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    Dupont De Nemours Inc (DD)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$72.50Last close (Apr 30, 2024)
    Post-Earnings Price$76.92Open (May 1, 2024)
    Price Change
    $4.42(+6.10%)

    What went well

    • DuPont's Electronics & Industrial (E&I) segment is experiencing strong growth, with volumes in Semiconductor Technologies up 10% year-over-year due to recovering semiconductor market demand and normalization of customer inventory levels. Interconnect Solutions also sees positive momentum with a second consecutive quarter of year-over-year volume growth. E&I sales in China grew 15% in the first quarter. , ,
    • The company can support further growth in the electronics business without significant capital expenditures, as the electronics segment is not capital intensive and manufacturing capacity can be upgraded quickly and modularly.
    • DuPont expects to return to volume growth in the second half of 2024, with improvements in key segments and reduced inventory destocking. The company anticipates low to mid-single-digit volume growth in 2025 in the Water & Protection segment. ,

    What went wrong

    • Water & Protection segment volumes have been flat over the past three years, with recent losses offsetting earlier gains, and significant growth is not expected until 2025, indicating near-term uncertainty in this segment.
    • DuPont faces ongoing PFAS litigation with potential settlements expected in the coming years, which could result in financial liabilities impacting the company's performance.
    • Despite exceeding first-quarter expectations, DuPont only raised its full-year guidance by the amount of the Q1 beat, suggesting limited confidence in stronger growth in the second half of the year.

    Q&A Summary

    1. Electronics Growth and AI Impact
      Q: Will AI structurally raise growth rates in electronics?
      A: Ed Breen explained that their data center revenue is about $700 million, with $250 million being AI-specific and growing over 20%. He anticipates that the E&I business could grow high single digits in 2025 due to the AI super cycle, which will also enhance margins.

    2. Margin Outlook and Incrementals
      Q: What is the outlook for margins and incrementals as volumes recover?
      A: Ed Breen stated they expect to retain most of the $150 million in cost savings, with incrementals of 56% in the second half. Lori Koch added that second-half margins are projected to improve by nearly 200 basis points, reaching the low 25% range.

    3. Capital Allocation: Buybacks vs. M&A
      Q: What are your plans for buybacks versus M&A?
      A: Ed Breen noted they are not planning any acquisitions this year but may consider tuck-in acquisitions in healthcare. They plan to complete another $500 million ASR this year and remain open to share repurchases depending on the stock price.

    4. PFAS Litigation Update
      Q: Can you provide an update on PFAS litigation?
      A: Ed Breen mentioned that the next settlement likely involves the Stade AG cases in 2025. He highlighted that their exposure is 3–7% of the total PFAS liability, with DuPont responsible for one-third of that amount.

    5. China Recovery and Sales Outlook
      Q: What is the outlook for China recovery and sales?
      A: Lori Koch reported 3% growth in China in Q1, driven by a 15% increase in E&I. They expect overall China sales to be flat for the year due to currency headwinds but anticipate volume improvements as the year progresses.

    6. Price-Cost Dynamics
      Q: Any updates on price-cost spread expectations?
      A: Lori Koch stated they had better-than-expected price-cost spread in Q1, contributing to the beat, and they expect this favorability to hold for the year.

    7. W&P Margins Outlook
      Q: How do you view long-term margins in Water & Protection?
      A: Lori Koch reaffirmed the margin target of 27% for W&P. Margins have been pressured due to lower volumes but are expected to improve by about 100 basis points in the second half as volumes recover.

    8. Spectrum Performance
      Q: How is Spectrum performing relative to expectations?
      A: Ed Breen said Spectrum is performing as planned, with a significant ramp-up with a key medical device customer. The healthcare business, including Spectrum, Tyvek medical packaging, and Liveo, now represents 10% of the company.

    9. Water Solutions Destocking in China
      Q: What caused the inventory destocking in China's Water Solutions?
      A: Ed Breen explained that industrial slowdown led distributors to reduce inventories over 5–6 months. They expect orders to pick up around June, attributing the destocking to macroeconomic factors.

    10. Free Cash Flow Conversion
      Q: What are your free cash flow conversion expectations for 2024?
      A: Lori Koch expects to achieve around 90% conversion for the year. Q1 was at 86%, and while Q2 will dip due to a $200 million interest payment, overall performance is strong.

    11. Adhesives and Tedlar Performance
      Q: How did adhesives and Tedlar perform amidst industrial softness?
      A: Lori Koch reported continued strength in EV auto, which was up double digits in the quarter and expected to remain strong. Strong volumes in Tedlar for photovoltaics contributed to 1% organic growth.

    12. Price Declines in Electronics
      Q: Can you maintain pricing in electronics over time?
      A: Ed Breen noted that typical price declines are about 1%, but with advanced nodes and AI, they expect better pricing and margin improvement due to favorable mix.

    13. ICS and Market Share
      Q: How is ICS content exposure affecting recovery?
      A: Ed Breen stated that PCB utilization rates are improving from the mid-40s to the mid-50s and are expected to reach the low 60% range in the second half. Lori Koch mentioned share gains in premium smartphones and other devices, leading to sustained volume lifts.

    14. Fluoropolymer Concerns with Kalrez and Tedlar
      Q: Are customers avoiding fluoropolymer products like Kalrez and Tedlar?
      A: Lori Koch indicated no customer concerns; in fact, Tedlar being PFAS-free presents opportunities to gain share in the photovoltaic space.

    15. Return to Volume Growth
      Q: Will volumes return to growth in the second half?
      A: Lori Koch confirmed they expect a return to volume growth in the second half, with growth ramping from Q3 to Q4 due to easier comparisons.

    16. Capacity Expansion in Electronics
      Q: Any CapEx needs for expanding electronics capacity?
      A: Ed Breen stated that E&I is not asset-heavy and doesn't require significant CapEx; expansions can be modular and executed quickly, focusing mainly on state-of-the-art testing equipment.

    17. Sequential EBITDA Expectations
      Q: Has anything changed in the sequential EBITDA expectations?
      A: Lori Koch said that overdelivery in Q1 muted the sequential ramp, but overall, there is upside to their expectations, with EBITDA increasing from $682 million in Q1 to $710 million in Q2.

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