| Quarter | Q3 FY24 |
|---|---|
| Call date | 2024-11-05 |
| Results reported | 2024-11-05 |
| Length | 48 minutes |
| Speakers | Chris McRae, Investor Relations; Lori Koch, CEO; Antonella B Franzen, SVP & CFO |
Results, guidance and Q&A analysis for this call
Operator (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 speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press * followed by the number one on your telephone keypad. If you would like to withdraw your question, press *1. Again, thank you. I would now like to turn the conference over to Chris McRae, Investor Relations. You may begin.
Chris McRae (Investor Relations)
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, Laurie Koch, Chief Executive Officer and Antonella Frans and 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 results may differ materially from our forward-looking statements. Our Form 10K is 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 reconciliation of the most directly comparable the GAAP financial measures included in our press release and presentation materials and have been posted to Dupont's Investor Relations website. I'll now turn the call over to Lori, who will begin.
Lori Koch (CEO)
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. 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 electronics and industrial segment saw another quarter of double digit sales growth in both the semi and Air Symnex Solutions lines of business, which continue 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 volume. We also saw further sequential sales lift in medical packaging and 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 initiative with benefits seen and improved margins and working capital and enhanced customer reliability metrics. By fostering our culture of continuous improvement and equipping our teams 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 focus on process optimization, we have successfully reduced costs across critical operations with benefits from increase uptime leading to incremental capacity release 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 plan separations on Slide 4.
Chris McRae (Investor Relations)
Thanks, Lori and good morning everyone. We clearly remain 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 2025. With that, I'll turn it over Antonella, who will cover our financial results and outlook.
Antonella B Franzen (SVP & CFO)
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 five, I will cover our third quarter financial highlights in further detail. Net sales of 3.2 billion increased 4% versus the year ago. 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 volume, partially offset by a 2% decrease in price. Higher volume was driven by continued broad based growth in electronics and markets with semi and interconnect solutions volumes both up double digits coupled with the return to year over year volume growth in water solutions. On a segment view E and I organic sales grew 10% and WM TS quarterly organic sales decline moderated further to 2% on its way to an anticipated return to positive growth in the fourth quarter. Organic sales incorporate declined 6% versus a year ago. 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 mixing. From a regional perspective, Asia Pacific delivered 9% organic sales growth versus the year ago. Led by another strong quarter in China, where organic sales were up low double digits driven by electronics and markets in other regions. Organic sales in Europe were 1%, while North America was down 2%. Second quarter operating EBITDA of 857 million increased 11% versus the year ago. As volume gains along with improved flag 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. And up 160 basis points on a sequential basis. Third quarter reflected another period of strong cash generation and conversion reflecting growth, improved volumes as well as strong working capital discipline across each business line. On a continuing operations basis, cash flow from operations of 737,000,000 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 92 cents to the year ago. Higher segment earnings of $0.14 as well as the benefit of a lower share count of nine cents 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 reported 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 and I on Slide 7, P and I, third quarter sales of 1.6 billion increased 13% versus the year ago. As organic sales growth of 10% and the spectrum and Gotta Tell sales contribution of 4% were slightly offset by a 1% currency headwind. 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 per semi were up more than 20% for the second consecutive quarter, reflecting continued overall semi demand recovery driven by AI technology ramps and share gains in certain products. 