Earnings call: DuPont posts robust Q3 results, raises full-year guidance
DuPont (NYSE: NYSE:DD ) has reported a strong financial performance for the third quarter of 2024, with consolidated net sales reaching $3.2 billion, marking a 3% organic sales growth year-over-year. The company's operating EBITDA saw an 11% increase to $857 million, while adjusted earnings per share (EPS) surged by 28% to $1.18.
DuPont's electronic and industrial segment experienced double-digit growth, driven by demand for advanced chips and AI technologies. The water and protection (W&P) segment also showed signs of improvement, especially in medical packaging and stabilization in China volumes.
The company has accelerated its timeline for separating its electronics and water businesses, with board member announcements expected by Q1 2025.
For the fourth quarter of 2024, DuPont has provided guidance estimates that include net sales of approximately $3.07 billion and operating EBITDA of $790 million, with an adjusted EPS of $0.98. The full-year 2024 forecasts have been raised, now expecting an operating EBITDA of $3.125 billion and adjusted EPS of $3.90.Key Takeaways
DuPont's Q3 consolidated net sales hit $3.2 billion with a 3% organic sales growth year-over-year.Operating EBITDA increased by 11% to $857 million, and adjusted EPS grew by 28% to $1.18.The electronic and industrial segment saw double-digit growth due to high demand in advanced chips and AI.The W&P segment improved, particularly in medical packaging, with a 10% sequential sales increase.DuPont is on track to separate its electronics and water businesses within 18 to 24 months.Q4 2024 guidance estimates net sales of $3.07 billion, operating EBITDA of $790 million, and adjusted EPS of $0.98.Full-year 2024 forecasts have been raised to an operating EBITDA of $3.125 billion and adjusted EPS of $3.90.Company Outlook
DuPont expects to complete its restructuring efforts, including legal entity and IT separation, by December 2025.The company anticipates a recovery in the Kalrez end market and the semiconductor sector by 2025.Interest rate cuts are expected to stimulate the North American residential construction market.China remains a significant market for DuPont, accounting for 30% of electronics sales.Q4 2024 guidance projects net sales of $3.07 billion, operating EBITDA of $790 million, and adjusted EPS of $0.98.Full-year 2024 outlook has been raised, targeting an operating EBITDA of $3.125 billion and an adjusted EPS of $3.90.Bearish Highlights
The W&P segment reported a 2% decline in net sales year-over-year, largely due to price pressures.Organic sales in safety solutions dropped because of decreased volumes in Tyvek medical packaging.Seasonal declines are expected in electronics and construction markets.Bullish Highlights
DuPont's electronic and industrial segment is benefiting from increased semiconductor fab activity in China.The company reports strong free cash flow conversion and favorable competitive dynamics in China.New product developments and recent acquisitions are poised to drive future growth.Misses
W&P segment's slight organic declines in shelter solutions, offset by commercial construction growth.Low single-digit organic sales growth in water solutions, driven by ultra-filtration technology and a recovery in China.Q&A Highlights
DuPont plans to maintain investment levels cautiously, with capex below 5% of sales.The EV market continues to show promise despite broader economic slowdowns.DuPont is actively defending its Tyvek patents amid an ITC (NS:ITC ) complaint regarding imports.No additional share repurchases or significant capital expenditures are expected for the current and next year.
DuPont's third-quarter earnings call underscored the company's strong financial health and strategic progress. With an accelerated timeline for business separation and a raised forecast for the full year, DuPont appears to be navigating market challenges effectively, positioning itself for continued growth in 2025.InvestingPro Insights
DuPont's strong financial performance in Q3 2024 is further supported by data from InvestingPro. The company's market capitalization stands at $36.47 billion, reflecting its significant presence in the chemicals industry. With a P/E ratio of 56.29, DuPont is trading at a high earnings multiple, which aligns with the company's positive outlook and raised full-year forecasts.
InvestingPro data shows that DuPont's revenue for the last twelve months as of Q2 2024 was $12.06 billion, with a gross profit margin of 36.04%. This robust profitability is complemented by an operating income margin of 14.24%, demonstrating the company's ability to maintain efficiency in its operations.
One of the InvestingPro Tips highlights that DuPont has maintained dividend payments for 54 consecutive years, showcasing its commitment to shareholder returns. This is particularly relevant given the company's recent financial performance and positive outlook. Additionally, DuPont's dividend yield stands at 1.86%, with a dividend growth of 5.56% in the last twelve months, further emphasizing its focus on rewarding shareholders.
Another InvestingPro Tip notes that DuPont's net income is expected to grow this year, which aligns with the company's raised guidance for full-year 2024. This expectation of growth, coupled with the company's strategic initiatives such as the planned separation of its electronics and water businesses, suggests a positive trajectory for DuPont's financial performance.
