Lori Koch
Chief Financial Officer at DuPont de Nemours
Thanks, Ed and good morning. The quality of our portfolio was highlighted this quarter as strong top-line results across the majority of our business lines offset weaker conditions in consumer electronics and construction. The global economy remains challenging, but our team's focus on execution, drove solid fourth quarter earnings growth and operating EBITDA margin expansion against the prior year period.
Turning to our financial highlights on Slide 6. Fourth quarter net sales of $3.1 billion decreased 4% as reported and increased 5% on an organic basis versus the year-ago period. Global currency volatility resulted in a 5% headwind from U.S. dollar strength against key currencies, most notably, the Yen, Yuan and Euro. We also saw a 4% portfolio headwind, driven by the impact of non-core divestitures.
Breaking down the 5% organic sales growth, 7% pricing gains were partially offset by 2% volume declines. Continued strength in Water Solutions and over 20% volume gains in Auto Adhesives were more than offset by further softening in smartphones and personal computing within Interconnect Solutions, a slowdown in semiconductor and construction market, as well as continued lower year-over-year volume from Tyvek protective garments within Safety Solutions.
As we exited the year, we saw lower volumes in areas we have highlighted with total December organic sales up 2% year-over-year, including down high-single-digit in China, driven by acceleration of COVID disruptions and low-single-digit organic sales growth in the U.S. and Canada due to muted demand in construction and destocking by customers.
From an earnings perspective, operating EBITDA of $758 million increased 1% versus the year-ago period, despite currency headwinds and the impact of portfolio. Organic earnings growth was driven by pricing and disciplined cost control, which more than offset inflationary cost pressures and lower volume, including the impact of production rates. Operating EBITDA margin during the quarter of 24.4% increased a 120 basis points versus the year-ago period.
Adjusted EPS in the quarter of $0.89 per share increased 16%, which I will detail shortly. Cash used in operations during the quarter of $126 million, less capital expenditures of $185 million and transaction-related adjustments totaling $213 million resulted in a free cash outflow of $98 million. The transaction-related adjustments consists of $163 million termination fee related to the intended Rogers acquisition with the remainder from the tax prepayments for the M&M divestiture. Further headwinds to free cash flow during the quarter included transaction costs related to closing the M&M deal of about $200 million, and an approximately $100 million cash outflow related to prepaid accounts payable in advance of the M&M deal closing, which was subsequently reimbursed to us at closing and reported as an inflow within investing activities.
I call out these items to provide visibility into our underlying cash flow performance. Additionally, free cash flow, included a working capital benefit during the quarter of about $120 million related to inventory reduction, resulting both from our productivity efforts and from our decision to slow production in certain lines of business, given the lower volume environment.
Turning to Slide 7, adjusted EPS for the quarter of $0.89 per share increased 16% compared to $0.77 per share in the year-ago period. The strong EPS growth came primarily from below-the-line items as organic earnings from our ongoing businesses were mostly offset by the absence of earnings from non-core divestitures, as well as currency headwinds. Ongoing share repurchase continues to drive earnings per share growth, providing a $0.07 benefit to adjusted EPS. Lower net interest expense provided a $0.05 benefit to adjusted EPS, driven by both interest income resulting from additional cash on hand from the M&M divestiture and also lower interest expense resulting from the paydown of $2.5 billion of senior notes during the quarter.
Our tax rate for the quarter was 22.2%, up notably from 18.6% in the year-ago period, resulting in a $0.06 tax headwind to adjusted EPS, driven primarily by geographic mix of earnings and currencies. Our full year base tax rate for 2022 was 23.2% and our 2023 outlook assumes a base tax rate in the range of 23% to 24%.
Turning to Slide 8. Just to note a few metrics on a full year basis, net sales of $13 billion in 2022 increased 4% for the full year. On an organic basis, full year sales increased 8%, due to a 7% increase in price and a 1% increase in volume.
W&P and E&I delivered organic sales growth of 11% and 5% respectively, and net sales in all four regions increased organically. Further, we delivered high-single-digit or better organic sales growth in five of our six lines of business, as well as in the retained businesses within corporate led by Auto Adhesives. Interconnect Solutions was the only business line down organically due to the slowdown in smartphones and personal computing since last summer.
Full year operating EBITDA of $3.26 billion increased 3% due primarily to volume gains as pricing gains were mostly offset by continued pressure associated with higher raw material, logistics and energy cost. Operating EBITDA margin was flat at 25.1%, inclusive of price cost headwind of about 150 basis points.
Full year adjusted EPS of $3.49 per share increased 12% versus 2021. The increase was driven by a lower share count from share repurchases, higher segment earnings and lower net interest expense, which was partially offset by a higher tax rate.
Cash flow from operations for the year of $588 million, net capital expenditures of $743 million and transaction-related adjustments totaling $328 million for items that I mentioned earlier resulted in free cash flow for the year of $173 million. Full year discrete headwinds included in free cash flow totaled about $650 million, which mainly reflects transaction costs.
Turning to segment results, beginning with E&I on Slide 9. E&I fourth quarter net sales decreased 8% as organic sales declined 2%, along with currency and portfolio headwinds of 5% and 1%, respectively. The organic sales decline reflects a 5% decrease in volume, partially offset by a 3% increase in average price.
The organic sales decrease for E&I was led by a 10% decline in Interconnect Solutions, driven by volumes linked to further weakening in smartphone, PC and tablet demand, along with channel inventory destocking and the negative impact of COVID-related disruptions in China.
