DuPont de Nemours Q4 2024 Earnings Call Transcript

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February 11, 2025
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Operator

Thank you for standing by, and welcome to the DuPont Fourth Quarter twenty twenty four Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I'd now like to turn the call over to Chris MacRae.

Operator

You may begin.

Christopher Mecray
Vice President of Investor Relations at DuPont

Good morning, and thank you for joining us for DuPont's fourth quarter and full year twenty twenty four 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. During this call, we'll make forward looking statements regarding our expectations or predictions about the future.

Christopher Mecray
Vice President of Investor Relations at DuPont

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. Our 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 are on a continuing operations basis and exclude significant items. We will also refer to other non GAAP measures. A reconciliation to the most directly comparable GAAP financial measures included in our press release and presentation materials and have been posted to DuPont's Investor Relations website.

Christopher Mecray
Vice President of Investor Relations at DuPont

I'll now turn the call over to Lori, who will begin on Slide three.

Lori Koch
CEO at DuPont

Good morning, everyone, and thanks for joining our fourth quarter call. Earlier today, we recorded solid quarterly results to close out a strong year of performance. Fourth quarter sales grew 7%, including another consecutive quarter of double digit organic growth in E and I and highlighted by a return to organic growth in W and P of 6%. We showed strong operating leverage as operating EBITDA of $8.00 $7,000,000 increased 13% year over year. Operating EBITDA margin of 26.1% expanded 140 basis points and adjusted EPS of $1.13 grew 30% from the prior year.

Lori Koch
CEO at DuPont

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. 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. Additionally, we continue to see growth acceleration in water in the quarter with 4% sequential sales lift and an 11% year over year increase. Looking back at full year financial performance, volume growth of 2% was solid and grew as the year went on, culminating in 8% growth for the fourth quarter. This combined with operational discipline and productivity actions was key to our earnings growth and resulted in strong incremental and margin improvement.

Lori Koch
CEO at DuPont

Coupling improved segment earnings with the benefit of a reduced share count led to a robust 17% growth in adjusted EPS. 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%. I'd like to thank the entire DuPont team for all their hard work and dedication to achieve these results. Turning to Slide four, I will cover our key priorities for 2025 organic growth, operational execution and portfolio management. Starting with the top line, as mentioned, we saw volume growth improvement in both E and I and W and T as we progress through this past year.

Lori Koch
CEO at DuPont

Looking into 2025, we expect further acceleration in volume growth targeting mid single digit organic sales growth for the total company. 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. To ensure success, we recently hired a Chief Commercial Officer to drive consistent execution across all

Lori Koch
CEO at DuPont

of our

Lori Koch
CEO at DuPont

businesses. Additionally, our businesses continue to focus on driving operational excellence. We are entering our fourth year of driving an enhanced focus on On Bex and our profitability continues to benefit from the expanded toolkit and disciplined rollout across the organization. Coupling our standard OpEx framework with steady investments in digital tools will lead to continued improvement in financial performance. Finally, regarding portfolio management, we announced last month that we are targeting November one of this year for the intended spin off of the electronics business, which is nicely accelerated from the initial timeframe of eighteen to twenty four months.

Lori Koch
CEO at DuPont

We remain excited about the sizable shareholder value creation opportunity from creating a leading pure play electronics company. 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. 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
Senior VP & CFO at DuPont

Thanks, Laurie, and good morning, everyone. We are pleased with the solid finish to a strong year of financial performance. End 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. 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 five. Net sales of $3,100,000,000 increased 7% versus the year ago period as an 8% increase in volume was slightly offset by a 1% decrease in price.

Antonella Franzen
Senior VP & CFO at DuPont

Currency and portfolio were both flat. Higher volume was led by continued strong demand in electronics end markets with semi and interconnect solutions both up double digits. 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. On a segment view, E and I and WMP organic sales grew 106% respectively. Organic sales in corporate declined 7% versus the year ago period.

