Lori Koch
Executive Vice President & Chief Financial Officer at DuPont de Nemours
Thanks, Ed, and good morning. Our financial results in 2023 were clearly impacted by significant destocking and demand pressure in China, but our focus has remained on sound operational execution across the business. I'm very pleased that our team's effort to drive productivity and operational excellence clearly minimize decremental margins and help drive substantial cash flow improvement.
In 2024, our continued proactive approach to managing the business will yield impactful cost reduction beginning later in the first quarter and building from there from the restructuring actions announced last November. We anticipate yielding at least two-thirds of the total $150 million in restructuring benefits during 2024, with the balance realized next year.
Like Ed, I'm also encouraged by the expected trajectory of demand and volume based on direct customer feedback and data supporting the bottoming of channel inventory in key end markets. Our current forecast assumes a bottom for total company sales and earnings in the first quarter, followed by steady recovery as the year progresses with the return to year-over-year growth in the second half. I'll come back to the outlook later, but first I'll cover our results.
Regarding our fourth quarter financial highlights on Slide 5, net sales of $2.9 billion decreased 7% versus the year ago period, as a 10% organic sales decline was partially offset by a 3% portfolio benefit due primarily to the Spectrum acquisition. The organic sales decline reflects a 9% decrease in volume and a 1% decrease in price. Lower volume included the impact of channel inventory destocking within W&P's Safety Solutions line of business, most notably for Tyvek medical packaging. We also saw accelerated volume decline within Water Solutions in China, driven primarily by distributor destocking and weaker demand.
On a segment view, W&P and E&I organic sales declined 15% and 7%, respectively, while organic sales in Corporate declined 4%. From a regional perspective, DuPont sales decreased on an organic basis globally versus the year ago period, with North America, Asia Pacific and Europe down 13%, 11% and 9%, respectively. China sales were down 14% versus the prior year.
Fourth quarter operating EBITDA of $715 million decreased 6% versus the year ago period as volume declines and the impact of reduced production rates to better align inventory with demand were partially offset by lower input costs, discrete items which benefited earnings by about $40 million and Spectrum earnings contribution. About $25 million of the discrete item benefits were reported within the W&P segment reflecting a land sale and other credits, with the remainder reflected in Corporate. Operating EBITDA margin during the quarter of 24.7% increased 30 basis points versus the year ago period.
In the fourth quarter, driven by continued challenging construction market conditions coupled with ongoing channel inventory destocking, we recorded a non-cash goodwill impairment charge of about $800 million. The charge relates to our protection reporting unit which consists of the Shelter and Safety Solutions lines of business within W&P and is excluded from our adjusted operating results. As a reminder, the carrying value of the legacy Dupont assets and liabilities were marked as fair value and significant goodwill and intangible balances were recorded in connection with the DowDuPont merger.
Despite the write down, we maintained long-term confidence in the Protection brand offerings and our market leading positions remained strong. We continue to invest in and expand our application development expertise in these markets and we have taken actions to improve our cost structure to enhance our competitiveness with these stocking ends.
Regarding cash flow, we are very pleased with our continued cash flow improvement as we worked hard in 2023 to optimize working capital performance and especially to right size our inventory levels following the supply chain disruptions of 2022. On a continuing operations basis, cash flow from operations of $646 million plus capital expenditures of $145 million resulted in adjusted free cash flow of $501 million in the fourth quarter, a significant increase versus $188 million in the year ago period. Adjusted free cash flow conversion during the quarter was 133%, significantly ahead of last year.
Turning to Slide 6, adjusted EPS for the quarter of $0.87 per share decreased from $0.89 in the year ago period. Lower segment earnings and certain below the line items, including a $0.05 headwind from foreign exchange losses led by devaluation of the Argentinian peso, more than offset an $0.08 benefit from a lower share count and a $0.03 benefit from a lower tax rate. Our tax rate for the quarter was 19.2%, down from 22.2% in the year ago period and lower than our previously communicated modeling guidance driven by certain discrete tax benefits. Our full year tax rate for 2023 was 22.8% and our 2024 outlook assumes a base tax rate of 23% to 24%.
