DuPont de Nemours, Inc. Q1 FY2022 Earnings Call

and welcome to the DuPont First Quarter 2022 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'd like to ask a question during this time, press star, followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. Chris McRae, you may begin your conference.

Good morning, everyone. Thank you for joining us for a review of DuPont's first quarter 2022. financial results. Joining me today are Ed Breen, Chief Executive Officer, and Laurie Koch, Chief Financial Officer. We prepared slides to supplement our comments during this review, which are posted on the Investor Relations section of DuPont's website and through the webcast link. Please read the forward-looking statement disclaimer contained in the slides. During this financial review, we'll make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our 2021 Form 10-K, as updated by current and periodic reports, includes detailed discussion of principal risks and uncertainties, which may cause differences. Unless otherwise specified, all historical financial measures presented today exclude significant items. We'll 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'll now turn the call over to Ed. margins, and low cyclical. Greater focus on secular high-growth end markets and electronics, protection, and next-generation automotive will serve as a sound basis for our innovation-led organization. Regarding the layered performance materials acquisition, we are also on track to achieve cost synergies of $63 million, somewhat ahead of initial exit. The deal has been a successful performance ahead of top and bottom line results and early progress. As one example, we are starting to see some layered process and equipment technology enabling more effective solutions for downstream customers and namely the net cash we will receive from our planned investiture that includes prioritizing the return of excess capital to shareholders as well as strategic M&A. This is consistent and dividend allocation completed. The layered acquisition will be poised to continue to improve our portfolio and financial position as well as accelerate capital return options. Given the magnitude of the anticipated deal proceeds, rental share buybacks, while Discipline M&A will all... Regarding our existing $1 billion share we anticipate complete 22, turning the core growth of our innovation-based organic growth opportunities. We are pleased with 3% volume growth in the quarter and strains due to lack of raw... We are excited about visible growth drivers enabled by our technical innovation teams and application engineers, Mersav. In E&I, continued top-line growth momentum this year is being driven by growth in semiconductor displays and markets, viewed somewhat in auto by key examples of recent new semiconductor manufacturing from mid to high, as well as the launch, especially through the commercial synergy opportunities. With that, let me turn it to Lori to discuss.

Mersav continued strong demand during the quarter in key end markets. Global supply chain challenges and cost inflation have persisted and even intensified during the quarter due to raw material, logistics, and our team's continued focus on execution contributed to net sales, operating EBITDA, and adjusted EPS results well above expectations. Focusing on financial highlights on slide 5 for the quarter, net sales of $3.3 billion were up 9% on both an as-reported and organic basis versus the first quarter of 2021. The acquisition of Laird, partially offset by non-core investors, provided a 2% net tailwind to net sales, while currency was a 2% headwind during the quarter. Urbanic sale growth included 6% pricing gain and 3% higher volume. Pricing gains reflect the actions taken to offset overall cost inflation, including the spike in energy costs that we are seeing at our site. Volume growth reflected continued strong customer demand with order patents remaining solid, led by electronics, industrial technologies, while storing the quarter of 10% and 9% for W&P. On a regional basis, organic sales growth was broad-based globally, with W&P driving growth in North America and EMEA and ENI driving growth in Asia Pacific. From an earnings perspective, operating EBITDA of $818 million was up 2% versus the year-go period, and adjusted EPS of $0.82 per share was up 19%. The increase in operating EBITDA was driven by pricing actions, volume gains, and strong earnings from the layered acquisitions, which more than offset higher inflationary cost pressures, as well as weaker product mix in W&P and the absence of a gain on asset divestiture in E&I last year.

Operating even a margin during the quarter was 25%,

which was better than our expectations set earlier this quarter, but 160 basis points below the year-ago period, which I'll explain further. Navigating cost inflation was a key focus during the quarter, and our success in doing so was a significant driver in our results. While the majority of the raw material inflation that we have discussed in the past relate to the M&M businesses, which are now part of discontinued operations, Our Remainco businesses also have inflation exposure, and we saw a spike in energy costs during the quarter, most notably in W&T. We fully offset about $190 million of cost inflation during the quarter, which kept our results whole on a dollar basis. While these pricing actions enabled us to maintain a neutral earnings profile, price-cost dynamics resulted in a 150 basis point headwind to operating EBITDA margins during the quarter. Our underlying operating even margin adjusted to exclude price cost factors was 26.5%, or essentially flat compared to the year-ago period. Further, if you adjust margins in the prior period to exclude the one-time gain related to the asset sale in E&I, our underlying margin of 26.5% would have increased about 70 basis points from last year. Another key metric that we track is incremental margins. On a reported basis, incremental margin for the quarter was 6% from the year-ago period. However, I indicated previously the importance of evaluating your results on an underlying basis. If you remove the impact of price cost, incremental margin was over 20%. And if you also include the headwind from the one-time asset sale, on top of that, incremental margin was almost 60%.

I mention these data points to illustrate the volume strength we are seeing within the portfolio.

