Q3 2024 DuPont De Nemours Inc Earnings Call
Pam: Thank you for standing by my name is Pam and I will be a conference operator today. At this time, I would like to welcome everyone to the DuPont 3rd Quarter, 2024 earnings conference call.
Pam: All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
Pam: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Chris Mecray, Investor Relations. You may begin.
Chris Mecray: Good morning, and thank you for joining us for DuPont's third quarter 2024 Financial Results Conference call.
Chris Mecray: Joining me today are Ed Breen, Executive Chairman, Lori Koch, Chief Executive Officer, and Antonella Franzen, 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.
Chris Mecray: 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 results may differ materially from our forward-looking statements.
Chris Mecray: Our Form 10-K, as updated by our current and periodic reports, includes detailed discussion of principal risks and uncertainties, which may cause such differences.
Chris Mecray: unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items.
Chris Mecray: We will also refer to other non-GAAP measures. A reconciliation of the most directly comparable GAAP financial measure is included in our press release.
Chris Mecray: and presentation materials and have been posted to DuPont's Investor Relations website.
Speaker Change: I'll now turn the call over to Lori. We'll begin.
Lori Koch: Good morning and thanks everyone for joining our third quarter call. Earlier today, we reported another strong quarter of financial performance with continued sequential improvement across all key financial metrics.
Chris Mecray: We posted a solid quarter highlighted by year-over-year growth for consolidated net sales, operating EBITDA, and adjusted EPS.
Chris Mecray: Third quarter sales of $3.2 billion included a return to organic sales growth, which increased 3% versus the year-ago period.
Chris Mecray: Operating EBITDA of $857 million increased 11%, with operating EBITDA margin increasing 150 basis points to 26.8%.
Chris Mecray: Third quarter adjusted EPS of $1.18 increased 28% year-over-year.
Chris Mecray: We also delivered another strong quarter of cash generation with transaction-adjusted pre-cash flow conversion of 130%, highlighting our disciplined working capital management.
Chris Mecray: For the full year 2024, we are raising our guidance for operating EBITDA and adjusted EPS, which Antonella will detail shortly.
Chris Mecray: From an end market view, the electronics and industrial segment saw another quarter of double-digit sales growth in both the SEMI and AirConnect solutions lines of business, which continue to benefit from strong demand for advanced node chips and AI enabling technologies.
Chris Mecray: In the water and protection segment, we saw better-than-expected sequential improvement in water, including continued stabilization in China volumes.
Chris Mecray: We also saw further sequential sales lift in medical packaging and markets, which are returning to more normalized buying patterns.
Chris Mecray: Overall, I'm encouraged by our continued positive results. Volume recovery has been a key driver of our financial performance, coupled with our team's continued strong operational execution and helped by savings from the restructuring actions taken earlier this year.
Chris Mecray: I am pleased to say we have made real progress with our Operational Excellence Initiative with benefits seen in improved margins and working capital and enhanced customer reliability metrics.
Chris Mecray: By fostering a culture of continuous improvement and equipping our teams with the right tools and training, we are well positioned to unlock long-term value across each business line.
Chris Mecray: Specific to the training aspect, we have been actively investing in our people and have completed around 30,000 hours of training here to date.
Chris Mecray: We count on operational excellence to drive productivity every year as a key offset to inflation.
Chris Mecray: Through focus on process optimization, we have successfully reduced costs across critical operations with benefits from increased uptime, leading to incremental capacity release and lower fixed and variable costs.
Chris Mecray: All in, we are pleased to report a strong third quarter and are well positioned for a solid finish to the year.
Speaker Change: I'll now turn the call over to Ed who can provide a few comments around our progress on the plan separations on slide 4.
Ed Breen: Thanks, Lori, and good morning, everyone. We clearly remain focused on driving results and demonstrating the performance potential of our portfolio, while also advancing our plans to unlock value through the previously announced separations of our electronics and water businesses.
Chris Mecray: We remain excited about this value creation opportunity and believe our investors broadly appreciate the potential that we expect these three industry-leading companies to realize by leveraging tailored growth strategies.
Our teams remain highly motivated and have the experience to ensure that the new companies are prepared to operate and execute from day one.
Chris Mecray: We continue to make progress on our separation-related work streams.
Chris Mecray: We're also working diligently to accelerate our timing to potentially complete the separations closer to the earlier end of the 18 to 24 months timeline set at our May announcement and we'll update you as we progress.
Speaker Change: In addition, we are making progress in establishing the new boards.
Speaker Change: which have been a major focus of mine and we expect to be able to announce board members of each company along with key executive leadership appointments for electronics and water by the end of the first quarter of 2025.
Speaker Change: With that, I'll turn it over to Antonella, who will cover our financial results in Outlook.
