Dupont De Nemours Inc

NYSE:DD

Earnings Call Transcript 2021-Q4

[Operator]

Good day and thank you for standing by. Welcome to the Fourth Quarter 2021 Earnings Call. [Operator Instructions] At this time, I would now like to hand the conference over to your speaker today, Pat Fitzgerald from Investor Relations.

[Pat Fitzgerald, Investor Relations]

Good morning and thank you for joining us for DuPont’s fourth quarter 2021 earnings conference call. We are making this call available to investors and media via webcast. We have prepared slides to supplement our comments during this conference call. These slides are posted on the Investor Relations section of DuPont’s website and through the link to our webcast. Joining me on the call today are Ed Breen, Chief Executive Officer and Lori Koch, Chief Financial Officer. Please read the forward-looking statement disclaimer contained in the slides.

During our call, we will make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risk and uncertainty, our actual performance and results may differ materially from our forward-looking statements. Our 2020 Form 10-K, as 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 exclude significant items. We will also refer to other non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and posted to the Investor page of our website.

I will now turn the call over to Ed.

[Ed Breen, Chief Executive Officer]

Thanks, Pat and good morning everyone. Thank you for joining our fourth quarter earnings call. In addition to discussing our fourth quarter results and outlook for 2022, this morning, I will also comment on the progress of both our intended acquisition of Rogers and our process for divesting a majority of the M&M segment.

Our fourth quarter results were highlighted by 6% volume gains, including a 9% increase in the E&I segment and a 12% increase in W&P. M&M delivered top line results ahead of expectations, including volumes well ahead of global auto builds in the quarter. Customer demand was broad-based across the portfolio, led by greater than 20% volume growth in semiconductor technologies and high-teens volume growth in water. Our top line performance also reflects significant pricing actions we took to offset $250 million of raw material inflation in the quarter. We are seeing increases in all businesses with about three-fourths of the impact in M&M. Our teams have done an outstanding job monitoring our input costs and quickly translating that into price increases to remain price cost neutral for the year.

We are taking additional actions as we work to offset logistics costs, which during the fourth quarter, were a $50 million headwind, mostly in W&P. I want to recognize and thank our employees who show up everyday in our factories to keep our lines running and supplying the necessary products and solutions to deliver results that we reported today. Their unwavering commitment in the face of a relentless pandemic, ongoing supply chain disruptions and logistic challenges deserves our gratitude.

Turning to Slide 3, I will provide an update on our portfolio transformation and we will review how our focus on those strategic actions, balanced capital allocation and innovation-led growth position us extremely well heading into 2022 to continue unlocking value for our shareholders, innovating for our customers and creating opportunity for our employees. In November, we announced our planned acquisition of Rogers Corporation as well as our intent to divest a significant portion of our M&M segment. These portfolio actions will position DuPont among the top of the multi-industrial [indiscernible] with top quartile revenue growth, EBITDA margins and low cyclicality all hallmarks of top performing companies.

Going forward, our business will be centered around the secular high growth pillars of electronics, water, industrial technologies, protection and next generation automotive. Our teams see strong customer demand across these pillars driven by mega trends such as the transition to hybrid and electric vehicles, clean water sustainability and the move to 5G. The preparation for the Rogers acquisition is well underway and on track for it in the second quarter closing. Several significant milestones in the pay after closing have already been achieved. In mid-December, the waiting period under the HSR expired here in the U.S. and regulatory processes in other parts of the world are underway. Just 2 weeks ago, on January 25, Rogers’ shareholders voted to approve the transaction. Excitement is building for combining this business with our portfolio of electronics offerings, which includes our recent acquisition of Laird Performance Materials.

Our teams are anxious to get to the point where we could start working with the application engineers, R&D and sales teams at Rogers to map out the revenue synergy opportunities to the areas of next generation auto, 5G infrastructure, defense electronics and clean energy. Combined with Laird, these acquisitions increased the total addressable market of our E&I business by approximately 50% and we are keeping our penetration into markets such as electric vehicles, consumer electronics and industrial technologies. A lot of work has been done to plan for the cost synergies associated with Rogers acquisition, which we expect to be approximately $150 million. We also have line of sight to about $63 million of cost synergies from the Laird acquisition from last summer which is ahead of our target. We are looking across both of the acquisitions as well as our existing E&I business to maximize our synergies through G&A and footprint optimization, along with procurement savings.

We also announced that we have initiated a process to divest the majority of the M&M segment. Our work here is also on track and progressing well. As I had expected, there is a significant level of interest in this market leading asset and I am pleased with how the process is progressing. Our target is to have a signed agreement by the end of the first quarter with the closing in the fourth quarter of this year. In addition to positioning the company as a top performing multi-industrial, these transactions will enable us to transform the portfolio, while maintaining a strong balance sheet and continuing with a balanced financial policy.

Today, we announced that our Board has approved a 10% per share increase to our dividend which is consistent with our commitment for a dividend payout in the range of 35% to 45% and to grow the dividend annually in line with earnings. In addition, our Board has also authorized a new $1 billion share repurchase program which enables us to continue returning value to our shareholders as we expect to complete the remaining $375 million under our existing authorization in the first quarter ahead of the planned expiration.

After paying down the financing associated with the Rogers acquisition, we expect to deploy a significant portion of the remaining M&M proceeds to do further M&A to build on our core areas of strength as well as additional share repurchases. We will also generate strong cash flow this year in addition to the $240 million gross proceeds from the biomaterials divestiture, which is the last of our non-core divestitures. Our strong balance sheet positions us well to deliver for all stakeholders through investment in our business, dividends, share repurchases and additional M&A.