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 of low double digits reflecting continued broad based electronics recovery including a demand benefit from AI driven technology ramps. We saw content and share gains within high value electronics applications and the volume recovery within the overall printed circuit floor space. The year over year sales decline in Industrial Solutions continued to moderate as organic sales were down slightly during the quarter and strength in printing and packaging applications was offset by ongoing volume headwinds per Calvert. Also within Industrial Solutions, we completed the acquisition of Donatelle, a medical device manufacturer at the end of August. We are very pleased with the integration of Donatelle into Spectrum and are seeing the potential benefit to leverage Donatelle's technology and capabilities to other businesses as well as cross selling opportunities within our healthcare and platform. Operating EBITDA for ENI of 467,000,000 was up 22% versus the year ago. Driven by volume growth, the impact of higher production rates, savings from restructuring actions, as well as the earnings contribution from Spectrum and Docktail. These gains 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 to 110 basis points versus the year ago. Turning to Slide 8, WNP third quarter net sales of 1.4 billion declined 2% versus the year ago. Primarily due to price headwinds as overall segment volumes were flat. Within Safety Solutions, organic sales were down mid single digits, largely on price decline along with lower volumes driven mainly by Tyvek Medical Packaging. We did see a second consecutive quarter of sequential sales lists 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 includes 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 Solution sales also increased for a second consecutive quarter with sales of 3%, which was better than our expectation coming into the quarter. Operating EBITDA for WNP during the quarter of 364,000,000 was up 1% versus the year ago. 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. As we move into the fourth quarter, we expect strong volume growth on a year over year basis. Moving to our outlook of Slide 9. For the fourth quarter, we expect net sales, operating EBITDA and adjusted EPS of about 3 point O 7,790,000,098 cents per share respectively on a year over year basis. Our fourth quarter guidance assumes sales and earnings growth from both ENI 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 signed and semi plays out as well as the impact of exiting the PV film product. Partially offsetting these sequential declines is the continued recovery in water and medical packaging and 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 (Operator)
Thank you. We'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press *1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press *1. Again, please be reminded that you can ask one question and one follow up.
Operator (Operator)
And 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 McRae (Investor Relations)
Thanks Pam, we can come back to him.
Operator (Operator)
All right. Our next question comes from the line of Scott Davis from Milius Research. Please go ahead.
Chris McRae (Investor Relations)
Hey, good morning Chris and Ed Laurie Antonella, Congrats on Congrats on the quarter. Hey, Ed, I wanted to come back to your comments on the looks like the the bid ask on the 18 to 24 months has narrowed down a bit. But what what are the, what are the work straight? You know, you put the work streams on slide 4, the six of them, but like what what are the gating factors kind of why, why do you feel a little bit more comfortable today, perhaps in three months ago in that time frame getting short? Yeah. Well, yeah, we've we've made great progress. You know, two of the longer poles in the 10th of 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, you know, we might be more on the 18 month timeline somewhere and 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. I'm we're pretty positive we're going to move it in. The issue is can we move it in, you know all that way. OK, fair enough. And and guys the the electronics business, the pre buy that talked about that the last two quarters, what why is there I guess maybe I can get it back up a little bit. Why is there a pre buy? Why are they concerned about not having enough or you're not being able to supply enough product on time? What? Why do they want to build inventory I guess?
Lori Koch (CEO)
Yeah, so a lot of it started around the.
Antonella B Franzen (SVP & CFO)
Yeah.
Lori Koch (CEO)
So a lot of it's got 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 sending. This quarter, it's another 20 million for a total of 40 over the second-half. And it's really the new fabs coming online. So about about half of the global fabs that are being constructed are in China. There's about 7 of them. Four in the logic space and and three in the memory space. And as they bring their new fabs online, they pre buy to get through qualifications in the ramp. So it's really a function of that from the pre buy perspective that we had quoted.
Chris McRae (Investor Relations)
That's that's what happens when you're not a tech analyst. I had no idea, so I'll pass it on. Thank you. Appreciate it.
Lori Koch (CEO)
You're welcome. Bye bye.
Operator (Operator)
Your next question comes from the line of Steve Tusa from JP Morgan.
Chris McRae (Investor Relations)
Hey, guys. Good morning. Sorry about that.
Lori Koch (CEO)
OK. Morning. Morning, Steve.
Chris McRae (Investor Relations)
Just a lot going on today, I guess can you just talk about the trend you saw, you know in exiting September and October just for you know, broadly the various businesses in the portfolio, anything move around materially?