Antonella Franzen
Senior VP & CFO at DuPont

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. Organic sales were up 5% in North America and up 1% in Europe. Fourth Quarter operating EBITDA of $8.00 $7,000,000 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. Operating EBITDA margin during the quarter of twenty six point one percent increased 140 basis points year over year. Fourth quarter cash generation was strong, reflecting a continued working capital discipline across the businesses.

Antonella Franzen
Senior VP & CFO at DuPont

On a continuing operations basis, cash flow from operations of $564,000,000 CapEx of $161,000,000 and $52,000,000 of separation related transaction cost payments resulted in transaction adjusted free cash flow of $455,000,000 and related conversion of 96%. As Laurie mentioned earlier, 2024 was a strong year for cash performance with transaction adjusted free cash flow of $1,800,000,000 and related conversion of 105%. Turning to Slide six, adjusted EPS for the quarter of $1.13 per share increased 30% from $0.87 in the year ago period. 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 and I on Slide seven.

Antonella Franzen
Senior VP & CFO at DuPont

E and I fourth quarter net sales of $1,500,000,000 increased 11% versus the year ago period on organic sales growth of 10% and favorable portfolio impact of one percent, reflecting the Donatell acquisition. Organic sales growth of 10% reflects an 11% increase in volume, slightly offset by a 1% decrease in price. At the line of business level, organic sales for semi were up low teens on continued semiconductor demand recovery, driven by AI technology applications. Semi demand continues to be notably strong in China with year over year growth of about 40% during the quarter. 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% to 7% for the full year.

Antonella Franzen
Senior VP & CFO at DuPont

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. Industrial solutions returned 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. Operating EBITDA for E and I of $457,000,000 was up 21% versus the year ago period. On volume gains, the benefit of higher production rates, savings from restructuring actions and a $13,000,000 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.

Antonella Franzen
Senior VP & CFO at DuPont

Operating EBITDA margin during the quarter was 30.3%, up two fifty basis points versus the year ago period. For the full year, E and I net sales of $5,900,000,000 increased 11% with 6% organic sales growth. For the full year, operating EBITDA of $1,700,000,000 increased 17% with operating EBITDA margin of 29%, up 140 basis points from the prior year. Turning to Slide eight. WMP fourth quarter net sales of $1,400,000,000 increased 6% versus the year ago period due to an eight percent increase in volume, partially offset by a 2% decrease in price.

Antonella Franzen
Senior VP & CFO at DuPont

Safety solutions returned to year over year growth as organic sales were up high single digits, reflecting continued improvement in healthcare markets, evidenced by medical packaging sales lift for three consecutive quarters, including a 6% increase from Q3. Shelter solutions sales were flat on an organic basis with headwinds in North America construction markets offset by growth and repair and remodel demand. Within water solutions, sales were up low double digits on an organic basis, driven by continued broad based volume recovery. On a sequential basis, water solutions sales also increased for a third straight quarter with sales up 4% from Q3. Operating EBITDA for WMP during the quarter of $357,000,000 was up 14% versus the year ago period as volume gains and savings from restructuring actions were partially offset by higher variable compensation and the absence of about $25,000,000 of discrete item benefits reported in the prior year.

Antonella Franzen
Senior VP & CFO at DuPont

Operating EBITDA margin during the quarter was 26.3%, up 170 basis points from the year ago period. For the full year, WMP generated net sales of $5,400,000,000 with operating EBITDA of $1,400,000,000 Operating EBITDA margin for the full year of 25.1% increased 50 basis points. Turning to Slide nine, which outlines our first quarter twenty twenty five and full year guidance expectations. At a consolidated level for the first quarter, we estimate net sales of about $3,025,000,000 operating EBITDA of about $760,000,000 and adjusted EPS of $0.95 per share. 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 twenty twenty four.

Antonella Franzen
Senior VP & CFO at DuPont

We expect a more normal seasonal progression into the second quarter with a sequential sales lift of about 6% to 7% from the first quarter. For the full year 2025, we estimate consolidated net sales of $12,800,000,000 to $12,900,000,000 operating EBITDA of 3,325,000,000.000 billion dollars to $3,375,000,000 and adjusted EPS of 4.3 to $4.4 per share. Our full year consolidated net sales guidance assumes mid single digit organic growth and a currency headwind of about 1%. Our EPS estimate includes a headwind from below the line items totaling $0.1 related primarily to an assumed 1% higher tax rate versus this past year. 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.

