we're we.
Speaker Change: I've been holding price across the platform. It we continued oil price of course across the platform.
Speaker Change: Really no change there at all.
Speaker Change: Okay, that's helpful and.
Speaker Change: So I think one change at the margin that we've seen this quarter is just China continues to be really weak.
Speaker Change: Perhaps maybe even outlook for 2024 degrading a bit as we speak but can.
Speaker Change: Can you give us a little bit more color on your.
Speaker Change: Your confidence in your and your guide as it relates to just that.
Speaker Change: The degradation in China, being kind of over and perhaps we're at a bottom here.
Speaker Change: Yes, so Scott it was very interesting.
Edward D. Breen: With the pricing, maybe we're being a little bit cautious just based on where the volumes sit in the first half. But overall, no material change, and I don't know that 1% total price is all that material to the total company. Scott, I'd also say, as we said on the last service call, there are a couple end markets we would probably have to give up a little price to maintain our market position. I don't want to get into the details of what they are on the call, but generally speaking, we have been holding prices across the platform, and we continue to hold prices across the platform. So, really no change there at all. That's helpful, and guys, I think one change at the margin just that we've seen this quarter is that China continues to be really weak.
Speaker Change: Let me give you an overall Dupont comment on orders and then specifically the water business in China, where we've seen a real significant destock.
Speaker Change: And finally overall was really interesting to watch we were still declining as we said in the fourth quarter.
Speaker Change: Order rates, but through the months of January we've had high single digit growth.
Speaker Change: Pretty much across the platform except.
Speaker Change: For Cal Reds in Biopharma, which we expect to come back later in the year before they pick up I'll give you two other data points, which are really interesting.
Speaker Change: And the water business declined in the fourth quarter, but through the first month of January.
Speaker Change: Orders were up 13%.
Edward D. Breen: Perhaps maybe even Outlook for 2024 is degrading a bit as we speak. Can you give us a little bit more color on your confidence in your guide as it relates to just the degradation in China? http://TheBusinessProfessor.com, Perhaps we're at a bottom. Yeah, so, Scott, it was very interesting. I'll just kind of give you an overall DuPont comment on orders and then specifically the water business in China, where we've seen a really significant de-stock. And by the way, overall, it was really interesting to watch.
And a chunk of that was the water business in China.
Speaker Change: Interestingly there as you look at the order pattern of that increase.
Speaker Change: Most of that starts may one which is about what our distributors have been telling us when they bought about one the regulatory.
Speaker Change: So just another data point because it was one of the other ones. We saw destock as we went through the back half for the fourth quarter was our safety orders, which include medical packaging, which was another one that had a significant destock those orders were up 10% in the month of January.
Edward D. Breen: We were still declining, as we said, in the fourth quarter on our order rate. But through the month of January, we've had high single-digit growth. Pretty much across the platform, except for CalRes and Biopharma, which we expect to come back later in the year before they pick up. I'll give you two other data points, which are really interesting. And the water business declined in the fourth quarter, but through the first month of January, our orders were up 13%.
Speaker Change: And that by the way is a shorter cycle book and water water is the only one we kind of get booked out three or four months because people are accustomed to having to book out therefore.
Speaker Change: Most of our other businesses are very short cycle. So the 10% up on the safety orders in medical packaging would bode well for the lift that we're expecting to see from first to second quarter on the top line. So it was really interesting we were going to still negative going into the end of the year and now berthing broadly positive for the month of Jan.
Edward D. Breen: And a chunk of that was the water business in China, and interestingly, as you look at the order pattern of that increase, most of that starts in May, which is about what our distributors have been telling us when they bought them out in their inventory. So just another data point because it was one of the other ones we saw destock as we went through the back half of the fourth quarter was our safety orders, which included medical packaging, which was another one that had a significant destock. Those orders were up 10% in the month of January, and that, by the way, is a shorter cycle book than water. Water is the only one we kind of get booked out for three, four months because people are accustomed to having to book out that far, but most of our other businesses are very short cycle.
Speaker Change: Curious.
Speaker Change: And I would say on card volumes in China specific specifically they did you. They are still down on a full year basis, but we did see less of a decline as the year went on and it varied by business. So obviously eni with kind of first and the China downturn and they actually delivered 1% volume growth in China in the fourth quarter and then as.
The year went on we saw.
Speaker Change: Primarily the wider business in China decelerate per Ed's comment. So it is still a tough market in China, but it looks like Eni is on the upswing and we expect further improvement in the WNS business in water.
Speaker Change: Starting towards the tail end of the second quarter.
Speaker Change: Okay helpful. Thank you I'll pass it on good luck this year.
Edward D. Breen: So the 10% increase in safety orders and medical packaging would bode well for the lift that we're expecting to see from first to second quarter on the top line. So it was really interesting. We were still going negative going into the end of the year, and now pretty broadly positive for the month of January. Yeah, and I would say on volumes in China specifically, they are still down on a full year basis, but we did see less of a decline as the year went on, and it varied by business. So obviously, E&I was kind of first into the Chinese downturn, and they actually delivered one percent volume growth in China in the fourth quarter. And then as the year went on, we saw primarily the water business in China decelerate, as Ed's comment indicated. So it is still a tough market in China, but it looks like E&I is on the upswing, and we expect further improvement in the W&T business in water, you know, starting towards the tail end of the second quarter. Thank you. I'll pass it on.
Speaker Change: Guys. Thanks Chuck.
Speaker Change: Your next question comes from Mike <unk> with Barclays. Please go ahead.
Mike: Yes, thanks, and good morning, guys.
Mike: I just wanted to follow up.
Mike: Good morning, I, just wanted to follow up on the inventory dynamics in <unk> I guess, you maybe help us better understand how the fourth quarter unfolded did your customers just about buying at some point or just kind of what caught you saw guard with the declines there and then around the January improvement you just talked about Ed I guess, what do you make of it does.
Mike: It seemed like it was just delayed orders from year end or do you think demand is truly getting better there.
Edward D. Breen: Well I think it was a couple of things I think we got hit a little harder than we were expecting in the fourth quarter.
Edward D. Breen: Simply because it was most people's fiscal year end and Theyre repressively trying to work down inventories.
Edward D. Breen: By the way as Dupont did.
Edward D. Breen: We were aggressively doing that.
Edward D. Breen: Accelerated it as you could see from our cash flow our inventory position even more in the fourth quarter. So I think it was just trended a little more than we expected I would also say I would add to that remember that in W. And piece, specifically, 50% of our business goes through distribution. So they can easily tell you just started off for two or three months.
Scott Reed Davis: Good luck this year. Bye, guys. Thanks, Scott. Your next question comes from Mike Lighthead with Barclays. Please go ahead. Yeah, thanks. Good morning, guys.
Edward D. Breen: Adult shipped EMEA.
Mike Lighthead: I just want to follow up. Good morning. I just wanted to follow up on the inventory dynamics in W&P. You could maybe help us better understand how the fourth quarter unfolded. Did your customers just stop buying at some point, or just kind of what caught you so off guard with the declines there? And then around the January improvement, you just talked about Ed. I guess, what do you make of it? Does it seem like it was just delayed orders from your end, or do you think end demand is truly getting better there? Well, I think it was a couple of things.