Lori Koch (CEO)
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 as we exited the quarter. I mean, as we go into the fourth quarter, we have the usual seasonal weakness that we see primarily within the electronic space and in the shelter space. And as you recall, as we had done on the last earnings call, we had mentioned that the recovery kind of came early and the seasonality that you normally would see from 2 Q to three Q 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 the shelter space.
Chris McRae (Investor Relations)
OK. And then and then the in the W&P margins, anything unusual there really strong margins in the quarter and anything going on there, any raw material relief or you know maybe price cost something like that?
Lori Koch (CEO)
Yeah, We were really pleased with the margins that we saw. You know, it's a, it's a lot of operational execution that we've been driving across the whole company. So we, you know, we took a lot of restructuring actions earlier this year. We're seeing the benefit of those we're doing driving productivity and operational excellence. We shuttered a couple lines, older lines in in the US in the safety business that are nicely impacting our project profile. So we're encouraged by the, you know, the 26% plus that we posted in Q3.
Chris McRae (Investor Relations)
So, so that should be able to leverage nicely as volumes come back I would assume?
Antonella B Franzen (SVP & CFO)
Yes, OK, great.
Chris McRae (Investor Relations)
Thanks a lot.
Operator (Operator)
Your next question comes from Chris Parkinson from Wolfe Research. Please go ahead.
Chris McRae (Investor Relations)
Great. Good morning. Just want to dig in a little bit more into the semi tech side of it. I mean, you know, clearly you have some benefits from the some of the Chinese Subs, but can you just dig in a little bit more by, you know, product substrate in terms of, you know, the pads flurries? It just seems like there's a bit of a bifurcation between some of the product categories versus others based on what's evolving in the marketplace. So any color there would be particularly helpful. Thank you.
Lori Koch (CEO)
Yeah. I mean, we saw strength across all the key semi technologies. So within the CMP space with pads and flurries within the list of space, we saw really nice results and in the clean space. So it's a combination of one of the market recovery from the DSOC that happened last year to the strength that we have in China. So we are a larger footprint in China kind of in some of our peers and that's where a lot of the new fab construction is going on, a lot of the outsize recovery is happening and then our exposure to advanced nodes versus the legacy nodes and D RAM versus memory is driving our results. So you know 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 McRae (Investor Relations)
That's helpful. And just as a follow up on the WMT side, you've got some things going pretty well, but it still seems like the macros, you know, overall a little bit sluggish still just digging into the water side of it. Can you just hit on kind of the drivers of the ultra filtration strength? It seems like China's, you know, kind of beginning to turn the corner just how we should ultimately be thinking about that is this is now back to normalization as we kind of get into 2025 or are there any other considerations we should be looking at? Thank you.
Antonella B Franzen (SVP & CFO)
Yeah, 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, the second quarter. We saw it again going into Q3 and we would expect we continue to see some sequential improvement as we move into Q4. So overall, the business has definitely gotten back to where getting 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 it's kind of past the destock.
Chris McRae (Investor Relations)
Very helpful. Thank you.
Operator (Operator)
Your next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.
Chris McRae (Investor Relations)
Thank you and good morning everybody. Maybe just one more item of something that needs to turn the corner a little bit is the the Cal res destocking, are you sort of at the bottom of that and should we start to to see that inflect?
Lori Koch (CEO)
Yeah, we're definitely at the bottom. We actually saw sequential improvement. We're still seeing year over year headwinds. So we we expect the business to continue to stabilize and see recovery as we head into 2025. S just a reminder of the Cal resin markets, 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 you know mid single digit capacity expansions within the semi space.
Chris McRae (Investor Relations)
And then I, I'd be curious to get your thoughts on, on interest rates. You know, I think we've all been sort of poised and, and waiting for these cuts and they're kind of starting to happen. But the, the curve is not sort of behaving the way I think we all thought it would. And, and that the back end is, has kind of stayed high and the front end has come down. So maybe you could just talk about, you know, if if race do get cut, which which parts of your businesses will benefit the most from the front end coming down versus which parts really need the the back end to, to to come down?
