DuPont de Nemours Q4 2021 Earnings Call Transcript

There are 8 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the 4th Quarter 2021 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer I would now like to hand the conference over to your speaker today, Pat Fitzgerald from Investor Relations.

Speaker 1

Good morning and thank you for joining us for DuPont's Q4 2021 earnings conference call. We are making this call available to investors and media via webcast. We have prepared slides to supplement our comments during this conference call. These slides are posted on the Investor Relations section of DuPont's website Joining me on the call today are Ed Breen, Chief Executive Officer and Larry Koch, Chief Financial Officer, please read the forward looking statement disclaimer contained in the slides. During our call, We will make forward looking statements regarding our expectations or predictions about the future.

Speaker 1

Because these statements are based on current assumptions and factors that involve risk Our actual performance and results may differ materially from our forward looking statements. Our 2020 Form 10 ks As updated by our current and periodic reports, includes detailed discussion of principal risks and uncertainties, which may cause such differences. Unless otherwise specified, all historical financial measures presented today exclude significant items. We will also refer to other non GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and posted to the Investor page of our website.

Speaker 1

I'll now turn the

Speaker 2

call over to Ed. Thanks, Pat, and good morning, everyone. Thank you for joining our Q4 earnings call. In addition to discussing our 4th quarter results and outlook for 2022, this morning I'll also comment on the progress of both our intended acquisition of Rogers and our process for divesting a majority of the M and M segment. Our 4th quarter results were highlighted by 6% volume gains, including a 9% increase in the E and I And a 12% increase in W and P.

Speaker 2

M and M delivered top line results ahead of expectations, Including volumes well ahead of global auto builds in the quarter. Customer demand was broad based across the portfolio, Led by greater than 20% volume growth in Semiconductor Technologies and high teens volume growth in water. Our top line performance also reflects significant pricing actions we took to offset $250,000,000 of raw material inflation We are seeing increases in all businesses with about 3 fourths of the impact in M and M. Our teams have done an outstanding job monitoring our input costs and quickly translating that into price increases To remain price cost neutral for the year, we are taking additional actions as we work to offset logistics costs, which during The 4th quarter were a $50,000,000 headwind, mostly in W and P. I want to recognize and thank our employees Who show up every day in our factories to keep our lines running and supplying the necessary products and solutions To deliver results like we reported today, their unwavering commitment in the face of a relentless pandemic, ongoing supply chain disruptions And Logistics Challenges deserves our gratitude.

Speaker 2

Turning to Slide 3, I will provide an update on our And innovation led growth position us extremely well heading into 2022 to continue unlocking value for our shareholders, Innovating for our customers and creating opportunity for our employees. In November, we announced our planned of Rogers Corporation as well as our intent to divest a significant portion of our M and M segment. These portfolio actions will position DuPont Among the top of the multi industrial peer set with top quartile revenue growth, EBITDA margins And low cyclicality, all hallmarks of top performing companies. Going forward, our business will be centered around the Our team sees strong customer demand across these pillars driven by megatrends such as the transition to hybrid and electric vehicles, Clean water, sustainability and the move to 5 gs. The preparation for the Rogers acquisition is well underway And on track for end of second quarter closing.

Speaker 2

Several significant milestones in the path to closing have already been achieved. In mid December, the waiting period under the HSR expired here in the U. S. And regulatory processes in other parts of the world are underway. Just 2 weeks ago on January 25, Rogers shareholders voted to approve the transaction.

Speaker 2

Excitement is building for combining this business with our portfolio of electronics offerings, which includes our recent acquisition of Our teams are anxious to get to the point where we can start working with the application engineers, R and D and sales teams at Rogers to map out the revenue synergy opportunities in the areas of next generation auto, 5 gs Infrastructure, Defense Electronics and Clean Energy, combined with Laird, these acquisitions increased the total addressable market of our E and I business by approximately 50% and will deepen our penetration into markets such as electric vehicles, Consumer Electronics and Industrial Technologies. A lot of work has been done to plan for the cost Both of the acquisitions as well as our existing E and I business to maximize our synergies through G and A and footprint optimization along with procurement savings. We also announced that we have initiated a process vast majority of the M and M segment, our work here is also on track and progressing well. As I had There is a significant level of interest in this market leading asset, and I am pleased with how the process is progressing. Our target is to have a signed agreement by the end of the Q1 with the closing in the Q4 of this year.

Speaker 2

In addition to positioning the company as a top performing multi industrial, these transactions enable us to transform the portfolio While maintaining a strong balance sheet and continuing with a balanced financial policy. Today, we announced that our Board has Proved a 10% per share increase to our dividend, which is consistent with our commitment for a dividend payout in the range of 35% to 45% And to grow the dividend annually in line with earnings. In addition, our Board has also authorized a new 1,000,000,000 share repurchase program, which enables us to continue returning value to our shareholders as we expect to complete the remaining 375,000,000 After paying down the financing associated with the Rogers acquisition, we expect to deploy significant portion of the remaining M and M proceeds To do further M and A, to build on our core areas of strength as well as additional share repurchases, we will also generate Strong cash flow this year in addition to the $240,000,000 gross proceeds from the Biomaterials divestiture, which is the last of our non core Our strong balance sheet positions us well to deliver for all stakeholders through investment in our business, Dividends, share repurchases and additional M and A.

