Q4 2024 DuPont De Nemours Inc Earnings Call

Speaker Change: Thank you for standing by and welcome to the DuPont 4th Quarter 2024 Earnings Conference Call.

Speaker Change: 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. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again press the star 1. Thank you. I'd now like to turn the call over to Chris Mecray. You may begin.

Chris Mecray: Good morning, and thank you for joining us for DuPont's fourth quarter and full year 2024 financial results conference call. Joining me today are Ed Breen, Executive Chairman, Lori Koch, Chief Executive Officer, and Antonella Franzen, Chief Financial Officer. We have 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 and 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. We will also refer to other non-GAAP measures. A reconciliation of the most directly comparable GAAP financial measures is included in our press release and presentation materials and has been posted to DuPont's Investor Relations website.

Lori Koch: I'll now turn the call over to Lori. We'll begin on slide three.

Lori Koch: Good morning, everyone, and thanks for joining our fourth quarter call. Earlier today, we reported solid quarterly results to close out a strong year of performance.

Lori Koch: Fourth quarter sales grew 7%, including another consecutive quarter of double-digit organic growth in E&I, and highlighted by a return to organic growth in W&P of 6%.

Lori Koch: We showed strong operating leverage as Operating EBITDA of $807 million increased 13% year-over-year. Operating EBITDA margins of 26.1% expanded 140 basis points.

adjusted EPS of $1.13 grew 30% from the prior year.

Lori Koch: From an end market view, fourth quarter saw continued strong demand within electronics driven by the ongoing transition to advanced nodes and related AI enabling technologies.

Lori Koch: Further improvement in healthcare markets resulted in a return to volume growth for both our medical packaging and biopharma products, which both grew at double-digit rates.

Lori Koch: Additionally, we continue to see growth acceleration in water in the quarter with 4% sequential sales lift and an 11% year-over-year increase.

Lori Koch: Looking back at school year financial performance, volume growth of 2% was solid and grew as the year went on, culminating in 8% growth for the fourth quarter.

Lori Koch: This combined with operational discipline and productivity actions was key to our earnings growth and resulted in strong incrementals and margin improvements.

Lori Koch: Coupling improved segment earnings with the benefit of a reduced share count led to a robust 17% growth in adjusted EPS.

Lori Koch: Working capital optimization, which has been another key operating priority for the team, helped drive strong cash generation with transaction-adjusted free cash flow conversion of 105%.

Lori Koch: I'd like to thank the entire DuPont team for all their hard work and dedication to achieve these results.

Lori Koch: Turning to slide four, I will cover our key priorities for 2025, organic growth, operational execution, and portfolio management.

Lori Koch: Starting with the top line, as mentioned, we saw volume growth improvement in both E&I and W&T as we progress through this past year.

Lori Koch: Looking into 2025, we expect further acceleration in volume growth, targeting mid-single-digit organic sales growth for the total company.

Lori Koch: To enable this, we will continue focusing on optimizing our growth opportunities within each business, which includes both continued investment and innovation, as well as driving commercial excellence initiatives, including strategic marketing and sales effectiveness activities.

Lori Koch: To ensure success, we recently hired a chief commercial officer to drive consistent execution across all of our businesses.

Lori Koch: Additionally, our businesses continue to focus on driving operational excellence. We are entering our fourth year of driving an enhanced focus on OMBECS, and our profitability continues to benefit from the expanded toolkits and discipline rollout across the organization.

Lori Koch: Coupling our standard OPEX framework with steady investments in digital tools will lead to continued improvement in financial performance.

Lori Koch: Finally, regarding portfolio management, we announced last month that we are targeting November 1st of this year for the intended spinoff of the electronics business, which is nicely accelerated from the initial timeframe of 18 to 24 months.

Lori Koch: We remain excited about the sizable shareholder value creation opportunity from creating a leading pure play electronics company.

Lori Koch: We continue to make progress towards establishing the future boards for electronics and DuPont and remain on track to be able to announce new board members as well as executive leadership for the future electronics company by the end of the first quarter.

Lori Koch: We continue to see the excitement building internally and externally, and I look forward to updating you in the coming months. With that, I'll turn it over to Antonella to cover the financial results and outlook in detail.

Antonella Franzen: Thanks, Lori, and good morning, everyone. We are pleased with the solid finish to a strong year of financial performance.

Antonella Franzen: And market recovery and improved volumes have been the primary driver of our accelerated sales and earnings growth throughout 2024. And our teams have also continued to execute well on our operational excellence initiatives, including both enhanced productivity and the previously announced cost actions.

Antonella Franzen: I look forward to the continued momentum that we are carrying into 2025, but first I'll cover our fourth quarter financial highlights in further detail, beginning on slide 5.

Antonella Franzen: Net sales of $3.1 billion increased 7% versus a year ago period, as an 8% increase in volume was slightly offset by a 1% decrease in price.

Currency and portfolio were both flat.