Lori Koch (CEO)
Yeah, I mean on the front end it would be the construction markets, you know primarily the the North America residential space. And so we had mentioned in our four Q expectations that there are a little needed in the shelter space because the rate cuts didn't happen quickly enough. We'll see what happens here at the next meeting if the expectations for this will cut again. But I would say the front and that's our largest exposure with respect to positive news and the breaks need to slide down more broadly. Obviously the lower rate comparison, broader economic activity that we favor all of our businesses.
Operator (Operator)
Your next question comes from Josh Specter of UBS. Please go ahead.
Chris McRae (Investor Relations)
Yeah, hi. Good morning. I wanted to ask on, not necessarily the spin timeline per SE, but really are are there alternatives still being explored for any of the businesses, water or electronic outside of the spins, be it a Sailor 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? Yeah, No, it's a little simpler than that, Jeff. Our plan is to do the separation of both water and electronics and we're moving very rapidly down that road. As we mentioned on the prepared remarks, we're talking to potential board members already and we'll be making board announcements for the companies and managing announcements for those companies, you know, during the first quarter of next year. OK, clear enough. And on the core business, I wanted to ask about you need some comments about increased investments, increased variable comp. Obviously some of that makes sense given the better operating performance. But I was wondering if 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 (CEO)
Yeah. I mean, we're not going gangbusters, right. So we had some growth investments primarily within the electronic space as we look to continue to take advantage of the AI recovery. And we had mentioned the variable compensation headwind. So you can see in our approximate results from last year, our variable compensation was there with an average of 50% payout. So that would be a headwind as we head to 2024. You know, we continue to keep button down until we're really confident that we've got recovery across the board. We continue to make CapEx levels at the same level as where they were last year and we'll continue to expect to revise this down as best we can below the 5% level. So I wouldn't expect any outsized investments. We continue to be really smart. One of the key areas I think that's driving the margin profile that we're seeing is we did take a lot of action 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 though volumes have recovered. So that's that's also driving a piece of our margin recovery.
Chris McRae (Investor Relations)
OK. Thank you.
Operator (Operator)
Your next question comes from John Roberts of Mizuho. Please go ahead.
Chris McRae (Investor Relations)
Thank you. It's China, about 50% of the electronic sales and how much of that would be made in China for China as opposed to imported into China and might have some risks from some trade, trade retaliation by China?
Lori Koch (CEO)
Yeah. So China is about 30% of those electronics sales. So about half of that is China for China and the other half good, then it comes back out for global consumption.
Chris McRae (Investor Relations)
OK. And then how is advanced mobility looking with the slowdown in both EVs and ICE vehicles outside of China?
Lori Koch (CEO)
Yeah. So we continue to see nice performance within the CED side. We just got a really nice long term thing with one of the large European alliance within the bad space. So it is muted the growth expectations just as everybody else's with respect to the IHS revising down their expectations for total bills across the state. But we continue to be encouraged more broadly and longer term transition. Great. Thank you.
Operator (Operator)
Your next question comes from Alexei Yefremov of Keyban. Please go ahead.
Chris McRae (Investor Relations)
Thanks. Good morning. In interconnect could you just got two things, the, the share gains that that you cite and and then the AI driven ramps, what what products are you seeing ramping in AI? What, what kind of applications?
Antonella B Franzen (SVP & CFO)
Yeah, on the AI.
Lori Koch (CEO)
Side is in the packaging space within the interconnect business. So we're seeing nice improvement there. And on the the share gains side, it's, it's also a, it's a function of being greater share of wallet with some of our customers that we expand beyond just just the phones and some of the other devices that our key customers are producing. So pleased with with the results there. We had mentioned, I think on the last call about a lot of the IPS being driven by thermal management and packaging opportunities and that continues to play out for us.
Chris McRae (Investor Relations)
Thanks a lot.