Finally, we will deliver shareholder value through staying focused on innovation, which is at the core of DuPont. The 6% volume growth we delivered in the quarter and 10% volume growth for the year benchmarks well against our top peers. For the quarter, our volume gains, excluding M&M segment were up 10%. These results are proof point that the work of our R&D teams and application engineers who spent countless hours working alongside our customers, solving their most complex challenges is an advantage in the marketplace.

Our focus on innovation is also at the core of our ESG strategy through both innovation and our own processes to reduce greenhouse gas emissions at our factories as well as new product innovations that support and advance our customer sustainability goals in areas such as clean water, clean energy, electric vehicles and connectivity. The levers of portfolio transformation, balanced capital allocation, and innovation led growth, is a powerful combination to create long-term shareholder value at DuPont.

With that, let me turn it over to Lori to discuss the details of the quarter as well as our financial outlook.

[Lori Koch, Chief Financial Officer]

Thanks, Ed and good morning, everyone. As Ed mentioned, customer demand in our key end markets remained strong in the fourth quarter. We continue to face unprecedented global supply chain challenges and rising inflation. However, the swift pricing actions that we continue to implement are benefiting top line performance and maintaining earnings on a dollars basis. These factors, along with our intense focus on execution, contributed to net sales, operating EBITDA and adjusted EPS results above our guidance. In addition, we had solid cash flow generation and returned over $650 million in capital to shareholders during the quarter through $500 million in share repurchases and over $150 million in dividends. For the year, we returned more than $2.7 billion in capital to shareholders through $2.1 billion in share repurchases and $600 million in dividends.

Turning to Slide 4, net sales of $4.3 billion were up 14% versus the fourth quarter of 2020, up 13% on an organic basis. Organic sales growth consists of 7% price gains, reflecting the continued actions we are taking to address inflationary pressure and 6% volume growth. A 2% portfolio tailwind reflects the net impact of strong top line results related to our acquisition of Laird and headwinds from non-core divestitures. Currency was a 1% headwind in the quarter.

Overall, sales growth was broad-based and reflects double-digit organic growth in all four regions and high single-digit to double-digit organic growth in all three reporting segments. From an earnings perspective, we reported fourth quarter operating EBITDA of $973 million and adjusted EPS of $1.08 per share, up 5% and 54% respectively from the year ago period. Our incremental margin in the quarter was pressured by price costs and logistics. Net of these impacts, our incremental margin was about 33% in 4Q.

Ed mentioned earlier, the pricing actions that we took throughout the year, resulting in us offsetting about $250 million of raw material inflation in the quarter and we also ended the year price cost neutral. The raw material inflation coupled with about $50 million of higher logistics cost in the quarter were headwinds to our margins. I will provide more detail of the margin compression we saw in the quarter in a few minutes.

From a segment perspective, E&I delivered 10% operating EBITDA growth on volume gains and earnings uplift from Laird, which more than offset raw material and logistics segments as well as startup costs associated with our Kapton capacity expansion. In W&P, operating EBITDA increased 7% as pricing gains and volume growth more than offset higher raw material and logistics cost. We will remain disciplined in our pricing approach as we move into 2022 to address continued inflation. M&M operating EBITDA declined 3% as net pricing gains were more than offset by lower equity earnings due to higher natural gas costs in Europe. In the quarter, cash flow from operating activities was $621 million and CapEx was $184 million, resulting in free cash flow of $437 million. Free cash flow conversion was 100%. In addition, we received gross proceeds of about $500 million during the quarter from our Clean Technologies divestiture, which was closed at the end of December.

Before we go to the next slide, I would also like to make a few comments on our full year performance. Full year net sales of $16.7 billion grew 16% and were up 14% on an organic basis. The organic growth consists of a 10% increase in volume and a 4% increase in price. Organic sales growth reflects double-digit growth in all four regions and in all three reporting segments. Further, all 9 of our business lines had organic growth in 2021 and 7 of the 9 business lines grew double-digits. The 10% increase in volume for the year consists of gains in all 3 reporting segments and within all 9 business lines, reflecting robust global customer demand in secular growth areas such as electronics and water, along with recovery in end markets negatively impacted by the pandemic in prior year, such as automotive, commercial construction and select industrial markets.

Full year operating EBITDA of $4.2 billion increased 21%, reflecting 1.3x operating leverage, operating EBITDA margin expansion of about 100 basis points, an incremental margin of 32%. Operating EBITDA increased for all three reporting segments during the year. Full year adjusted EPS of $4.30 per share was up about 95% from prior year on higher segment earnings, a lower share count and lower interest expense.

Slide 5 shows the impact that price cost inflation had on our operating EBITDA margin in the fourth quarter. As costs continued to rise throughout 2021, our fourth quarter results reflect the largest headwind to quarterly margins for the year. In total, pricing actions fully offset about $250 million of raw material inflation, which was higher than our expectations for input costs coming into the quarter and mainly in the M&M segment. While our pricing actions have enabled us to maintain earnings, the price cost inflation resulted in a significant headwind of about 150 basis points to operating EBITDA margins versus the year ago period. Additionally, higher logistics cost of about $50 million in the quarter resulted in a margin headwind of about 120 basis points. Offsetting the headwinds from raws and logistics was a 70 basis point improvement in operating EBITDA margin, which includes volume growth in E&I and W&P and the benefit associated with the Laird acquisition. If you exclude the price cost and logistics headwinds in the quarter on an ex-M&M segment basis, our operating EBITDA margin was above 26.5% in the fourth quarter, further illustrating our strong performance and putting an emphasis on our planned portfolio actions.