Antonella Franzen
Senior VP & CFO at DuPont

We will begin reporting under this new structure when we release our first quarter twenty twenty five results. The businesses comprising the future electronics company will be reported as the Electronics Co segment, while the businesses that will remain with DuPont will be reported as the Industrials Co segment. We are providing historical segment information reflecting these realignments for comparison purposes, which you can find in the earnings presentation accompanying today's call. For the new Electronics Coast segment, we expect full year 2025 organic sales growth in the 6% to 7% range. This assumed growth is expected to be driven by ongoing strength within semi fueled by continued AI adoptions and transition to advanced nodes, as well as the impact from more normalized sales in China as previously mentioned.

Antonella Franzen
Senior VP & CFO at DuPont

In interconnect solutions, we expect continued growth driven by improved sentiment within consumer electronics and refresh cycles in support of AI adoption. For the new Industrial Coast segment, we expect full year 2025 organic sales growth in the 3% to 4% range. Within healthcare markets, we expect growth acceleration in medical devices along with continued stabilization for medical packaging applications and in biopharma markets. 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. With that, we are pleased to take your questions.

Antonella Franzen
Senior VP & CFO at DuPont

And let me turn it back to the operator to open the Q and A.

Operator

Thank you. We will now begin the question and answer session. You. Your first question today comes from the line of Scott Davis from Melius Research. Your line is open.

Scott Davis
CEO & Chairman at Melius Research LLC

Hey, good morning, everybody. Laura, Antonow, and Chris Ed.

Antonella Franzen
Senior VP & CFO at DuPont

Good morning, Scott.

Scott Davis
CEO & Chairman at Melius Research LLC

You guys talked you referenced AI related revenues a few times 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?

Lori Koch
CEO at DuPont

Yes. We saw really nice growth this year, up about 30% in the AI related sales. We're up over $300,000,000 now. And so we continue to expect that to be a key piece of the growth for the ElectronicsCo as we move to separate them towards the end of the year.

Scott Davis
CEO & Chairman at Melius Research LLC

Okay. That's helpful. And then the incremental margins 47% or so is what I was calculating is pretty strong, but you've got a little bit of price perhaps headwind in front of you. How do you think about incrementals in 2025 and the sustainability kind of puts and takes of costs coming back? And I know there's going to be some noise in the transition here, but is there do you think there's an opportunity to keep those incrementals above historic levels?

Scott Davis
CEO & Chairman at Melius Research LLC

Or do you see some costs coming back and some price issues?

Lori Koch
CEO at DuPont

Yes. 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 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 margin improvement across both new DuPont and Electronics.

Scott Davis
CEO & Chairman at Melius Research LLC

Okay. Congrats on the year. Best of luck, guys. We'll see you.

Lori Koch
CEO at DuPont

Thanks.

Christopher Mecray
Vice President of Investor Relations at DuPont

Thanks, Scott.

Operator

Your next question comes from the line of John McNulty from BMO Capital Markets. Your line is open.

John McNulty
John McNulty
Senior managing director and senior research analyst at BMO Capital Markets

Yes. 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 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?

Lori Koch
CEO at DuPont

Yes. 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 all key technologies.

Lori Koch
CEO at DuPont

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

John McNulty
John McNulty
Senior managing director and senior research analyst at BMO Capital Markets

Got it. Okay. Thanks for the color on that. And then, with regard to semis, there it looks like there's a number of node transitions kind of especially rolling in, in the second half of twenty twenty five. 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?

Lori Koch
CEO at DuPont

Yes. So we had mentioned for overall new electronics co, it will be about 6% to 7% organic growth. That's about even between both sides of it, so between semi and ICS. Q1, just given the favorable comp, will be the highest growth, we said low double digits, I

Lori Koch
CEO at DuPont

believe, for the new electronics. And then, so it will moderate as the

Lori Koch
CEO at DuPont

year goes on. But it electronics. And then, so it will moderate as the year goes on. But again, really nice overall 6% to 7% on top of a really strong year in 2024.