Antonella Franzen: Thanks, Ed, and good morning, everyone. We are very pleased that our third-quarter results reflect sequential improvement across all key financial metrics and a return to organic sales growth at the consolidated level.
Antonella Franzen: Both earnings and cash flow benefited from volume recovery and improved production rates at key operating sites, and our team has executed well on productivity and cost actions announced last year.
Antonella Franzen: Turning to slide 5, I will cover our third quarter financial highlights in further detail.
Antonella Franzen: Net sales of $3.2 billion increased 4% versus the year-ago period on organic sales growth of 3% and favorable portfolio impact of 2% reflecting contributions from both the Spectrum and Donatel acquisitions.
Antonella Franzen: These increases were partially offset by a 1% currency headwind.
Antonella Franzen: The organic sales growth of 3% reflects a 5% increase in volume, partially offset by a 2% decrease in price.
Antonella Franzen: Higher volume was driven by continued broad-based growth in electronics and markets with semi and interconnect solutions volumes both up double digits, coupled with the return to year-over-year volume growth in water solutions.
Antonella Franzen: On a segment view, E&I organic sales grew 10% and WMT's quarterly organic sales decline moderated further to 2%, on its way to an anticipated return to positive growth in the fourth quarter.
Antonella Franzen: Organic sales in corporate declined 6% versus a year ago period, driven by continued weakness in China's solar markets, which led us to exit a photovoltaic film product line during the third quarter.
Antonella Franzen: This product line represents less than 1% of consolidated Nessus.
Antonella Franzen: From a regional perspective, Asia-Pacific delivered 9% organic sales growth versus the year-ago period, led by another strong quarter in China, where organic sales were up below double digits, driven by electronics and markets.
Antonella Franzen: In other regions, organic sales in Europe moved 1% while North America was down 2%.
Antonella Franzen: Second quarter operating EBITDA of $857 million increased 11% versus the year-ago period as volume gains, along with improved plant utilization and savings from restructuring actions, were partially offset by higher variable compensation and select growth investments.
Antonella Franzen: Operating EBITDA margin during the quarter increased to 26.8%, up 150 basis points versus the year-ago period, and up 160 basis points on a sequential basis.
Antonella Franzen: Third quarter reflected another period of strong cash generation and conversion, reflecting both improved volume as well as strong working capital discipline across each business line.
Antonella Franzen: On a continuing operations basis, cash flow from operations of $737 million, less capital expenditures of $109 million, and $12 million of separation-related transaction cost payments.
Antonella Franzen: resulted in transaction-adjusted free cash flow of $640 million and related conversion of 130%.
Antonella Franzen: Turning to slide 6.
Antonella Franzen: Adjusted EPS for the quarter of $1.18 per share increased 28% from $0.92 in the year-ago period.
Antonella Franzen: Higher segment earnings of $0.14, as well as the benefits of a lower share count of $0.09 and lower tax rate of $0.06, were partially offset by higher depreciation of $0.03.
Antonella Franzen: Our base tax rate for the quarter was 19.8%, down from 24.6% a year ago, driven by certain discreet tax benefits reported in the current period.
Antonella Franzen: We now estimate our full year 2024 base tax rate to be approximately 23.5 percent.
Antonella Franzen: Turning to second results, beginning with E&I on slide 7.
Antonella Franzen: E&I third quarter sales of $1.6 billion increased 13% versus the year-ago period as organic sales growth of 10% and the Spectrum and Dottotel sales contribution of 4% were slightly offset by a 1% currency headwind.
Antonella Franzen: Organic sales growth of 10% reflects an 11% increase in volume, slightly offset by a 1% decrease in price.
Antonella Franzen: At the line of business level, organic sales per semi were up more than 20% for the second consecutive quarter, reflecting continued overall semi-demand recovery driven by AI technology ramps and share gains in certain products.
Antonella Franzen: Semi-demand was notably strong in China, including continued customer pre-buying, similar to what we saw last quarter.
Antonella Franzen: As we move forward, we expect China demand to normalize, but still remain strong.
Antonella Franzen: Overall, semifab utilization continues to improve, averaging 76% during the quarter, though notably stronger for advanced node chips due in part to AI-related demand acceleration.
Antonella Franzen: InterConnect Solutions delivered another strong quarter as well, with organic sales fell below double digits, reflecting continued broad-based electronics recovery, including a demand benefit from AI-driven technology ramps.
Antonella Franzen: We saw content and share gains within high-value electronic applications and a volume recovery within the overall printed circuit board space.
Antonella Franzen: The year-over-year sales decline in industrial solutions continued to pottery as organic sales were down slightly during the quarter, and strength in printing and packaging applications was offset by ongoing volume headwinds for calvary.
