Lori D. Koch
Executive Vice President and Chief Financial Officer at DuPont de Nemours
Thanks, Ed, and good morning, everyone. As Ed mentioned, we saw continued strong demand during the quarter in key end markets. Global supply chain challenges and cost inflation have persisted and even intensified during the quarter due to the war in Ukraine. In response to inflation, we continued our strategic pricing actions and were able to fully offset higher costs during the quarter related to raw material, logistics and energy. These factors, along with our team's continued focus on execution, contributed to net sales, operating EBITDA and adjusted EPS results well above expectations. Focusing on financial highlights on slide five for the quarter. Net sales of $3.3 billion were up 9% on both an as-reported and organic basis versus the first quarter of 2021. The acquisition of Laird, partially offset by non-core divestitures, provided 2% net tailwind to net sales while currency was a 2% headwind during the quarter.
Organic sales growth included 6% pricing gains and 3% higher volume. Pricing gains reflect the actions taken to offset overall cost inflation, including the spike in energy costs that we are seeing at our site. Volume growth reflected continued strong customer demand with order patterns remaining solid, led by electronics, industrial technologies, water and construction end markets. These factors resulted in organic sales growth during the quarter of 10% and 9% for W&P and E&I, respectively. On a regional basis, organic sales growth was broad-based globally with W&P driving growth in North America and EMEA and E&I driving growth in Asia Pacific. From an earnings perspective, operating EBITDA of $818 million was up 2% versus the year ago period and adjusted EPS of $0.82 per share was up 19%. The increase in operating EBITDA was driven by pricing actions, volume gains and strong earnings from the Laird acquisitions, which more than offset higher inflationary cost pressures as well as weaker product mix in W&P and the absence of a gain on asset divestiture in E&I last year. Operating EBITDA margin during the quarter was 25%, which was better than our expectations set earlier this quarter, about 160 basis points below the year ago period, which I'll explain further. Navigating cost inflation was a key focus during the quarter, and our success in doing so was a significant driver in our results.
While the majority of the raw material inflation that we have discussed in the past related to the M&M businesses, which are now part of discontinued operations, our Remainco businesses also have inflation exposure, and we saw a spike in energy costs during the quarter, most notably in W&P. We fully offset about $190 million of cost inflation during the quarter, which kept our results whole on a dollars basis. While these pricing actions enabled us to maintain a neutral earnings profile, price cost dynamics resulted in 150 basis point headwind to operating EBITDA margin during the quarter. Our underlying operating EBITDA margin adjusted to exclude price cost factors was 26.5% or essentially flat compared to the year ago period. Further, as you adjust margins in the prior period to exclude the onetime gain related to the asset sale in E&I, our underlying margin of 26.5% would have increased about 70 basis points from last year.
Another key metric that we track is incremental margins. On a reported basis, incremental margin for the quarter was 6% from the year ago period. However, I indicated previously the importance of evaluating our results on an underlying basis. If you remove the impact of price cost, incremental margin was over 20%, and if you also exclude the headwind from the onetime asset sales. On top of that, incremental margin was almost 60%. I mentioned these data points to illustrate the volume strength we are seeing within the portfolio. From a cash perspective, cash flow from operations during the quarter of $209 million and capital expenditures of $251 million resulted in a free cash outflow of $42 million. The cash outflow was the result of variable compensation payments to our employees, which were approximately $100 million more this year than our normal payout, and higher working capital trade includes set of actions taken to increase inventory in reaction to continued product supply constraints. We expect significant improvement in free cash flow as we move towards the second half of the year consistent with our typical seasonal pattern.
Turning to slide six. Adjusted EPS of $0.82 per share was up 19% compared to $0.69 per share in the year ago period. Higher volumes and strong results from Laird collectively provided a benefit to adjusted EPS in the quarter of $0.11 per share. These gains more than offset other previously disclosed portfolio related actions, weaker product mix in W&P and additional tax Kapton start-up costs in E&I totaling $0.09 per share in the aggregate. A lower share count and reduced interest expense from deleveraging actions continue to benefit our EPS results. Our base tax rate for the quarter was 21.8%, and we continue to expect our base tax rate for the full year 2022 to be in the range of 21% to 23%. Turning to segment results, beginning with E&I on slide seven. E&I delivered net sales growth of 18%, including 9% organic growth and 11% portfolio benefit from Laird and a 2% headwind from currency. Organic growth for E&I includes an 8% increase in volume and a 1% increase in price. For A line of business view, organic sales growth was led by semiconductor technologies, which increased mid-teens as robust demand continued, led by the ongoing transition to more advanced nodes, growth in high-performance computing and 5G communications as well as share gains.