Speaker 2

Finally, we will deliver shareholder value through Staying focused on innovation, which is at the core of DuPont. The 6% volume growth we delivered in the quarter And 10% volume growth for the year benchmarks well against our top peers. For the quarter, our volume gains excluding M and M Segment were up 10%. These results are proof point that the work of our R and D teams and application engineers who spend Countless hours working alongside our customers solving their most complex challenges is an advantage in the marketplace. Our focus on innovation is also at the core of our ESG strategy through both innovation and our own processes to reduce greenhouse gas At our factories as well as new product innovations that support and advance our customer sustainability goals In areas such as clean water, clean energy, electric vehicles and connectivity, The levers of portfolio transformation, balanced capital allocation and innovation led growth It's a powerful combination to create long term shareholder value at DuPont.

Speaker 2

With that, let me turn it over to Lori to discuss the details of the quarter as well as our financial outlook.

Speaker 3

Thanks, Ed, and good morning, everyone. As Ed mentioned, customer demand in our Key end markets remained strong in the 4th quarter. We continue to face unprecedented global supply chain challenges and rising inflation. However, the Pricing actions that we continue to implement are benefiting top line performance and maintaining earnings on a dollar basis. These factors, along with our intense focus on execution, contributed to net sales, operating EBITDA and adjusted EPS results above our guidance.

Speaker 3

In addition, we had solid cash flow generation and returned over $650,000,000 in capital to shareholders During the quarter, we drew $500,000,000 in share repurchases and over $150,000,000 in dividends. For the year, we returned more than $2,700,000,000 in capital to shareholders through $2,100,000,000 in share repurchases and 6 14% versus the Q4 of 2020, up 13% on an organic basis. Organic sales growth consists of 7 A 2% portfolio tailwind reflects the net impact of strong top line results related to our acquisition of Laird and head From an earnings perspective, we reported 4th quarter operating EBITDA of 973,000,000 EPS of $1.08 per share, up 5% 54% respectively from the year ago period. Our incremental margin in the quarter was pressured by price costs and logistics. Net of these impacts, our incremental margin was about 33% in 4Q.

Speaker 3

As mentioned earlier, the pricing actions that we took throughout the year resulting in us offsetting about 250,000,000 in the quarter were headwinds to our margins. I will provide more detail of the margin compression we saw in the quarter in a few minutes. From a segment perspective, E and I delivered 10% operating EBITDA growth on volume gains and earnings uplift from Laird, which more than offset raw material and logistic segments as well as start up costs associated with our Kapton capacity expansion. In W and P, operating EBITDA increased 7% as pricing gains and volume growth more than offset higher raw material and logistics costs. We will remain disciplined in our pricing approach as we move into 2022 to address continued inflation.

Speaker 3

M and M operating EBITDA In the quarter, cash flow from operating activities was $621,000,000 and CapEx was $184,000,000 We received gross proceeds of about $500,000,000 during the quarter from our Clean Technologies divestiture, which was closed at the end of December. Before we go to the next slide, I would also like to make a few comments on our full year performance. Full year net sales of $16,700,000,000 grew And we're up 14% on an organic basis. The organic growth consists of a 10% increase in volume and a 4% increase in price. Organic sales growth reflects double digit growth in all four regions and in all three reporting segments.

Speaker 3

Further, all 9 of our business lines had organic growth in 2021 and 7 of the 9 business lines grew double digits. A 10% increase in volume for the year consists of gains in all three reporting segments and within all nine business lines, Reflecting robust global customer demand in secular growth areas such as electronics and water, Along with recovery in end markets negatively impacted by the pandemic in prior year such as automotive, commercial construction and select industrial markets. Full year operating EBITDA of $4,200,000,000 increased 21%, Reflecting 1.3 times operating leverage, operating EBITDA margin expansion of about 100 basis points and incremental margin of 32%. Operating EBITDA increased for all three reporting segments during the year. Full year adjusted EPS of $4.30 per share Slide 5 shows the impact that price cost inflation had on our operating EBITDA margin in the 4th quarter.