For investors seeking more comprehensive insights, InvestingPro offers additional tips and analysis. Currently, there are 11 more tips available for DuPont on the InvestingPro platform, providing a deeper understanding of the company's financial health and market position.
Full transcript - Dupont De Nemours Inc (DD) Q3 2024:
Operator: Thank you for standing by. My name is Pam and I will be your conference Operator today. At this time, I would like to welcome everyone to the DuPont third quarter 2024 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star, one again. Thank you. I would now like to turn the conference over to Chris Mecray, Investor Relations. You may begin.
Chris Mecray: Good morning and thank you for joining us for DuPont’s third quarter 2024 financial results conference call. Joining me today are Ed Breen, Executive Chairman, Lori Koch, Chief Executive Officer, and Antonella Franzen, Chief Financial Officer. We’ve 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. 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-K, as updated by our current and periodic reports, includes a 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 is included in our press release and presentation materials that have been posted to DuPont’s Investor Relations website. I’ll now turn the call over to Lori to begin.
Lori Koch: Good morning and thanks everyone for joining our third quarter call. Earlier today, we reported another strong quarter of financial performance with continued sequential improvement across all key financial metrics. We posted a solid quarter highlighted by year-over-year growth for consolidated net sales, operating EBITDA and adjusted EPS. Third quarter sales of $3.2 billion included a return to organic sales growth which increased 3% versus the year ago period. Operating EBITDA of $857 million increased 11% with operating EBITDA margin increasing 150 basis points to 26.8%. Third quarter adjusted EPS of $1.18 increased 28% year-over-year. We also delivered another strong quarter of cash generation with transaction-adjusted free cash flow conversion of 130%, highlighting our disciplined working capital management. For the full year 2024, we are raising our guidance for operating EBITDA and adjusted EPS, which Antonella will detail shortly. From an end market view, the electronic and industrial segment saw another quarter of double-digit sales growth in both the semi and interconnect solutions lines of business, which continued to benefit from strong demand for advanced node chips and AI-enabling technologies. In the water and protection segment, we saw better than expected sequential improvement in water, including continued stabilization in China volumes. We also saw further sequential sales lift in medical packaging end markets, which are returning to more normalized buying patterns. Overall, I’m encouraged by our continued positive results. Volume recovery has been a key driver of our financial performance coupled with our team’s continued strong operational execution and helped by savings from the restructuring actions taken earlier this year. I am pleased to say we have made real progress with our operational excellence initiatives with benefits seen in improved margins and working capital and enhanced customer reliability metrics. By fostering our culture of continuous improvement and equipping our team with the right tools and training, we are well positioned to unlock long term value across each business line. Specific to the training aspect, we have been actively investing in our people and have completed around 30,000 hours of training year-to-date. We count on operational excellence to drive productivity every year as a key offset to inflation. Through a focus on process optimization, we have successfully reduced costs across critical operations with benefits from increased uptime leading to incremental capacity relief and lower fixed and variable costs. All in, we are pleased to report a strong third quarter and are well positioned for a solid finish to the year. I’ll now turn the call over to Ed, who can provide a few comments around our progress on the planned separations on Slide 4.
Edward Breen: Thanks Lori and good morning everyone. We clearly remained focused on driving results and demonstrating the performance potential of our portfolio while also advancing our plans to unlock value through the previously announced separations of our electronics and water businesses. We remain excited about this value creation opportunity and believe our investors broadly appreciate the potential that we expect these three industry-leading companies to realize by leveraging tailored growth strategies. Our teams remain highly motivated and have the experience to ensure that the new companies are prepared to operate and execute from day one. We continue to make progress on our separation-related work streams. We are also working diligently to accelerate our timing to potentially complete the separations closer to the earlier end of the 18 to 24 months timeline set at our May announcement, and we’ll update you as we progress. In addition, we are making progress in establishing the new boards, which have been a major focus of mine, and we expect to be able to announce board members of each company, along with key executive leadership appointments for electronics and water by the end of the first quarter of 2025. With that, I’ll turn it over to Antonella, who will cover our financial results and outlook.