Antonella Franzen: Higher volume was led by continued strong demand in electronics and markets, with SEMI and interconnect solutions both up double digits.

Antonella Franzen: further acceleration in water solutions yielding double-digit volume gains and a return to year-over-year growth in both safety solutions and industrial solutions.

Antonella Franzen: On a segment view, E&I and W&P organic sales grew 10% and 6% respectively.

Organic sales in corporate declined 7% versus the year-ago period.

Antonella Franzen: From a regional perspective, Asia-Pacific delivered 11% organic sales growth year-over-year, including another strong quarter in China where organic sales also increased 11% due to continued strength in electronics markets and acceleration in water.

Antonella Franzen: Organic sales were up 5% in North America and up 1% in Europe.

Antonella Franzen: Fourth quarter operating EBITDA of $807 million increased 13% versus the year-ago period as volume gains, the benefit of higher production rates, and savings from restructuring actions were partially offset by higher variable compensation.

Antonella Franzen: Operating EBITDA margin during the quarter of 26.1% increased 140 basis points year-over-year.

Antonella Franzen: Fourth quarter cash generation was strong, reflecting a continued working capital discipline across the businesses.

on a continuing operations basis.

Antonella Franzen: cash flow from operations of $564 million, capex of $161 million, and $52 million of separation-related transaction cost payments.

Antonella Franzen: resulted in transaction-adjusted free cash flow of $455 million and related conversion of 96 percent.

Lori Koch: As Lori mentioned earlier, 2024 was a strong year for cash performance, with transaction-adjusted free cash flow of $1.8 billion and related conversion of 105%.

Speaker Change: Turning to slide 6, adjusted EPS for the quarter of $1.13 per share increased 30% from 87 cents in the year ago period.

Lori Koch: Higher segment earnings of $0.17, as well as below-the-line benefits totaling $0.09 from a combination of lower share count, tax rate, and foreign exchange losses drove the year-over-year increase.

Turning to segment results beginning with E&I on slide 7.

Lori Koch: E&I's fourth quarter net sales of $1.5 billion increased 11% versus the year-ago period on organic sales growth of 10% and favorable portfolio impact of 1%, reflecting the Donatel acquisition.

Lori Koch: Organic sales growth of 10% reflects an 11% increase in volume, slightly offset by a 1% decrease in price.

Lori Koch: At the line-of-business level, organic sales for SEMI were up low teens on continued semiconductor demand recovery driven by AI technology applications.

Lori Koch: Semi-demand continues to be notably strong in China, with year-over-year growth of about 40% during the quarter.

Lori Koch: Given elevated levels of growth throughout 2024, we currently anticipate relatively flat semi-sales in China for 2025, though overall organic growth in semi is expected to be up 6-7% for the full year.

Lori Koch: InterConnect Solutions posted another quarter of strong results, with organic sales up low double digits, reflecting broad-based end market strength, additional share gains, and continued volume benefits from AI-driven technology ramps.

Lori Koch: Industrial solutions return to organic growth in the quarter, with organic sales up mid-single digits, due to improved demand for biopharma within healthcare, and continued strength in printing and packaging applications.

Lori Koch: Operating EBITDA for E&I of $457 million was up 21% versus the year-ago period.

Lori Koch: On volume gains, the benefit of higher production rates, savings from restructuring actions, and a $13 million gain related to a technology license agreement, which was contemplated in our guidance.

The year-over-year increase is partially offset by higher variable compensation.

Lori Koch: Operating EBITDA margin during the quarter was 30.3%, up 250 basis points versus the year-ago period.

Lori Koch: For the full year, E&I net sales of $5.9 billion increased 11% with 6% organic sales growth.

Lori Koch: For the full year operating EBITDA of $1.7 billion, increased 17% with operating EBITDA margin of 29%, up 140 basis points from the prior year.

Lori Koch: Turning to slide 8, WMP fourth quarter net sales of $1.4 billion increased 6% versus the year ago period due to an 8% increase in volume, partially offset by a 2% decrease in price.

Lori Koch: Safety solutions return to year-over-year growth as organic sales were up high single digits.

reflecting continued improvement in health care markets.

Lori Koch: evidence by medical packaging sales lift for three consecutive quarters including a 6% increase from Q3.

Lori Koch: Shelter solution sales were flat on an organic basis with headwinds in North America construction markets offset by growth and repair and remodel demand.

Lori Koch: Within water solutions, sales were up low double digits on an organic basis, driven by continued broad-based volume recovery.

Lori Koch: On a sequential basis, water solution sales also increased for a third straight quarter with sales up 4% from Q3.

Lori Koch: Operating EBITDA for WMP during the quarter of $357 million was up 14% versus the year-ago period.

Lori Koch: as volume gains and savings from restructuring actions were partially offset by higher variable compensation and the absence of about $25 million of discrete item benefits recorded in the prior year.