Speaker 3

As costs continued to rise throughout 2021, our 4th quarter results reflect the largest headwind to quarterly margins for the year. In total, pricing actions fully offset about $250,000,000 of raw material inflation, which was higher than our expectations for input costs coming into the quarter and mainly in the M and M segment. While our pricing actions have enabled us to maintain earnings, the price cost inflation resulted in a significant headwind of about 150 basis points to operating EBITDA margins versus the year ago period. Additionally, higher logistics costs of about 50 If you exclude the price cost and logistic headwinds in the quarter on an ex M and M segment basis, Our operating EBITDA margin was above 26.5 percent in the 4th quarter, further illustrating our strong performance and Turning to Slide 6, which provides more detail on the year over year changes in the net sales for the quarter. As I mentioned earlier, organic sales growth of 13% during the quarter Consists of 7% pricing gains and 6% volume growth.

Speaker 3

In E and I, volume gains delivered 9% organic sales growth for the segment led by higher volumes in semiconductor technologies of more than 20%. Semiconductor technologies demand was driven by the ongoing transition to More advanced node technologies resulting from growth in electronics megatrends. Semi Tech was up mid teens for the full year We expect to continue to outpace MSI growth as we head into 2022. We are seeing more investments in during the quarter on volume growth, which was driven by ongoing strength for CalRes and VESPA within electronics Industrial end markets, along with strong demand for medical silicones and biopharma and healthcare applications. Organic growth for industrial solutions As expected, organic sales growth for interconnect solutions was down in the quarter, reflecting the anticipated impact of the shift in demand related to premium next generation smartphones to the first half of twenty twenty one, along with softness We expect to return to a more traditional seasonality in 2022.

Speaker 3

In addition, we recently completed our Kapton project here in the U. S, which expands our production of polyimide film and flexible circuit board materials. We will begin qualifying materials in the first half of this year for high value applications, which will start to accelerate in the second half of twenty twenty two. For W and P, 17% organic sales growth during the quarter consisted of a 12% High teens organic growth in Safety Solutions as continued recovery in industrial end markets resulted in significant volume improvement for Nomex and Kevlar Air and Mid Fibers. Within Water Solutions, high teens organic sales growth reflects strong global demand for water technologies, primarily in industrial and desalination markets.

Speaker 3

Shelter Solutions sales increased on mid teens organic growth driven by continued strength Year over year pricing gains of 5% during the quarter relate primarily to actions taken in safety and shelter In response to raw material inflation and also reflects sequential price improvement from all three business lines within W and P versus the 3rd quarter. For the full year, W and P delivered 10% organic sales growth on 8% volume improvement and 2% Pricing gains. Safety and Shelter Solutions were up low double digits organically and water solutions was up mid single digits The global demand for clean water technologies remains strong and expanding our capacity remains a priority for us. For M and M, 13% organic sales growth during the quarter was driven by a 16% increase in price, offset slightly by a 3% decline in volumes. M and M has been the segment within our portfolio most significantly impacted by raw material inflation.

Speaker 3

The 60% local price increase During the quarter, reflects continued actions taken to offset higher raw material and logistics costs. Volume declines softness in global auto production due to supply constraints, primarily the semiconductor chip shortage. For the year, M and M organic sales growth was 24% on 12% higher volume and 12% pricing gains. All three business lines within M and M delivered organic sales growth of greater than 20% for the full year. Turning to Slide 7.

Speaker 3

Adjusted EPS of $1.08 per share was up 54% from $0.70 per share in the year ago period. Higher volumes and strong results from Laird more than offset higher logistics costs and other operating items such as Kapton startup The low the line items continue to benefit our EPS results compared to the year ago period, primarily a lower share count. Lower interest expense was mainly offset by a higher tax rate. For full year 2022, we expect our base tax rate in the range of 21% to 23%. Let me close with a few comments on our financial outlook on Slide 8.

Speaker 3

We expect continued top line strength across the portfolio in 2022, led by ongoing strength in semiconductors as Smartphone sales, housing starts, and water filtration. Our plan assumes these market dynamics will lead to solid volume growth in 2022. In 2022, we are planning that raw material and logistics costs will remain at elevated levels With approximately $600,000,000 of year over year headwinds versus 2021, primarily in the first half. Once again, raw material inflation will be predominantly in our M and M segment. In response, we are implementing more price increases in all businesses, which will enable us to offset raw material and logistics costs on a full year basis, but we will lag in the Q1.

Speaker 3

We expect our operating EBITDA margins to improve throughout 2022, driven by volume growth, productivity, Net sales between $4,200,000,000 $4,300,000,000 and operating EBITDA between $940,000,000 $980,000,000 At the midpoint of our guidance range, we are anticipating 1st quarter operating EBITDA margins to be about flat sequentially with the Q4 of 2021. We expect sequential improvement in E and I and M and M to be offset by W and P as manufacturing For the full year, net sales of $17,400,000,000 to $17,800,000,000 and operating EBITDA of approximately $4,400,000,000 at the midpoint Reflects volume growth and acceleration of additional pricing gains throughout the year to offset the impact of both raw material and logistics cost We expect operating EBITDA margins in the back half of twenty twenty two to return to more normalized levels As impacts from the omicron variant subsides as well as gains from volume improvement, productivity actions, Acquisition synergies and full implementation of price increases. In closing, I want to note that our guidance is based on the current portfolio today, including the businesses in scope of the planned M and M divestiture. Once we sign a deal, The in scope M and M businesses will move to discontinued operations and we will reset the guidance for remaincoed DuPont.