Antonella Franzen: Thanks Ed and good morning everyone. We are very pleased that our third quarter results reflect sequential improvement across all key financial metrics and a return to organic sales growth at the consolidated level. Both earnings and cash flow benefited from volume recovery and improved production rates at key operating sites, and our team has executed well on productivity and cost actions announced last year. Turning to Slide 5, I will cover our third quarter financial highlights in further detail. Net sales of $3.2 billion increased 4% versus the year ago period on organic sales growth of 3% and favorable portfolio impact of 2%, reflecting contributions from both the Spectrum and Donatelle acquisitions. These increases were partially offset by a 1% currency headwind. The organic sales growth of 3% reflects a 5% increase in volumes partially offset by a 2% decrease in price. Higher volume was driven by continued broad-based growth in electronics end markets, with semi and interconnect solutions volumes both up double digits coupled with a return to year-over-year volume growth in water solutions. On a segment view, E&I organic sales grew 10% and WMC’s quarterly organic sales decline moderated further to 2%, on its way to an anticipated return to positive growth in the fourth quarter. Organic sales and corporate declined 6% versus the year ago period, driven by continued weakness in China solar markets, which led us to exit a photovoltaic film product line during the third quarter. This product line represents less than 1% of consolidated net sales. From a regional perspective, Asia Pacific delivered 9% organic sales growth versus the year ago period, led by another strong quarter in China where organic sales were up low double digits, driven by electronics end markets. In other regions, organic sales in Europe grew 1% while North America was down 2%. Second quarter operating EBITDA of $877 million increased 11% versus the year ago period as volume gains along with improved plant utilization and savings from restructuring actions were partially offset by higher variable compensation and select growth investments. Operating EBITDA margin during the quarter increased to 26.8%, up 150 basis points versus the year ago period and up 160 basis points on a sequential basis. Third quarter reflected another period of strong cash generation and conversion, reflecting both improved volumes as well as strong working capital discipline across each business line. On a continuing operations basis, cash flow from operations of $737 million less capital expenditures of $109 million and $12 million of separation-related transaction cost payments resulted in transaction-adjusted free cash flow of $640 million and related conversion of 130%. Turning to Slide 6, adjusted EPS for the quarter of $1.18 per share increased 28% from $0.92 in the year ago period. Higher segment earnings of $0.14 as well as the benefit of a lower share count of $0.09 and lower tax rate of $0.06 were partially offset by higher depreciation of $0.03. Our base tax rate for the quarter was 19.8%, down from 24.6% a year ago driven by certain discrete tax benefits recorded in the current period. We now estimate our full year 2024 base tax rate to be approximately 23.5%. Turning to segment results, beginning with E&I on Slide 7, E&I third quarter sales of $1.6 billion increased 13% versus the year ago period as organic sales growth of 10% and the Spectrum and Donatelle sales contribution of 4% were slightly offset by a 1% currency headwind. Organic sales growth of 10% reflects an 11% increase in volumes slightly offset by a 1% decrease in price. At the line of business level, organic sales [indiscernible] were up more than 20% for the second consecutive quarter, reflecting continued overall semi demand recovery driven by AI technology ramp and share gains in certain product lines. Semi demand was notably strong in China, including continued customer pre-buying similar to what we saw last quarter. As we move forward, we expect China demand to normalize but still remain strong. Overall semi fab utilization continues to improve, averaging 76% during the quarter, though notably stronger for advanced node chips due in part to AI-related demand acceleration. Interconnect solutions delivered another strong quarter as well with organic sales up low double digits, reflecting continued broad-based electronic recovery, including a demand benefit from AI-driven technology ramp. We saw content and share gains within high value electronic applications and a volume recovery within the overall printed circuit board space. The year-over-year sales decline in industrial solutions continues to moderate as organic sales were down slightly during the quarter and strength in printing and packaging applications was offset by ongoing volume headwinds for Kalrez. Also within industrial solutions, we completed the acquisition of Donatelle, a medical and device manufacturer, at the end of August. We are very pleased with the integration of Donatelle into Spectrum and are seeing the potential benefits to leverage Donatelle’s technology and capabilities to other businesses, as well as cross-selling opportunities within our healthcare platform. Operating EBITDA for E&I of $467 million was up 22% versus the year ago period, driven by volume growth, the impact of higher production rates, savings from restructuring actions as well as the earnings contribution from Spectrum and Donatelle. These gains were offset by higher variable compensation and select growth investments related primarily to the ongoing transition to advanced nodes and new and ramping AI applications across both semi and interconnect solutions. Operating EBITDA margin during the quarter was 30.1%, up 210 basis points versus the year ago period. Turning to Slide 8, W&P third quarter net sales of $1.4 billion declined 2% versus the year ago period, primarily due to price headwinds, as overall segment volume reflects. Within safety solutions, organic sales were down mid single digits, largely on price declines along with lower volumes driven mainly by Tyvek medical packaging. We did see a second consecutive quarter of sequential sales lift in medical packaging with sales up 10% in Q3. Shelter solutions sales were down slightly on an organic basis with headwinds in North American residential construction markets mostly offset by growth in commercial construction. The third quarter included a return to year-over-year sales growth for water solutions, where organic sales were up low single digits. Higher volumes were driven by strength in ultra filtration technologies along with continued volume recovery in China. On a sequential basis, water solutions sales also increased for a second consecutive quarter with sales up 3%, which was better than our expectation coming into the quarter. Operating EBITDA for W&P during the quarter of $364 million was up 1% versus the year ago period as productivity and savings from restructuring actions more than offset the organic revenue decline and higher variable compensation. Operating EBITDA margin during the quarter was 26.3%, up 70 basis points from the year ago period. As we move into the fourth quarter, we expect strong volume growth on a year-over-year basis. Moving to our outlook on Slide 9, for the fourth quarter we expect net sales, operating EBITDA and adjusted EPS of about $3.07 billion, $790 million, and $0.98 per share respectively. On a year-over-year basis, our fourth quarter guidance assumes sales net earnings growth from both E&I and W&P translating to total company growth and net sales of about 6%, operating EBITDA of 10%, and adjusted EPS of 13%. Sequentially, we assume normal seasonal declines in electronics and construction markets. Additionally, as I mentioned earlier, we expect to see a moderation of growth in China as pre-buying in semi plays out, as well as the impact of exiting the PV sales product line. Partially offsetting these sequential declines is the continued recovery in water and medical packaging end markets. For the full year 2024, we are raising our earnings guidance above the high end of our prior range and now expect operating EBITDA of about $3.125 billion and adjusted EPS of $3.90 per share, which reflects 12% EPS growth year-over-year. With that, we are pleased to take your questions, and let me turn it back to the Operator to open the Q&A.