Lori Koch: Operating EBITDA margin during the quarter was 26.3 percent, up 170 basis points from the year ago period.

Lori Koch: For the full year, W&P generated net sales of $5.4 billion with operating EBITDA of $1.4 billion.

Lori Koch: Operating EBITDA margin for the full year of 25.1% increased 50 basis points.

Lori Koch: Turning to slide 9, which outlines our first quarter 2025 and full year guidance expectations.

Lori Koch: At a consolidated level for the first quarter, we estimate net sales of about $3.025 billion, operating EBITDA of about $760 million, and adjusted EPS of $0.95 per share.

Lori Koch: Our first quarter net sales guidance assumes mid-single-digit organic growth and a currency headwind of about 1.5% versus the first quarter of 2024.

Lori Koch: We expect a more normal seasonal progression into the second quarter with a sequential sales lift of about 6 to 7 percent from the first quarter.

Lori Koch: For the full year 2025, we estimate consolidated net sales of $12.8 to $12.9 billion.

Lori Koch: operating EBITDA of $3.325 to $3.375 billion and adjusted EPS of $4.30 to $4.40 per share.

Lori Koch: Our full-year consolidated net sales guidance assumes mid-single-digit organic growth and a currency headwind of about 1%.

Lori Koch: Our EPS estimate includes a headwind from below the line items totaling 10 cents related primarily to an assumed 1% higher tax rate versus this past year.

Lori Koch: I would also like to highlight that we plan on realigning our segment reporting structure in the first quarter in advance of the intended separation of electronics later this year.

Lori Koch: We will begin reporting under this new structure when we release our first quarter 2025 results.

Lori Koch: The businesses comprising the Future Electronics Company will be reported as the Electronics Co. segment.

Lori Koch: while the businesses that will remain with DuPont will be reported as the Industrials Co. segment.

Lori Koch: We are providing historical segment information reflecting these realignments for comparison purposes.

Lori Koch: which you can find in the earnings presentation accompanying today's call.

Lori Koch: For the new Electronics Co. segment, we expect full year 2025 organic sales growth in the 6-7% range.

Lori Koch: This assumed growth is expected to be driven by ongoing strength within SEMI.

fueled by continued AI adoptions and transition to advanced nodes.

Lori Koch: as well as the impact from more normalized sales in China, as previously mentioned.

Lori Koch: In interconnect solutions, we expect continued growth driven by improved sentiment within consumer electronics and refresh cycles in support of AI adoption.

Lori Koch: For the new Industrial Co. segment, we expect full-year 2025 organic sales growth in the 3-4% range.

Lori Koch: Within healthcare markets, we expect growth acceleration in medical devices along with continued stabilization for medical packaging applications and in biopharma markets.

Lori Koch: In water, we expect a strong year for the business with continued volume growth year over year, and we expect stable demand within markets served by our remaining industrial-based product lines.

Lori Koch: 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 will now begin the question and answer session. If you 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.

Lori Koch: We ask that you please limit yourself to one question and one follow-up. Your first question today comes from the line of Scott Davis from Melius Research. Your line is open.

Hey, good morning everybody. Laura, Antonella, Chris, Edward.

Speaker Change: You guys talked, you referenced AI-related revenues a few times in the in the call. Is there any, can you size that for us at all and kind of give us a sense of what kind of growth rates you've seen there?

Speaker Change: Yeah, Scott, we saw really nice growth this year, up about 30% in the AI-related sales. We're up over $300 million now, so we continue to expect that to be a key piece of the growth for the Electronics Co. as we move to separate them towards the end of the year.

Speaker Change: Okay, that's helpful. And then the incremental margins, 47% or so is what I was calculating, is pretty strong.

Speaker Change: But you've got a little bit of price, perhaps, Edwin, in front of you. How do you think about incrementals in 2025 and the sustainability kind of puts and takes of cost coming back? And I know there's going to be some noise in the in the transition here, but is is there

Speaker Change: Do you think there's an opportunity to keep those incrementals above historic levels, or do you see some costs coming back and some price issues?

Edwin: Yeah, in 2024, we saw incrementals kind of in the low to mid-60s, and we have them, as you had mentioned, in the mid-40s in 2025. So, again, very strong. We had mentioned that we do have a 1% assumed price headwind in 2025 versus 2024, but net

Edwin: between that and inflation and absorption tailwinds, we see that about neutral on the bottom line. So we'll share a lot more about margin projections when we do investor day later in the fall, but we continue to expect to see really nice margins moving across both.

New DuPont, and Electronics.

Speaker Change: Okay, congrats on the year. Best of luck guys. We'll see you.

Thanks, Scott.

Speaker Change: Your next question comes from a line of John McNulty from BMO Capital Markets. Your line is open.

John Mcnulty: Yeah, thanks for taking my question. So maybe just a question on water. Obviously, there were some easy comps there, but it also, it seems like it really, it really continued even on a sequential basis. Can you help us to think about some of the drivers that you're seeing there that are really pushing that growth and how we should be thinking about them as we go through 2025?