Speaker 3

With that, let me turn the call back to Ed.

Speaker 2

Thanks, Laurie. Let me close by summarizing why I am excited about 2022 at DuPont. Our results demonstrate that our businesses deliver the solutions our customers demand. In a tight supply chain and challenging logistics environment, We delivered 6% volume growth, well ahead of our expectations coming into the quarter. Our teams continue to work closely with our customers To understand their complex material challenges in the wind business by delivering innovative and sustainable solutions.

Speaker 2

You can also see our teams are managing every lever within our control. This is evidenced through our delivery of pricing gains to offset every dollar of raw inflation in 2021 and these actions continue into 2022. In addition to having our fundamentals in place, we are on track to complete a few Substantial steps in the transformation of DuPont in 2022 with the planned Rogers acquisition and the M and M divestiture. These transactions as well as the potential for additional M and A in strategic areas position DuPont as a premier multi industrial company Focus in the areas of electronics, water, industrial technologies, protection and next generation auto. And finally, because of our ability to complete this transformation while maintaining a strong balance sheet, we will be in a position Generate value for all stakeholders through organic and inorganic investment in our businesses and by staying committed to our dividend and share Purchases as we announced today.

Speaker 2

I look forward to providing you updates on each of these areas as we progress through 2022. With that, Let me turn it to Pat to open the Q and A.

Speaker 1

Thanks, Ed. Before we move to the Q and A portion of our call, I would like to remind you that our forward looking statements apply to both our prepared remarks and the following Q and A. We will allow for one question and one follow-up question per person. Operator, please provide the Q and A instructions.

Operator

Your first question comes from the line of Jeff Sprague with Vertical Research.

Speaker 4

Thank you. Good morning, everyone.

Speaker 2

Good morning, Ed and Laurie. Good

Speaker 1

morning, Ed.

Speaker 5

Good morning. Good morning. Hey, two questions from me. First, just on M

Speaker 4

and M. Ed, is

Speaker 5

the tenor of the discussion around valuation Still

Speaker 4

in the ballpark of what you were thinking back in November kind of given the market turmoil that we're looking at?

Speaker 2

Yes. No change to the comment I made last time. Feeling very good about the process. Multiple people very interested in the asset and we're moving along as quickly as we can here. We'll have a deal to announce before the end of the Q1.

Speaker 4

Great. And then just thinking about the portfolio after this, I've done a lot of the benchmarking work myself and the company does look a lot different when this is behind you. But just wonder if you could give us a sense of what you think the organic growth profile of the company is once you get these two moves done?

Speaker 1

And should we be expecting

Speaker 4

kind of other portfolio moves or we're moving more into maybe a, I don't know, maybe bolt on acquisition mode with a focus on organic growth perhaps.

Speaker 2

Yes. Jeff, I've got a couple of comments. And And by the way, I think it really does transform the portfolio into a premier multi industrial. When you look at just the 4th quarter results, If you take M and M out, the portfolio grew volume 10%. It was 6% with M and M in it.

Speaker 2

And by the way, if you look at the EBITDA margin profile, it would improve by 190 basis points with M and M out. So as we said before, with this move we're making, We're definitely going to improve our top line and the stability of it. We're going to improve our EBITDA margins, and we're clearly significantly reducing cyclicality And by the way, I think in Laurie's comments or my comments, 70% of our raw material increases this year were in the M and M segment. We're getting significant price in covering it, but somewhere down the road is commodity costs unwind, the pricing unwinds Zendesk, it was in the DuPont portfolio. By the way, our organic growth rate little carpool for a year even though the M and M business is a phenomenal business and a great cash generator.

Speaker 2

So It really fixes a lot of things and have been, of course, adding Laird and Rogers by the way. The consistency of those secular end markets that we're adding in Very nice. And then, I'd like to give you an overall comment. When you look at the pie chart on new DuPont after these moves are made, By the way, and assuming maybe another key acquisition happens that we add into one of these secular areas we talked about, our 5 areas, you have about 40 5% of the portfolio that outgrows GDP and about 55% of the portfolio probably somewhere around GDP. So you're really Very much tweaking that end market secular exposure we have to have a really consistent nice higher organic growth rate in the company.

Speaker 1

Great. Thank you. Thanks, Jeff.

Operator

Your next question comes from Scott Davis with Melius Research.

Speaker 1

Good morning, Pat, Laurie and Pat. Good morning, Scott. Good morning. Good luck with M and M. Looks like we're I want to switch over to WMP because it seems to be back on track, pretty big core Growth numbers even excluding price.