Antonella Franzen: Also within Industrial Solutions, we completed the acquisition of Donatel, a medical device manufacturer, at the end of August.
Antonella Franzen: We are very pleased with the integration of Dottatel into Spectrum and are seeing the potential benefit to leverage Dottatel's technology and capabilities to other businesses, as well as cross-selling opportunities within our healthcare platform.
Antonella Franzen: Operating EBITDA for E&I of $467 million, was up 22% versus the year-ago period, driven by volume growth, the impact of higher production rates,
Antonella Franzen: Savings from restructuring actions, as well as the earnings contribution from Spectrum and Dovetail.
Antonella Franzen: offset by higher variable compensation and select growth investments related primarily to the ongoing transition to advanced nodes and new and ramping AI applications across both semi and interconnect solutions.
Antonella Franzen: Operating EBITDA margin during the quarter was 30.1%, up 210 basis points versus the year-ago period.
Antonella Franzen: Turning to sliding.
Antonella Franzen: W&P's third quarter net sales of $1.4 billion declined 2% versus the year-ago period, primarily due to price headwinds as overall segment volumes were flat.
Antonella Franzen: Within Safety Solutions, organic sales were down mid-single digits, largely on price declines, along with lower volumes driven mainly by Tyvek Medical Packaging.
Antonella Franzen: We did see a second consecutive quarter of sequential sales lifts in medical packaging, with sales up 10% in Q3.
Antonella Franzen: Shelter solution sales were down slightly on an organic basis, with headwinds in North American residential construction markets, mostly offset by growth in commercial construction.
Antonella Franzen: The third quarter includes a return to year-over-year sales growth for water solutions, where organic sales were up low single digits.
Antonella Franzen: Fire volumes were driven by strength in ultrafiltration technologies, along with continued volume recovery in China.
Antonella Franzen: On a sequential basis, water solution sales also increased for a second consecutive quarter with sales up 3%, which was better than our expectation coming into the quarter.
Antonella Franzen: Operating EBITDA for W&P during the quarter of $364 million was up 1% versus the year-ago period as productivity and savings from restructuring actions more than offset the organic revenue decline and higher variable compensation.
Antonella Franzen: Operating even a margin during the quarter was 26.3%.
Antonella Franzen: of 70 basis points from the year-ago period.
Antonella Franzen: As we move into the fourth quarter, we expect strong volume growth on a year-over-year basis.
Antonella Franzen: Moving to our outlook of slide 9.
Antonella Franzen: For the fourth quarter, we expect net sales, operating EBITDA, and adjusted EPS of about $3.07 billion.
Antonella Franzen: $790 million and $0.98 per share respectively.
Antonella Franzen: On a year-over-year basis, our fourth quarter guidance assumes sales and earnings growth from both E&I and W&P, translating to total company growth and net sales of about 6%.
Antonella Franzen: operating EBITDA of 10% and adjusted EPS of 13%.
Antonella Franzen: Sequentially, we assume normal seasonal declines in electronics and construction markets.
Antonella Franzen: Additionally, as I mentioned earlier, we expect to see a moderation of growth in China as pre-spine and semi plays out, as well as the impact of exiting the PV film product line.
Antonella Franzen: Partially offsetting these sequential declines is the continued recovery in water and medical packaging and markets.
Antonella Franzen: For the full year 2024, we are raising our earnings guidance above the high end of our prior range and now expect operating EBITDA of about $3.125 billion and adjusted EPS of $3.90 per share.
which reflects 12% EPS growth year over year.
Antonella Franzen: With that, we are pleased to take your questions, and let me turn it back to the operator to open the Q&A.
Speaker Change: Thank you. We'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Please be reminded that you can ask one question and one follow-up.
Speaker Change: And the first question comes from the line of Steve Tusa from J.P. Morgan. Please go ahead.
Speaker Change: Steve Tusa of JPMorgan, please go ahead.
Speaker Change: Thanks, Pam, we can come back to him.
Pam: All right.
Speaker Change: Our next question comes from the line of Scott Davis from Milius Research. Please go ahead.
Scott Davis: Hey, good morning Chris and Ed, Laurie, Antonella.
Speaker Change: or Renshaw on...
Scott Davis: Congrats on the quarter.
Scott Davis: Hey, Ed, I wanted to come back to your comments on the, looks like the bid-ask on the 18 to 24 months has narrowed down a bit, but what are the work streams, you know, you put the work streams on slide four, six of them, but like, what are the gating factors, kind of why do you feel a little bit more comfortable today perhaps than three months ago in that time frame?
Ed Breen: Yeah, we've made great progress, you know, two of the longer polls in the tent, the legal entity work and the IT.
work to separate everything and the teams have made tremendous progress on that so
Speaker Change: Our confidence level is definitely up, and that's why we made the comment that, you know, we might be more on the 18-month timeline somewhere, and maybe in that zip code, which, if we could get it all the way to that, would be December 2025.