Operator: Thank you. We will now begin the question and answer session. [Operator instructions] The first question comes from the line of Steve Tusa from JP Morgan. Please go ahead. Steve Tusa of JP Morgan, please go ahead.
Chris Mecray: Thanks Pam, we can come back to him.
Operator: All right, our next question comes from the line of Scott Davis from Melius Research. Please go ahead.
Scott Davis: Hey, good morning Chris, Ed, Lori, Antonella. Congrats on the quarter. Ed, I wanted to come back to your comments on--it looks like bid ask on the 18 to 24 months has narrowed down a bit, but what are the work streams--you know, you put the work streams on Slide 4, there’s six of them, but what are the gating factors? Why do you feel a little bit more comfortable today perhaps than three months ago in that time frame getting shorter?
Edward Breen: Yes, we’ve made great progress on two of the longer poles in the tent, the legal entity work and the IT work to separate everything, and the teams have made tremendous progress on that, so our confidence level is definitely up, and that’s why we made the comment that we might be more on the 18 month timeline somewhere, maybe in that zip code, which if we could get it all the way to that would be December 2025, so we’ll keep you posted on that. We’re pretty positive we’re going to move it, and the issue is can we move it all that way.
Scott Davis: Okay, fair enough. Guys, the electronics business, the pre-buy, you’ve talked about that the last two quarters. Why is there--I guess maybe I need to back up a little bit, why is there a pre-buy? Are they concerned about not having enough or you not being able to supply enough product on time? Why do they want to build inventory, I guess, versus perhaps--
Lori Koch: Yes, a lot of it, Scott, is around the new fabs that are being put in place in China, so last quarter we had mentioned 30 million in total, 20 million of which was in semi. This quarter, it’s another 20 million for a total of 40 million over the second half, and it’s really been new fabs coming online, so about half of the global fabs that are begin constructed are in China. There’s about seven of them, four in the logic space and three in the memory space, and as they bring their new fabs online, they pre-buy to get through qualifications [indiscernible], so it’s really a function of that from the pre-buy perspective that we had quoted.
Scott Davis: That’s what happens when you’re not a tech analyst. I had no idea! I’ll pass it on, thank you. Appreciate the time.
Lori Koch: You’re welcome.
Operator: Your next question comes from the line of Steve Tusa from JP Morgan.
Steve Tusa: Hey guys, good morning. Sorry about that.
Lori Koch: It’s okay, good morning.
Steve Tusa: Just a lot going on today, I guess. Can you just talk about the trend you saw in exiting September and into October, just broadly the various businesses in the portfolio, anything move around materially?
Lori Koch: No, minus the normal seasonality that you see in the quarter with the last month being the strongest primarily in the water space. There wasn’t a lot of variability as we exited the quarter. I mean, as we go into the fourth quarter, we have the usual seasonal sweetness that we see primarily within the electronics space and in the shelter space, and as you recall, as we had one on the last earnings call, we had mentioned that the recovery kind of came early and the seasonality that you normally would see from Q2 to Q3 was a little muted, and therefore to see the seasonality as you head into the fourth quarter, you have to compare the fourth quarter to the second quarter, and that’s where you see that about $100 million that we typically see between the electronics and the shelter space.
Steve Tusa: Okay, and then in the W&P margins, anything unusual there? Really strong margins in the quarter. Anything going on there, any raw material leap or maybe price cost, something like that?
Antonella Franzen: We were really pleased with the margins that we saw. It’s a lot of operational execution that we’ve been driving across the whole company, so we took a lot of restructuring actions earlier this year and we’re seeing the benefit of those. We’re driving productivity and operational excellence. We shuttered a couple of lines, older lines in the U.S. in the safety business that are nicely impacting our margin profile, so we’re encouraged by the 26%-plus that we posted in Q3.