Speaker 1

What was it your ability to meet customer demand in the quarter change or the actual customer orders go up substantially in the quarter. And is this business just a little lumpier than perhaps we May think it is and you're going to have some ebbs and flows.

Speaker 2

Yes. Couple of things, Scott. First of all, the order rates have continued to go up. In the last Couple of weeks, we've had really nice order input in the business. So that's continuing on a nice trend and it's Almost every one of those end markets that Lori touched on in her prepared remarks, but we also in the quarter did a nice job Getting through some of our, call it, past due backlog.

Speaker 2

By the way, one of the areas, if you all remember this, this quarter we had 19% Growth in the water business and the 2 quarters before that we highlighted to you that we were having a tough time getting some shipments out the door in the water business We had low single digit growth in the if you combine the second and third quarter and it obviously should have been higher in the second and third So we really got a lot of the logistics cleaned up. The ports cleaned up a little bit in some of the areas where we Our water products and we got 19%. So we flushed out a lot of that second and third quarter. Having said that, the water Orders coming in still look very robust. So we're feeling good about what we're getting out the door to satisfy our Customers and the order intake still coming into the company.

Speaker 2

So, on the point I made a minute ago to Jeff, You combine W and P and E and I, which will be the new portfolio, 10% volume growth in the quarter on top of us getting pricing.

Speaker 1

Right. And Ed, is the strategy to price around raws or price around raws plus logistics?

Speaker 2

Yes, Scott. It's to get both what I think has happened to everybody. You Your input costs on the rolls and we've been getting pricing. Like we said, we covered it 100% in 2021, but the logistics costs, Especially ocean freight just started going bonkers around October, November, kept going up in December. And it wasn't even up and staying up.

Speaker 2

It was continuing to go up. And some of the OSHA freight's literally up 700%, 800%. It's crazy. So I think everyone's still chasing that and that's really a big part of our story in the first Quarter in W and P, we're implementing more pricing actions across the portfolio, but we're really going at it on the W and P side They have more of our logistics costs than the other two businesses and we're putting through more pricing there. As we get into the Q2 for W and P, we'll start to see margin improvement and keep building as we go through the year.

Speaker 1

Okay. Helpful. Good luck, everybody. Thanks, Chuck. Thanks, guys.

Operator

And your next question comes from the line of Steve Tusa with JPMorgan.

Speaker 4

Hey, good morning, guys.

Speaker 1

Good morning.

Speaker 4

Are you still thinking kind of the same, I know the market's been a little bit volatile, but Any update on your expectation for the multiple for M and M ultimately?

Speaker 2

Yes. I stick with my comments that I made last time. I think when I Made the comments our 2021 multiple was a little shy of 11%, and I said we will get More than that for this asset, but I think our multiple now is still a little shy of 11% on 2022. And I should stick with my comment

Speaker 4

Great. And then just the kind of price cost dynamics, first half to second half, I'm sure that's Part of the kind of seasonal ramp, I know it's a little bit tough to Tease out what normal seasonality here is for this new portfolio, but maybe just put that in the context of the 1Q EBITDA guide, if you could. I'm sure that's Aspect.

Speaker 3

Yes. So in the Q1, we still see logistics as a headwind to earnings. They're probably in Same range that we called out for the Q4 of $50,000,000 So as the year goes on, we'll expect to offset that to land neutral on a full year basis On those raw material escalation and logistics. So that's a piece of our sequential margin improvement as the year goes on kind of getting back into more Thermal patterns in the second half. Another benefit that we'll see as the year goes on is really just the volume and so we'll expect sales to get to the full year guide of a midpoint of $17,600,000,000 And beyond that, just the list We're expecting around productivity as we've been active productivity actions, get more synergies out of the layered transactions.

Speaker 3

So we're doing really well there. We've actually upped our Expectation slightly from $60,000,000 when we announced the deal, so now we're targeting closer to $63,000,000 from the layered synergies. So all of those things combined are what's

Operator

Your next question comes from John Walsh with Credit Suisse.

Speaker 6

Hi, good morning, everyone.

Speaker 1

Good morning, John.

Speaker 6

Maybe just circling back to the guidance, if we look at 2021, you outperformed your initial guide by about 8% on EBITDA at the midpoint in the face of a lot of Inflationary pressures. As we think about 2022 and how you kind of set the initial guide, Is it really just running forward some supply chain continuation of the Current environment or is there anything that's DuPont specific that we should be aware about when you set that guidance?

Speaker 3

No, I wouldn't say there's anything DuPont specific. So obviously, we still have caution in the Q1 around not being able to cover the logistics headwinds, As well as primarily within our W and P segment, some impacts on production because of omicron. So we're seeing some Lower production rates in January, primarily in our W and P business, which has large facilities here in the U. S. But seeing some absenteeism from the omicron variant That's leading to lower production on assets that usually run sold out as well as higher labor costs as we deal with some overtime.