John McNulty
John McNulty
Senior managing director and senior research analyst at BMO Capital Markets

Great. Thanks very much for the color.

Operator

Your next question comes from the line of Steve Tusa from JPMorgan. Your line is open.

Steve Tusa
Steve Tusa
Managing Director at JP Morgan

Hey, good morning.

Antonella Franzen
Senior VP & CFO at DuPont

Good morning, Steve.

Steve Tusa
Steve Tusa
Managing Director at JP Morgan

Did you see any kind of pull forward in demand with regards to any concerns around tariffs or new administration in the fourth quarter?

Antonella Franzen
Senior VP & CFO at DuPont

Hey, Steve, it's Antonella. 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 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 $20,000,000 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.

Steve Tusa
Steve Tusa
Managing Director at JP Morgan

Okay.

Steve Tusa
Steve Tusa
Managing Director at JP Morgan

And then, I think there was a modest gain in the electronics, segment. I'm not sure if you flush that out. How big was that?

Antonella Franzen
Senior VP & CFO at DuPont

Yes. So we commented on that in our prepared remarks. It was $13,000,000 and it was included in the guidance when we provided it on the third quarter call.

Steve Tusa
Steve Tusa
Managing Director at JP Morgan

Okay. Got it. All right. Thanks a lot. Your

Operator

next question comes from the line of Jeff Sprague from Vertical Research. Your line is open.

Jeffrey Sprague
Founder and Managing Partner at Vertical Research Partners

Hey, thanks. Good morning, everyone. Sorry if I missed this at the beginning. I was also about ten minutes late getting on. Just on the spin and the timing now, feel that's a pretty hard lock on November 1 and maybe any update on just kind of the cost to separate and the kind of stand up stand alone costs associated with electronics.

Jeffrey Sprague
Founder and Managing Partner at Vertical Research Partners

Again, I apologize if you address that.

Antonella Franzen
Senior VP & CFO at DuPont

Hey, Jess, it's Antonella. So yes, timely 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. So we have a really good plan in place and things are progressing as expected.

Antonella Franzen
Senior VP & CFO at DuPont

In terms of a couple of updates, so our separation costs, we had said would be around $700,000,000 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 is will still continue to happen whether it was one separation or two separations. In terms of the synergies, we initially quoted that as around $60,000,000 Now we would expect that that would be closer to $40,000,000

Jeffrey Sprague
Founder and Managing Partner at Vertical Research Partners

Great. And would that also encompass sort of the stranded cost that $40,000,000 is that sort of the public company cost for new electronics co separate and apart from sort of stranded that you need to get after? Could you just kind of put a finer point on that?

Antonella Franzen
Senior VP & CFO at DuPont

Sure. So when you kind of take a look at our dissynergy, that 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.

Jeffrey Sprague
Founder and Managing Partner at Vertical Research Partners

Great. Thank you.

Antonella Franzen
Senior VP & CFO at DuPont

No problem.

Operator

Your next question comes from the line of Chris Parkinson from Wolfe Research. Your line is open.

Christopher Parkinson
Senior Research Analyst at Wolfe Research, LLC

Great. Thank you so much. Just going back to the Water Protection, you hit on this towards the end of your prepared remarks. But can 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.

Lori Koch
CEO at DuPont

Yes. So I'll answer your question in the new form given that's how we're going to report in 2025. So, for the 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 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.

Lori Koch
CEO at DuPont

So water improved kind of every quarter and we exited in a nice position. We see the destocking that we had telegraphed early in 2024, essentially complete. Then the remaining portion of the portfolio, probably will be around the low single digit growth. So that would encompass the Aramis business, the Shelter business, and then the businesses that we picked up from the Industrial Solutions business within electronics. So overall, nice 3% to four percent organic, definitely outsized within the healthcare and the water portion.

