DuPont de Nemours, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strong Financial Performance: Third quarter net sales $3.2 billion, organic sales growth 3%, operating EBITDA $857 million up 11%, adjusted EPS $1.18 up 28%.
• Volume Recovery: Continued broad-based growth in electronics end markets, return to year-over-year volume growth in Water Solutions.
• Operational Excellence: Progress on operational excellence initiatives, 30,000 hours of training year-to-date, benefits from restructuring actions.
• Acquisitions: Completed acquisition of Donatelle, integrating it into Spectrum and seeing cross-selling opportunities.
• Separations Progress: Making progress on separations of electronics and water businesses, expect to announce boards and key executives by first quarter 2025.

Segment Performance

• Electronics and Industrial (E&I): Organic sales grew 10%, with sales of $1.6 billion. Operating EBITDA was $467 million, up 22% year-over-year. Organic sales growth driven by double-digit volume growth in semi and Interconnect Solutions, and integration of Donatelle. Operating EBITDA margin was 30.1%, up 210 basis points.
• Water & Protection (W&P): Net sales of $1.4 billion declined 2% year-over-year. Organic sales decline moderated to 2%, with Water Solutions seeing return to year-over-year sales growth. Operating EBITDA was $364 million, up 1% year-over-year. Seasonality and pricing headwinds affected the segment, but medical packaging saw sequential sales growth.

Guidance

• Full Year 2024: Raising guidance for operating EBITDA and adjusted EPS. Full year 2024 now expects operating EBITDA ~$3.125 billion and adjusted EPS ~$3.90 per share.
• Fourth Quarter: Expect net sales ~$3.07 billion, operating EBITDA ~$790 million, adjusted EPS ~$0.98 per share. Sees normal seasonal declines in electronics and construction markets but recovery in water and medical packaging.

Risks

• Forward-Looking Statements: Actual performance may differ from forward-looking statements due to risks and uncertainties.
• Separation Risks: Uncertainties related to the timing and execution of the separations of electronics and water businesses.
• Market Conditions: Risks from macroeconomic conditions, including currency headwinds, demand fluctuations in certain end markets (e.g., China solar markets).

Question and Answer

Q: What are the gating factors for the separations timeline?

A: Legal entity work and IT separation work are key, teams have made progress, confidence in moving towards 18-month timeline.

Q: Why did customers prebuy in electronics?

A: Tied to new fabs in China coming online, prebuying to get through qualifications and ramp.

Q: Trends in exiting September and October?

A: Normal seasonality, water space strongest last month, no major variability outside seasonality.

Q: Kalrez destocking?

A: At bottom, expected to stabilize and recover in 2025, tied to semi-CapEx exposure.

Q: Interest rates impact?

A: Front end rate cuts benefit North America residential construction; broader rate cuts benefit all businesses.

Q: Alternatives to spins for Water or Electronic businesses?

A: Plan is to proceed with separations, moving rapidly towards announcing boards and executives for new companies by first quarter 2025.

Q: Price givebacks in Shelter?

A: Expect price givebacks carryforward into 2025, dependent on cost analysis vs. raws, logistics, utilities.

Q: Competitive dynamics in China electronics?

A: DuPont has outsized exposure in China semi space, favorable position with local and global OEMs in China.

Q: Free cash flow and deployment?

A: Strong free cash flow conversion, majority of cash in 2025 used for separation costs, no significant share repurchases or outsized CapEx expected next year.

Q: ITC complaint on Tyvek?

A: Defending patents and trade secrets, Tyvek business recovering, especially in medical packaging.

Q: New products in development?

A: Battery adhesives win with large European OEM, growth in healthcare via Donatelle acquisition and cross-selling opportunities.