Speaker 3

So the margin profile that we have at the midpoint in Q1 of 22.8%, we expect to escalate as the year goes on, landing more to 25% on a full year basis. But To your question, I wouldn't say there's anything different in our methodology about how we provide guidance for the full year versus any other company.

Speaker 2

Yes. I would add one other comment also. Lorian and I planned that raw material inflation stays where it's at for the full year. So that's an assumption That we have in our planning. So again, we've got to continue to get the price to cover the logistics and any other raw inflation that we see.

Speaker 2

And we are again enacting it across All the portfolio as we enter the new year here, that continues. But we're making that assumption that it stays up here and we got to get it covered.

Speaker 3

Yes. So it'll say we're expecting another $250,000,000 in Q1 year over year, probably about the same range And then we expect it to plateau, not decline, but plateau in the second half.

Speaker 6

Great. Thank you for that color. And then maybe just a follow-up on how you're thinking about volumes By geography or major countries, however you'd like to speak on it as we think about 2022. Thank you.

Speaker 3

Yes, we expect continued robust growth again across the different regions. So in 2020 If you look at our guidance, we're at 6% at the midpoint on a total company basis. But if you take out the headwind that's in non core from the divestiture The CleanTech business, we're actually at about 8% total growth in 2022. So we see strength again in North America and Europe, Asia Pacific, all kind of up in the high single digit range, with a little tempering in Latin America. But again, Latin America is not a huge portion

Operator

Your next question comes from David Begleiter with Deutsche Bank.

Speaker 4

Thank you. Good morning. Good morning. Good morning. Just on W and P pricing this cycle, how sticky do you think it will be this time around versus Fire cycles.

Speaker 3

Yes. I mean, we're looking to get kind of in the mid single digit price increases in this year. So we had 5% in Q4, we'll look to maintain that pace through the first half. It obviously will temper a bit in the second half on a year over year basis is a little bit thicker than what we would see in the M and M business. We would expect that to turn around once the raw material starts to recede.

Speaker 3

So we're hoping that we can maintain those

Speaker 4

Any update on this issue? And what progress could you hope for this year in terms of removing the overhang?

Speaker 2

Thank you. Yes, David. I think we're going to make very good progress this year. I'll just give you a couple of things. Chemours, Corteva and DuPont are working extremely well together.

Speaker 2

I would say we're very synced up on wanting to get some outcomes here in the first half of twenty twenty two. And I mentioned that, David, because One of the issues we had a year ago before we signed the cooperation agreement and the structure we put in place between the 3 companies, we were just wasting a lot of time talking Internally within the 3 companies and wasting, I think, valuable time not being synced up because we didn't have that agreement in place. We're really Every single week now in discussions with 3rd parties to resolve issues, we're literally synced up on weekly calls and it feels really good that we can Make progress. Obviously, the big focus would be getting the water district cases settled on the PFAS Side of things, we have a few states that we'll do some settlements with like we did in Delaware. And So we're feeling very, very good that we'll make some progress.

Speaker 2

And again, a lot of conversation is going on presently and it's Productive. Thank you. And then, Barry, it's very high on Ben Breeze personal list. I understand the importance getting that stuff resolved and personally spending a lot of time on it. That sounds great.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Chris Parkinson with Mizuho.

Speaker 4

Just very quickly, could you speak to the current backdrop in semiconductors for 2022 given recent sector noise, the competitive environments? And just also how investors should be thinking about the current CapEx cycle flowing through your outlook for 'twenty three and even potentially longer term? Thank you.

Speaker 2

Well, the CapEx piece, as we've said, we're going to be on the higher side for about a year and a half We've got a couple of these big expansion projects going on. We're just winding. So by the way, we're going to run about 6% on CapEx. We would like to over the medium term run that more a little bit under 5% mid 4%, high 4%, somewhere in that range. We're just finished up the CapTel program, but we've got some water expansion stuff we're looking at.

Speaker 2

And obviously, we have the big Tyvek expansion, Which is our single biggest CapEx program going on over in Luxembourg right now that still goes on for about a year and a half. So we're going to run a little bit higher, but

Speaker 3

Obviously, the industry is running, I think, at about 98% capacity right now. So contributing to the really strong growth that we saw overall semi in 2020 1 was up 15%. We'll look to see strength again maybe in the high single digits, low double digits in 2022. So and as they Invest capacity and CapEx in the semi space, it obviously benefits our portfolio. So we tend to outpace MSI, so the amount of produced by 200 to 300 basis points.

Speaker 3

So as that number continues to show strength in the coming years from all of the demand and the capacity that's going in, we'll participate And that uplift as well.