Steve Tusa: So that should be able to leverage nicely as volumes come back, I would assume?
Antonella Franzen: Yes.
Steve Tusa: Okay, great. Thanks a lot.
Operator: Your next question comes from Chris Parkinson from Wolfe Research. Please go ahead.
Chris Parkinson: Great, good morning. Just wanted to dig in a little bit more on the semi tech side of it. Clearly you have some benefits from some of the Chinese fabs, but can you just dig in a little bit more by product sub-stream in terms of the pad slurries? It just seems like there’s a bit of a bifurcation between some of the product categories versus their space and what’s evolving in the marketplace, so any color there would be particularly helpful. Thank you.
Lori Koch: Yes, we saw strength across all the key semi technologies, so within the CMP space with pads and slurries, within the [indiscernible] space we saw really nice results and in the clean space, so it’s a combination of, one, the market recovery from the de-stocks that happened last year; two, the strength that we have in China, so we are a larger footprint in China than some of our peers, and that’s where a lot of the new fab construction is going on, a lot of the outsized recovery is happening; and then our exposure to advanced node versus the legacy nodes and DRAM versus memory is driving our results. We had been up 50%-plus in China, so that was a key driver of the overall semi results being up in the low 20% range.
Chris Parkinson: That’s helpful, and just as a follow-up on the W&P side, you’ve got some things going pretty well but it still seems like the macro is overall a little bit sluggish still. Just digging into the water side of it, can you just hit on the drivers of the ultra filtration strength? It seems like China is kind of beginning to turn the corner. Just how should we ultimately be thinking about that, is this now back to normalization as we get into 2025 or are there any other considerations we should be looking at? Thank you.
Lori Koch: Yes, we should start to see activity more normalized now. I think we’re clearly past the worst of it. We’ve seen sequential improvement from the first quarter to the second quarter. We saw it again going into Q3, and we would expect we’d continue to see some sequential improvement as we move into Q4. Overall, the business has definitely gotten back to where--gotten close back to where we used to be. I would tell you the activity in China has improved. The ultra filtration activity isn’t particularly just in any one region to call it out, but we’re definitely seeing much better activity overall in water and have kind of passed the de-stock.
Chris Parkinson: Very helpful, thank you.
Operator: Your next question comes from Vincent Andrews from Morgan Stanley (NYSE:MS ). Please go ahead.
Vincent Andrews: Thank you and good morning everybody. Maybe just one more item of something that needs to turn the corner a little bit, is the Kalrez de-stocking. Are you at the bottom of that, and should we start to see that inflect?
Lori Koch: Yes, we’re definitely at the bottom. We actually saw sequential improvement. We’re still seeing year-over-year headwinds, so we expect the business to continue to stabilize and see recovery as we head into 2025. Just a reminder of the Kalrez end market, it is largely semi capex exposed, so the long term profile and expectations for top line growth in that business are very sound as there continues to be an expectation of mid single digit capacity expansions within the semi space.
Vincent Andrews: Then I’d be curious to get your thoughts on interest rates - you know, I think we’ve all been poised and waiting for these cuts, and they’re kind of starting to happen but the curve is not behaving the way I think we all thought it would, in that the back end has kind of stayed high and the front end has come down. Maybe you could just talk about if rates do get cut, which parts of your businesses will benefit the most from the front end coming down versus which parts really need the back end to come down.
Lori Koch: Yes, on the front end it would be the construction markets, primarily the North American residential space, and so we had mentioned in our 4Q expectations that they’re a little lean in the shelter space because the rate cuts didn’t happen quickly enough. We’ll see what happens here at the next meeting, the expectation [indiscernible] cut again. But I would say at the front end, that’s our largest exposure with respect to positive news if rates continue to slide down. [Indiscernible] obviously the lower rate can spur some broader economic activity that would favor all of our businesses.
Operator: Your next question comes from Josh Spector of UBS. Please go ahead.
Josh Spector: Yes hi, good morning. I wanted to ask on not necessarily the spin timeline per se, but really are there alternatives still being explored for any of the businesses, water or electronic, outside of the spin, be it a sale or RMT, and just if you are, how do you think about maybe achieving something there versus the spin timeline? What would be more important to you?
Edward Breen: Yes, it’s a little simpler than that, Josh. Our plan is to do the separation of both water and electronics, and we’re moving very rapidly down that road. As we mentioned in the prepared remarks, we’re talking to potential board members already, we’ll be making board announcements for the companies and management announcements for those companies during the first quarter of next year.
Josh Spector: Okay, clear enough. On the core business, I wanted to ask about--you know, you made some comments about increased investments, increased variable comp. Obviously some of that makes sense given the better operating performance, but I was wondering as we think about the level of investment taking place now, is that fully back to normal in that if we look at growth, the incrementals become higher as we look forward, or are you still investing at a lower level given demand remains tepid?