Operator (Operator)
Your next question comes from David Becklatter of Deutsche Bank. Please go ahead.
Chris McRae (Investor Relations)
Thank you. Good morning. I'm Lori In. My margins were above 30% in the quarter. Is that level sustainable for the entirety of 2025?
Lori Koch (CEO)
Yeah. We, we've seen nice margin growth in both segments, both ENI and WNT. It's a little early to talk about specifics of 2025 at this point, but we we are encouraged there's not one time restarting that number, I'll say from that perspective. So as long as you can maintain this offline numbers that we're posting and and the productivity initiative should stay in place that we're driving and we should be in a nice position to get back to that more normalized margin profile for the United.
Chris McRae (Investor Relations)
Very good interest in safety solutions. What's driving the decrease in pricing?
Antonella B Franzen (SVP & CFO)
So I think it's important to keep in mind that when you look for 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, you know, a couple of points in order to maintain share as we go forward.
Chris McRae (Investor Relations)
Thank you.
Operator (Operator)
Your next question comes from Frank Mitch of Fermium Research. Please go ahead.
Chris McRae (Investor Relations)
Hey, good morning and nice results. I want to stay on the price. I want to stay on the pricing area and E and I you know price was down a percent, volumes were very impressive, but price was down a percent. You have to go back to the second quarter of last year, but when you saw price flat since then it's been ticking down. Can you expand upon, you know what's what's driving the lower price and and what's your outlook is there? Yeah.
Antonella B Franzen (SVP & CFO)
When you look specifically at Eddie and I to to your point, typically there is about a point of price give back. A lot of it relates to new products kind of coming into the market and volumes going up. So there's typically about one point of price. That's historically what we see in E and I, and we would expect that trend to continue.
Chris McRae (Investor Relations)
As we go forward got you. So as you're pricing new products, you're you're giving discounts to the customers. No, you're getting, you're getting price on the new product introductions Frank, but you get paid a little bit of price paid on the older products, which are very typical. That's very typical of the electronics business like that. And forget the last couple years been crazy times with COVID and destock and all that, but that's typically been the model. It's a higher growth business, you know more up in the mid to high teens, but you give up about 1% on price. All right, understood, thank you. And just on the restructuring benefits, I believe the the last time you mentioned it was going to be about 115,000,000 benefit in 2024. Is that still a good number and and any thought? Any initial thoughts on 2025?
Antonella B Franzen (SVP & CFO)
Yeah, actually that benefit number is a bit higher. We got to our quarterly run rate of benefits in the third quarter. So we are getting a nice impact this year. There will be a little bit of carry forward as we go into 2025.
Chris McRae (Investor Relations)
Thank you.
Operator (Operator)
Your next question comes from Mike Season of Wells Fargo. Please go ahead.
Chris McRae (Investor Relations)
Hey, good morning. Nice quarter and outlook. You know Ed, a lot of the chemical companies thus far has kind of painted an exciting picture for the first half of 25 and and maybe 25 is total. As you've noted your, your end markets are different. So I know it's a little bit early to get specific outlook for 2025, but.
Antonella B Franzen (SVP & CFO)
Could you sort of give us?
Chris McRae (Investor Relations)
Your thoughts on how maybe semiconductor electronics and and some of the water and industrial businesses shape up for next year? Yeah, I'll let Lori walk you through some detail. I just, I don't mean this flippantly, but to make a comment. We've really worked the portfolio very differently than we were 567 years ago away from the chemical company into a multi industrial. And I think you see that in a lot of our end markets that we're in right now. But I'll let Marie maybe walk you through some puts and takes.
Antonella B Franzen (SVP & CFO)
Yeah, no, there's no.