Turning to Slide 6, which provides more detail on the year-over-year changes in the net sales for the quarter. As I mentioned earlier, organic sales growth of 13% during the quarter consist of 7% pricing gains and 6% volume growth. In E&I volume gains delivered 9% organic sales growth for the segment led by higher volumes in semiconductor technologies of more than 20%. Semiconductor technologies demand was driven by the ongoing transition to more advanced node technologies resulting from growth in electronics mega trends. Semi tech was up mid-teens for the full year and we expect to continue to outpace MSI growth as we head into 2022. We are seeing more investments in semiconductor capacity, which we expect to be a positive for us in the long-term.

Industrial Solutions was up mid-teens during the quarter on volume growth, which was driven by ongoing strength for Caleres and Vesta [ph] within electronics and industrial end markets, along with strong demand for medical silicones and biopharma and healthcare applications. Organic growth for Industrial Solutions was up mid-teens for the full year as well. As expected, organic sales growth for Interconnect Solutions was down in the quarter, reflecting the anticipated impact of the shift in demand related to premium next-generation smartphones to the first half of 2021, along with softness in automotive end-markets related to the semi chip shortage. For the full year, organic SaaS growth for our Interconnect Solutions was up mid single-digits and we expect to return to a more traditional seasonality in 2022.

In addition, we recently completed our Kapton expansion project here in the U.S., which expands our production of polyamide film and flexible circuit board materials. We will begin qualifying materials in the first half of this year for high value applications, which will start to accelerate in the second half of 2022. For W&P, 17% organic sales growth during the quarter consisted of a 12% increase in volume, including volume gains in all three businesses and 5% pricing gains. Sales gains were led by high-teens organic growth in Safety Solutions as continued recovery in industrial end markets resulted in significant volume improvement for Nomex and Kevlar air and mid fibers.

Within Water Solutions, high-teens organic sales growth reflects strong global demand for water technologies, primarily in industrial and desalination markets. Shelter Solutions sales increased on mid-teens organic growth, driven by continued strength in North American residential construction and continued recovery in commercial construction led by higher demand for quarry and services. Year-over-year pricing gains of 5% during the quarter relate primarily to actions taken in safety and shelter in response to raw material inflation and also reflect sequential price improvement from all three business lines and W&P versus the third quarter.

For the full year, W&P delivered 10% organic sales growth on 8% volume improvement and 2% pricing gains. Safety and Shelter Solutions were up low double digits organically, and Water Solutions was up mid-single digits for the year. The global demand for clean water technologies remained strong and expanding our capacity remains a priority for us. For M&M, 13% organic sales growth during the quarter was driven by a 16% increase in price, offset slightly by a 3% decline in volumes. M&M within the segment, within our portfolio most significantly impacted by raw material inflation. The 60% local price increase during the quarter reflects continued actions taken to offset higher raw material and logistics costs. Volume declines reflect softness in global auto production due to supply constraints, primarily the semiconductor chip shortage. For the year, M&M organic sales growth was 24% on 12% higher volume and 12% pricing gains. All three business lines within M&M delivered organic sales growth of greater than 20% for the full year.

Turning to Slide 7, adjusted EPS of $1.08 per share was up 54% from $0.70 per share in the year ago period. Higher volumes and strong results from Laird more than offset higher logistics costs and other operating items such as cat time start-up costs. Below-the-line items continue to benefit our EPS results compared to the year ago period, primarily a lower share count. Lower interest expense was mainly offset by a higher tax rate. For full year 2022, we expect our base tax rate to be in the range of 21% to 23%.

Let me close with a few comments on our financial outlook on Slide 8. We expect continued top line strength across the portfolio in 2022, led by ongoing strength in semiconductors as the industry continues to operate near capacity to meet demand, and consistent demand in areas such as industrial technologies, smartphone sales, housing starts and water filtration. Our plan assumes these market dynamics will lead to solid volume growth in 2022.

In 2022, we are planning that raw material and logistics costs will remain at elevated levels with approximately $600 million of year-over-year headwinds versus 2021, primarily in the first half. Once again, the raw material inflation will be predominantly in our M&M segment. In response, we are implementing more price increases in all businesses, which will enable us to offset raw material and logistics costs on a full year basis, but we will lag in the first quarter. We expect our operating EBITDA margins to improve throughout 2022, driven by volume growth, productivity, acquisition synergies and full implementation of pricing actions.

In the first quarter, we expect net sales between $4.2 billion and $4.3 billion and operating EBITDA between $940 million and $980 million. At the midpoint of our guidance range, we are anticipating first quarter operating EBITDA margins to be about flat sequentially with the fourth quarter 2021. We expect sequential improvement in E&I and M&M to be offset by W&P as manufacturing cost increases stemming from the Omicron variant and ongoing logistics cost headwinds lead to sequential margin decline.

For the full year, net sales of $17.4 billion to $17.8 billion and operating EBITDA of approximately $4.4 billion at the midpoint reflects volume growth and acceleration of additional pricing gains throughout the year to offset the impact of both raw material and logistics cost increases. We expect operating EBITDA margin in the back half of 2022 to return to more normalized levels as impacts from the Omicron variance subsides as well as gains from volume improvement, productivity actions, acquisition synergies and full implementation of price increases.