Edward D. Breen: That's what we saw a little bit more of than we were expecting but very interesting as I said it is amongst its not a quarter yet, but most of those and those distributor orders turned around in the months of January and again, it was pretty broad based across the portfolio ex a couple of these end markets that I talked about.
Edward D. Breen: And specifically by the way.
Edward D. Breen: And safety the distribution order sort of coming into January shelter, we're very heavy through distribution and we know we've bottomed out we actually expect slight growth this quarter and that to build a little bit more as the year goes on and then you mentioned the water one already thats, 40% globally through distribution and it was.
Edward D. Breen: I think we got hit a little harder than we were expecting in the fourth quarter simply because it was most people's fiscal year-end and they were aggressively trying to work down inventories. By the way, as DuPont did, you know, we were aggressively doing it. We accelerated it, as you can see from our cash flow and our inventory position even more in the fourth quarter. So I think it just accelerated a little more than we expected.
Edward D. Breen: Mostly our distributor customers that delayed orders not our end customers.
Edward D. Breen: So that's kind of the dynamic, but very interesting to see this January thing now.
Speaker Change: Great. That's Super helpful. And then maybe a question in general, but just an overall comment we're 90% a short cycle company. It can go down pretty quick it can.
Edward D. Breen: I'd also say, I would add to that, remember that in W&P specifically, 50% of our business goes through distribution. So they can easily tell you, just shut it off for two or three months, you know, and don't ship to me. And that's what we saw a little bit more of than we were expecting. But very interesting, as I said, it is a month, it's not a quarter yet, but most of those distributor orders turned around in the month of January. And again, it was pretty broad-based across the Portfolio X, a couple of these end markets that I talked about. And specifically, by the way, in safety, the distribution order started coming in in January, and shelters were very heavy through distribution.
Speaker Change: Go up pretty quick order.
Speaker Change: A lot of this is hangover from Covid excess inventory people working at often.
Speaker Change: So you can see the bounce back also.
Speaker Change: No. It makes a lot of sense and then second maybe just a quick question for Lori can you talk about your expected cash flow conversion in 2024, you gave us capex, but should we expect any material cash needs for restructuring pension or just some other key items there.
Lori Koch: Yeah, so the pension should be broadly $50 million to $60 million of our cash funding.
Speaker Change: No material difference from where it was in 2023.
Lori Koch: You had noted the Capex, which also isn't a material change from 2023.
Edward D. Breen: And we know we've bottomed that. We actually expect slight growth this quarter and that to build a little bit more as the year goes on. And then I mentioned the water one already; that's 40% globally through distribution.
Lori Koch: <unk>.
Speaker Change: We would expect to be.
Speaker Change: Again around that target of 90% conversion for 2024, we will see how the timing of the volume lift unfolds that that could create a receivables headwind as you get into the back half of the year as you see that nice volume lift year over year. So.
Lori Koch: And it was mostly our distributor customers that delayed orders, not our end customers. So that's kind of the dynamic, but very interesting to see this January thing now. Great, that's super helpful. And then maybe a question for Lori.
Speaker Change: I expect that to sell deliver strong cash flow, we made a lot of progress on one of the areas that we really focus on with respect to inventory in 2023, and we're not going to.
Speaker Change: Getting back that benefit that we saw and we will work to hold on to those gains.
Mike Lighthead: And just Mike, just an overall comment, we're 90% of a short cycle company; it can go down pretty quick on you, it can go up pretty quick on you. You know, a lot of this is a hangover from COVID, excess inventory, people working it off. And, you know, so you can see the bounce back also.
Speaker Change: Great. Thank you.
Speaker Change: Mhm.
Speaker Change: Your next question comes from Josh Spector with UBS. Please go ahead.
Joshua Spector: Yes, hi, good morning.
Joshua Spector: Good morning.
Joshua Spector: Good morning, just on the second half expectations. So obviously visibility is pretty low, but I mean at the high end of your guide you're kind of projecting that you could see EBITDA up about 15% maybe in the second half.
Lori Koch: And then second, maybe just a quick question for Lori. Can you talk about your expected cash flow conversion in 2024? You gave us CapEx, but should we expect any material cash needs for restructuring, pension, or just some other key items there? Yeah, so the pension should be around $50 to $60 million in cash funding.
Joshua Spector: Needs to happen for that to play out kind of what's the expectation on the volume or restocking dynamic that would say you get to that end of the range.
Joshua Spector: Yes.
Joshua Spector: Just a few bullet points on kind of first half second half ramp there obviously, the increased semi fab and PC utilization rates.
Lori Koch: So there is no material difference from where it was in 2023. We had noted the CapEx, which also isn't a material change from 2023. We would expect to be, again, around the target of 90 percent conversion for 2024.
Joshua Spector: Remember <unk> is a very high margin business for us.
Joshua Spector: So we see that coming back.
Joshua Spector: And we've already start to see as we just commented slightly we're seeing improvement that was about 2%.
Joshua Spector: In the quarter, so clearly bottomed out there we'll know lift.
Lori Koch: We'll see how the timing of the volume lift unfolds, you know, that could create a receivable headwind as you get into the back half of the year as you see that nice volume lift year over year. But I expect us to still deliver strong cash flow. We made a lot of progress on one of the areas that we really focused on with respect to inventory in 2023, and we're not going to give back that benefit that we saw, and we'll work to hold on to those gains. Great, thank you. Mm-hmm. Your next question comes from Josh Spector with UBS. Please go ahead. Yeah, hi. Good morning.
Joshua Spector: These stocks will be mostly complete in the second half of the year, the only ones that might slip into the fourth quarter.
Joshua Spector: We've taken that into account as Biopharma and Cal rise, although many in Biopharma think thats going to lift by the inflection point at the middle of the year were a little more cautious that it's maybe more of a fourth quarter and then clearly improved factory absorption.
Joshua Spector: From the hits, we've been taken there that keep inventory in line and then we will have more of the cost savings from the restructuring program. So I'd say, that's the big items that kind of build first half second half and obviously just volume ramp in general will be up because of the destock ending.
Joshua Spector: Just on the second half expectation, so obviously, visibility is pretty low, but I mean, at the high end of your guide, you're kind of projecting that you could see EBITDA up about 15% maybe in the second half. What needs to happen for that to play out? Kind of what's the expectation on the volume or restocking dynamic that would see you get to that end of the range? Yeah, so by the way, just a few bullet points on the kind of first half, second half ramp there. Obviously, the increased SEMIFAB and PC utilization rates. Remember, SEMI is a very high-margin business for us. So we see that it is coming back.
Okay. Thanks, that's helpful and just to maybe follow up just more on the first half are there discrete items, we should be thinking about first quarter to second quarter. So that 10% left you potentially see.
Joshua Spector: I guess is there a headwind baked in there in first quarter, because youre, taking additional inventory action, that's X or something else that actually absent a material demand improvement improves earnings or is this more destocking volume driven.
Okay.
Joshua Spector: Yes, so sequentially a lot of it is volume driven so we see about $150 million.
Edward D. Breen: And we've already started to see, as we just commented slightly, we're seeing improvement. That was about 2% in the quarter. So we clearly bottomed out there. We'll now lift.
Joshua Spector: Revenue ramps first quarter to second quarter that that's primarily volume.
Joshua Spector: Also see a little bit of ability and the cost savings programs. We had mentioned it really kicked in at the end of Q1, So youll see some ramp as you head into Q2.