Lori Koch (CEO)
Significant changes from the commentary we had provided on the last call about some initial 2525 expectations. So from you know an electronics perspective, we continue to expect Semi to growth to accelerate really driven by the AI and the new facts coming online. And just a reminder that the memory markets and some of the more mature technology markets haven't recovered yet. So that recovery is on the come as we head into 2025. There's also on the interconnect side, continued utilization in the PCB space, especially as you look for a refresh cycle within, within the AI space and consumer devices within W&P. We expect Timex Healthcare to continue to recover. As we had mentioned, we saw a sequential list from Q2 to Q3 of 10%. We expect to further sequential list into Q4 and then more normalized buying patterns as we head into 2025. And we expect a more normalized demand environment within Arabic and water, we'll expect to continue to recover as well. So changes from what we said last year or last last quarter with respect to 2025. Great. Thank you.
Operator (Operator)
Your next question comes from Patrick Cunningham of Citi. Please go ahead.
Chris McRae (Investor Relations)
Hi, good morning. Are you still anticipating price givebacks and shelter in four Q and maybe into 2025 and what was the dynamic between positive growth and commercial construction versus resi and any sort of early view on a broad based resi recovery into next year?
Antonella B Franzen (SVP & CFO)
Yeah. Given what we saw in pricing this year and as we're exiting the year, you would expect that you would have some price give back carry forward going into 2025. But I think the one thing that you got to keep in mind is we've still got to take a deep look at where our faults next year relative to raw logistics and utilities. And that will determine if there's any pluses or minuses associated with that. So I would expect that as we go forward. In terms of the resi as a construction markets, you know they are we are seeing a little bit less activity than what we originally anticipated. As Laurie mentioned earlier, when you look at kind of rates and where they are, there was a few rate cuts that were expected in 2024. I mean we had one, but we had 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, you know, low single digits and activity. And I think that that's kind of predicated on some additional rate cuts coming, but we'll see what happens.
Chris McRae (Investor Relations)
That that that our current midpoint of guidance in the fourth quarter assumes slightly less price give back than we saw during the third quarter. Understood, very helpful. And then just on consolidated WNP and it seems you'll have easier comps on water medical packaging. Does most of that sequential EBITDA decline come from, you know more typical seasonality on shelter and safety? And if you could remind us, what was the 25,000,000 discrete, you know, impact from last year and that won't repeat this year, just for clarification.
Antonella B Franzen (SVP & CFO)
Yes. So the Q3 to Q4 and WNP would be your typical seasonality. Q3 tends to be the highest quarter and comes down a bit in Q4A big piece of that would be related to the shelter business as we kind of go into the winter months for WNP explicitly we did call out about 25,000,000 of one time items last year that were related to you know 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 15,000,000 wasn't incorporated.
Chris McRae (Investor Relations)
Great. Thank you.
Operator (Operator)
Your next question comes from John McNulty of BMO Capital Markets. Please go ahead.
Chris McRae (Investor Relations)
Hi, good morning. This is Bhavesh Ludhaya 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 also investing in kind of like a homegrown domestic supply chain. You mentioned gaining some market share, not sure if that was in China as well, but but overall, how do you see this landscape developing over the next few years?
Lori Koch (CEO)
Yeah, we can. Can you have a nice position within China. I think our exposure in China within the 70 spaces outside versus some of them here. So we're about 30% China where some of the peers I think are less than that. So you're seeing that, that disparity play out nicely in our numbers as a lot of the bills 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 position with the global OEM that are in China that are favoring our China results as well.
Operator (Operator)
Thank you. Your next question comes from Aaron Viswanathan of RBC Capital Markets. Please go ahead.
Chris McRae (Investor Relations)
Great. Thanks for taking my question. Just just wanted to go back to maybe some initial thoughts on 25. So you know, this year you, you showed looks like you're showing me a pretty good mid teens EBITDA growth in E and I, although you have been that's been offset slightly by some of that water destocking and headwinds as you look into next year, maybe if you adjust for the pre buy that you saw on E and I would that kind of decrease maybe to like a high single digit rate and then but maybe you could see some recovery in WNP. And so overall you still expect, you know, maybe mid, mid high single digit EBITDA growth for next year?