Within Industrial Solutions, organic sales growth was up low double digits on a continuation of strong volume growth led by OLED materials for new phone and television launches, ongoing strength for Kalrez product offerings, most notably for semi capex and strong demand for health care applications such as biopharma and tubing. Interconnect Solutions sales decreased low single digits on an organic basis, due to a slight volume decline. Volume gains for films and laminates in certain industrial end markets were more than offset by declines in consumer electronics, primarily related to China as well as the anticipated return to more normal seasonal order patterns for smartphones. For the full year, we expect Interconnect Solutions to be up mid-single digits on an organic basis, led by strong demand in the second half and additional capacity coming online later this year from our Kapton expansion. From a regional perspective, E&I delivered sales growth in all regions with high single-digit organic growth in Asia Pacific, noting China was down slightly.
Operating EBITDA for E&I of $476 million increased 9% as volume gains, strong earnings from Laird and pricing actions more than offset the absence of a prior year asset sale gain, higher raw material and logistics costs and a continuation of start-up costs associated with our Kapton capacity expansion. Operating EBITDA margin of 31% reflects sequential improvement from the fourth quarter of more than 200 basis points. On a year-over-year basis, the primary driver of the decline in operating EBITDA margin was the absence of a prior year gain. Adjusting margins in the prior year to exclude the onetime benefit, operating EBITDA margin was down 70 basis points year-over-year as a result of price cost and Kapton start-up costs more than offsetting volume gains. Turning to slide eight, W&P delivered net sales growth of 8%, consisting of 10% organic growth and a 2% headwind from currency. Organic growth for W&P reflects broad-based pricing actions across the segment implemented to offset cost inflation.
Volumes were flat as gains in shelter and water solutions were offset by declines in safety. From a line of business view, organic sales growth was led by Shelter Solutions, which was up high teens driven by pricing actions and continued robust demand in North American residential construction for products such as Tyvek, Kalrez as well as ongoing improvement in commercial construction for quarry and surface products. Sales for Water Solutions were up high single digits on an organic basis on volume and pricing gains. Global demand remains strong for all water technologies and across all regions. Within Safety Solutions, sales were up mid-single digits on an organic basis as pricing actions were partially offset by lower volumes of Tyvek as we shifted production from garments to other end market applications.
Volumes were up slightly for aramid fibers on continued improvement in industrial end markets. Operating EBITDA for W&P of $341 million declined 4% versus last year due to a weaker product mix. Operating EBITDA margin was better than our expectations set earlier in the quarter, but the impact of price cost was about a 210 basis point headwind to margin. Excluding the price cost impacts, operating EBITDA margin was about 26%, approaching more normalized levels for W&P. Before I turn it back over to Ed, I'll close with a few comments on our financial outlook on slide nine. Despite the strong start to the year and solid demand, the macro environment remains volatile with several key and certain factors. Based on our expectations and in consideration of these uncertainties, our full year guidance ranges for operating EBITDA and adjusted EPS remain unchanged at $3.25 billion to $3.45 billion and $3.20 to $3.50 per share, respectively. These ranges include a $35 million earnings headwind as a result of suspending operations in Russia. We are increasing our guidance range for net sales to be between $13.3 billion and $13.7 billion to reflect price increases needed to offset cost inflation, which we now anticipate at $600 million in year-over-year headwinds.
Although underlying demand in key end markets such as electronics, industrial technologies and water remains strong, we are seeing further supply chain constraints, primarily from additional government-mandated lockdowns in China, which will likely impact volume growth in the second quarter. Based on these anticipated headwinds as well as an element of previously projected Q2 sales realized in the first quarter, we expect second quarter 2022 sales to be between $3.2 billion and $3.3 billion or up about 5% year-over-year at the midpoint. Based on these same assumptions, we expect second quarter operating EBITDA between $750 million and $800 million, and adjusted EPS decrease $0.70 and $0.80 per share. At the midpoint of our guidance, second quarter operating EBITDA margin is expected to decline just over 100 basis points sequentially as supply chain constraints are assumed to impact production rates. We expect operating EBITDA margin in the back half of 2022 to improve on typical seasonal volume strength and improved plant utilization as we clear COVID-related production challenges impacting the first half of the year. This outlook assumes moderating China lockdown impacts as we get into mid-May, given the positive trajectory in the Shanghai region and our limited exposure around Beijing. However, further outlook risks could be triggered as the lockdown spreads to Shenzhen and the Pearl River Delta region, given the concentration of manufacturing and shipping there for DuPont as well as our suppliers.
With that, let me turn the call back to Ed.