Turning to segment results beginning with E&I on Slide 7. E&I fourth quarter net sales of $1.4 billion increased 1% as the Spectrum sales contribution of 8% was mostly offset by an organic sales decline of 7%. The organic sales decline reflects a 5% decrease in volume and a 2% decrease in price. At the line of business level, organic sales for Semiconductor Technologies were down high single-digit versus the year ago period resulting from reduced semi fab utilization rates as customers work to reduce finished inventories.
We did see sequential improvement within semi as sales increased 2% in the fourth quarter, signaling stabilization for the business. Our customer interactions and reduced channel inventory levels point to continued recovery expected in semi during 2024 with sequential sales up slightly in the first quarter, an increased lift from the second quarter onwards.
Within Interconnect Solutions, organic sales declined mid single-digits as low single-digit volume gains were more than offset by price decreases driven by lower metal pricing. Demand continues to stabilize, and this is the first quarter since the downturn started where we saw year-over-year volume growth.
Organic sales for Industrial Solutions were down mid single-digit due primarily to channel inventory destocking within our Liveo product lines for biopharma markets. And for products, such as Kalrez O-rings, which are primarily used in semiconductor equipment. These declines were partially offset by continued strong demand for OLED display materials.
Operating EBITDA for E&I of $378 million was down versus the year ago period due to volume declines and lower operating rates to better align inventory with demand, partially offset by Spectrum earnings contribution.
Turning to Slide 8. W&P fourth quarter net sales of $1.3 billion declined 15% versus the year ago period due to volume decline. Within Safety Solutions, organic sales were down 20% on lower volumes, driven mainly by channel inventory destocking, most notably for Tyvek medical packaging products. Within Water, organic sales were down high teens driven by distributor inventory destocking and lower industrial demand in China. Shelter Solutions sales were down mid single-digit on an organic basis. The year-over-year decline has continued to improve, and we believe channel inventory destocking for construction has been completed based on distributor inventory now being back at normal levels.
Operating EBITDA for W&P during the quarter of $314 million decreased 13% due to lower volumes and reduced production rates, partially offset by lower input costs and certain discrete item benefits of about $25 million.
Turning to Slide 9, I'll review our first quarter 2024 outlook and full year guidance expectations. For the first quarter of 2024, we expect net sales of about $2.8 billion and operating EBITDA of about $610 million. On a volume basis, we are seeing similar inventory destocking trends from fourth quarter continue into 2024, driven by Water Solutions in China and in several of our industrial-based businesses. Recovery timing is expected to vary by end market as the year progresses, but we expect first quarter at the bottom on a consolidated basis.
The expected sequential decline in operating EBITDA includes the absence of discrete items, which benefited fourth quarter as outlined earlier. The first quarter outlook also includes certain costs that further impact period margins primarily within W&P related to new capacity and safety as well as the impact of lower volume.
For the second quarter, we expect mid single-digit sequential sales improvement and an approximate 10% increase in operating EBITDA from first quarter. This assumes volume improvement driven by reduced inventory destocking impacts in Water Solutions and medical packaging, continued electronics recovery and favorable seasonality in ICS and Shelter. Sequential EBITDA should benefit from this volume growth and additional realization of restructuring cost savings.
For the full year 2024, we expect net sales to be between $11.9 billion and $12.3 billion with operating EBITDA expected to be between $2.8 billion and $3 billion. Year-over-year sales growth in the second half is expected to be driven by ongoing electronics market recovery, including improvement in semiconductor fab utilization rate and continued utilization improvement for PCB manufacturing within ICS, along with further abatement of channel inventory destocking in our industrial businesses.
For second half earnings, drivers include volume improvement outlined above alongside expected mix benefits as well as ongoing realization of cost savings. Our current outlook also includes a neutral net impact from price cost for the year as slight price declines are expected to be offset by the carryover benefit of lower input costs.
We expect full year adjusted EPS in the range of $3.25 to $3.65 per share, which assumes the benefit of a lower share count is mostly offset by lower interest income, higher depreciation and a higher tax rate as detailed on our outlook slide.
With that, we are pleased to take your questions, and I'll turn it back over to the operator to open the Q&A.