Lori Koch: Yes, we’re not going gangbusters, right, so we had some growth investments early within the electronic space as we look to continue to take advantage of the AI recovery, and we had mentioned the variable compensation headwinds, so you can see in our [indiscernible] last year, our variable compensation was--it was an average of 50% payout, so that would be a headwind as we head into 2024. We continue to keep buttoned down until we’re really confident that we’ve got recovery across the board. We continue to keep capex levels at the same level where they were last year and we’ll continue to expect to revise those down as best we can below the 5% level. I wouldn’t expect any outsized investments. We continue to be really smart. One of the key areas I think is driving the margin profile that we’re seeing is we did take a lot of actions, especially on the plant fixed cost front as we saw the volumes decline last year, and we’ve done a really nice job keeping those out even as volumes have recovered, so that’s also driving a piece of our margin recovery.
Josh Spector: Okay, thank you.
Operator: Your next question comes from John Roberts of Mizuho (NYSE:MFG ). Please go ahead.
John Roberts: Thank you. Is China about 50% of the electronics sales, and how much of that would be made in China for China as opposed to imported into China and might have some risk from trade retaliation by China?
Lori Koch: Yes, so China is about 30% of electronics sales, so about half of that is China for China and the other half comes back out for global consumption.
John Roberts: Okay, and then how is advanced mobility looking with the slowdown in both EVs and ICE vehicles outside of China?
Lori Koch: Yes, so we continue to see nice performance within the EV side. We just got a really nice [indiscernible] large European OEMs within the [indiscernible] space, so it is muted [indiscernible] expectations, just as everybody else is with respect to the IHS revising down their expectation for total builds across the space, but we continue to be encouraged more broadly and longer term with the EV transition speed.
John Roberts: Great, thank you.
Operator: Your next question comes from Aleksey Yefremov of Keybanc. Please go ahead.
Alexsey Yefremov: Thanks, good morning. In interconnect, can you discuss two things: the share gains that you cite, and then the AI-driven ramps, what products are you seeing ramp in AI, what kind of applications?
Lori Koch: Yes, on the AI side, it’s in the packaging space within the interconnect business, so we’re seeing nice improvement there, and on the share gain side, it’s also--it’s a function of gaining greater share of wallet with some of our customers that we expand beyond just the phones and some of the other devices that our key customers are facing, so pleased with the results there. We had mentioned, I think on the last call, about a lot of the ICS being driven by thermal management and packaging opportunities, and that continues to play out for us.
Alexsey Yefremov: Thanks a lot.
Operator: Your next question comes from David Begleiter of Deutsche Bank (ETR:DBKGn ). Please go ahead.
David Begleiter: Thank you, good morning. Lori, E&I margins were above 30% in the quarter. Is that level sustainable for the entirety of 2025?
Lori Koch: We’ve seen nice margin growth in both segments, both E&I and W&P. It’s a little early to talk about specifics of 2025 at this point, but we are encouraged. There’s not one timers driving that number, I’ll say from that perspective, so as long as you can maintain the top line numbers that we’re posting and the productivity initiatives should stay in place that we’re driving, and we should be in a nice position to [indiscernible] margin profile for E&I.
David Begleiter: Very good, and just in safety solutions, what’s driving the decrease in pricing?
Antonella Franzen: I think it’s important to keep in mind that when you look over the last couple of years, particularly in some select businesses, we did have price increases that were in the mid teens which more than covered our cost increases, so it wouldn’t be too surprising that we would give back a couple of points in order to maintain share as we go forward.
David Begleiter: Thank you.
Operator: Your next question comes from Frank Mitsch of Fermium Research. Please go ahead.
Frank Mitsch: Hey, good morning, and nice results. I want to stay on the pricing area. In E&I, price was down a percent--vibes [ph] were very impressive, but price was down a percent. You have to go back to the second quarter of last year when you saw price flat; since then, it’s been ticking down. Can you expand upon what’s driving the lower price and what your outlook is there?
Lori Koch: When you look specifically at E&I, to your point, typically there is about a point of price give-back. A lot of it relates to new products coming into the market and volumes going up, so there’s typically about one point in price. That’s historically what we’ve seen in E&I, and we would expect that trend to continue as we go forward.
Frank Mitsch: Got you, so as you’re pricing new products, you’re giving discounts to the customers?
Edward Breen: No, you’re getting price on the new product introductions, Frank, but you get paid a little bit of price drain [ph] on the older products. That’s very typical of the electronics business like that, and forget the last couple years - it’s been crazy times with COVID and de-stock and all that, but that’s typically been the model, so a higher growth business more up in the mid to high teens, but you give up about 10% on price.
Frank Mitsch: All right, understood. Thank you. Just on the restructuring benefits, I believe the last time you mentioned it was going to be about $115 million benefit in 2024. Is that still a good number, and any initial thoughts on 2025?