Speaker 2

Yes, part of our growth by the way, a nice piece of it, if you remember from the teach ins that John Kemp There's a lot more of the more complex semiconductors, more layered chips and all that and that plays Our advantage, it gives us growth, but growth is, as you all know, is being a little tempered to Lori's comment right now because we need new fabs to come on board. So It looks like a nice business to be in over the next decade as new fabs come on and we've seen a couple of announcements recently in the U. S. Where some fabs are So it looks like a nice trend for the next decade.

Speaker 4

And just you hit on all the following topics on W and P In prepared remarks. Just want to flush something out. In terms of just given the strong pricing outlook, let's say, the eventually Abating T and L and labor related cost headwinds, and then the growth outlook for, let's say, safety and protective versus shelter. Can you just remind us and just give us your updated thoughts on normalized margins for that segment going forward, let's say, 'twenty three forward? Thank you.

Speaker 3

Yes. So W and P, as we have mentioned, we'll see sequential margin deceleration from Q4 into Q1 really Driven by the items that we had called out. But if you exclude the raw material and logistics net headwinds And the headwinds that we're seeing from a production perspective, the W and P margins in the quarter should be almost 500 basis better than what we may post because of those headwinds. And so you're getting up more into the 26% range. I think going forward That those margins should be in the 26%, 27% EBITDA margin profile.

Speaker 4

Thank you very much.

Operator

Your next question comes from John McNulty with BMO Capital.

Speaker 4

Yes. Thanks for taking my question. Ed, it looks like you're going to have a mountain of cash once Mobility is sold off. Can you speak to what you're seeing in terms of the M and A Juan. It sounds like you've got some chunky targets out there.

Speaker 4

With the volatility that we've seen in the market, have you seen those multiples Come in at all? Are they still hanging in there? I guess how should we be thinking about that?

Speaker 2

Yes. I mean, I think generally the multiples are hanging But we'll see how the year goes. We're John most likely won't do an acquisition until after we get the proceeds So we'll see where things sit at that point in time. By the way, what we're looking at are things that are Right in the wheelhouse of those 5 core secular growth areas that I mentioned to you. So we're not looking at something that's off another leg on the stool or Something like that, we really feel we can beef up our opportunities in existing customer bases and expand customer basis in technology areas that we already know we sell into and we can expand into that too.

Speaker 2

And I think by the way, Larry Rogers are 2 perfect examples of that. I'm not saying it's in that area, but something like that that fits. We'll get a ton of cost synergies out of when we So that's kind of our timeline of what we're thinking that as we exit next this year we're in now, Possibility for an acquisition or 2. By the way, this number could be, you're taking $1,000,000,000 but We'll probably be sitting on between cash flow, selling M and M, buying Rogers, CapEx, everything else that kind of goes into We'll probably be sitting just for planning purposes with like $6,000,000,000 of excess cash somewhere in that zip Code as we consummate this year.

Speaker 4

Got it. No, that's helpful. And then Just a question on the raw material and inflation front. I guess at this point, do you Have actual constraints from a supply chain perspective where you're not you're being kind of held back from putting out product at this point, like whether it's force majeurs or logistical challenges or what have you, are you pretty well squared away at this point and now it's just that you have to worry about and when will that maybe settle down?

Speaker 3

Yes. I would say in general, the raw material constraints are pretty much Behind us there are some force majeures that we're dealing with, but they're not holding back our production. What is holding back our production is what I had mentioned earlier With some of the omicron absenteeism at some of our sites in the U. S. That's primarily impacting the W and P segment.

Speaker 3

So We had planned our Q1 guidance, but that doesn't materially get better versus what we saw in January. So that's really the only place where we're seeing constrained production.

Speaker 2

We would think that's really a 1 quarter issue the way Omicron is now coming down. We had a key production facility. We missed 2 days of production. I think it was 2 weeks ago, Lack of staffing, we were back up on the 3rd day. It's things like that.

Speaker 2

We're paying everyone overtime Work more hours, and that's costing us money. And a lot of that we obviously plan will subside here sometime in the Q1. But for a planning purpose, We just made the assumption that January, February March will all look the same because of omicron and those type of issues.

Speaker 4

Got it. Thanks very much for the color.

Speaker 2

Yes. Thank you.

Operator

And your next question comes from Steve Arne with Bank of America.

Speaker 5

Yes. Thank you. Would you attribute the 9% volume growth in E and I So your customers just running harder and some capacity expansions or is this also from share gains? And if the latter, what precludes you from not getting more price in this segment? Is it only Possible with a price mix shift and can you preclude the legacy Products from declining in price.

Speaker 3

Yes. So I would say that the combination of just a really robust 2% in the quarter, that's mainly volume. That's back to the earlier comment around the fabs running full out as well as Some share gains on our point and also some benefit in the mix of chips that are being produced. Those chips And as far as price, we are getting price. It's netting out to a slight Headwinds because there is a normal fade that goes on within the electronics segment.