John Mcnulty: Yeah, we did see really nice recovery. So It was up about 11% year-over-year organic in the fourth quarter and we see About mid to high single-digit organic growth overall in 2025 for water So a lot of it really is just around the secular tailwinds in the water space. So the access to clean water We see nice growth across

John Mcnulty: all key technologies. We are the one player within the space that has all the four key technologies when it comes to filtration. And there's some incremental opportunities, not necessarily in 25, but longer term around.

John Mcnulty: both DLE, so direct lithium extractions within the battery space, and then also some PFAS opportunity as well.

Speaker Change: Got it. Okay, thanks for thanks for the color on that. And then with regard to semis, there, it looks like there's a number of no transitions.

Speaker Change: kind of especially rolling in in the second half of 2025. Can you help us to think about what that means for the cadence of growth in the semi-tech platform for you as we look through 2025?

Speaker Change: Yeah, so we had mentioned for overall new electronics co it'll be about six to seven percent organic growth That's about even between both sides of it. So between semi and ICS

Speaker Change: Q1 just given the favorable comp will be the highest growth we said low double digits I believe for the new electronics and then so it'll it'll moderate as the year goes on but again really nice overall 6 to 7% on top of a really strong year in 2024.

Great. Thanks very much for the call, Art.

Hmm?

Speaker Change: Your next question comes from a line of Steve Tusa from JP Morgan. Your line is open.

Hey, good morning.

Speaker Change: Good morning Steve. Did you see any kind of a pull forward in demand with regards to you know any concerns around tariffs or new administration?

in the fourth quarter.

Speaker Change: Hey Steve, it's Antonella. You know, we've talked about in the last couple of quarters that we saw, I would call it more of pre-buy in the semi-space related to a lot of the new fabs.

Speaker Change: that have started up during the course of the year. So you heard us talk about that in Q2 and Q3. We would estimate that in Q4 it was probably around...

Speaker Change: $20 million or so. I would say we would attribute it more to the new fab startups versus tariffs per se, but there could have been a little bit of it related to the tariffs coming in 2025 as well.

Speaker Change: Okay and then I think there was a modest gain in the in the electronics segment. I'm not sure if you flushed that out. How big was that?

Speaker Change: Yeah, so we commented on that in our prepared remarks. It was $13 million, and it was included in the guidance when we provided it on the third-quarter call. Oh, okay. Got it. All right. Thanks a lot.

Mm-hmm.

Speaker Change: Your next question comes from the line of Jeff Sprague from Vertical Research. Your line is open. Hey, thanks. Good morning, everyone. Sorry if I missed this at the beginning. I was also about 10 minutes late getting on. Just on the on the spin and the timing now.

Speaker Change: I feel that's a pretty hard lock on November 1, and maybe any update on just kind of the costs to separate and the kind of stand-up, stand-alone costs associated with electronics. Again, I apologize if you addressed that.

Speaker Change: Hey Jess, Antonella. So yes, timing is pretty locked in. You know, I would say the team has clearly done a lot of work to accelerate the timeline. You know, we've had a lot of good practice in the organization in doing this.

Speaker Change: So, we have a really good plan in place and things are progressing as expected. In terms of a couple of updates, so our separation costs...

Speaker Change: we had said would be around $700 million. We do expect that to be a little less than that as we move forward now, given that water will remain in the DuPont portfolio. But I would just be mindful that a lot of things that kind of went into that will still continue to happen, whether it was one separation or two separations.

Speaker Change: In terms of dis-energies, we initially quoted that as around $60 million.

Speaker Change: Now we would expect that that would be closer to $40 million.

Speaker Change: Great, then would that also encompass sort of the stranded cost, that $40 million, is that sort of the public company cost for new Electronics Co., separate and apart from sort of stranded that you'd need to get after? Could you just kind of put a finer point on that?

Speaker Change: Sure. So, when you kind of take a look at our disenergies, it is predominantly standing up to public companies. So, when you kind of compare where our corporate costs are today versus where we expect corporate costs to be in the future, that is a big bulk of it. There's a little bit of it that is in the businesses. As we've said before, it does not include, per se, stranded costs. But I would tell you that at this point, based upon all the work that we've been doing, in terms of getting the two organizations ready for day one, and kind of having a cost structure that's fit for purpose in terms of their size,

We do not expect that to be very material.

Great, thank you.

No problem.

Speaker Change: Your next question comes from a line of Chris Parkinson from Wolf Research. Your line is open.

Chris Parkinson: Great. Thank you so much. Just going back to the water protection, you hit on this towards the end of your prepared remarks, but could you just give us a little bit more perspective on how you see things shaping up across safety, shelter, and water throughout 25, as well as just kind of the key considerations that we should be looking at in terms of potential market outperformance. Thank you so much.

Chris Parkinson: Yes, so I'll answer your question in the new form, given that's how we're going to report in 2025.