Antonella Franzen: Yes, actually that benefit number is a bit higher. We got to our quarterly run rate of benefit in the third quarter, so we are getting a nice impact this year and there will be a little bit of carry forward as we go into 2025.
Frank Mitsch: Thank you.
Operator: Your next question comes from Mike Sison of Wells Fargo (NYSE:WFC ). Please go ahead.
Mike Sison: Hey, good morning. Nice quarter and outlook. Ed, a lot of the chemical companies thus far have painted an unexciting picture for the first half of ’25, and maybe ’25 in total. As you’ve noted, your end markets are different, so I know it’s a little bit early to give specific outlook for 2025, but could you give us your thoughts on how maybe semiconductors, electronics and some of the water and industrial businesses shape up for next year?
Edward Breen: Yes, I’ll let Lori walk you through some details. I don’t mean this flippantly, but to make a comment, we’ve really worked the portfolio very differently than we were five, six, seven years ago, away from a chemical company into a multi-industrial, and I think you’ve seen that in a lot of our end markets that we’re in right now. But I’ll let Lori maybe you walk you through some puts and takes.
Lori Koch: Yes, there’s no significant changes from the commentary we had provided on the last call about some initial 2025 expectations, so from an electronics perspective, we continue to expect semi to both--to accelerate, really driven by the AI and the new fabs coming online, and just a reminder that the memory market and some of the more mature technology markets haven’t recovered yet, so that recovery is going to come as we head into 2025. There is also on the interconnect side continued utilization in the PCV space, especially as you look for a refresh cycle within the AI space in consumer devices. Within W&P, we expect Tyvek healthcare to continue to recover. As we had mentioned, we saw a sequential lift from Q2 to Q3 of 10%. We expect a further sequential lift into Q4 and then more normalized buying patterns as we head into 2025, and we expect a more normalized demand environment within [indiscernible] and water we’ll expect to continue to recover as well, so no changes from what we said last year, or last quarter with respect to 2025.]
Mike Sison: Great, thank you.
Operator: Your next question comes from Patrick Cunningham of Citi. Please go ahead.
Patrick Cunningham: Hi, good morning. Are you still anticipating price give-back in shelter in 4Q and maybe into 2025, and what was the dynamic between positive growth in commercial construction versus resi, and any sort of early view on a broad-based resi recovery into next year?
Antonella Franzen: Yes, given what we saw in pricing this year and as we’re exiting the year, you would expect that we would have some price give-back carry forward going into 2025, but I think the one thing that you’ve got to keep in mind is that we’ve still got to take a deep look at what are our costs next year relative to raws, logistics and utilities, and that will determine if there’s any pluses or minuses associated with them, so I would expect that as we go forward. In terms of the resi and the construction markets, they are--we are seeing a little bit less activity than what we originally anticipated. As Lori mentioned earlier, when you look at rates and where they are, there was a few rate cuts that were expected in 2024. We had one, so we had it a little too late in the building cycle to really have an impact, so as we go into next year, I would say in terms of the construction markets, we would expect low single digit activity, and I think that’s kind of predicated on some additional rate cuts coming, but we’ll see what happens.
Chris Mecray: At our current midpoint of guidance in the fourth quarter assumes slightly less price give-back than we saw during the third quarter.
Patrick Cunningham: Understood, very helpful. Then just on consolidated W&P, it seems you’ll have easier comps on the water, medical packaging. Does most of that sequential EBITDA decline come from more typical seasonality on shelter and safety, and if you could remind us what was the $25 million discrete impact from last year and that wont’ repeat this year, just for clarification?
Antonella Franzen: Yes, so the Q3 to Q4 in W&P would be your typical seasonality. Q3 tends to be about the highest quarter and it comes down a bit in Q4. A big piece of that would be related to the shelter business as we kind of go into the winter months. For W&P explicitly, we did call out about $25 million of one-time items last year that were related to a land sale and some supply agreements that we had certain benefits from, I would say. Keep in mind that in totality in Q4 of last year, we actually called out $40 million of one-time items. The remaining $15 million was in corporate.
Patrick Cunningham: Great, thank you.
Operator: Your next question comes from John McNulty of BMO Capital Markets. Please go ahead.
Unknown Analyst: Hi, good morning, this is [indiscernible] for John. Can you talk about some of the competitive dynamics around your electronic peers in China? China is bringing in a lot of new fabs, as you mentioned, but they’re also investing in kind of the home grown domestic supply chain. You mentioned gaining some market share - not sure if that was in China as well, but overall how do you see this landscape developing over the next few years?
Lori Koch: Yes, we continue to have a nice position within China. I think our exposure in China within the semi space is outsized versus some of the peers, so we’re about 30% China where some of the peers, I think are less than that, so you’re seeing that disparity play out nicely in our numbers as a lot of the builds are more concentrated there with respect to the global output. We have a nice position with the local players; as we had mentioned, we also have nice positions with the global OEMs that are in China, that are favoring our China results as well.