From a cash perspective, cash flow from operations during the quarter of $209 million and capital expenditures of $251 million resulted in a free cash outflow of $42 million. The cash outflow was the result of variable compensation payments to our employees, which were approximately $100 million more this year than our normal payout, and higher working capital trade, inclusive of actions taken to increase inventory in reaction to continued product supply constraints. We expect significant improvement in free cash flow as we move towards the second half of the year, consistent with our typical seasonal pattern. Turning to slide six, adjusted EPS of 82 cents per share was up 19% compared to 69 cents per share in the year-ago period. Higher volumes and strong results from Laird collectively provided a benefit to adjust the EPS in the quarter of $0.11 per share. These gained more than offset other previously disclosed portfolio-related actions, weaker product mix in W&P, and additional capped timeline startup costs in E&I totaling $0.09 per share in the aggregate. A lower share count and reduced income expense from deleveraging actions continue to benefit our EPS results. Our base tax rate for the quarter was 21.8%, and we continue to expect our base tax rate for the full year 2022 to be in the range of 21 to 23%. Turning to segment results, beginning with E&I on slide 7. E&I delivered net sales growth of 18%, including 9% organic growth, an 11% portfolio benefit from Laird, and a 2% headwind from currency. Organic growth for E&I includes an 8% increase in volume and a 1% increase in price. From a line of business view, organic sales growth was led by semiconductor technologies, which increased mid-team as robust demand continued, led by the ongoing transition to more advanced node growth in high-performance computing and 5G communications, as well as share gains. Within industrial solutions, organic sales growth was up low double digits on a continuation of strong volume growth led by OLED materials for new phone and television launches, ongoing strength for Calvary's product offerings, most notably for semi-capex, and strong demand for healthcare applications such as biopharma tubing. Interconnect solution sales decreased low single digits on an organic basis due to a slight volume decline. Volume gains for films and laminates in certain industrial end markets were more than offset side declines in consumer electronics, primarily related to China, as well as the anticipated return to more normal seasonal order patterns for smartphones. For the full year, we expect InterConnect solutions to be up mid-single digits on an organic basis, led by strong demand in the second half and additional capacity coming online later this year from our Tecton expansion. From a regional perspective, E&I delivered sales growth in all regions with high single

digital organic growth in Asia-Pacific, noting China was down slightly.

Operating EBITDA for E&I of $476 million increased 9% as volume gains, strong earnings from Laird, and pricing actions more than offset the absence of a prior year asset sale gain, higher raw material and logistics costs, and a continuation of startup costs associated with our cap time capacity expansion. Operating EBITDA margins of 31% reflects sequential improvement from the fourth quarter of more than 200 basis points. On a year-over-year basis, the primary driver of the decline in operating EBITDA margins was the absence of a prior year gain. Adjusting margins in the prior year to exclude the one-time benefit, operating EBITDA margins was down 70 basis points year-over-year as a result of price costs and Capcom startup costs more than offsetting volume gains. Turning to slide eight, W&P delivered net sales growth of 8% consisting of 10% organic growth and a 2% headwind from currency. Organic growth for W&P reflects broad-based pricing actions across the segment implemented to offset cost inflation. Volumes were flat as gains in shelter and water solutions were offset by declines in From a line of business view, organic sales growth was led by Shelter Solutions, which was up high teens driven by pricing actions and continued robust demand in North American residential construction for products such as Tyvek house rats, as well as ongoing improvement in commercial construction for quarry and surface products. Sales for water solutions were up high single digits on an organic basis on volume and pricing Global demand remains strong for all water technologies and across all regions. Within Safety Solutions, sales were up mid-single digits on an organic basis as pricing actions were partially upset by lower volumes of Tyvek as we shifted production from garments to other end market applications. Volumes were up slightly for aramid fibers on continued improvement in industrial end markets. Operating EBITDA for W&P of $341 million declined 4% versus last year due to a weaker product mix. Operating even the margin was better than our expectations set earlier in the quarter, but the impact of price costs was about a 210-point headwind to margin. Including the price cost impacts, operating even the margin was about 26%, approaching more normalized levels for W&P. Before I turn it back over to Ed, I'll close with a few comments on a financial outlook on slide 9. Despite the strong start to the year and solid demand, the macro environment remains volatile with several key uncertain factors. Based on our expectations and in consideration of these uncertainties, our full-year guidance ranges for operating EBITDA and adjusted EPS remain unchanged at $3.25 billion to $3.45 billion and $3.20 to $3.50 per share, respectively. These ranges include a $35 million earnings headwind as a result of suspending operations in Russia. We are increasing our guidance range for net sales to be between $13.3 billion and $13.7 billion to reflect price increases needed to offset cost inflation, which we now anticipate at $600 million in year-over-year headwinds. Although underlying demand in key ed markets such as electronics, industrial technologies, and water remain strong, We are seeing further supply chain constraints, primarily from additional government-mandated lockdowns in China, which will likely impact volume growth in the second quarter. Based on these anticipated headwinds, as well as an element of previously projected Q2 sales realized in the first quarter, we expect second quarter 2022 sales to be between $3.2 billion and $3.3 billion, or up about 5% year-over-year at the midpoint. Based on these same assumptions, we expect second quarter operating EBITDA between $750 million and $800 million and adjusted EPS between $0.70 and $0.80 per share. At the midpoint of our guidance, second quarter operating EBITDA margin is expected to decline just over 100 basis points sequentially as supply chain constraints are assumed to impact production rates. We expect operating EBITDA margin in the back half of 2022 to improve on typical seasonal volume strength and improved plant utilization as we clear COVID-related production challenges impacting the first half of the year. This outlook assumes moderating China lockdown impacts as we get into mid-May, given the positive trajectory in the Shanghai region and our limited exposure around Beijing. However, further outlook risks could be triggered as the lockdown spread to Shenzhen and the Pearl Harbor Delta region, given the concentration of manufacturing and shipping there for DuPont, as well as our suppliers. With that, let me turn the