Christopher Parkinson
Senior Research Analyst at Wolfe Research, LLC

Got it. And just as

Christopher Parkinson
Senior Research Analyst at Wolfe Research, LLC

a quick follow-up, just on the interconnect side, you mentioned obviously some AI driven tech benefits. But could you just hit on kind of the key drivers of the remainder of the portfolio? And just any differences based on geography as well?

Lori Koch
CEO at DuPont

Yes. 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.

Lori Koch
CEO at DuPont

So we're looking at as the chips get smaller and then have more intent for us to be able to drive a lot of outperformance on the layer side. So that was key to the growth before and expected to be strong again this year.

Christopher Parkinson
Senior Research Analyst at Wolfe Research, LLC

Great color. Thank you.

Operator

Your next question comes from the line of Josh Spector from UBS Financial. Your line is open.

Josh Spector
Josh Spector
Executive Director at UBS Group

Yes. 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.

Josh Spector
Josh Spector
Executive Director at UBS Group

So what am I missing about why that growth shouldn't be higher in first quarter as it relates to the year?

Lori Koch
CEO at DuPont

Yes. 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 heap and piece as well as within Tedbar 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, you're going to go year over year, you're prepared and then you're going to go sequentially.

Lori Koch
CEO at DuPont

But the bills in Q1 twenty twenty five are expected to be down more year over year than what they were in Q4 twenty twenty four. So that would meet the expectations. Otherwise, everything else is generally the same between the two quarters.

Josh Spector
Josh Spector
Executive Director at UBS Group

Okay. Thanks for that. And if I

Josh Spector
Josh Spector
Executive Director at UBS Group

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 seems to be an opportunity for you to deploy some cash in a buyback. So why isn't that something that we're doing now?

Antonella Franzen
Senior VP & CFO at DuPont

Yes. So as we mentioned in some prior calls, we do not plan on doing any more share buyback until like at least seven months old 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.

Josh Spector
Josh Spector
Executive Director at UBS Group

Okay. Thank you.

Operator

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

Christopher Mecray
Vice President of Investor Relations at DuPont

Hi. Good morning.

Patrick Cunningham
Patrick Cunningham
Vice President, Senior Analyst at Citigroup

The pro formas seem to imply the EBITDA margin profile that corporate retained businesses may be 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 W and

Patrick Cunningham
Patrick Cunningham
Vice President, Senior Analyst at Citigroup

P?

Lori Koch
CEO at DuPont

Yes. So you're right. So the businesses that are coming into the new DuPont, so the businesses that were in corporate M and M and then the businesses that were in the industrial portion of C and I had a lower overall margin profile than the heritage businesses. And so, from the corporate M and M businesses that came in, you see how they're right, they were kind of in the high teens, maybe low 20s.

Lori Koch
CEO at DuPont

I would say that that benchmark level, if you look into the other existing players, probably you could put it the above. 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%, twenty four % in 2024% for IndustrialCo. We'll look to continue to drive productivity and mix enrichment.

Lori Koch
CEO at DuPont

And then as mentioned earlier in the call, we'll get into more of the margin progress as you would expect for each of the two new companies that they're investing in the fall.

Patrick Cunningham
Patrick Cunningham
Vice President, Senior Analyst at Citigroup

Great. Thank you. And apologies if I missed this, but is there any update on CalRes? How is that business performing? A few quarters of sharp destocking?

Patrick Cunningham
Patrick Cunningham
Vice President, Senior Analyst at Citigroup

And should we expect some rebound there in 2025 helping underpin some of the strong growth rates in the electronics business?

Lori Koch
CEO at DuPont

Yeah. I would say mid year twenty twenty five is the one business that we have in the portfolio that hasn't quite gotten through its destock yet. So we're targeting mid year twenty twenty five for that to get back to more normal growth levels.

Patrick Cunningham
Patrick Cunningham
Vice President, Senior Analyst at Citigroup

Thank you so much.

Operator

Your next question comes from the line of Aleksey Yefremov from KeyBanc Capital Markets. Your line is open.