Speaker 3

And so we size that about 1% annual fade in the E and I segment. It happens across Electronics industry, that's not something that's just a DuPont factor that goes on across electronics. And so if you take that out, we actually did net some price To be able to offset the raw material headwinds that we're seeing within E and I, but back to the pie chart that we provided in our slide, E and I is The smallest portion of our portfolio that has headwinds on the raw material front, only about 10% of the headwinds that we saw of the $250,000,000 in the quarter was from

Speaker 5

And in your remarks, Laurie, you mentioned about the water technologies focusing in Industrial end markets and desalination, so you clearly have the platform for Purification. My question for you, do you have the right technology or do you need to bolt on to it To expand from purification to extraction such as

Speaker 1

Let me just answer it

Speaker 2

this way. We would love to do an acquisition in the water area and you'd probably pick up some technologies in that area. There are technologies we would like to add in the portfolio. By the way, there's not a ton of water assets out there. But as you know, we did 4 acquisitions.

Speaker 2

I don't know

Speaker 3

End of 2019.

Speaker 2

See, end of 2019, I'm losing Track of time here. They were all smaller, but now we're growing them really nice. So that is a potential path for us. If there's not something a little chunk That we really, really like, but that's a space we just feel the next couple of decades are great secular growth areas and we've Great technology already we'd like to add to. Very, very similar again to Laird and Rogers coming into E and I, how that adds on to existing technologies We have so definitely an area of interest and could pick up some of those technologies in that extraction area.

Speaker 1

Thank you. Thanks, Steve.

Operator

Your next question comes from John Roberts with UBS.

Speaker 5

Thank you. You had uneven quarterly comps in interconnects in 2021 due to the smartphone launch and timings in Automotive, any insights into the quarterly comps as we go through 2022? Where are the really uneven comparisons?

Speaker 3

Yes. So we'll go back to a more seasonal pattern in 2022. So that does create a headwind in Q1 because in Q1 2021 we were unseasonably high. That will resolve as the year goes on and create a tailwind in the back half. But overall, the seasonality will

Speaker 5

Then on Slide 5, can you help us understand the headwinds that stay with DuPont or with continuing DuPont Versus M and M. So how much of the logistics $50,000,000,000 is continuing DuPont versus M and M? And In the part of M and M that stays with DuPont, is it performing in line with the rest of M and M or is it outperforming overall?

Speaker 3

Yes. So on the logistics front, of the $60,000,000 about $40,000,000 stays in DuPont with the biggest piece of that being in W and P. So only about 10 of the 50 was within M and M. As far as the businesses staying with coupon, it's primarily adhesives and multi based heritage Dow businesses. Their margin profile is lower than the M and M segment today.

Speaker 3

They saw some significant headwinds on the price cost in 2021. We'll look for that to

Operator

Your next question comes from Vincent Andrews with Morgan Stanley.

Speaker 7

Hi, thank you and good morning. Just a couple of cleanup questions here. I know you laid out sort of the shape of your raw materials expectations for 2022. On logistics, You called out the crazy numbers that we're seeing in ocean freight. Are you assuming that

Speaker 1

that stays the same through

Speaker 7

the year? Or are you allowing for that to correct a little bit in the back half?

Speaker 3

So it corrects in the back half primarily in the 4th quarter as we lap that $50,000,000 headwind that we saw in 4Q2021. So we'll look for them to remain elevated Q1 through Q3 on a year over year basis and then Q4 moderate. The one difference coming out of Q1 is we do expect to get price coming out of Q1 into Q2 and beyond to offset that headwind in logistics.

Speaker 7

Okay. And then just on the semis and maybe just going even into the tiers in the auto customers, There's chatter out there depending on who you're listening to that maybe there's some double ordering in semis or maybe the tiers have built up inventory waiting for the auto production to come back, but as you look across your businesses and your customer relationships and what you're seeing and hearing, what's your point

Speaker 1

of view on any of that stuff?

Speaker 3

Yes, we're not feeling any inventory build that would create a headwind as you head Into 2022, I mean, keep in mind, there is a little bit of a timing disconnect between the results within the M and M segment from a volume Auto build is up 2%, so that could moderate a bit with respect to our performance versus auto build in 2022. But Overall, I don't feel like any inventory is building in the channel. And on the semi front, I think it'd be hard to be building inventory in semi just given that the market's So we don't feel it there either.

Speaker 4

Okay. Thank you very much.

Operator

Ladies and gentlemen, we have reached the allotted time for questions today. I will now turn the conference back over to Pat Fitzgerald for closing comments.

Speaker 1

Thank you everyone for joining our call. For your reference, a copy of our transcript will be posted to the DuPont website. Please join us on March 3rd for our next teach in, will include the Industrial Solutions line of business within our E and I segment. I hope you can join us. Thank you again.

Speaker 1

This concludes our call.

Operator

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

Earnings Conference Call
DuPont de Nemours Q4 2021
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