Edward D. Breen: DSTOP will be mostly complete in the second half of the year. The only ones that might slip into the fourth quarter, and we've taken that into account, are Biopharma and CalRES. Although many in Biopharma think that's going to lift by the inflection point at the middle of the year, we're a little more cautious that it's maybe more of a fourth quarter. And then clearly improved factory absorption from the hits we've been taking there to keep inventory in line. And then we'll have more of the cost savings for the restructuring program. So I'd say those are the big items that kind of build in the first half and second half. And obviously, just a volume ramp in general because of the DSTOP ending. Okay, thanks. Now that's helpful.
Those are the biggest the largest improvement is going to be the volume increase though first quarter to second quarter.
Speaker Change: Okay. Thank you.
Speaker Change: Mhm.
Your next question comes from John Roberts with Mizuho. Please go ahead.
John Roberts: Thank you just one for me and.
John Roberts: In shelter solutions now that the channel is destock are you expecting a normal seasonal sequential improvement or below normal in that segment.
John Roberts: And we would expect normal so.
John Roberts: Normally <unk> and <unk> are the best quarters for <unk> being lower than those averages.
John Roberts: Beverages.
Speaker Change: Alright, thank you.
Thanks, Sean.
Speaker Change: Your next question comes from David Begleiter with Deutsche Bank. Please go ahead. Thank you good morning.
David I. Begleiter: Good morning, David.
David I. Begleiter: You were very valuable electronics business does not being valued by the market while the options in your mind to unlock or have that value being realized.
Joshua Spector: And just to maybe follow up just more on the first half, are there discrete items we should be thinking about first quarter to second quarter so that 10% lift you potentially see? I guess, is there a headwind baked in there in the first quarter because you're taking additional inventory action, that's X, or something else that actually, absent a material demand improvement, improves earnings? Or is this more destocking volume driven? Thanks.
Sean: Well, David I think we got it we're working our way through this destocking.
Sean: I think the year is going to lift very nicely.
David I. Begleiter: I think we just have to be patient and see.
Speaker Change: How it looks.
Speaker Change: We're kind of exiting 2024, and I think we haven't been in stability here with the destock goes on in the short cycle nature, but to your point, David It's a phenomenal franchise, we're in the sweet spot.
Lori Koch: Yeah, so sequentially, a lot of it is volume driven. So we see about $150 million of revenue ramped up from first quarter to second quarter. That's primarily volume. We also see a little bit of a build in the cost savings program. So we had mentioned it'll really kick in at the end of Q1. So you'll see some ramp as you head into Q2. Those are the biggest items.
Speaker Change: But we got a lot of upside comment with this day at the AI opportunity all of these new facilities fabs to be a build or mostly advanced chips, which plays even more to our strength. So when people can really see these numbers cranking again.
Speaker Change: As we go through the second half of the year, we'll see how the company's valued.
Joshua Spector: The largest improvement is going to be the volume increase, though, first quarter to second quarter. Okay, thank you. Mm-hmm. Your next question comes from John Roberts on behalf of Mizuho. Please go ahead. Thank you.
Speaker Change: Very good interest on <unk>, what's your expectation for improvement on that issue this year.
Speaker Change: Well, we're I think we're within days or a couple of weeks of the judge finally get in the hole.
John Roberts: In shelter solutions, now that the channel is destocked, are you expecting a normal seasonal sequential improvement or below normal in that segment? And we would expect normal, so normally 2Q and 3Q are the best quarters for shelter, with then 1Q and 4Q being lower than those averages. All right, thank you. Thanks, y'all. Your next question comes from David Baigleiter with Deutsche Bank. Please go ahead. Ed, you were very valuable.
Speaker Change: Water District thing done at all I think it was just.
Speaker Change: They are probably waiting I think what's going on is there just waiting to get one announcement from all of the company's sales and I think three.
Speaker Change: Just last Friday had there.
Speaker Change: For the quarter preliminary hearings.
Speaker Change: So I think thats very very close to being finalized here.
Speaker Change: And then.
Speaker Change: Nothing will happen on the personal injury cases, most likely this year.
Edward D. Breen: The electronics business is now being valued by the market. What are the options in your mind to unlock or have that value? Well, David, I think we're working our way through this destock, and I think the year is going to lift very nicely. I think we just have to be patient, see how it looks as we're kind of exiting 2024. And I think we haven't been in stability here with the destocking going on in the short cycle nature. But to your point, David, it's a phenomenal franchise.
Speaker Change: However.
Speaker Change: Or kind of take because we like to settle these things.
Speaker Change: Before.
Speaker Change: There was any trial, but they.
Speaker Change: We're going through picking some of who would be the initial ones that will go to trial I think there's 28 of those on the list right now the judge at all we'll narrow that down to a smaller group.
Speaker Change: I don't think Thats a 2024.
Speaker Change: The issue on that.
Edward D. Breen: We're in the sweet spot of it. We have a lot of upside coming with this, the AI opportunity, all these new facilities, and fabs we have built are mostly advanced chips, which plays even more to our strengths. So, you know, when people can really see these numbers starting to climb again, as we're going through the second half of the year, we'll see how the company's value is. Very good. And just on PFAS, Ed, what's your expectation for improvement on that issue? Well, I think we're within days or a couple of weeks of the judge finally getting the whole, you know, Water District thing done at all.
Speaker Change: Very good thank you.
Speaker Change: Thanks.
Speaker Change: Your next question comes from John Mcnulty with BMO capital markets. Please go ahead.
John P. McNulty: Yes. Good morning, Thanks for taking my question good morning.
John P. McNulty: So and we have a lot of a lot of new fabs coming on I mean, just kind of looking at kind of high level. It looks like almost double digit coming on this year and then again in 'twenty five 'twenty six I guess can you help us or remind us.
John P. McNulty: When you get those wins like when you see that and how much of that cake is baked at this point and then maybe any commentary on share wins or shifts that you might have that you might have seen on some of these fabs that are coming up.
John P. McNulty: Yes.
John P. McNulty: Our sales process works, where we do a lot of application engineering and development directly with that.
Edward D. Breen: I think it was just, they're probably waiting. I think what's going on is they're just waiting to get one announcement from all the companies out. And I think 3M just last Friday had their, I'll call it a preliminary hearing. So I think that's, you know, very, very close to being, you know, finalized here. And then, you know, nothing will happen in the personal injury cases, most likely this year. However, you know, our kind of take is we like to settle these things before. You know, there's any trial, but they're going through picking some of the who would be the initial ones that would go to trial.
John P. McNulty: Really it's about 10 major customers in the semi.
John P. McNulty: So it's really the when we get there where it's processed at a fab.
John P. McNulty: Somewhat irrelevant to us although we like the fact that these fabs are coming along as the world thinks there's a lot of demand coming over the next cycle here.
John P. McNulty: In the semi world, which there should be because everything needs a chip nowadays more of its advanced chips, so but our win rate is really at the design stage with these large.
John P. McNulty: Large customers around the world again, where they make it doesn't really matter that much to us.
Edward D. Breen: I think there's twenty-eight of those on the list right now, and the judge and everyone will narrow that down to a smaller group. But I don't think that's a twenty-two four issue on that. Very good. Thanks. Your next question comes from John McNulty with BMO Capital Markets. Please go ahead.