Aleksey Yefremov
Aleksey Yefremov
MD & Equity Research at KeyBanc Capital Markets

Thank you. Good morning, everyone. How are you thinking about industrials portfolio now that you decided to keep the water business? Any further divestments? Or do you see any interest in bolt ons here?

Lori Koch
CEO at DuPont

Yes. I would say it's both.

Lori Koch
CEO at DuPont

I mean, as we continue to look at the RemainCo portfolio and looks like it can take Flexi and get it more towards the simplified businesses, it's more exposed to high circular end markets. You'll continue to see portfolio activity, on the nicotine side. And then we'll look to invest in M and 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 for both M and A and also growth as we move forward.

Aleksey Yefremov
Aleksey Yefremov
MD & Equity Research at KeyBanc Capital Markets

Great. Thank you. And then a follow-up on electronics. Do you have an assumption for underlying market growth in semi's and interconnect or a target out growth for each of these segments in 2025?

Lori Koch
CEO at DuPont

Yes. So in 2025, we see MSI of around mid single digits. And again, we have talked through 2024, but it's a little bit disconnected 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 6% growth. We see overall semi fab utilization in the high 70s in 2025.

Lori Koch
CEO at DuPont

And then on the ICS side, kind of the combination of the PCB and smartphones we see in the mid single digit range.

Aleksey Yefremov
Aleksey Yefremov
MD & Equity Research at KeyBanc Capital Markets

Thanks a lot.

Operator

Your next question comes from the line of John Roberts from Mizuho. Your line is open.

John Roberts
John Roberts
Managing Director at Mizuho Financial Group

Thank you. Congrats on a good quarter. Are you planning to change the name of IndustrialCo and any progress on industry reclassification?

Antonella Franzen
Senior VP & CFO at DuPont

Yes. So I'll do the

Antonella Franzen
Senior VP & CFO at DuPont

things, and then IndustrialCo will be DuPont, and I'll send it over to Sanela on the reclassification.

Antonella Franzen
Senior VP & CFO at DuPont

Yes. So we're doing some work around the reclassification, as we talked about before, with clearly the intent of getting that moved from the chemical classification to an industrial classification. The change would not necessarily be made, so 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.

John Roberts
John Roberts
Managing Director at Mizuho Financial Group

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?

Antonella Franzen
Senior VP & CFO at DuPont

The 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 have to clarify all of this that you can imagine we'll want to highlight water and health care given the growth profile. So those would be segments within the new work

Operator

Your next question comes from the line of Michael Leheff from Barclays.

Michael Leithead
Michael Leithead
Director - Equity Research at Barclays

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?

Lori Koch
CEO at DuPont

Yeah. We're headed toward this spin.

Michael Leithead
Michael Leithead
Director - Equity Research at Barclays

Okay. And then I apologize if I missed Yeah.

Edward Breen
Executive Chairman at DuPont

I will 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 Leithead
Michael Leithead
Director - Equity Research at Barclays

Great. Thank you, Ed. And then I apologize if I missed this, but did

Michael Leithead
Michael Leithead
Director - Equity Research at Barclays

you announce who your new Chief Commercial Officer will be and will they stay with Industrials Co, I presume?

Lori Koch
CEO at DuPont

He will stay with Industrials Co. His name is Larsen Young in Chile. He's joining us from SKF next week.

Michael Leithead
Michael Leithead
Director - Equity Research at Barclays

Great. Thank you.

Operator

Your next question comes from the line of David Begleiter from Deutsche Bank. Your line is open.

David Begleiter
David Begleiter
Managing Director at Deutsche Bank

Thank you. Laurie, in semi, you referenced flat sales in China in '25. Can you give a little more color as to why that's happening? And just how big is China for the entire semi tech business?

Lori Koch
CEO at DuPont

Yes. 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 $50,000,000 as well as the pre buy activity. So normalizing that against 2025 is why we see a flat volume within China for semi.

Lori Koch
CEO at DuPont

Overall, semi China is about a $600,000,000 market. About two thirds of it is local Chinese semi producers and the rest are the multinationals that produce those in China.