Chris Parkinson: Three pieces within the new DuPont, the water and healthcare will be about 40% of the portfolio and we expect them to have nice mid to high single digit growth.

Chris Parkinson: organically in 2025. So, a continued improvement coming off of the bottom that we saw throughout 2024. So, we had noted medical packaging got better every quarter, and we exited a really nice position from 2024. The same with water. So, water improved, you know, kind of every quarter, and we exited in a nice position, and we see the destocking that we had telegraphed.

early in 2024 essentially complete.

Chris Parkinson: then the remaining portion of the portfolio probably will be around the low single-digit growth. So that would encompass the aramid business, the shelter business.

Chris Parkinson: and then the businesses that we picked up from the Industrial Solutions business within electronics. So overall nice three to four percent organic, definitely outsized within the healthcare and the water portion.

Speaker Change: Got it. And just as a quick follow-up, just on the InterConnect side, you mentioned obviously some AI-driven tech benefits, but could you sit on the kind of the key drivers of the remainder of the portfolio and just any differences based on geography as well? Thank you so much.

Speaker Change: Yeah, within electronics, within the interconnect business, we had mentioned the AI around the packaging space. There's also a lot of upside that we saw in 2024 and continue to expect in 2025 on the layer. So this was the business that we had acquired back in 2021. It's a lot around thermal management. So we're looking as the chips get smaller and then have...

Speaker Change: intense for us to be able to drive a lot about performance on the layer side so that was key to the growth before and we expect it to be strong again this year.

Great color. Thank you.

Speaker Change: Your next question comes from a line of Josh Spector from UBS Financial. Your line is open.

Josh Spector: Yeah, hi, good morning. I wanted to ask on the Industrials Co guidance, but specifically on first quarter versus the year So in your first quarter, it seems like you're guiding for low single-digit growth You just did mid single-digit growth in fourth quarter and you have a pretty easy comp in first quarter So what am I missing about why that growth shouldn't be higher in first quarter as it relates to the year?

Josh Spector: Yeah, so the largest piece is within the automotive portion of new DuPont. So overall last year was still robust for them in Q1 from both the automotive side of the adhesive piece as well as within KEDLAR, within the business. So one of it is a comp, a little bit less of a favorable comp than maybe what you would have expected.

Also, if you look at the bill,

Josh Spector: You're going to go year over year, and you're comparing, and you're going to go sequentially, but the bills in Q1 2025 are expected to be down four year over year than what they were in Q4 2024, so that would meet the expectations. Otherwise, everything else is generally the same between the two quarters.

Speaker Change: If I could just follow up on cash deployment, you guys haven't bought back stock in about three quarters now, your leverage is low, understanding you're going through everything with the splits, but it seems to be an opportunity for you to deploy some cash and to buy back, so why isn't that something that we're doing now?

Speaker Change: Yeah, so as we mentioned in some prior calls, we do not plan on doing any more shared buyback until like, at least a minimum, so both separation, I would just be mindful. Obviously, there are a lot of cash costs related to the separation. So that's where our cash will be deployed in the near term.

Okay, thank you.

Speaker Change: Your next question comes from the line of Patrick Cunningham from Citi. Your line is open.

Alright, good morning.

Speaker Change: The pro formas, you know, seem to imply the EBITDA margin profile that, you know, corporate retained businesses, maybe high teens, low 20s. I mean, would you characterize these as normal levels and does it change maybe what the long-term margin target would be for the Industrials Co. versus WNP?

Speaker Change: Yes, you're right. So the businesses that are coming into the new DuPont, so the businesses that were in corporate M&M and then the businesses that were in the industrial portion of E&I.

Speaker Change: Had a lower overall margin profile than the heritage WB businesses. And so from the corporate M&M businesses that came in, if you called it right, they were kind of in the high T's.

Speaker Change: I would say that that benchmark level, if you look to the other players, probably even close to above.

Speaker Change: And then the businesses that we picked up from the industrial business. A lot of that would be the spectrum piece that came in through acquisition. And when we had done that acquisition, we said the margins were in the low 20s. So, we're right sitting at 23, 24% in 2024 for Industrials Co. We'll look to continue to drive productivity and mix enrichment, and then, as mentioned earlier in the call, we'll get into more of the margin targets that we would expect for each of them.

two new companies that they're investigating in the fall.

Speaker Change: Great, thank you. And apologies if I missed this, but is there any update on CalRes, you know, how is that business performing? We have a few quarters of sharp destocking, and should we expect some rebound there in 2025, you know, helping underpin some of the strong growth rates in the electronics business?

Speaker Change: Yeah, I would say mid-year 2025 is the one business that we have in the portfolio that hasn't quite gotten through its de-stock yet. So we're targeting mid-year 2025 for that to get back to more normal growth level.

Thank you so much.

Speaker Change: Your next question comes from a line of Alexey Efremov from KeyBank Capital Markets. Your line is open.