John P. McNulty: But still a very good side and I'd say overall.
John P. McNulty: <unk> market share it does not shift much in this business.
John P. McNulty: A couple of key players.
John P. McNulty: Especially on the higher end chips.
John P. McNulty: Yeah, good morning. Thanks for taking my question. So we have a lot of a lot of new fabs coming on. I mean, just kind of looking at kind of the high level, it looks like almost double digits coming on this year. And then again, in 25 and 26, can you help us or remind us when you get those wins, like when you see that and how much of that cake is baked at this point, and then maybe any commentary on share wins or shifts that you might have seen on some of these fabs that are coming up. Yeah, the sales process works. We do a lot of application engineering and development directly with the top, really it's about 10 major customers on the semi side. So it's really when we get there where it's processed that a fab is somewhat irrelevant to us.
John P. McNulty: Market share is pretty steady across the board.
John P. McNulty: Year end in Euro.
Speaker Change: Got it fair enough and then on the.
Speaker Change: On the shelter solutions side of the business can you help us to think about what the utilization rates are now that it looks like you've kind of bottomed out in that business and then how we should think about the incrementals on that as as volume starts to started to really come back.
Speaker Change: Yes. So we had mentioned we saw an improvement in volume as the year went on.
Speaker Change: And shelter for kind of down about 4%.
Speaker Change: In the fourth quarter, and we expect them to be slightly up in the first quarter and then build from there to about 4% by the time, we close out the year, so the utilization rates up.
Speaker Change: Definitely in Peru.
Speaker Change: This is not a high fixed cost plant fixed cost business.
Edward D. Breen: Although we like the fact that these fabs are coming on because the world thinks there's a lot of demand for them over the next cycle here in the semi-world, which there should be because everything needs a chip nowadays and more of its advanced chips. So, our win rate is really at the design stage with these 10 large customers around the world. And again, where they make it doesn't really matter that much to us, but it's still a very good sign.
Speaker Change: So when we talked about the absorption headwinds that we saw throughout 2023 that was primarily in the Eni side and then it started to kick in a little bit on the safety side with the heavy assets in that portfolio. So there isn't a huge absorption headwind within shelter.
Speaker Change: And but we will see some some benefit from volume that would have a little bit of benefit absorption as the year goes on.
Speaker Change: Great. Thanks, very much for the color.
Edward D. Breen: And I'd say overall market share does not shift much in this business. There are a couple of key players, especially on the higher-end chips, and market share is pretty steady across the board, year in and year out.
Speaker Change: Mhm.
Speaker Change: Your next question comes from Steve Tusa with Jpmorgan. Please go ahead.
Steve Byrne: Hi, good morning.
Steve Byrne: Good morning, Steve.
Steve Byrne: Is there any reason.
Lori Koch: Fair enough. And then, on the shelter solutions side of the business, can you help us to think about what the utilization rates are now that it looks like you've kind of bottomed out in that business? And then how should we think about the incrementals on that as volume starts to really come back? Yes, so we had mentioned we saw an improvement in volume as the year went on. The volumes in shelter were kind of down about four percent in the fourth quarter, and we expect them to be slightly up in the first quarter and then build from there to about four percent by the time we close out the year. So the utilization rates will definitely improve. This is not a high fixed cost plant, fixed cost business. So when we talked about the absorption headwinds that we saw throughout 2023, that was primarily on the E&I side, and then it started to kick in a little bit on the safety side with the heavy assets in that portfolio. So there isn't a huge absorption headwind within the shelter.
Steve Byrne: Over the course of this recovery why why your business should decouple from broad electronics trends I mean are you guys.
Steve Byrne: Less exposed to what's going on in AI and data center.
Steve Byrne: Sure.
Steve Byrne: Have you guys do you think you've lost share anywhere because of.
Steve Byrne: A different technology is required in those applications.
Steve Byrne: <unk> I mean, it just seems like electronics right now is kind of a multi speed world and.
Steve Byrne: I think I would've expected a little more out of you guys. So far but maybe just some comments on how kind of coupled youre going to be to that recovery.
Speaker Change: I think we're very coupled to it because the big one of the big demand drivers next year as data center.
Speaker Change: That's a lot of advanced chip applications I won't say the cost of personnel, but theres, one thats been out there very steadily.
This is requiring a lot of advanced chips that is a key customer of ours.
Speaker Change: So that that whole drive towards AI data center.
Speaker Change: The need for advanced chips plays right to the sweet spot of our portfolio. So no we won't decouple at all there.
Stephen Byrne: And but we will see some benefit from volume that would have a little bit of benefit absorption as the year goes on. Great, thanks very much for the call. Mm-hmm. Your next question comes from Steve Tussa with J.P. Morgan. Please go ahead. Hey, good morning.
Speaker Change: There is no way area, that's going to grow faster than the semi side that we will participate in thats that truly is our sweet spot as we go forward here remember in a typical <unk>.
Stephen Byrne: Morning, Steve. Is there any reason, you know, over the course of this recovery, why your business should, you know, decouple from broad electronics trends? I mean, are you guys less exposed to what's going on in AI and data centers? You know, have you guys, do you think you've lost share anywhere because, you know, a different technology is required in those applications? I mean, it just seems like electronics right now is kind of a multi-speed world and, you know, I think I would have expected a little more out of you guys so far, but maybe just some comments on how kind of coupled you're going to be to that recovery. I think we're very coupled to it because the big one of the big demand drivers next year is the data center. And that's a lot of advanced chip applications. I won't say the customer's name, but there's one that's been out there very steadily that is requiring a lot of advanced chips.
Speaker Change: Consistently outgrown the market to 300 basis points because of that dynamic.
Speaker Change: Okay. So on the on the SME surrounding a $2 billion business or asked about $700 million of that is data centers. So it's a pretty large chunk.
Speaker Change: If you look at the results and the forecast that the Oems are providing it's oftentimes skewed by the price of the chip, which has no impact on our volumes and our revenue. So that's one thing maybe just to clarify to make sure that if youre seeing less in some of the Oems, It's probably right now more coming from price on especially on <unk>.
Speaker Change: <unk> side, our portfolio is about 30% memory, 70% logic foundry from a disposition perspective as well.
Edward D. Breen: That is a key customer of ours, so that whole drive towards AI data centers and the need for advanced chips plays right to the sweet spot of our portfolio. So no, we won't decouple at all.
Speaker Change: Sorry.
Speaker Change: You said $700 million of that as to what you can see clearly as being like datacenter related customers yes.
Speaker Change: Yes.
Speaker Change: Then how fast did that grow in like the fourth quarter.
Speaker Change: Or did it grow in the fourth quarter.
Speaker Change: Yes, so overall semi volumes in the fourth quarter were down in the high single digits as some of the Oems continue to destock. So that's one other piece to it they could still be producing and they're producing out of inventory versus buying materials to add to their inventory, but if you compare our results.
Edward D. Breen: There's no area that's going to grow faster in the semi-side that we won't participate in. That truly is our sweet spot as we go forward here. Remember, in typical times, we've consistently outgrown the market by 300 basis points because of that dynamic. Yeah, I think Steve, too.
Speaker Change: That happened.
Speaker Change: Release year to date versus the peers that felt material and no sub segments. They are in line.