David Begleiter
David Begleiter
Managing Director at Deutsche Bank

And how much of your business in Semitech is China?

Lori Koch
CEO at DuPont

That's the $600,000,000

David Begleiter
David Begleiter
Managing Director at Deutsche Bank

Oh, thanks. Sorry about that.

Lori Koch
CEO at DuPont

So about 30% ish.

David Begleiter
David Begleiter
Managing Director at Deutsche Bank

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

Antonella Franzen
Senior VP & CFO at DuPont

Yes. 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 as we go forward, we are currently anticipating, I would say, low single digit growth in that business for 2025.

David Begleiter
David Begleiter
Managing Director at Deutsche Bank

Thank you.

Operator

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

Vincent Andrews
Vincent Andrews
Managing Director at Morgan Stanley

Thank you. I wanted to follow-up on the divestitures discussion. And I'm just wondering with water now staying within Industrials Co, is there a window between now and spin where you can get some assets out of the business without having to assign pro rata PFAS liabilities to them? And if you don't get that done before November 1, do they presumably they would have to have liabilities assigned thereafter? And is November 1 really the hard date on that?

Lori Koch
CEO at DuPont

Yes. So technically, you could do a divestiture between now and November 1 and stay above the $2,500,000,000 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 side letter agreement from Corteva between new electronics and new contracts.

Vincent Andrews
Vincent Andrews
Managing Director at Morgan Stanley

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?

Antonella Franzen
Senior VP & CFO at DuPont

So as we look to 2025 in our free cash flow conversion, we would expect it to be greater than 90%, which is kind of 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 were really 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 co side and the industrial co side, we will have some working capital usage.

Antonella Franzen
Senior VP & CFO at DuPont

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 couple of quarters.

Vincent Andrews
Vincent Andrews
Managing Director at Morgan Stanley

Perfect. Thanks very much.

Operator

Your next question comes from the line of Mike Sison from Wells Fargo. Your line is open.

Michael Sison
Michael Sison
Managing Director at Wells Fargo Securities

Hey, good morning. Nice quarter. So organic growth in IndustrialCo in the fourth quarter as well as your outlook in the first quarter it appears pretty differentiated relative to traditional chemical companies where growth seems to be pretty negative. So I suspect that helps your cause in getting that designation change. 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?

Lori Koch
CEO at DuPont

Yes. No, I mean, obviously, our growth review would expand 2024 and expect to 2025. And then even the margin profile is significantly different than what you would see on the chemical side and even just the volatility. Like we don't have 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 going to buying the sell side to be able to get that GICS code change is really would be really helpful because we do believe it's fundamental to how we are defining the new company.

Lori Koch
CEO at DuPont

We'll target similar leverage profiles to the other Montney Industrial. We'll have very strong margin profiles similar to Montney Industrial in a very similar growth trajectory.

Edward Breen
Executive Chairman at DuPont

And by the way, the last big piece we divested, which was the M and N business to sell these really the last vestige of a chemical business within the portfolio. So we actively work hard for, I guess, it's seven years now to get to more of a multi industrial company and out of the chemical space. So hopefully, good longer change in the code.

Michael Sison
Michael Sison
Managing Director at Wells Fargo Securities

Sounds good. And then just a quick follow-up. I think in the past you talked about advanced nodes as a percent of electronics, which I assume includes AI related sales. Can you remind us how big, I guess, Advanced nodes are now for Semi Tech and Interconnect? And then maybe what the growth rate for that subset will be in '25?

Lori Koch
CEO at DuPont

Yes. So Advanced nodes are about 40% of the Semi portfolio. Their growth obviously would be higher than the average 6% to seven percent that we had mentioned. Earlier in the call, we had said that for the AI specific exposure, we saw 30% growth, within the 76%. So you would expect a nice outperformance in the advances versus the more mature nodes.

Michael Sison
Michael Sison
Managing Director at Wells Fargo Securities

Okay. Thank you.

Operator

Your next question comes from the line of Frank Mitsch from Fermium Research. Your line is open.