Speaker Change: So we'll keep you posted on that. We're pretty positive we're going to move it in. The issue is can we move it in, you know, all that way.
Speaker Change: Okay, fair enough. And guys, the electronics business, the pre-buy, we've talked about that the last two quarters.
Speaker Change: Why is there a pre-buy? Are they concerned about not having enough or not being able to supply enough product on time? Why do they want to build inventory, I guess?
Speaker Change: Yeah, so a lot of it is shot around the...
Speaker Change: Yeah, so a lot of it Scott is around the new fabs that are being put in place in China So last quarter we had mentioned 30 million in total 20 million of which was in semi this quarter. It's another 20 million for a total of 40 or the second half and it's really the new fabs coming online So about about half of the global fabs that are being constructed are in China There's about seven of them
Speaker Change: four in the logic space and three in the memory space. And as they bring their new fabs online, they pre-buy to get through qualifications and the ramp. So it's really a function of that.
Speaker Change: from the pre-buy perspective that we had quoted.
Scott Davis: That's what happens when you're not a tech analyst. I had no idea. So I'll pass it on. Thank you. You're welcome. Bye-bye.
Speaker Change: Your next question comes from the line of Steve Tusa from J.P. Morgan.
Steve Tusa: Hey guys, good morning, sorry about that.
Speaker Change: Good morning Steve. Just a lot going on today I guess. Can you just talk about the trends you saw you know in exiting September and into October just for you know broadly the various businesses in the portfolio anything move around materially?
Speaker Change: Now minus the normal seasonality that you see in the quarter with the last month being the strongest primarily in the water space there wasn't a lot of variability as we exited the quarter. I mean if we go into the fourth quarter we have the usual seasonal weakness that we see primarily within the electronic space and in the shelter space.
Antonella Franzen: And as you recall, as we had done on the last earnings call, we had mentioned that the recovery kind of came early and the seasonality that you normally would see from 2Q to 3Q was a little muted.
Antonella Franzen: And therefore, to see the seasonality as you head into the fourth quarter, you have to compare the fourth quarter to the second quarter, and that's where you see that about 100 million that we typically see between the electronics and the shelter space.
Okay, and then in the W&P margins, anything unusual there? Really strong margins in the quarter and anything going on there? Any raw material relief or you know maybe price cost something like that?
Antonella Franzen: Thank you. Thank you.
Speaker Change: We were really pleased with the margins that we saw. It's a lot of operational execution that we've been driving across the whole company. So we took a lot of restructuring actions earlier this year. We're seeing the benefit of those.
Speaker Change: We're driving productivity and operational excellence. We shuttered a couple older lines in the U.S. in the safety business that are nicely impacting our margin profile. So we're encouraged by the 26% plus that we posted in Q3.
Speaker Change: So that should be able to leverage nicely as volumes come back, I would assume.
Antonella Franzen: Yes.
Speaker Change: Okay, great. Thanks a lot.
Antonella Franzen: Mm-hmm.
Speaker Change: Your next question comes from Chris Parkinson from Wolf Research. Please go ahead.
Chris Parkinson: Great, good morning. Just want to dig in a little bit more into the semi-tech side of it. I mean, you know, clearly you have some benefits from some of the shiny subs, but can you just dig in a little bit more by, you know, product substrate in terms of, you know, the pad flurries. It just seems like there's a bit of a bifurcation between
Chris Parkinson: Some of the product categories versus others based on what's evolving in the marketplace. So any color there would be particularly helpful. Thank you
Speaker Change: Yeah, I mean, we saw strength across all the key semi-technologies. So within the CMP space with pads and flurries, within the LISCO space, we saw really nice results, and in the clean space. So it's a combination of
Antonella Franzen: won the market recovery from the DSOC that happened last year.
Antonella Franzen: to the strength that we have in China. So we are a larger footprint in China than some of our peers. And that's where a lot of the new fab construction is going on. A lot of the outsize recovery is happening. And then our exposure to advanced nodes versus the legacy nodes and DRAM versus memory is driving our results. So, you know, we had been up
Antonella Franzen: 50% plus in China, so that was a key driver of the overall SEMI results being up in the low 20% range.
Speaker Change: That's helpful. And just as a follow-up on the WMP side, you've got some things going pretty well, but it still seems like the macro is, you know, overall a little bit sluggish still. Just digging to the water side of it, can you just hit on kind of the drivers of the ultrafiltration strength? It seems like China's
Antonella Franzen: you know, kind of beginning to turn the corner. Just how we should ultimately be thinking about that. Is this now back to normalization as we kind of get into 2025 or are there any other considerations we should be looking at? Thank you.