Lori Koch: So on the semi, it's around a $2 billion business for us. About $700 million of that is data centers, so it's a pretty large chunk. If you look at the results and the forecast that the OEMs are providing, it's often skewed by the price of the chip, which has no impact on our volumes and our revenues. So that's one thing maybe just to clarify to make sure that if you're seeing less in some of the OEMs, it's probably more coming from price, especially on the memory side. Our portfolio is about 30% memory, 70% logic foundry from a disposition perspective as well. Sorry, you said $700 million of that as to what you can clearly see as being like, you know, data center related customers. Yep. Yes.
Speaker Change: Okay, Great alright. Thanks, Thanks, a lot for the color I appreciate it thanks.
Speaker Change: Thanks, Steve Youre welcome.
Speaker Change: Your next question comes from Alexia <unk> with Keybanc capital markets. Please go ahead.
Alexia: Thank you good morning, everyone I wanted to come back to water filtration and in China do you have visibility into the underlying demand.
Alexia: Apparently you do have destocking, but what data points are you tracking to understand how healthy the actual market is.
Speaker Change: Yeah, So alexia, it's a great question.
Speaker Change: We'd say true demand is down three or 4% negative.
Speaker Change: If you look at our direct customers, we sell to over there.
Stephen Byrne: And how fast did that grow in, like, the fourth quarter? Or did it not grow in the fourth quarter? Yeah, so overall, semi volumes in the fourth quarter were down in the high single digits as some of the OEMs continue to de-stock. That's one other piece, too, is that they could still be producing, and they're producing out of inventory versus buying new materials to add to their inventory. But if you compare our results that have been released here to date versus the peers that sell materials in those subsegments, they are in line. Okay, great. All right. Thanks a lot for the call.
You have a little bit of destocking going on at their end, but by and large when you look at their demand again. They are in the three to four some of the 5% down somewhere right in that range, but if you go to our distributor customers they were down over 30%.
Speaker Change: And that's where we started to see orders come back through January.
For deliveries kind of in the May June July timeframe.
Speaker Change: As I mentioned earlier the water orders in January were up 13% at a big part of that was the China.
Aleksey V. Yefremov: I appreciate it. Thanks, Steve. You're welcome. Your next question comes from Aleksey Yefremov with KeyBank Capital Markets. Please go ahead. Thank you. Good morning, everyone.
Speaker Change: Orders from the distributors. So the market is definitely down a little bit, but if we could just get all the destocking to come back that's a huge swing for us even if the market for a little bit.
Edward D. Breen: I wanted to come back to water filtration. And in China, do you have visibility into the underlying demand? You know, apparently you do have de-stocking, but what data points are you tracking to understand how healthy the actual market is? Yeah, so Aleksey, it's a great question.
Speaker Change: Stays down so the inventory and shine on water will bottom and that kind of May June timeframe and Thats why I think we're starting to obviously than Cds orders at least preliminarily in January come in kind of for that time period.
Edward D. Breen: I would say true demand is down three or four percent negative. If you look at our direct customers, we sell to over there, they have a little bit of destocking going on at their end, but by and large, when you look at their demand, again, they're in the 3 to 4, some of them are 5% down, somewhere right in that range, but if you go to our distributor customers, they were down over 30%, and that's where we started to see orders come back through January for deliveries kind of in the May, June, July, June timeframe, and as I mentioned earlier, the water orders in January were up 13%, and a big part of that was the China orders from the distributors, so the market is definitely down a little bit, but if we could just get all the destocking to come back, that's a huge swing for us, even if the market for a little bit stays down, so the inventory in China on water will bottom in that kind of May, June timeframe, and that's why we're starting to see these orders, at least preliminarily in January, come in kind of for that time period. Yeah, and just from a logistics perspective, Ed had mentioned... Yeah, go ahead, Lori. Just real quick on the logistics perspective. So Ed had mentioned an expected bottoming at the distributor inventory levels in China in the May-June timeframe. We ship from the U.S. to them primarily.
Speaker Change: Yes, and just from my perspective.
Speaker Change: Okay. Yeah go ahead, maybe just real quick on the logistics perspective, So Ed had mentioned an expected bottoming at the distributor.
Speaker Change: Inventory levels in China in the May June timeframe.
Speaker Change: We shipped from the U S and primarily there's about a 60 day lag between when they need the material at their facility versus when we ship. It and then we recognize the revenue when we ship it so there will be at.
Speaker Change: A favorable impact.
Speaker Change: Our perspective on revenue versus when it arrives at their facilities certainties.
Speaker Change: In China.
Speaker Change: So what is the sort of two to three year growth rate for the water business will it step down anything because china's slower or this is temporary.
Speaker Change: Yes, we think it should still be in the mid single digit range. So we think the China has just said.
Speaker Change: Resolving of some higher inventory levels. If you look back at the volumes. So far we started to see a downturn globally and then talk about what those items water was up 8% in full year 2022, and then in the first half it was up 4% in Q1 and 9% in Q2, and then we started to see the downturn in Q3 so.
Speaker Change: We think it's a temporary dislocation there is still a lot of.
Lori Koch: There's about a 60-day lag between when they need the material at their facility versus when we ship it, and then we recognize the revenue when we ship it. So there will be a bit of a favorable impact from our perspective on revenue versus when it arrives at their facilities for use in China. So what is the sort of two to three year growth rate for the water business? Will it step down, you think, because China is slower or the system?
Speaker Change: Confidence in opportunities for outsized growth versus GDP and the water business.
Speaker Change: Thanks, a lot.
Speaker Change: Thanks, Laura.
Speaker Change: Your next question comes from Patrick Cunningham with Citi. Please go ahead.
Patrick Cunningham: Hi, Good morning, I'm, just curious on your expectations for the retained businesses in the corporate segment into the year. Given maybe you are starting to see a challenging auto and EV backdrop into the first half of the year.
Lori Koch: Yeah, we think it should still be in the mid-single-digit range, so we think that China is just a resolution of some higher inventory levels. If you look back at the volumes before we started to see a downturn globally—I'm going to talk about global volumes—water was up 8% in full year 2022, and then in the first half, it was up 4% in Q1 and 9% in Q2, and then we started to see the downturn in Q3. So we think it's a temporary dislocation.
Patrick Cunningham: Yes, so 2023 with very favorable for the auto industry kind of up in that high single digit range and be without the outperformed that in the EV space.
Patrick Cunningham: By about <unk>.
Patrick Cunningham: 25% to 30% of our portfolio is now on a full year basis for 2024, we do see it about flat from a volume perspective in line with where auto builds are so odd.
Patrick Cunningham: Obviously, China has been a slowdown a bit in 2024 off of a really strong 2023, especially tail end of 2023, but longer term, we're still very confident in the EV expansion opportunity in the pace of the EV growth.
Lori Koch: There's still a lot of confidence and opportunity for, you know, outsized growth versus GDP in the water business. Thanks a lot. Thanks, folks. Your next question comes from Patrick Cunningham with Citi. Please go ahead. Hi, good morning.
Patrick Cunningham: A really nice position to continue to benefit from that not only in that corporate retained businesses, primarily with adhesives, but also within DWP portfolio nomex, Congrats on a really nice opportunity on the E motor.