In closing, I want to note that our guidance is based on the current DuPont portfolio today, including the businesses and scope of the planned M&M divestiture. Once we sign a deal, the in-scope M&M businesses will move to discontinued operations, and we will reset the guidance for remaining DuPont.

With that, let me turn the call back to Ed.

[Ed Breen, Chief Executive Officer]

Thanks, Lori. Let me close by summarizing why I am excited about 2022 at DuPont. Our results demonstrate that our businesses deliver the solutions our customers demand and a tight supply chain and challenging logistics environment, we delivered 6% volume growth well ahead of our expectations coming into the quarter. Our teams continue to work closely with our customers to understand their complex material challenges and to win business by delivering innovative and sustainable solutions. You can also see our teams are managing every lever within our control. This is evident through our delivery of pricing gains to offset every dollar of raw material inflation in 2021, and these actions continue into 2022.

In addition to having our fundamentals in place, we are on track to complete a few substantial steps in the transformation of DuPont in 2022 with the planned Rogers acquisition and the M&M divestiture. These transactions as well as the potential for additional M&A in strategic areas, position DuPont as a premier multi-industrial company, focused in the areas of electronics, water, industrial technologies, protection and next-generation auto.

And finally, because of our ability to complete this transformation while maintaining a strong balance sheet, we will be in a position to generate value for all stakeholders through organic and inorganic investment in our businesses and by staying committed to our dividend and share repurchases as we announced today. I look forward to providing you updates on each of these areas as we progress through 2022.

With that, let me turn it to Pat to open the Q&A.

[Pat Fitzgerald, Investor Relations]

Thanks, Ed. Before we move to the Q&A portion of our call, I would like to remind you that our forward-looking statements apply to both our prepared remarks and the following Q&A. [Operator Instructions] Operator, please provide the Q&A instructions.

[Operator]

[Operator Instructions] Your first question comes from the line of Jeff Sprague with Vertical Research.

[Jeff Sprague, Vertical Research]

Thank you. Good morning, everyone. Good morning, Ed and Lori.

[Ed Breen, Chief Executive Officer]

Good morning.

[Jeff Sprague, Vertical Research]

Two questions for me. First, just on M&M. Ed, is the tenor of the discussion around valuation still in the ballpark of what you were thinking back in November, kind of given the market turmoil that we’re looking at?

[Ed Breen, Chief Executive Officer]

Yes. No change to the comment I made last time, feeling very good about the process. Multiple people very interested in the asset, and we’re moving along as quickly as we can here. We will have a deal to announce before the end of the first quarter.

[Jeff Sprague, Vertical Research]

Great. And then just thinking about the portfolio after this, I have done a lot of the benchmarking work myself and the company does look a lot different when this is behind you. But I just wonder if you could give us a sense of what you think the organic growth profile of the company is once you get these two moves done. And should we be expecting kind of other portfolio moves? Or we’re moving more into maybe, I don’t know, maybe bolt-on acquisition mode with a focus on organic growth perhaps.

[Ed Breen, Chief Executive Officer]

Yes. Jeff, a couple of comments. And by the way, I think it really does transform the portfolio into a premier multi-industrial. If you look at just the fourth quarter results, if you take M&M out, the portfolio grew volume 10%. It was 6% with M&M in it. And by the way, if you look at the EBITDA margin profile, it would improve by 190 basis points with M&M out. So as we said before, with this move we’re making, we’re definitely going to improve our top line and the stability of it. We’re going to improve our EBITDA margins, and we’re clearly significantly reducing cyclicality M&M portfolio. And by the way, I think in Lori’s comments or my comments, 70% of our raw material increases this year were in the M&M segment. By the way, we’re getting significant price and covering it, but somewhere down the road is commodity, cost online, the pricing unwinds. And if it was in the DuPont portfolio, by the way, our organic growth rate little care for a year. even though the M&M business is a phenomenal business and a great cash generator. So it really fixes a lot of things and have been, of course, adding Laird and Rogers by the way, the consistency of those secular end markets that we’re adding in are very nice. And I give you an overall comment. When you look at the pie chart on a new DuPont after these moves are made, by the way and assuming maybe another key acquisition happens that we add into one of these secular areas we talked about our five areas, you have about 45% of the portfolio that outgrows GDP and about 55% of the portfolio probably somewhere around GDP. So we are really very much tweaking that end market secular exposure we have to have a really consistent nice higher organic growth rate in the company.

[Jeff Sprague, Vertical Research]

Great. Thank you.

[Ed Breen, Chief Executive Officer]

Bye, Jeff.

[Operator]

Your next question comes from Scott Davis with Melius Research.

[Scott Davis, Melius Research]

Hi, good morning, Ed, Lori and Pat.

[Ed Breen, Chief Executive Officer]

Good morning, Scott.

[Lori Koch, Chief Financial Officer]

Good morning.

[Scott Davis, Melius Research]

Good luck with M&M. Looks like we’re going to get an announcement in another couple of months. But I want to switch over to W&P, because it seems to be back on track, pretty big core growth numbers even excluding price. What was it your ability to meet customer demand in the quarter that changed? Or the actual customer orders go up substantially in the quarter? And is this business just a little lumpier than perhaps we may think it is? And you’re going to have some ebbs and flows.