Alexey Efremov: Thank you. Good morning everyone. How are you thinking about Industrial's portfolio now that you decided to keep the water business? Any further divestments or do you see any interesting bolt-ons here?

Please see the complete disclaimer at https://sites.google.com

Yeah, um...

Alexey Efremov: I would say it's both. I mean, as we continue to look at the RemainCo portfolio and look to take complexity out and get it more towards the simplified businesses, more exposed to higher secular end markets, you'll continue to see portfolio activity on the DuPont side.

Alexey Efremov: And then we'll look to invest in M&A primarily around the healthcare and the water business as we look to outsize our exposure there. So we'll come out at about 40% of sales in the healthcare and water and look to lift that through both M&A and also growth as we move forward.

Speaker Change: Great. Thank you. And then a follow-up on electronics. Do you have an assumption for underlying market growth in semis and interconnect or target outgrowths for each of these segments?

Speaker Change: In 25. Yeah, so in 20, yeah, so in 2025, we see, um,

Speaker Change: MSI are around in single digits. And again, if we had talked through 2024, it was a little bit disconnected.

Speaker Change: with respect to wafer starts and wafer consumption because of the inventory levels that were consumed on the chip side. So we see our view of MSI at around six percent growth. We see overall semi-fab utilization.

Speaker Change: in the high 70s in 2025, and then on the ICS side kind of a combination of the PCB and smartphones we see in the mid-single-digit range.

Thanks a lot.

Speaker Change: Your next question comes from a line of John Roberts from Mizzou. Your line is open. Thank you, congrats on a good quarter. Are you planning to change the name of Industrial Co. and any progress on industry reclassification?

Speaker Change: Yeah, so I'll do the name, so Industrial Co. will be DuPont and I'll send it over to Antonella on the reclassification.

Speaker Change: Yes, so we're doing some work around the reclassification, as we talked about before, with clearly the intent of getting that moved from, you know, the chemical classification to an industrial classification. The change would not necessarily be made until the separation is complete, but we are working on that. And that is clearly our intent as to where we should be and where we need to be.

Speaker Change: And then secondly, are you planning on keeping water separate within Industrial Coast that would preserve the option for a spin later on if that's what you wanted to do?

Speaker Change: So, water will be reported as a segment in New DuPont. I think that's probably the question that you're asking. So, water would be a segment. We'll have to clarify all of this, but you can imagine we'll want to highlight water in healthcare, giving the growth profile. So, those would be segments within the New Portfolio.

Thank you.

Speaker Change: Your next question comes from a line of Michael Lehev from Barclays. Your line is open.

Michael Lehev: Great, thank you. Good morning team. For the electronics though, are we 100% headed for a spin here in November or is there any chance of merging or selling these assets before then?

Yeah, we're headed toward the spin.

Michael Lehev: Okay, and then I apologize if I missed anything. We'll announce management teams before the end of this quarter, and we're pretty set with a full board slate for electronics, which we'll also be announcing before the end of the quarter.

Michael Lehev: Great. Thank you, Ed. And then I apologize if I missed this, but did you announce who your new chief commercial officer will be, and will they stay with Industrial School, I presume?

Michael Lehev: He will stay with Industrial Reels Co. His name is Lakshmi Yamanachilli, joining us from SKF next week.

Great, thank you.

Speaker Change: Your next question comes from a line of David Baigleiter from Deutsche Bank. Your line is open.

Speaker Change: Thank you. Laurie, in Semi, you referenced the flat sales in China in 2025. Can you give a little more color as to why it's happening and just how big is China?

for the entire Semitech business. Thank you.

Speaker Change: Yeah, so it's more around the normalization of the volume growth versus demand. So, in 2024, in China, for SEMI, we saw 40% volume growth. So, and I had mentioned that probably overall we saw about $16 million worth of pre-buy activity. So, normalizing that against 2025 is why we kind of see a flat.

Speaker Change: volume within China for SEMI. Overall, SEMI China is about a $600 million market. About two-thirds of it is local Chinese SEMI producers, and the rest are the multinationals that produce the main chains.

And how much of your business in Semitech is China?

Speaker Change: That's the 600 million. Oh, sorry about that. So about 30% ish.

Speaker Change: Got it. And just on North American construction, any signs of progress in either resi or commercial? Thank you.

Thank you. Thank you.

Speaker Change: When you actually take a look at our shelter business, what I would say is we've actually fared pretty well, given the environment that we're in. So, as we talked about in the fourth quarter, we did see a little bit of softness on both the resi and non-resi side, being offset by some growth in repair and remodel. And kind of, you know, as we go forward, we are currently anticipating, I would say, you know, low single digit growth in that business for 2025. Thank you.

Speaker Change: Your next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is open.

Vincent Andrews: Thank you. I wanted to follow up on the divestitures discussion and I'm just wondering, you know, with

with water now staying within Industrials Co.