In Semiconductor Technologies, lower volumes resulted from reduced semi fab utilization rates due to weaker end market demand along with channel inventory destocking. End market weakness was seen mainly in smartphones and personal computing. In Industrial Solutions, volumes were muted as lower demand in consumer printing and weakness in LED silicones for conventional lighting in China more than offset ongoing strengths in broad-based industrial end markets, including desktop product lines and aerospace and for applications in healthcare markets.
Operating EBITDA for E&I of $407 million decreased 4% in the quarter as volume declines were partially offset by disciplined cost control with operating EBITDA margin up 150 basis points from the year-ago period. For the full year, E&I net sales of $5.9 billion increased 7% versus 2021, up 5% on an organic basis as the portfolio benefit from last year's Laird acquisition was partially offset by currency headwinds. Organic sales growth for the year of 5% consisted of a 3% increase in volume and a 2% increase in price.
From a line of business view, organic sales growth was led by semi tech up low-double-digit, and Industrial Solutions up high-single-digit, partially offset by mid-single-digit decline in Interconnect Solutions related to weakness in smartphones and personal computing end markets during the second half of 2022.
Full year operating EBITDA of $1.8 billion increased 4% as volume gains, a full year of earnings associated with the Laird acquisition and higher pricing more than offset inflationary cost pressures and weaker mix in Interconnect.
Turning to Slide 10. W&P fourth quarter net sales increased 6% as organic sales growth of 12% was partially offset by a 6% currency headwind. Organic growth reflects broad-based pricing actions taken across the segment to offset cost inflation as W&P volumes were flat. Organic sales growth was led by Water Solutions, which increased over 20% on strong global demand for water technologies, which led by reverse osmosis membranes, as well as capacity increases and pricing gains. Water continued to be an area of consistent strength with long-term topline growth expectations in the mid-to-high single-digit.
Sales for Safety Solutions were up high-single-digits on an organic basis as pricing actions were somewhat offset by lower Tyvek volumes, given the demand shift from garments to other applications and the resulting impact of line changeovers on production efficiency. Excluding the year-over-year garment headwind, total W&P volumes increased approximately 2% in the quarter.
In Shelter Solutions, sales were up high-single-digits on an organic basis as pricing gains were partially offset by volume declines, primarily in North America construction business.
Operating EBITDA for W&P of $360 million increased 11% as pricing actions and disciplined cost control more than offset inflationary cost pressure and currency headwinds with operating EBITDA margin up 100 basis points from the year-ago period. For the full year, W&P net sales of $6 billion increased 7% versus 2021 as organic growth of 11% was partially offset by a 4% currency headwind. Organic sales growth for the year consisted of a 12% increase in price, slightly offset by a 1% volume decline. Excluding the year-over-year garment headwinds, total W&P volumes increased 2% for the year.
From a line of business view, organic sales growth was driven by mid-teens growth in Shelter Solutions, low-teens growth in Water Solutions, and high-single-digit growth in Safety Solutions. Full year operating EBITDA of $1.4 billion increased 3% as higher pricing and disciplined cost more than offset inflationary cost pressure as well as currency headwinds.
I'll close with a few comments on our financial outlook and guidance for 2023 on Slide 11. We expect solid top-line growth trends to continue into 2023 in businesses such as Water and Auto Adhesives, as well as stable demand across diversified industrial end markets, including aerospace and healthcare. We do however anticipate lower volumes during the first half of 2023 in consumer electronics and semiconductors resulting from decreased consumer spending, inventory destocking and COVID-related impacts in China largely within E&I. We also expect ongoing softness in construction end markets within W&P during 2023.
For the first quarter of 2023, we anticipate continued weakness in these consumer-driven short-cycle end markets resulting in a first quarter net sales expectation of about $2.9 billion or down mid-single-digits on an organic basis versus the year-ago period. As 2023 progresses, we assume stabilization of consumer electronics demand, normalization of customer inventory levels and improved China demand to drive sequential quarterly improvement in operating results, most notably in the second half of the year.
Within the Interconnect Solutions business, where the printed circuit board market has been down since mid-2022, we anticipate that channel destocking and customer production rates will begin to improve during the second quarter. Within Semiconductor Technologies, fab utilization rates are also expected to bottom during the first half of this year and improve around mid-year.
As a result of these assumptions, coupled with expectation of improvement in China across our product lines, we expect full year 2023 net sales to be between $12.3 billion and $12.9 billion.
In response to the expected lower volume environment, we are focused on minimizing decremental margin impact. To achieve this, we are focused on the operational levers within our control, including appropriate actions to increase productivity at our plant site, reduced discretionary spending and realization of savings enabled by cost actions initiated during the fourth quarter. For first quarter 2023, we expect operating EBITDA of about $710 million. For full year 2023, we expect operating EBITDA to be between $3 billion and $3.3 billion expecting the whole full year operating EBITDA margin flat at the midpoint of the ranges provided compared to last year. These same midpoints imply a decremental margin of 27% for the full year, despite a mixed headwind resulting from volume pressure in our higher margin business, namely Semi.
Our first quarter adjusted EPS expectation of about $0.80 per share and full year adjusted EPS guidance range at between $3.50 and $4 per share assumes continued growth from below-the-line benefits, related to the lower share count and lower interest expense. The midpoint of our full year adjusted EPS guidance implies growth of 10% versus last year, driven by these benefits from our ongoing capital allocation strategy.
With that, we are pleased to take your questions. And let me turn it back to the operator to open the Q&A.