Patrick Cunningham: I'm just curious on your expectations for the retained businesses and the corporate segment into the year, given maybe we're starting to see a challenging auto and EV backdrop for the first half of the year. Yeah, so 2023 was very favorable for the auto industry, kind of up in that high single-digit range. And we would outperform that in the EV space just by about, 25 to 30 percent of our portfolio is now EV. On a full year basis, though, for 2024, we do see it about flat from a volume perspective, in line with where auto bills are. So obviously, China is going to slow down a bit in 2024 off of a really strong 2023, especially at the tail end of 2023.
Patrick Cunningham: Side of the house that you think no mechanism to later.
Speaker Change: Got it very helpful. And then just on spectrum, how is it performing relative to expectations and has it been hit by any residual destocking or deterioration in primary demand.
Yes. It is in line with our expectations, it's ramping nicely with the new customer win that we highlighted when we acquired the business thats going very well.
Speaker Change: <unk> integrated the business with vans.
Speaker Change: The company and combined it with our <unk> healthcare business to further take advantage of those commercial synergies that continues to be a nice opportunity for us.
Speaker Change: Great. Thank you.
Speaker Change: Thanks Roger.
Speaker Change: Your next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.
Patrick Cunningham: But longer term, we're still very confident in the EV expansion opportunity and the pace of EV growth. And we have a really nice position to continue to benefit from that, not only in the corporate retained businesses, primarily with adhesives, but also within the WP portfolio with Nomex. We've got a really nice opportunity on the e-motor side of the house with using Nomex as an insulator.
Vincent Stephen Andrews: Hi, first can I just clarify on the full year remarks, when you talk about sales and profit growth in the back half are you talking <unk> or maybe not <unk>, but definitely <unk>.
It starts in three Q, it's greater than <unk> from a year over year perspective.
Vincent Stephen Andrews: Okay, and then Ed can I ask you. The Destocking is what it is and it's going to be what it's going to be but thereafter.
Lori Koch: Got it. Very helpful. And then just on spectrum, you know, how is it performing relative to expectations? And has it been hit by any, you know, residual destocking or deterioration in primary demand? Yeah, it's in line with our expectations. It's ramping nicely with the new customer win that we highlighted when we acquired the business. That's going very well. We've actually integrated the business within the company and combined it with our Livio Healthcare business to further take advantage of those commercial synergies.
Edward D. Breen: In managing these businesses and investing in and presenting them to the investment community.
Edward D. Breen: Do you think about.
Edward D. Breen: Shipments versus demand and making sure that we don't get into another situation, where the supply chain winds up with more products and that will ultimately want or is that not something that you can really have the visibility on to control and that too will just be what it's going to be.
Edward D. Breen: Vincent only choice in my like I think 26 years now.
Edward D. Breen: Doing this.
Edward D. Breen: As this happens so it's a very rare event I mean, it was obviously.
Lori Koch: That continues to be a nice opportunity for us. Great, thank you. Thanks, Fred. Your next question comes from Vincent Andrews with Morgan Stanley. Please go ahead. Hi, first, can I just clarify on the full-year remarks when you talk about sales and profit growth in the back half, are you talking 3Q and 4Q, or maybe not 3Q, but definitely 4Q? It starts in 3Q.
Edward D. Breen: I mean look the semi story it just they overshot so much on inventory, but a lot of this was COVID-19 driven the craziness of the supply chain.
Edward D. Breen: It's not something that would normally happen. It really is kind of wanted to one of those once survey.
Edward D. Breen: Opportunities.
Or dislocations, let me say it that way.
Speaker Change: And if I may interestingly it goes down rapidly in a short cycle tingle up rapidly.
Speaker Change: It happened by with a little bit of OE. Two nine was destocking. It was mostly a true recession, where demand was down but I would say about a third of that then turned into destocking because of the situation and so got worse quicker than people were expecting but that recovered also.
Vincent Stephen Andrews: It's greater in 4Q from a year-over-year perspective. OK. And then, Ed, can I ask you, you know, the destocking is what it is, and it's going to be what it is, but thereafter, you know, in managing these businesses and investing in them and presenting them to the investment community, how do you think about shipments versus demand and making sure that we don't get into another situation where the supply chain winds up with more product than it will ultimately want, or is that not something that you Vincent, only twice in my, like, I think, 26 years of doing this have this happened.
Speaker Change: Fairly quick so I don't I, just don't see something like this happening again, we are almost as I said almost all of the short cycle business. So we really saw it.
Speaker Change: Across a lot of the portfolio normal parts Youre, just not going to pursue.
Speaker Change: Okay. Thanks, very much overshoot once a while but not to the extent of what we saw here of the severity of it.
Speaker Change: Okay. Thank you again.
Speaker Change: Okay.
Speaker Change: Your next question comes from Frank Mitsch with Fermium Research. Please go ahead.
Edward D. Breen: So it's a very rare event. I mean, it was obviously, I mean, look, you know, the semi-story, it's just they overshot so much on inventory. But a lot of this was COVID-driven, the craziness of the supply chain. It's just not something that would normally happen. It really is kind of one of those once in a lifetime events.
Frank J. Mitsch: Yes, hi, good morning.
Frank J. Mitsch: And you indicated that obviously you made a proactive decision to work down your inventories and you've mentioned a couple of times.
Frank J. Mitsch: The negative impact effect factory absorption in <unk> in 2003, I was wondering if you could size that for us and obviously as the expectation is that that's not necessarily going to continue in 2004, so that should be a nice.
Edward D. Breen: You know, opportunities or dislocations, let me say it that way. And, by the way, interestingly, it goes down rapidly in a short cycle and can go up rapidly. It happened, by the way; the little bit of 08-09 was mostly a true recession where demand was down. But I'd say about a third of that then turned into de-stocking because of the situation. And so it got worse quicker than people were expecting.
Tailwind for you.
Speaker Change: Yes, I think we had a little.
Speaker Change: North of $200 million of absorption headwinds in 2023, most of that in Eni that kick in a little bit towards the tail end of the year in 2000 22023 for WMC and that won't continue you want as well so we do see absorption headwinds in Q1.
Speaker Change: Right now given that our full year midpoint guide of $12 1 billion is about flat with this year on a year over year basis, we don't really see material absorption aon's could volumes arent materially improving there will be improvement first half second half I guess.
Vincent Stephen Andrews: But, you know, that also recovered fairly quickly. So I just don't see something like this happening again. And we are almost, as I said, almost all a short cycle business. So we really saw it across a lot of the portfolio. And in normal times, you're just not going to overshoot.
Speaker Change: <unk> story is different first half second half.
Speaker Change: But in the guide that we have provided we didn't bacon material benefits.
Edward D. Breen: OK, thanks very much. We'll overshoot once in a while, but not to the extent of what we saw here, and the severity of it. Thank you again.
Speaker Change: That plays out that could be a change positive change that initially that's where we sit.
Speaker Change: Okay got you. So perhaps there is some conservatism built in there, which I kind of got the sense. When you are talking about price cost for.
Frank J. Mitsch: Your next question comes from Frank Mitsch with Firmium Research. Please go ahead. Yes, hi, good morning.
Speaker Change: Four 424 being neutral I believe I would assume that you that you saw some benefits from price cost in the fourth quarter could.