Speaker Change: Yeah, we should start to see activity more normalized now. I think we're clearly past the worst of it. We've seen sequential improvement from the first quarter, the second quarter. We saw it again going into Q3.
Antonella Franzen: and we would expect we continue to see some sequential improvement as we move into Q4. So overall the business has definitely gotten back to where, getting close back to where we used to be. I would tell you the activity in China has improved. The ultrafiltration activity isn't particularly just in any one region to call it out, but we're definitely seeing much better activity overall in water and it's kind of past the de-stock.
Speaker Change: Very helpful. Thank you.
Antonella Franzen: Mm-hmm
Speaker Change: Your next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.
Vincent Andrews: Thank you and good morning everybody. Maybe just one more item of something that needs to turn the corner a little bit is the CalRes destocking. Are you sort of at the bottom of that and should we start to see that inflect?
Speaker Change: Yeah, we're definitely at the bottom. We actually saw sequential improvement. We're still seeing year-over-year headwinds, so we expect the business to continue to stabilize and see recovery as we head into 2025. So just a reminder of the CalRes end markets.
Speaker Change: largely semi-CAPEX exposed. So the long-term profile and expectations for top-line growth in that business are very sound as there continues to be an expectation of, you know, mid-single-digit capacity expansions within the semi-space.
Speaker Change: And then I'd be curious to get your thoughts on interest rates. You know, I think we've all been sort of poised and waiting for these cuts, and they're kind of starting to happen.
Antonella Franzen: the curve is not sort of behaving the way I think we all thought it would and that the back end has kind of stayed high and the front end has come down. So maybe you could just talk about, you know, if rates do get cut, which parts of your businesses will benefit the most from the front end coming down versus which parts really need the back end to come down?
Speaker Change: Yeah, I mean, on the front end, it would be the construction markets, you know, primarily the North America residential space. And so we had mentioned in our 4Q expectations that they're a little muted in the shelter space because the rate cuts didn't happen quickly enough. We'll see what happens here at the next meeting. If the expectation is true that they'll cut again. But I would say the front end, that's our largest exposure with respect to positive movement of rates until we need to slide down.
Antonella Franzen: More broadly, obviously, the lower-rate conspiracy, broader economic activity that we see for all of our businesses.
Antonella Franzen: Your next question comes from Josh Spector of UBS. Please go ahead.
Josh Spector: Yeah, hi, good morning. I wanted to ask on, not necessarily the SPIN timeline per se, but really, are there alternatives?
Antonella Franzen: still being explored for any of the businesses, water or electronic, outside of the spins, be it a sail or RMT. And just, if you are, how do you think about maybe achieving something there versus the spin timeline? What would be more important to you?
Speaker Change: Yeah, no, it's a little simpler than that, Jeff. Our plan is to do the separation of both water and electronics, and we're moving very rapidly down that road.
Speaker Change: As we mentioned on the prepared remarks, we're talking to potential board members already. We'll be making board announcements for the companies and management announcements for those companies during the first quarter of next year.
Jeff: Okay, clear enough.
Josh Spector: And on the core business, I wanted to ask about, you know, you had some comments about increased investments, increased variable comp, obviously some of that makes sense given the better operating performance.
Speaker Change: But I was wondering if we think about the level of investment taking place now. Is that fully back to normal in that if we look at growth, the incrementals become higher as we look forward, or are you still investing at a lower level given demand remains tepid?
Speaker Change: Yeah, I mean, we're not going gangbusters, right? So we had some growth investments primarily within the electronics space as we look to continue to take advantage of the AI recovery. And we had mentioned the variable compensation headwinds. So you can see in our proxy results from last year, our variable compensation was
Speaker Change: They're at an average of 50% payout, so that can be a headwind as we head into...
Speaker Change: 2024. You know, we continue to keep button down until we're really confident that we've got recovery across the board. We continue to make CAPEX levels at the same level as where they were last year.
Antonella Franzen: We'll continue to expect to revise those down as best we can below the 5% level.
Antonella Franzen: So no, I wouldn't expect any outsized investments. We continue to be really smart. One of the key areas I think that's driving the margin profile that we're seeing is we did take a lot of action, but especially on the plant fixed cost front as we saw the volumes decline last year, and we've done a really nice job of keeping those out even as volumes have recovered. So that's also driving a piece of our margin recovery.
Speaker Change: Okay, thank you.
Speaker Change: Your next question comes from John Roberts of Mizuho. Please go ahead.
John Roberts: Thank you. Is China about 50% of the electronic sales and how much of that would be made in China for China as opposed to imported into China and might have some risks from some trade retaliation by China?