Speaker Change: Is there a window between now and spin where you can you can get some assets out of the business without having to assign you know pro-rata PFAS liabilities to them?

Speaker Change: And if you don't get that done before November 1, you know, presumably they would have to have liabilities assigned thereafter. And is November 1 really the hard date on that?

and many more. Thank you. Thank you.

Speaker Change: Yeah, so technically you could do a divestiture between now and November 1 and stay above the $2.5 billion threshold and then therefore not have to assign PSOA. We're obviously fully focused on getting the electronic separation out November 1. And at that point, we'll comply with the size letter and pro rata distribute the PSOA.

Speaker Change: signed a letter of agreement in Port Tava between New Electronics and VTON.

Speaker Change: Okay, and then just on free cash flow for 2025, obviously you're going to have spin costs and other things that are going to be sort of clouding the underlying performance. So could you give us a sense of, you obviously had excellent conversion this year, what you think 2025 might look like?

Speaker Change: And so as we look to 2025 and our free cash flow conversion, we would expect it to be, you know, greater than 90%, which is kind of

Speaker Change: This is the number that we've been focusing on. We've had really good conversion this year. We were at 105%. We did have a nice benefit of a lot of the practices we're putting in place related to working capital that helped us this year. As we go into next year and the growth that we're kind of expecting on both the electronics side and the industrials side, we will have some working capital usage. But again, we feel good that we'll be above the 90% conversion, excluding clearly all the transaction costs, which is how we've been reporting our free cash flow over the last year.

in the last couple of quarters.

Perfect. Thanks very much.

Speaker Change: Your next question comes from a line of Mike Sison from Wells Fargo. Your line is open.

Hey, good morning. Nice nice quarter

Speaker Change: So, you know, organic growth and industrial code in the fourth quarter as well as your outlook in the first quarter, you know, appears pretty differentiated relative to traditional chemical companies where...

Your growth seems to be pretty negative, so...

Speaker Change: I suspect that helps your cause in getting that designation changed, but maybe can you remind us of what other metrics, margins, returns of capital, or sort of just make the case why this should be more of a multi-industrial business than a chemical business.

Speaker Change: Yeah, no, I mean, obviously, our, our growth would be would excide 2024 and expected 2025. And then even the margin profile is significantly different than what you could see on the chemical side. And even just the volatility, like, we don't have.

Speaker Change: The swings in pricing that you may see with respect to utilization levels in the commodity chemical side as well. So any support that we can get in our endeavors from, you know, both the buying and sell side to be able to get that.

Speaker Change: Gixco change is really, would be really helpful because we do believe it's fundamental to how we are designing the new company.

Speaker Change: will target similar leverage profiles to the other multi-industrials we'll have.

Speaker Change: Very strong margin profile, similar to the multi-industrial and a very similar growth trajectory.

Speaker Change: And by the way, the last big piece we divested, which was the M&N Business Societies, was really the last vestige of a chemical business within the portfolio. So we actively were part for, I think, seven years now.

Speaker Change: to get to more of a multi-industrial company and out of the chemical space, so hopefully good luck with changing the code.

Speaker Change: Sounds good. And then just a quick follow-up. I think in the past you talked about advanced nodes as a percent of electronics.

Speaker Change: which I assume includes AI-related sales. Can you remind us how big, I guess, advanced nodes are now for SemiTech and InterConnect? And then, you know, maybe what the growth rate for that subset will be in 25?

Speaker Change: Yeah, so advanced nodes are about 40% of the semi-portfolio. Their growth obviously would be higher than the average 6-7 that we had mentioned earlier in the call. We had said that for the AI specific exposure, we saw 30% growth.

Speaker Change: within the semifinals. So you would expect, you know, a nice outperformance in the advances versus the more mature notes.

All right, thank you.

and Mark. Thank you. Thank you.

Speaker Change: Your next question comes from a line of Frank Mitch from Firmium Research. Your line is open.

Frank Mitch: Good morning and let me echo the congrats on the on the quarter. You basically hit the trifecta in terms of exceeding guidance on sales EBITDA and EPS from what you provided.

Frank Mitch: in the early part of November. So I'm curious as to what went right or what exceeded your expectations in November and December.

Thank you.

Antonella Franzen: Yes, so I'll take that, Antonella. So when you look at the electronics space, I would say that's the one that really drove the beat. We did continue to have strong demand, and as we talked about a little bit earlier, we did have some, you know, pre-buy in there as well. I think the other important thing to mention when you kind of take a look at Q4 is not only did we exceed our expectations as we set them, but we also, you know, I would say covered incremental pressure from changes in foreign currency exchange rates.

Thank you.

Antonella Franzen: during the quarter as well. But other areas, so electronics was fairly a standout, but as we talked about, you know, the water business was even a little bit better than we expected on a sequential basis up for. The Tyvek medical packaging business was slightly better than we expected. Biopharma was actually even a little bit better as well. The only area that I would say we kind of expected is that water would be softer, and it was, sheltered was pretty much in line. So from an operations perspective, that's how I would characterize.