Unknown Analyst: Thank you.
Operator: Your next question comes from Arun Viswanathan with RBC Capital Markets. Please go ahead.
Arun Viswanathan: Great, thanks for taking my question. Just wanted to go back to maybe some initial thoughts on ’25. This year, you showed--it looks like you’re showing pretty good mid-teens EBITDA growth in E&I, although you have been--that’s been offset slightly by some of that water de-stocking and headwinds. As you look into next year, maybe if you adjust for the pre-buy that you saw in E&I, would that kind of decrease maybe to, like, a high single-digit rate, and then--but maybe you could see some recovery in W&P, and so overall you still expect maybe mid to high single digit EBITDA growth for next year?
Antonella Franzen: That’s where we’ve provided you some color on the top line as to where our expectations are, I would say. It’s a bit too early to start commenting on EBITDA growth for next year. We’ll give more detailed guidance as we get onto the next quarter call, but clearly volume will be a driver, as we noted this year. We would expect to have the continued benefits of our restructuring actions that we took this year to continue to benefit us as we move forward.
Arun Viswanathan: Okay, I understand. Just on that note, then, assuming that you do see some continued margin growth, how should we think about free cash flow and maybe how you deploy that? Are there any significant extra capex projects in the pipeline, or will you likely be using most of your cash for standing up the businesses, or could you potentially deploy more and return more to shareholders? Thanks.
Antonella Franzen: Yes, so as we’re talking about free cash flow conversion, as I mentioned, for this quarter we did have a really strong free cash flow conversion - it was about 130%. We’re at 109% for the year, and we did note we do expect to be well above our target for this year. As we go into next year, I would expect that we continue to have good free cash flow conversion. The teams have done a great job relative to managing working capital even while sales are increasing and we’re now having a use of working capital. As you think about our cash deployment for next year, given it is the year of the separation, a majority of cash will be used for our separation costs. We did note last quarter on the call, we do not expect to do any additional share repurchases this year - I would say that applies to next year as well, and no significant outsized capex that you should be expecting next year relative to this year.
Arun Viswanathan: Great, thanks.
Operator: Your next question comes from Mike Leithead of Barclays (LON:BARC ). Please go ahead.
Mike Leithead: Great, thanks. Good morning team. I think Dupont filed an ITC complaint last month around illegal Tyvek imports. I guess first, is the issue you’re seeing somebody else claiming and naming something to be Tyvek and it’s not, or is it named something else and the issue is they’re using Dupont’s proprietary technology? Then just more broadly, how is the Tyvek business performing today?
Lori Koch: Yes, so the ITC filing speaks for itself. We’ll continue to defend our patents and our trade secrets, so that’s really all we want to say on that point. The Tyvek business from an end market performance continues to recover nicely. A lot of the headwind that we saw throughout 2024 was related to medical packaging, and we’ve highlighted a few times about the nice recovery that we’re seeing there, up 10% sequentially and up even further sequentially as we head into Q4, so we’re really encouraged by the rebound that we’re seeing there.
Mike Leithead: Great, thank you.
Operator: Your last question comes from Steve Byrne of Bank of America. Please go ahead.
Steve Byrne: Yes, I’d like to ask another one about that ITC complaint. When did you start to see these competing versions of Tyvek coming into the States, and is this across your broad platform, is this Tyvek house wrap, is this packaging, is this PPE? Is it all of them, and you’re seeing this competing version? When did this happen, and just curious on the timing of this.
Lori Koch: Yes, so we had mentioned that that filing speaks for itself. It’s a public filing that can be read. We started seeing it in recent months, so the use of our name in addition to some trade secret infringement that we were seeing, which is what led us to the filing.
Steve Byrne: Then maybe just one more. Across new Dupont, any new products in development that you could be unrolling, that could drive growth in new Dupont other than just the recovery in end markets?
Lori Koch: Yes, so I had mentioned earlier that the really nice win we saw in the [indiscernible] adhesive space was one of the largest European OEMs and that it was a nice win for us, that continues to solidify our position in the EV space. We have a really nice growing position within healthcare, so we closed the Donatelle acquisition in August, we were actually out there [indiscernible] and with the board visiting the site, and we were even more encouraged by what we saw with respect to cross-selling with some of the larger medical device makers, as well as leveraging the really high end machining capabilities that Donatelle has to not only our medical packaging businesses but our other parts businesses [indiscernible] so we’re really encouraged that that space will continue to be a nice growth driver for us.
Steve Byrne: Thank you.
Operator: There are no more questions. I will now turn the conference back over to Chris Mecray for closing remarks.
Chris Mecray: Thank you everyone for joining the call. For your reference, a copy of the transcript will be posted on our website. This concludes the call. Thank you.
Operator: Thank you all for joining. You may now disconnect.
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Source: Investing.com