[Ed Breen, Chief Executive Officer]

Yes. A couple of things, Scott. First of all, the order rates have continued to go up. In the last couple of weeks, we’ve had really nice order input in the business. So that’s continuing on a nice trend, and it’s almost every one of those end markets that Lori touched on in her prepared remarks. But we also, in the quarter, did a nice job getting through some of our, call it, past due backlog. By the way, one of the areas, if you all remember this quarter, we had 19% growth in the water business, and the two quarters before that, we highlighted to you that we were having a tough time getting some shipments out the door in the water business. And we had low single-digit growth in the – if you combine the second and third quarter, and it obviously should have been higher in the second and third quarter. So we really got a lot of the logistics cleaned up, the port’s cleaned up a little bit in some of the areas where we ship our water products, and we got 19%. So we flushed out a lot of that second and third quarter. Having said that, the water orders coming in still look very robust. So we’re feeling good about what we’re getting out the door to satisfy our customers and the order intake still coming into the company. So, on the point I made a minute ago to Jeff, you combined W&P and E&I, which will be the new portfolio, 10% volume growth in the quarter on top of us getting pricing.

[Scott Davis, Melius Research]

Right. And Ed is the strategy to price around raws or price and raws plus logistics?

[Ed Breen, Chief Executive Officer]

Yes. Scott, it’s to get both. What I think happened to everybody. You see your input costs on the raws, and we’ve been getting pricing, like we said, we covered it 100% in 2021. But the logistics costs, especially ocean freight, just started going bonkers around October, November, kept going up in December. And it wasn’t even up and staying up. It was continuing to go up and some of the ocean freight is literally up 700%, 800%. It’s crazy. So I think everyone is still chasing that, and that’s really a big part of our story in the first quarter in W&P, where we’re implementing more pricing – well, by the way, we’re implementing more pricing actions across the portfolio, but we’re really going at it on the W&P side, because they have more of our logistics costs than the other two businesses. And we’re putting through more pricing there. So as we get into second quarter for W&P will start into see margin improvement keep building as we go through the year.

[Scott Davis, Melius Research]

Okay, helpful. Good luck, everybody.

[Operator]

And your next question comes from the line of Steve Tusa with JPMorgan.

[Steve Tusa, JPMorgan]

Hi, good morning, guys.

[Lori Koch, Chief Financial Officer]

Good morning.

[Ed Breen, Chief Executive Officer]

Hi, Steve, good morning.

[Steve Tusa, JPMorgan]

Are you still thinking kind of the same – I know the market has been a little bit volatile, but any update on your expectation for the multiple for M&M ultimately?

[Ed Breen, Chief Executive Officer]

Yes. I stick with my comments that I made last time. I think when I made the comments, our 2021 multiple was a little shy of 11%, and I said we will get more than that for this asset, but I think our multiple now is still a little shy of 11% in 2022. And I stick with my comment that I made last time.

[Steve Tusa, JPMorgan]

Great. And then just the kind of price cost dynamics first half to second half, I am sure that’s part of the kind of seasonal ramp. I know it’s a little bit tough to tease out what normal seasonality here is for this new portfolio, but maybe just put that in the context of the 1Q EBITDA guide, if you could? I’m sure that’s an aspect.

[Lori Koch, Chief Financial Officer]

Yes. So in the first quarter, we still see logistics as a headwind to earnings. They are probably in the same range that we called out for the fourth quarter of $50 million. So as the year goes on, we will expect to offset that to land neutral on a full year basis on those raw material escalation and logistics. So that’s a piece of our sequential margin improvement as the year goes on kind of getting back into more normal patterns in the second half. Another benefit that we will see as the year goes on, it’s really just the volume drift and so we will expect sales to increase coming out of Q1 to get to the full year guide of a midpoint of $17.6 billion. And beyond that, just the lift that we’re expecting around productivity as we enact and productivity actions get more synergies out of the layer transaction. So we’re doing really well there. We’ve actually upped our expectations slightly from $60 million when we announced the deal. So now we’re targeting closer to $63 million from the Laid synergies. So all of those things combined are what’s giving us confidence in the margin ramp coming out of Q1.

[Steve Tusa, JPMorgan]

Great. Alright, thanks a lot, guys. Appreciate it.

[Ed Breen, Chief Executive Officer]

Thanks, Steve.

[Operator]

Your next question comes from John Walsh with Credit Suisse.

[John Walsh, Credit Suisse]

Hi, good morning, everyone.

[Ed Breen, Chief Executive Officer]

Good morning, John.

[John Walsh, Credit Suisse]

Maybe just circling back to the guidance, if we look at 2021, you outperformed your initial guide by about 8% on EBITDA at the midpoint in the face of a lot of inflationary pressures. As we think about 2022 and how you kind of set the initial guide, is it really just running forward some supply chain continuation of the current environment or is there anything that’s DuPont specific that we should be aware about when you set that guidance?

[Lori Koch, Chief Financial Officer]

No. I wouldn’t say there is anything DuPont-specific. So obviously, we still have caution in the first quarter around not being able to cover the logistics headwind as well as primarily within our W&P segment, some impacts on production because of Omicron. So we’re seeing some lower production rates in January, primarily in our W&P business, which has large facilities here in the U.S. They have seen some absenteeism from the Omicron variant that’s leading to lower production on assets that usually one sold-out, as well as higher labor costs as we deal with some overtime. So the margin profile that we have at the midpoint in Q1 of 22.8%, we expect to escalate as the year goes on landing more to 25% on a full year basis. But to your question, I wouldn’t say there is anything different in our methodology about how we provide guidance for the full year versus any other company.