Antonella Franzen: Now, when you take a look at total EPS, the other factor that we clearly had that drove the beam was the tax rate in Q4 was a bit lower than we had anticipated, so that's...

Antonella Franzen: In the number as well, relative to the 4th quarter, and we did talk about as we go into 2025, we do expect the tax rate to probably be about a point or so higher than where we kind of landed this year.

Antonella Franzen: understood, and as we sit here today, you know, in the early part of February, the

Speaker Change: The segment that you thought were doing better, i.e. water, packaging, etc., has that continued at that pace? So the follow-through that you're seeing here in the early part of 2025?

Yes, it is playing out as you suspect.

Hi.

Thank you so much.

Speaker Change: Your next question comes from a line of Arun Viswanathan from RBC Capital Markets. Your line is open.

Speaker Change: Good morning. This is Adam on for Arun. Thanks for taking my question and congratulations on the great quarter. I'd like to double click on the cash a little bit. I know you've said most of the cash deployment for the year is going to be related to transaction costs.

Speaker Change: Could you give us a sense on the cadence of some of those costs? Are any of those going to linger into the fourth quarter or first quarter of next year? Are those mostly going to be advanced? Just thinking about when we could start thinking about resuming maybe cash deployment to other avenues.

Thank you.

Speaker Change: Yeah, so when we talked about, you know, our transaction costs are around, you know, $700 million. We expect them to be slightly less now that we are retaining the water business within the portfolio. I would be mindful that from a cash perspective, as you can see in the schedules attached to our press release,

Speaker Change: that cash out this year related transaction costs was only $64 million, so a bulk of it is all sitting in 2025. I would also be mindful there could be some costs related to debt as well, that's in addition to those transaction costs, which is why the focus in 2025 is all around getting the separation done and kind of putting a majority of all those costs behind us. I mean, there could be a little bit of trickling that goes into the following year, but a majority of it will be 2025.

Speaker Change: Great. Thanks. And maybe if just we could quickly touch back. You mentioned healthcare and water assets potentially as targets for M&A going forward. Any additional color you could give there maybe on types of assets or parameters you'd use for the search? Thanks.

Speaker Change: Yes, so we have an asset pipeline in both the spaces, so we'll continue to look and see where we can pick up assets that would add to our portfolio.

Speaker Change: You know, within the wider space, we would even broaden the aperture beyond just filtration and go into some of the other areas in order to be able to bulk up our exposure there.

Speaker Change: And within healthcare, you would expect a similar dynamic to what we've done with our last two acquisitions around Spectrum and Donatel in the med device space. So, you know, bringing our, our capabilities to bear and adding new capabilities to the toolkit.

Speaker Change: Your next question comes from a line of Lawrence Alexander from Jeffries. Your line is open.

Thank you. Thank you.

Lawrence Alexander: So, good morning. Just wanted to follow up on the comments around the construction outlook. What specifically are you assuming for remodeling activity? And also, what's your assumption around FX?

Lawrence Alexander: So, for remodeling within shelter, our expectation as we go into 2025 and what's built into our guidance is that that would be relatively flat on a year over year basis.

Speaker Change: Did you say FX, Lawrence, for your last question? Yeah, yeah, just currency FX, yep.

Speaker Change: Yeah, so we have about a one and a half percent headwind in Q1 and then about a one percent headwind for the full year.

Perfect, thank you.

Steve Byrne: Your final question comes from a line of Steve Byrne from Bank of America. Your line is open.

Steve Byrne: Yes, thank you. Lori, you mentioned the four water treatment technologies in your remarks.

Steve Byrne: I was curious whether any of the revenue in the water business is a service component such as monitoring or maintaining those treatment technologies and or do you have an interest in adding a service component to that business to help your industrial customers?

Steve Byrne: reduce water usage. Is that part of your vision in that business?

Steve Byrne: We don't have any service revenue today in the portfolio, but we'll look broadly in the water space to be able to add to our exposure. So I would say services as well as other areas within the water.

landscape would be on the table.

Steve Byrne: I'm just curious about, you know, price trends in your various Tyvek products.

Steve Byrne: You sell them into construction, into packaging, into personal protection. How do those end markets differ in terms of price trends for those products?

Steve Byrne: Yeah, there's not really material deviations in price across all the different end markets within Tyvek, so it's a high value. We've got a lot of expertise in the Tyvek overall.

Steve Byrne: and will continue to benefit from the recovery on the medical package side as well.

Okay, thank you.

Steve Byrne: And that concludes our question and answer session. I will now turn the call back over to Chris McCray for closing remarks.

Steve Byrne: Thanks everybody for joining today. For your reference, a copy of our transcript will be posted on our website. This concludes the call. Thank you.

Steve Byrne: This concludes today's conference call. Thank you for your participation. You may now disconnect.