Edward D. Breen: Ed, you indicated that you obviously made a proactive decision to work down your inventories. And you've mentioned a couple of times, you know, the negative impact of factory absorption in 4Q and in 23. I was wondering if you could size that for us.
Could you size that for us.
Speaker Change: Yes, we did see benefit in the fourth quarter and <unk>.
Speaker Change: 50% to $75 million range.
Lori Koch: And obviously, the expectation is that that's not necessarily going to continue in 24. So that should be a nice tailwind for you. Yeah, Frank, we had a little north of $200 million of absorption headwinds in 2023; most of that in E&I did kick in a little bit towards the tail end of the year in 2020. In 2023 for W&P, and that will continue in Q1 as well. So we do see abductions and headwinds in Q1. Right now, given that our full-year midpoint guide of $12.1 billion is about flat with this year, on a year-over-year basis, we don't really see material absorption tailwinds because volumes aren't materially improving. There will be improvement in the first half and second half because the volume story is different in the first half and second half, but in the guide that we have provided, we didn't take in any material benefits.
Speaker Change: We do see some further tailwind year over year in Q1, just really from that carryover benefit of the raws that we were buying that we're stuck in inventory and are now coming out.
Speaker Change: Right now our view is that we would still see those benefits about $100 million on a full year basis in 'twenty four but we expect about a 1% price get back, but a lot of it being in the shelter shelter business as we had kind of been flagging all along that's where we've gotten those price.
Speaker Change: To begin with them in 2022, and 2023 time frame.
Okay, great. Thank you.
Speaker Change: Thanks, Rick.
Speaker Change: Your next question comes from Arun Viswanathan with RBC capital markets. Please go ahead.
Arun Viswanathan: Okay great.
Arun Viswanathan: Great. Thanks for taking my question.
Arun Viswanathan: Obviously, a lot of the questions have been answered, but just wanted to reconfirm. So.
Lori Koch: Obviously, if that plays out differently, that could be a change, a positive change, but initially, that's where we sit. Okay, gotcha. So perhaps there's some conservatism built in there, which I kind of got the sense when you're talking about price costs for, you know, for 24 being neutral. I believe I would assume that you saw some benefits from price costs in the fourth quarter. Could you size that for us?
Arun Viswanathan: I know that.
Arun Viswanathan: Made the statement that your volumes could snap back quickly but.
Arun Viswanathan: Is that fair.
Arun Viswanathan: At all concerned.
Arun Viswanathan: With that happening now with maybe China growing at a slightly lower structural growth rate going forward, maybe just comment on what youre hearing.
Arun Viswanathan: Out of China.
Arun Viswanathan: Yes.
Even if China potentially is at a lower structural growth rate year over year, it's coming off a pretty.
Arun Viswanathan: So full year volumes in China.
Frank J. Mitsch: Yeah, we did see benefits in the fourth quarter in the 50 to $75 billion range. We do see some further tailwinds year over year in Q1, just really from that carryover benefit of the RODs that we were buying that were stuck in inventory and are now coming out. But, you know, right now our view is that we would still see those benefits, about $100 million on a full year basis in 2024, but we expect about a 1% price giveback, with a lot of it being in the shelter businesses we had kind of been That's where we got the most price, to begin with, in the 2022-2023 time frame. Okay, great. Thank you. Thanks, Frank. Your next question comes from Arun Viswanathan with RBC Capital Markets. Please go ahead.
Arun Viswanathan: We're down in the mid teens and so it's not a high hurdle to jump off of as you head into 2020 or to deliver growth. We still have a lot of confidence longer term in those markets that are <unk>.
Arun Viswanathan: Highly rooted in China.
Arun Viswanathan: Especially on the electronic side and on the water side.
Arun Viswanathan: We expect improvement.
Arun Viswanathan: Just turning to the electronics side.
Arun Viswanathan: I think we are being overly aggressive.
Arun Viswanathan: Talk to our large customers when you look at the Fab Utilizations were basically going from the low Seventy's, we said low.
Arun Viswanathan: Low eighty's.
Arun Viswanathan: Didn't really good times they run at that 19 piece. So we probably still have a more upside that would kick in in that part of the business even going into 2025.
Speaker Change: It's not we're.
Speaker Change: We're not assuming it all snaps back in 2024 to where it had been running.
Arun Viswanathan: Great. Thanks for taking my question. Obviously, a lot of the questions have been answered, but just wanted to reconfirm. So, you know, I know that you made the statement that your volumes could snap back quickly. But is that, are you at all concerned, you know, with that happening now, with maybe China growing at a slightly lower structural growth rate going forward? Maybe you can just comment on what you're hearing, you know, out of China. Yeah, I mean it.
Speaker Change: Right and then.
Speaker Change: Given that we have experienced.
Speaker Change: A fair amount of volatility here in cyclicality.
Speaker Change: One of the transformation kind of strategies was to reduce that peak to trough cyclicality or do you still feel the same way about the current portfolio as far as <unk>.
Speaker Change: Lower than that.
Speaker Change: Cyclicality.
Speaker Change: Post transaction I totally.
Speaker Change: They're businesses that would qualify for for disposition at this point.
Edward D. Breen: Even if China potentially is at a lower structural growth rate, year over year, it's coming off a pretty small base. So, full year volumes in China are down in the mid-teens, and so, you know, it's not a high hurdle to jump off of as you head into 2024 to deliver growth. We still have a lot of confidence in the longer term in those markets that are highly rooted in China, you know, especially on the electronic side and on the water side. We expect improvement. Yeah, by the way, just turning to the electronic side, I don't think we're being overly aggressive.
Speaker Change: No no I totally feel in normal times.
Speaker Change: Tore consistent portfolio.
Speaker Change: Yes.
Speaker Change: I'm here with the Destocking of the inventory build from Covid at all.
Speaker Change: Short cycle, but.
Speaker Change: These are good secular businesses, we've got good market positions. So we feel good about where we're at just kind of get through this period and start lifting.
Speaker Change: Got it thanks.
Okay.
Speaker Change: Your next question comes from Steve Byrne with Bank of America. Please go ahead.
Edward D. Breen: We've talked to our large customers. When you look at the fab utilizations, we're basically going from the low 70s, we said, to the low 80s. In really good times, they run in the 90s, so we probably still have more upside that would kick in in that part of the business, even going into 2025. It's novel, although we're not assuming it all snaps back in 2024 to where it had been
Steve Byrne: Well. Thank you for your businesses within WMC heavily rely on distributors.
Steve Byrne: I'm curious how much visibility do you have not just on your own products and inventory at these distributors, but competitor products.
Steve Byrne: And the reason I ask is I'm, just wondering whether or not you are you're seeing the potential for a shift to competitor products, perhaps in <unk>.
Steve Byrne: Water in China, anything that youre seeing or that as is.
Arun Viswanathan: Right. And then, given that we have experienced, you know, a fair amount of volatility here and cyclicality, one of the transformational kinds of strategies was to, you know, reduce that peak to trough cyclicality. Do you still feel the same way about the current portfolio as far as lowering that cyclicality, you know, post-transformation or other businesses that would qualify for disposition at this point? No, no, I totally feel it in normal times when it's a more consistent portfolio.
Steve Byrne: There is a concern on the competitive front.
Steve Byrne: No.
Steve Byrne: Steve.
Steve Byrne: Okay.