[Ed Breen, Chief Executive Officer]

Yes, I would add one other comment also. Lori and I plan that raw material inflation stays where it’s at for the full year. So that’s an assumption that we have in our planning. So again, we’ve got to continue to get the price to cover the logistics and any other raw inflation that we see. And we are, again, enacting across all the portfolio as we enter the new year here. That continues. But we’re making that assumption that it stays up here, and we got to get it covered.

[Lori Koch, Chief Financial Officer]

Yes. So I’ll say we’re expecting another $250 million in Q1 year-over-year, probably about the same range in Q2, and then we expect it to plateau not decline, but plateau in the second half.

[John Walsh, Credit Suisse]

Great. Thank you for that color. And then maybe just a follow-up on how you’re thinking about volumes by geography or major countries however you’d like to speak on it as we think about 2022? Thank you.

[Ed Breen, Chief Executive Officer]

Yes, we expect continued robust growth again across the different regions. So in 2022, if you look at our guidance for it, 6% of the midpoint on a total company basis. But if you take out the headwind that’s in non-core from the divestiture of the clean tech business, we’re actually at about 8% total growth in 2022. So we see strength again in North America and Europe, Asia Pacific, all kind of up in the high single-digit range with a little tempering in Latin America. But again, Latin America is not a huge portion of our footprint.

[John Walsh, Credit Suisse]

Great. Thanks for taking my questions.

[Ed Breen, Chief Executive Officer]

Thanks, John.

[Operator]

Your next question comes from David Begleiter with Deutsche Bank.

[David Begleiter, Deutsche Bank]

Thank you. Good morning. Just on W&P pricing in this cycle, how sticky do you think it will be this time around versus maybe prior cycles?

[Lori Koch, Chief Financial Officer]

Yes. I mean we are looking to get kind of in the mid-single digit price increases in this year, so we had 5% in Q4. We will look to maintain that pace through the first half. It obviously will temper a bit in the second half on a year-over-year basis as you lap the price increases that we started in Q3 and picked up in Q4. So, I would say W&P price stickiness is a little bit stickier than what we would see in the M&M business. We would expect that to the turnaround once the raw material starts to recede. So, we are hoping that we can maintain those price increases, but we will see what the raw material and the inflation environment looks like as we go forward.

[David Begleiter, Deutsche Bank]

Very good. And Ed, just on PFAS, any update on this issue? And what progress could you hope for this year in terms of removing the overhang? Thank you.

[Ed Breen, Chief Executive Officer]

Yes, David. Look, I think we are going to make very good progress this year. I will just give you a couple of things. Chemours, Corteva and DuPont are working extremely well together. I would say we are very synced up on wanting to get some outcomes here in the first half of 2022. So – and I mentioned that, David, because one of the issues we had a year ago before we signed the cooperation agreement and the structure we put in place between the three companies. We were just wasting a lot of time talking internally within the three companies and wasting, I think valuable time not being synced up because we didn’t have that agreement in place. We are really, every single week now, in discussions with third-parties to resolve issues. We are literally synced up on weekly calls, and it feels really good that we can make progress. Obviously, the big focus would be getting the Water District cases settled on the PFAS side of things. We have a few states that will do some settlements with like we did in Delaware. And so we are feeling very, very good that we will make some progress. And again, a lot of conversation is going on presently and that’s productive.

[David Begleiter, Deutsche Bank]

Thank you.

[Ed Breen, Chief Executive Officer]

By the way, it’s very high on the Ed Breen’s personal list. I understand the importance of getting that stuff resolved and personally spending a lot of time on it.

[David Begleiter, Deutsche Bank]

That sounds great. Thank you.

[Operator]

Your next question comes from the line of Chris Parkinson with Mizuho.

[Chris Parkinson, Mizuho]

Hi. Thank you very much. Just very quickly, could you speak to the current backdrop in semiconductors for ‘22, given the recent sector noise, the competitive environments? And just also how investors should be thinking about the current CapEx cycle flowing through your outlook for ‘23 and even potentially longer term? Thank you.

[Ed Breen, Chief Executive Officer]

Well, the CapEx piece, as we have said, we are going to be on the higher side for about 1.5 years here still. We have got a couple of these big expansion projects going on. We are just winding – so by the way, we are going to run about 6% on CapEx. We would like to, over the medium-term, run that more a little bit under 5%, mid-4s, high-4s, somewhere in that range. But we were just finished up the Kapton program, but we have got some water expansion stuff we are looking at. And obviously, we have the big Tyvek expansion which is our single biggest CapEx program going on over in Luxembourg right now that still goes on for about 1.5 years. So, we are going to run a little bit higher. But pretty much where our CapEx is going is where we need capacity, which is maybe a good problem to have.

[Lori Koch, Chief Financial Officer]

Yes. And I think on the semi CapEx front, obviously, the industry is running, I think, at about 98% capacity right now. So, contributing to the really strong growth that we saw overall semi in 2021 with 15%. We will look to have this strength again maybe in the high-single digits, low-double digits in 2022. So – and as they invest capacity and CapEx in the semi space obviously benefits our portfolio. So, we tend to outpace MSI for the amount of wafers produced by 200 basis points to 300 basis points. So, that number continues to show strength in the coming years from all of the demand and the capacity that’s going in, we will participate in that uplift as well.