Frank Mitsch
President at Fermium Research

Good morning. And let me echo the congrats on the quarter. You basically hit the trifecta in terms of exceeding guidance on sales, EBITDA and EPS from which

Frank Mitsch
President at Fermium Research

you

Frank Mitsch
President at Fermium Research

provided in the November. So I'm curious as to what went right or what exceeded your expectations in November and December?

Antonella Franzen
Senior VP & CFO at DuPont

Yes. So I'll take that again, Stella. 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 pre buy in there as well.

Antonella Franzen
Senior VP & CFO at DuPont

I think the other important thing to mention when you kind of take a look in Q4 is not only did we exceed our expectations as we sent them, but we also, I would say, covered incremental pressure from changes in foreign currency exchange rates during the quarter as well. But other areas, so electronics was fairly a standout, but as we talked about, the water business was even a little bit better than we expected on a sequential basis, up four. The Tynek 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 and that we kind of expected is that water would be softer, and it was.

Antonella Franzen
Senior VP & CFO at DuPont

Shelter was pretty much in line. So from an operations perspective, that's how I would characterize it. Now when you take a look at total EPS, the other factor that we clearly had that drove the deal was the tax rate in Q4 was a bit lower than we had anticipated. So that's in the number as well relative to the fourth 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.

Frank Mitsch
President at Fermium Research

Understood. And as we sit here today, in the February, the segments that you thought were doing better, I. E. Water, packaging, etcetera, has that continued at that pace? So the follow through that you're seeing here in the early part of twenty twenty five?

Antonella Franzen
Senior VP & CFO at DuPont

Yes. It is playing out as you've expected.

Frank Mitsch
President at Fermium Research

All right. Thanks so much.

Operator

Your next question comes from the line of Arun Viswanathan from RBC Capital Markets. Your line is open.

Analyst

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.

Analyst

Could you give us a sense on maybe the cadences on 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 going into other avenues.

Antonella Franzen
Senior VP & CFO at DuPont

Yes. So when we talked about, you know, our transaction costs are around, you know, dollars 700,000,000. 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 scheduled attacks to our press release, that cash out this year related transaction costs was only $64,000,000 The whole bulk of it is all sitting in 2025. I would also be mindful there could be some costs related to debt as well.

Antonella Franzen
Senior VP & CFO at DuPont

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.

Analyst

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

Lori Koch
CEO at DuPont

Yes. So we have an active 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. 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. And within healthcare, you would expect a similar dynamic to what we've done with our last two acquisitions around Spectrum and Donatell in the med device space. So bringing our capabilities to bear and adding new capabilities to the toolkit.

Operator

Your next question comes from the line of Laurence Alexander from Jefferies. Your line is open.

Laurence Alexander
Laurence Alexander
Analyst at Jefferies Financial Group

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?

Antonella Franzen
Senior VP & CFO at DuPont

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.

Lori Koch
CEO at DuPont

Did you say FX, Lawrence, for your last question?

Laurence Alexander
Laurence Alexander
Analyst at Jefferies Financial Group

Yes, yes, just currency FX, yes.

Lori Koch
CEO at DuPont

Yes. So we have about a 1.5% headwind in Q1 and then about a 1% headwind for the full year.

Laurence Alexander
Laurence Alexander
Analyst at Jefferies Financial Group

Perfect. Thank you.

Operator

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

Steve Byrne
Research Analyst at Bank of America Securities

Yes. Thank you. Laurie, you mentioned the fourth Water Treatment Technologies in your remarks. 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 reduce water usage? Is that part of your vision in that business?

Lori Koch
CEO at DuPont

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
Research Analyst at Bank of America Securities

I'm just curious about price trends in your various Tyvek products. You sell them in their construction, in the packaging, in the personal protection. How do those end markets differ in terms of price trends for that those products?

Lori Koch
CEO at DuPont

Yes. 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 space, and we'll continue to benefit from the recovery on the medical packaging side as well.

Operator

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

Christopher Mecray
Vice President of Investor Relations at DuPont

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

Operator

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

Analysts
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Earnings Conference Call
DuPont de Nemours Q4 2024
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