Steve Byrne: We're tracking well because of the services, we are tracking the way closer with our distributors.
Steve Byrne: Good news is our distributors in China. There is a handful of really big ones. So if we can get our arms around that we've asked the competitive issue.
Edward D. Breen: Again, an unusual time here with the destock and the inventory built from COVID, a short cycle, but no, these are good secular businesses. We've got a good market position, so we feel good about where we're at. Just got to get through this period and start.
Steve Byrne: We're very close to them I don't I don't see any issues there at all.
Speaker Change: Okay, and how would you.
Speaker Change: How would you look at your businesses and highlight any opportunities for you.
Speaker Change: A new technology or a new application of your products that can really drive growth anything that you would highlight.
Arun Viswanathan: Got it, thanks. Thank you. Thank you. Thank you. Your next question comes from Steve Byrne with Bank of America. Please go ahead. Thank you. Your businesses within W&P heavily rely on distributors. I'm curious, how much visibility do you have, not just on your own products in inventory at these distributors but on competitor products? And the reason I ask is I'm just wondering whether or not you're seeing the potential for a shift to competitor products, perhaps in water, in China. Anything that you're seeing there that is a concern on the competitive front? No. No, Steve.
Speaker Change: An example would be.
Speaker Change: The water moving into lithium extraction.
Speaker Change: Well Youre joining union.
Yes.
Speaker Change: Yes.
Speaker Change: I'll give you two and you just said the one the lithium opportunity could be substantial.
Speaker Change: Substantial for us.
Speaker Change: Because that needs upon filtration as you guys know.
Speaker Change: The other I would just say big trend out there that we've already talked to but has a real good opportunity for us because it's in our sweet spot is the whole AI thing.
Steve Byrne: And we, by the way, we're tracking, well, because of the circumstances, we're tracking way closer with our distributors. The good news is that our distributors in China, there are a handful of really big ones. So if we can get our arms around that, we've asked the competitive issue, and we're very close to them. I don't I don't see any issues there at all. Okay, and how would you look at your businesses and highlight any opportunities for? You know, a new technology or a new application of your products that could really drive growth. Anything that you would highlight, an example would be, you know, like water moving into lithium extraction. Do you see any meaningful opportunities? Yeah, Steve. I would give you two, and you just said the one.
Speaker Change: It would be the two big ones.
Thank you.
Speaker Change: Great. Thanks, Steve.
Speaker Change: Our final question comes from Mike Sison with Wells Fargo. Please go ahead.
Mike Sison: Hey, good morning.
Mike Sison: And when you think about the earnings power of Dupont and then you look at the second half of 'twenty for the run rate EBITDA is going to be much higher than the first half. So so when we think about growing 10%.
Mike Sison: <unk> 25, and beyond should we take that second half run rate.
Mike Sison: Where do you think the earnings power is.
Mike Sison: Longer term 'twenty six 'twenty seven.
Mike Sison: In terms of EBITDA.
Mike Sison: Yes, I mean, we obviously see exited at a higher margin than where we start the year. So our current expectations that we would exit butting up against 26% EBITDA margin in the fourth quarter. We've always said that we think the EBIT margin profile for the total company should be in that 27, 28% range.
Edward D. Breen: The lithium opportunity could be substantial for us because that needs a ton of filtration, as you guys know. And the other, I would just say, big trend out there that we've already talked about but has a really good opportunity for us because it's in our sweet spot is the whole AI thing. I would say those would be the two big ones.
Mike Sison: We don't have a change to that with Eni.
Mike Sison: In the low thirties, and Debbie and being in the <unk> and.
Edward D. Breen: Thank you. Great. Thanks, Steve. Our final question comes from Mike Sisson with Wells Fargo. Please go ahead. Hey, good morning.
Mike Sison: In mid 'twenty.
Mike Sison: So.
Mike Sison: We exit the year as I had mentioned running up against 26% kind of in the low 800 range. If you look back to our peak earnings.
Mike Sisson: Ed, when you think about, you know, the earnings power of DuPont, you look at the second half of 24, the run rate EBITDA is going to be much higher than the first half. So, when we think about growing into 25 and beyond, should we take that second half run rate? And then where do you think the earnings power is, you know, longer term, 26, 27, in terms of EBITDA? Yeah, I mean, we often exit at a higher margin than where we start the year. So our current expectations are that we would exit, you know, butting up against 26 percent EBITDA margin in the fourth quarter. We've always said that we think the EBITDA margin profile for the total company should be in that 27, 28 percent range.
Mike Sison: In late 2022, they were more in that $8 50 range and they didn't have spectrum in them.
Mike Sison: There is still quite clear the opportunity for occupancy to expand.
Mike Sison: Beyond that Bryan rate that we'll expect to see at the end of this year.
Speaker Change: And maybe just to add one for the longer term.
Speaker Change: And again stabilize times cash this portfolio should outgrow GDP and the other half should grow with GDP just to give you a feel.
Speaker Change: That would be the magnitude in one of the things that as I mentioned a minute ago still has to come back even more a 2025 as the semi industry and the utilization rates still decline from where we would exit 'twenty four.
Speaker Change: Got it thank you.
Speaker Change: Yes. Thank you.
Kevin W. McCarthy: This concludes our Q&A session I will now turn the call back to Chris Mccarthy for any closing remarks.
Mike Sisson: And we don't have a change to that, you know, with E&I being in the low 30s and W&P being in the kind of mid 20s. So we exit the year, as I had mentioned, butting up against 26 percent, kind of in the low 800 range. If you look back to our peak earnings in late 2022, they were more in that 850 range, and they didn't have spectrum in them. So, you know, there's still clearly an opportunity for us to expand beyond that run rate that we'll expect to see at the end of this year. And maybe just to add one for the longer term, you know, and again, in stabilized times, half this portfolio should outgrow GDP, and the other half should grow with GDP. Just to give you a feel for how big that would be.
Kevin W. McCarthy: Well. Thank you all for joining the call for your reference a copy of the transcript will be posted on our website as usual. This concludes our call. Thank you.
Kevin W. McCarthy: This concludes today's conference you may now disconnect.
Kevin W. McCarthy: [music].
Kevin W. McCarthy: Okay.
Kevin W. McCarthy: Yeah.
Kevin W. McCarthy: [music].
Kevin W. McCarthy: Yeah.
Edward D. Breen: And one of the things that, as I mentioned a minute ago, still has to come back even more in 2025 is the semi-industry, and the utilization rates still decline from where we would exit 24. Got it. Thank you. Yes, thank you.
[music].
Kevin W. McCarthy: Okay.
Kevin W. McCarthy: Okay.
Kevin W. McCarthy: [music].
Chris McRae: This concludes our Q&A session. I will now turn the call back to Chris McCray for any closing remarks. Thank you all for joining the call. For your reference, a copy of the transcript will be posted on our website. As usual, this concludes our call. Thank you. This concludes today's conference. You may now disconnect.
Kevin W. McCarthy: Okay.
Kevin W. McCarthy: Yeah.
Kevin W. McCarthy: [music].
Kevin W. McCarthy: Thank you.
Kevin W. McCarthy: [music].
Kevin W. McCarthy: Okay.
Kevin W. McCarthy: Yeah.
Kevin W. McCarthy: Yes.
Kevin W. McCarthy: Sure.