Speaker Change: Yeah, so China is about 30% of electronic sales, so about half of that is China for China and the other half goes in and comes back out for global consumption.
Speaker Change: Okay, and then how is advanced mobility looking with the slowdown in both EVs and ICE vehicles outside of China?
Speaker Change: Yeah, so we continue to see nice performance within the BEV side. We just got a really nice long-term thing with one of the large European OEMs within the battery adhesive space. So it is muted, the growth expectations, just as everybody else is with respect to the IHS revising down their expectations for total bills across the space, but we continue to be encouraged more broad-based and longer-term with the BEV transition.
Speaker Change: All right, thank you.
Speaker Change: Your next question comes from Alexei Yefremov of KeyBank. Please go ahead.
Alexei Yefremov: Thanks. Good morning. In InterConnect, can you discuss two things, the share gains that you cite and then the AI-driven ramps. What products are you seeing ramping in AI? What kind of applications?
Speaker Change: On the AI side, it's in the packaging space within the interconnectedness. So we're seeing nice improvement there. And on the share game side, it's also a function of being.
Speaker Change: greater share of wallet with some of our customers as we expand beyond just
Speaker Change: and some of the other devices that our key customers are producing. So we're pleased with the results there. We had mentioned, I think, on the last call about a lot of the ICS being driven by thermal management and packaging opportunities, and that continues to play out for us.
Speaker Change: Your next question comes from David Beckletter of Deutsche Bank.
David Beckletter: Please go ahead. Thank you. Good morning. Lori, E&I margins were above 30% in the quarter. Is that level sustainable for the entirety of 2025?
Speaker Change: We've seen nice margin growth in both segments, both E&I and W&P. It's a little early to talk about specifics of 2025 at this point, but we are encouraged. There's not one timer striving that number, I'll say, from that perspective. So as long as you can maintain this offline.
Speaker Change: numbers that we're posting and the productivity initiative should stay in place that we're driving and we should be in a nice position to act that more normalized margin profile for BD9.
Speaker Change: Very good. And just in safety solutions, what's driving the decrease in pricing?
Speaker Change: So I think it's important to keep in mind that when you look over the last couple years, particularly in some select businesses, we did have price increases that were in the mid-teens, which more than covered our cost increases. So it wouldn't be too surprising that we would give back a couple of points in order to maintain share as we go forward. Thank you.
Speaker Change: Thank you for joining us. We appreciate it. We'll see you next week.
Speaker Change: Your next question comes from Frank Mitch of Fermium Research. Please go ahead.
Frank Mitch: Good morning and nice results. I want to stay on the pricing area.
Frank Mitch: Price was down a percent. Volumes were very impressive, but price was down a percent. You have to go back to the second quarter of last year when you saw price flat. Since then, it's been ticking down. Can you expand upon what's driving the lower price and what your outlook is there?
Speaker Change: When you look specifically at E&I to your point, typically there is about a point of price give back. A lot of it relates to new products kind of coming into the market and volumes going up, so there's typically about one point of price. That's historically what we see in E&I and we would expect that trend to continue as we go forward.
Speaker Change: Gotcha, so as you're pricing new products, you're giving discounts to the customers?
Speaker Change: No, you're getting price on the new product introductions, Frank, but you get fade, a little bit of price fade on the older products.
Frank Mitch: which are very typical, that's very typical of the electronics business like that.
Frank Mitch: Forget the last couple years have been crazy times with COVID and de-stock and all that, but that's typically been the model. It's a higher growth business, you know, more up in the mid to high teens, but you give up about 1% of price.
Speaker Change: Alright, understood. Thank you. And just on the restructuring benefits, I believe the last time you mentioned it was going to be about $115 million benefit in 2024. Is that still a good number? And any initial thoughts on 2025?
Speaker Change: Yeah, actually that benefit number is a bit higher. We got to our quarterly run rate of benefits in the third quarter, so we are getting a nice impact this year. There'll be a little bit of carry forward as we go into 2025.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Mike Sison of Wells Fargo. Please go ahead.
Mike Sison: Hey, good morning. Nice quarter and outlook.
Mike Sison: You know, Ed, a lot of the chemical companies thus far have kind of painted an exciting picture for the first half of 2025, and maybe 2025 in total. As you've noted, your end markets are different, so I know it's a little bit early to get specific outlooks for 2025, but could you sort of give us your thoughts on how maybe semiconductors, electronics, and
Speaker Change: and some of the water and industrial businesses shape up for next year.
Ed Breen: Yeah, I'll let Laurie walk you through some details. I just, by the way, I don't mean this flippantly, but to make a comment, we've really morphed the portfolio.
Speaker Change: very differently than we were five, six, seven years ago, away from more of a chemical company into a multi-industrial, and I think you see that in a lot of our in markets.