Antonella B Franzen (SVP & CFO)
Yeah. So that's where it provided, you know some color on the top line, that's where our expectations are. I would say it's a bit too early to start commenting on EBITDA growth for for next year. We'll give more detailed guidance as we get home to 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.
Chris McRae (Investor Relations)
OK, I understand. And just on that note, then assuming that you do see some continued margin growth, actually think about free cash flow and maybe how you deploy that. You know, are there any significant extra CapEx projects in in the pipeline or will you likely be using most of your cash for standing up to businesses and or could you potentially deploy more and and return more to shareholders? Thanks.
Antonella B Franzen (SVP & CFO)
Yeah. So as we're talking about free cash flow conversion, as we 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 know, you know, 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 you know 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, the majority of cash will be used for our separation costs. We did know last quarter on the fall, 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. Great.
Chris McRae (Investor Relations)
Thanks.
Operator (Operator)
Your next question comes from Mike Leithead of Barclays. Please go ahead.
Chris McRae (Investor Relations)
Great. Thanks. Good morning, team. I think DuPont filed an ITC complaint last month around illegal tie back imports. I guess first is the issue you're seeing somebody else claiming and naming something to be tie back and it's not or is it name something else and the issue is they're using Dupont's proprietary technology? And then just more broadly, how is the tie back business performing today?
Lori Koch (CEO)
Yeah. So you know, the ICC filing speaks for itself, will continue to defend our patents and our trade secrets. So that's, you know, really all we want to say on that point. The Tyvek business from a end market performance continues to recover nicely. You know, a lot of this, the headwinds that we had 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 the read on that we're seeing there.
Chris McRae (Investor Relations)
Great. Thank you.
Operator (Operator)
And your last question comes from Steve Byrne of Bank of America. Please go ahead.
Chris McRae (Investor Relations)
Yes, I'd like to ask another one about that ITC complaint. When did you start to see these, these competing versions of Tyvek coming into the States? And is, is this across your broad platform? Is this, is this, you know, Tyvek house wrap, is this packaging, is this, you know, PPE, is it all of them and you're seeing this, this, you know, this competing version? When did this happen? And and just just curious on on the timing of this.
Lori Koch (CEO)
Yeah. So I mean, we had mentioned that that the filing speaks for itself. It's a public filing that can be read. So, you know, we started seeing it in, you know, in recent months, the release of our name in addition to some trade sequence infringement we were seeing, which is what led us to the filing and.
Chris McRae (Investor Relations)
Then maybe just one more across new DuPont, any any new products and development that you know you could be enrolling that could drive growth in new DuPont other than just the recovery and end markets?
Lori Koch (CEO)
Yeah. So I had mentioned earlier that the really nice win that we saw on the battery adhesive space was one of the largest European OEM. So that that it was a nice win for us that can use to to solidify our position in the Ed space. We have a really nice growing position like in healthcare. So we closed the Donatelle acquisition in August. We were actually out there as vicious teams and with the board visiting the site. And we're even more encouraged by what we saw with respect to cross selling with some of the larger medical devices there as well as leveraging the really high end machining capabilities that Donatelle has to not only our medical packaging businesses that are other parts that this is in DuPont portfolio. So really encouraged that that space will continue to be a nice first driver for us.
Chris McRae (Investor Relations)
Thank you.
Operator (Operator)
There are no more questions. I will now turn the conference back over to Chris McRae for closing remarks.
Chris McRae (Investor Relations)
Thank you everyone for joining the call and for your reference. A copy of the transcript will be posted on our website. This concludes the call. Thank you.
Operator (Operator)
Thank you all for joining. You may now disconnect.
Other transcripts: Q2 FY26 transcript · Q1 FY26 transcript · Q3 FY25 transcript · Q2 FY25 transcript · Q1 FY25 transcript · Q2 FY24 transcript
All DD earnings · Back to DD overview
Transcript produced by Signals.AI from the company's own earnings call audio; speech recognition can mishear a word. Not personalized investment advice.