[Ed Breen, Chief Executive Officer]

Yes. Part of our growth, by the way, a nice piece of it, if you remember, from the teach-ins that John is a lot of more complex semiconductors, more layered chips and all that, and that plays to our advantage, it gives us growth. But growth is, as you all know, has been a little tempered to Lori’s comment right now because we need new fabs to come on board. So, it looks like a nice business to be in over the next decade as new fabs come on, and we have seen a couple of announcements recently in the U.S. where some fabs are going. So, it looks like a nice trend for the next decade.

[Chris Parkinson, Mizuho]

And just you hit on all the follow-on topics on W&P between prepared remarks. I just want to push something out in terms of just given the strong pricing outlook, let’s say, the eventually abating P&L and labor-related cost headwinds and then the growth outlook for, let’s say, safety protective versus shelter. Could you just remind us and just give us your updated thoughts on normalized margins for that segment going forward, let’s say ‘23 forward? Thank you.

[Lori Koch, Chief Financial Officer]

Yes. So W&P, as we had mentioned, we will see sequential margin deceleration from Q4 into Q1, really driven by the items that we had called out. But if you exclude the raw material and logistics net headwinds and the headwinds that we are seeing from a production perspective, the W&P margins in the quarter should be almost 500 basis points better than what we may post because of those headwinds. And so you are getting that more into the 26% range. I think going forward, that those margins should be in the 26%, 27% EBITDA margin profile.

[Chris Parkinson, Mizuho]

Thank you very much.

[Operator]

Your next question comes from John McNulty with BMO Capital.

[John McNulty, BMO Capital]

Yes. Thanks for taking my question. Ed, it looks like you are going to have a mountain of cash once mobility is sold off. Can you speak to what you are seeing in terms of the M&A pipeline? It sounds like you have got some chunky targets out there with the volatility that we have seen in the market, have you seen those multiples come in at all? Are they still hanging in there? I guess how should we be thinking about that?

[Ed Breen, Chief Executive Officer]

Yes, I mean, I think generally, the multiples are hanging in there, but we will see how the year goes. We are, John, most likely won’t do an acquisition until after we get the proceeds from M&M, which will be in the fourth quarter. And we are not missing out on something we want by waiting in that time window. So, we will see where things sit at that point in time. By the way, what we are looking at are things that are right in the wheelhouse of those five core secular growth areas I mentioned to you. So, we are not looking at something that’s off another leg on the stool or something like that. We really feel we can beef up our opportunities in existing customers bases and expand customer bases and technology areas that we already know we sell into, and we can expand it and add to it. I think by the way, Laird and Rogers are two perfect examples of that. I am not saying it’s in that area, but something like that defense will get a kind of cost synergies out of when we do it. So, that’s kind of our timeline of what we are thinking that as we exit next – this year we are in now, possibility for an acquisition or two. By the way, this number could be, give or take, $1 billion, but we will probably be sitting on between cash flow, selling M&M, buying Rogers, CapEx, everything else that kind of goes into it, we will probably be sitting just for planning purposes with like $6 billion of excess cash, somewhere in that ZIP code as we consummate this year.

[John McNulty, BMO Capital]

Got it. No, that’s helpful. And then just a question on the raw material and inflation front. I guess at this point, do you have actual constraints from a supply chain perspective where you are not – you are being kind of held back and putting out product at this point, like whether it’s force majeures or logistical challenges or what have you? Are you pretty well squared away at this point? And now it’s just the inflation that you have to worry about? And when will that maybe settle then?

[Lori Koch, Chief Financial Officer]

Yes. I would say, in general, the raw material constraints are pretty much behind us. There are some force majeures that we are dealing with, but they are not holding back our production. What is holding back our production is what I had mentioned earlier with some of the Omicron absenteeism at some of our sites in the U.S. that’s primarily impacting the W&P segment. So, we had planned our Q1 guidance, but that doesn’t materially get better versus what we saw in January. So, that’s really the only place where we are seeing constraints in production.

[Ed Breen, Chief Executive Officer]

And we would think that’s really a one quarter issue the way Omicron is now coming down. We had a key production facility. We missed two days of production. I think it was two weeks ago, lack of staffing. We were back up on the third day. It’s things like that. We are paying everyone overtime to work more hours, and that’s costing us money. And a lot of that, we obviously plan will subside here sometime in the first quarter. But from a planning purpose, we just made the assumption that January, February and March will all look the same because of Omicron and those type of issues.

[John McNulty, BMO Capital]

Got it. Thanks very much for the color.

[Ed Breen, Chief Executive Officer]

Yes. Thank you.

[Operator]

And your next question comes from Steve Byrne with Bank of America.

[Steve Byrne, Bank of America]

Yes. Thank you. Would you attribute the 9% volume growth in E&I to your customers just running harder and some capacity expansions, or is this also from share gains? And if the latter, what precludes you from not getting more price in the segment? Is that only possible with a price mix shift? And can you preclude the legacy products from declining in price?

[Lori Koch, Chief Financial Officer]

Yes. So, I would say it’s a combination of just a really robust end markets within E&I as well as some share gain primarily within the semi space. And so our semi segment was up 22% in the quarter. That’s mainly volume. Back to the earlier comment around the fabs running full out as well as some share gains on our point and also some benefit in the mix of chips that are being produced or those chips that have more advanced nodes favor our portfolio. And as far as price, we are getting price. It’s netting out to a slight headwinds because there is a normalcy that goes on within the Electronics segment. And so we have sized that about 1% annual fees in the E&I segment that happens across the electronics industry. That’s not something that’s just a DuPont factor that goes on across electronics. And so if you take that out, we actually did net some price to be able to offset the raw material headwinds that we are seeing within E&I. But back to the pie chart that we provided in our slides, E&I is the smallest portion of our portfolio that has headwinds on the raw material front, only about 10% of the headwinds that we saw of the $250 million in the quarter was from E&I.