Speaker Change: that we're in right now. But I'll let Lori maybe walk you through some puts and takes. Yeah, no, there's no significant changes from the commentary we have provided on the last call about some initial 2025 expectations. So from, you know, an electronics perspective, we
Speaker Change: continue to expect SEMI to grow, to accelerate, really driven by the AI and the new staff coming online. And just a reminder that the memory markets and some of the more mature
Speaker Change: Technology markets haven't recovered yet, so that recovery is on the come as we head into 2025. There's also on the InterConnect side, continued utilization.
Speaker Change: PCV space, especially as you look for a refresh cycle within the AI space and consumer devices. Within W&P, we expect Tyvek Healthcare to continue to recover. As we had mentioned, we saw a sequential lift.
Speaker Change: From Q2 to Q3 of 10%, we expect a further sequential list of Q4, and then more normalized buying patterns as we head into 2025. And we expect a more normalized demand environment within ARBs.
Speaker Change: And water will expect to continue to recover as well. So no changes from what we said last year, or last quarter with respect to 2025.
Speaker Change: Great. Thank you.
Speaker Change: Your next question comes from Patrick Cunningham of Citi. Please go ahead.
Patrick Cunningham: Hi, good morning. Are you still anticipating price givebacks and shelter in 4Q and maybe into 2025? And what was the dynamic between positive growth and commercial construction versus resi and any sort of early view on a broad-based resi recovery into next year?
Speaker Change: Yeah, given what we saw in pricing this year and as we're exiting the year, you would expect that you would have some price give back carry forward going into 2025, but I think the one thing that you got to keep in mind is we still got to take a deep look at where our costs next year relative to raws, logistics, and utilities, and that will determine if there's any pluses or minuses associated with that.
Speaker Change: I would expect that as we go forward. In terms of the resi and the construction markets, you know, they are, we are seeing a little bit less activity than what we originally anticipated. As Laurie mentioned earlier, when you look at kind of rates and where they are, there was a few rate cuts that were expected in 2024. I mean, we had one, but we had a little too late.
Speaker Change: In the building cycle to really have an impact. So as we go into next year, I would say in terms of the construction markets, we would expect, you know, low single digit activity. And I think that that's kind of predicated on some additional rate cuts coming, but we'll see what happens.
Speaker Change: That is that our current midpoint of guidance in the fourth quarter assumes slightly less price giveback than we saw during the third quarter.
Speaker Change: Understood. Very helpful. And then just on consolidated W&P, it seems you'll have easier comps on water, medical packaging. Does most of that sequential EVADOC decline come from, you know, more typical seasonality on shelter and safety? And if you could remind us, what was the 25 million discrete, you know, impact from last year? And that won't repeat this year, just for clarification.
Speaker Change: Yes, so the Q3 to Q4 in W&P would be your typical seasonality. Q3 tends to be the highest quarter and comes down a bit. In Q4, a big piece of that would be related to the shelter business as we kind of go into the winter months.
Speaker Change: For WNP, explicitly, we did call out about 25 million of one-time items last year that were related to, you know, a land sale and some supply agreements that we had certain...
Speaker Change: benefits from, I would say, keep in mind that in totality, in Q4 of last year, we actually called out 40 million of one-time items. The remaining 15 million was within corporate.
Speaker Change: Great, thank you.
Speaker Change: Your next question comes from John McNulty of BMO Capital Markets. Please go ahead.
Speaker Change: Hi, good morning. This is Bhavesh Lodhia for John.
Bhavesh Lodhia: Can you talk about some of the competitive dynamics around your electronic peers in China? China is bringing in a lot of new fabs, as you mentioned, but they're also investing in kind of like a homegrown domestic supply chain. You mentioned gaining some market share. I'm not sure if that was in China as well, but overall, how do you see this landscape developing over the next few years?
Bhavesh Lodhia: Yeah, we can.
Bhavesh Lodhia: can you have a nice position within China? I think our exposure in China within the 70 spaces outside versus some of the tiers there were about 30 percent China where some of the tiers I think are less than that so you're seeing that that disparity play out nicely in our numbers as a lot of the bills are more concentrated there with respect to the global output.
Bhavesh Lodhia: We have a nice addition with the local players. As we had mentioned, we also have nice addition with the global OEMs that are in China that are favoring our China results as well.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Aaron Viswanathan of RBC Capital Markets. Please go ahead.
Aaron Viswanathan: Great thanks for taking my question. Just wanted to go back to maybe some initial thoughts on 25. So you know this year you showed looks like you're showing you know pretty good mid-teens.
Speaker Change: Evita growth in E&I Although you have been that's been offset slightly by some of that water De-stocking and headwinds
Speaker Change: As you look into next year, maybe if you adjust for the pre-buy that you saw on E&I.
Speaker Change: would that kind of decrease maybe to like a high single-digit rate and then but maybe you could see some recovery in WNP and so overall you still expect you know maybe mid to high single-digit EBITDA growth for next year?
Speaker Change: That's where we provided some color on the top line as to where our expectations are. I would say it's a bit too early to start commenting on EBITDA growth for next year. We'll give more detailed guidance as we get on to the next quarter call, but clearly volume will be a driver. As we noted this year, we would expect to have the continued benefits of our restructuring actions that we took this year to continue to benefit us as we move forward.
Speaker Change: Okay, I understand. And just on that note then, assuming that you do see some continued margin growth.
Speaker Change: How should we think about free cash flow and maybe how you deploy that?
Speaker Change: You know, are there any significant extra CapEx projects in the pipeline, or will you likely be using most of your cash for standing up the businesses, or could you potentially deploy more and return more to shareholders? Thanks.
Speaker Change: Yeah, so as we were talking about free cash flow conversion, as we mentioned for this quarter, we did have a really strong free cash flow conversion. It was about 130%.
Speaker Change: We're at 109% for the year, and we do expect to be well above our target for this year. As we go into next year, I would expect that we continue to have good free cash flow conversion. The teams have done a great job relative to managing working capital.
Speaker Change: even while sales are increasing and we're now having a use of working capital. As you think about our cash deployment for next year, given it is the year of the separation, the majority of cash will be used for our separation costs.
Speaker Change: We did note last quarter, on the fall, we do not expect to do any additional share of purchases this year. I would say that applies to next year as well, and no significant outsized CapEx that you should be expecting next year relative to this year.
Speaker Change: Great, thanks.
Speaker Change: Your next question comes from Mike Leethead of Barclays. Please go ahead.
Mike Leethead: Great. Thanks. Good morning, team.
Mike Leethead: I think DuPont filed an ITC complaint last month around illegal Tyvek imports. I guess, first, is the issue you're seeing somebody else claiming and naming something to be Tyvek and it's not? Or is it named something else and the issue is they're using DuPont's proprietary technology? And then just more broadly, how is the Tyvek business performing today?
Speaker Change: Yeah, so, you know, the IPC filing speaks for itself. We'll continue to defend our patents and our trade secrets. So that's, you know, really all we want to say on that point. The Tyvek Business Hormones.
Speaker Change: And market performance continues to recover nicely. You know, a lot of the headwinds that we had saw throughout 2024 was related to medical packaging, and we've highlighted a few times about the nice recovery that we're seeing there up 10% sequentially and up even further sequentially as we head into Q4, so we're really encouraged.
Speaker Change: by the rebound that we're seeing there.
Speaker Change: And your last question comes from Steve Byrne of Bank of America. Please go ahead.
Steve Byrne: Yes, I'd like to ask another one about that ITC complaint.
Steve Byrne: When did you start to see these competing versions of Tyvek coming into the States? And is this across your broad platform? Is this, you know, Tyvek Housewrap? Is this packaging?
Speaker Change: You know PPE is it all of them and you're seeing this this You know this competing version When did this happen? And just curious on on the timing of this
Speaker Change: Yeah, so I mean, we had mentioned that that the filing speaks for itself. It's a public filing that can be read. So, you know, we started seeing it and, you know, in recent months, there was a use of our name, in addition to some trade secret infringement that we were seeing, which is what led us to the filing.
Speaker Change: Thank you for watching. I hope you enjoyed the video. I'll see you next time.
Speaker Change: And then maybe just one more, across new DuPont, any new products in development that, you know, you could be enrolling that could drive growth in new DuPont other than just the recovery and end markets?
Speaker Change: Yeah, so I had mentioned earlier that the really nice wind that we saw in the battery adhesive space was one of the largest European OEMs, so that it was a nice wind for us that can solidify our position in the EV space.
Speaker Change: We have a really nice growing position within healthcare, so we closed the Zonatel acquisition in August. We were actually out there as a leadership team, and with the board visiting the site, and were even more encouraged by what we saw with respect to cross-selling with some of the larger medical device layers, as well as leveraging.
Speaker Change: the really high-end machining capabilities that Donatello has to not only our medical packaging businesses, but our other parts businesses in the DuPont portfolio. So I really encourage that that space will continue to be a nice growth driver for us.
Speaker Change: Thank you.
Speaker Change: Thank you. Bye-bye.
Speaker Change: There are no more questions. I will now turn the conference back over to Chris Mecray for closing remarks.
Chris Mecray: Thank you everyone for joining the call. And for your reference, a copy of the transcript will be posted on our website. This concludes the call. Thank you.
Speaker Change: Thank you all for joining. You may now disconnect.