[Steve Byrne, Bank of America]

And in your remarks, Lori, you mentioned about the water technologies focusing on industrial end markets and desalination. So, you clearly have the platform for purification. My question for you, do you have the right technology or do you need to hold on to it to expand from purification to extraction such as extracting minerals out of brine like lithium?

[Ed Breen, Chief Executive Officer]

We are – let me just answer it this way. We are – we would love to do an acquisition in the water area, and you would probably pick up some technologies in that area. There are technologies we would like to add in the portfolio. By the way, there is not a ton of water assets out there. But as you know, we did four acquisitions. I don’t know what – the end of ‘19 and moved the track at time here. They were all smaller, but now we are growing really nice. So, that is a potential path for us. If there is not something a little chunkier that we really, really like. But that’s a space we just feel the next couple of decades are great secular growth areas, and we have got great technology already we would like to add to, probably very similar in the Laird and Rogers coming into E&I, how that adds on to existing technologies we have. So, definitely an area of interest and could pick up some of those technologies in that extraction area.

[Steve Byrne, Bank of America]

Thank you.

[Ed Breen, Chief Executive Officer]

Thanks, Steve.

[Operator]

Your next question comes from John Roberts with UBS.

[John Roberts, UBS]

Thank you. You had uneven quarterly comps in interconnects in 2021 due to the smartphone launch timings and automotive. Any insights into the quarterly comps as we go through 2022, where are the really uneven comparisons?

[Lori Koch, Chief Financial Officer]

Yes. So, we will go back to a more seasonal pattern in 2022, so that does create a headwind in Q1 because in Q1 of 2021, we were un-seasonally high. That will resolve as the year goes on and create a tailwind in the back half. But overall, the seasonality will be more normal with Q3 being the highest as we supply materials into the smartphone space in advance of the Christmas sales.

[John Roberts, UBS]

Then on Slide 5, can you help us understand the headwinds that stay with DuPont or would continue in DuPont versus M&M.? So, how much of the logistics $50 million is continuing DuPont versus M&M? And in the part of M&M that stays with DuPont, is it performing in line with the rest of M&M, or is it outperforming overall?

[Lori Koch, Chief Financial Officer]

Yes. So, on the logistics front, of the $50 million, about $40 million stays in DuPont with the biggest piece of that being in W&P. So, only about 10 of the 50 was within M&M. And as far as the business is staying with DuPont, it’s primarily adhesives and multi-based heritage Dow businesses. Fair margin profile is lower than the M&M segment today. We saw some significant headwinds on the price cost in 2021. We will look for that to improve heading into 2022, but their margin profile was slightly below where M&M is.

[John Roberts, UBS]

Thank you.

[Operator]

Your next question comes from Vincent Andrews with Morgan Stanley.

[Vincent Andrews, Morgan Stanley]

Hi. Thank you. Good morning. Just a couple of cleanup questions here. I know you laid out sort of the shape of your raw material expectations for 2022. On logistics, as you called out, the crazy numbers that we are seeing in ocean freight, are you assuming that, that stays the same through the year, or are you allowing for that to correct a little bit in the back half?

[Lori Koch, Chief Financial Officer]

So, it corrects in the back half, primarily in the fourth quarter as we lap that $50 million headwind that we saw in 4Q 2021. So, we will look for them to remain elevated Q1 through Q3 on a year-over-year basis and then Q4 moderate. The one difference coming out of Q1 is we do expect to get price coming out of Q1 into Q2 and beyond to offset that headwind in logistics.

[Vincent Andrews, Morgan Stanley]

Okay. And then just on the semis and maybe just going even into the tiers and the auto customers. There is chatter out there depending on who you are listening to that maybe there is some double ordering in semis or maybe the tiers have built up inventory waiting for the auto production to come back. But as you look across your businesses and your customer relationships and what you are seeing and hearing, what’s your point of view on any of that stuff?

[Lori Koch, Chief Financial Officer]

Yes. We are not feeling any inventory build that would create a headwind as you head into 2020. I mean keep in mind, there is a little bit of a timing disconnect between the results within the M&M segment from a volume perspective and auto builds. And so in 2021, we significantly outpaced with volumes up 12% versus auto build up 2%. So, that could moderate a bit with respect to our performance versus auto builds in 2022. But overall, I don’t feel like any inventory is building in the channel. And on the semi front, I think it would be hard to be building inventory in semi just given the market is constrained. So, we don’t feel it there either.

[Vincent Andrews, Morgan Stanley]

Okay. Thank you very much.

[Operator]

Ladies and gentlemen, we have reached the allotted time for questions today. I will now turn the conference back over to Pat Fitzgerald for closing comments.

[Pat Fitzgerald, Investor Relations]

Thank you, everyone, for joining our call. For your reference, a copy of our transcript will be posted to the DuPont website. Please join us on March 3rd for our next teach-in, which will include the Industrial Solutions line of business within our E&I segment. I hope you can join us. Thank you again. This concludes our call.

[Operator]

Ladies and gentlemen, this does conclude today’s conference call. Thank you for your participation. You may now disconnect your lines.