call back to Ed. I'd like to highlight that we published our annual sustainability report on our 2030 goals. Our sustainability strategy is grounded in three pillars, innovation, protecting people and the planet, and empowering employees and customers. DuPont is leveraging our innovation focus to help customers meet their sustainability goals. A great example of that is the building building installations, energy efficiency, energy intensity, climate, and energy. We'll supply about 25% of DuPont's total electricity starting in 2023. Additionally, Apple just announced that DuPont was selected to join their supplier clean energy program. For example, DuPont working with industry partners, we continue to advance our commitments to DE&I. We are excited about the newest female nominee to our board. The representation of our leadership teams continues. There are many great examples on a tremendous job. And let me turn it back to the operator.

Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will all know one question and one follow-up per caller. Your first question comes from Steve Tusa from JPMorgan. Please go ahead.

Hey, guys. This is actually Sam Yellen on for Steve. Thanks for taking my question. Can you talk about the sequential trends from 2Q to 2H? it looks like a big step up in EBITDA. Is that the China recovery or something else? And as part of that, maybe give us an update on the price cost spread on a quarterly basis. What are you expecting in 2Q and then in 2H when comparing to the neutral you did in Q1? And then is there anything else we're missing? Thank you. No, thanks, Ashley. Yeah, the second half rant from the first half is really just a reflection of our seasonal volume improvement in the back half. Within E&I, It's primarily driven by smartphones as we go into the Christmas season and within water a lot in the construction space as we see a ramp there. So the list on volume is dropping to the bottom line, which is translating to the EBIT improvement and the margin improvement in the second half as we drive leverage through the P&L. On your question around net price, we'll expect all year to remain neutral on net price costs. that we raised the midpoint of the guidance for the full year to reflect about another $100 million of raw material escalation on a full-year basis. So we're now expecting somewhere in the range of $600 million that will fully offset with price. So that won't change coming out of the first quarter for the rest.

Actually, I would just add to Lori's point, the first you go back and look, nothing unusual in the pattern.

Thank you.

Thank you.

Your next question comes from Scott Davis

from Melius Research. Please go ahead. Hi, everyone. Morning, Scott. Laurie and Chris. Welcome. Welcome aboard, Chris. Now, can we talk in terms of, like, backlog or book-to-build? Did backlog actually grow in the quarter? I mean, you know, or any metric, I guess,

you can give us to give us a sense of top-line pent-up demand. Yes, Scott. The backlog looks, It's been staying at very elevated levels. We look at it weekly. Market that's not feeling, not a demand-driven thing. It's just all our end markets from an order pattern standpoint feel good as of looking at it this week. So centered around supply chain and China and COVID lockdowns, you know, for the guide on the second.

Is price, as we speak kind of now, is price still going up because inflation is still going up? Or are we at a point now where we've kind of hit some sort of plateau?

It seems like we've plateaued, Scott. All the price increases are implemented when the war broke out. Natural gas, we did a round of increases again. And as we said, we caught all the inflation. We saw, as Laurie just mentioned a minute ago, we think it's plateaued if it had incremental 600.

Great. Good luck. Thanks, everybody. Appreciate it.

Your next question comes from Jeff Sprague from Vertical Research. Please go ahead.

Thank you. Good morning, everyone. Hey, Jeff. Ed, on share repurchase, hopefully it's not COVID, from it being important. So I sense a bit of a pivot there in your posture. Maybe you could just elaborate a little bit more. And do you need to wait for the M&M proceeds to actually do more, or can you get?

Yeah, so, Jeff, you, I think, summarized it well, like that, and get it done early. And I would expect we're going to look at a much larger share repurchase program. I don't think we need to wait until the billy end, but I would like to make sure, you know, nothing else crazy. We do have the $5.2 billion outstanding loan on the Rogers. You know, our leverage will be north of 3. So, yes, you do hear a little bit of shift in tone because of where the multiples are. It's tough right now for everybody. That's great to hear.

And then also, could you just, maybe this is for Lori, just how significant on the top line was China, you know, kind of the lockdowns and supply chain and COVID issues, and how big a part of kind of the Q2 outlook is it?

Yeah, in total, there's two major pieces that are impacting the 2Q guidance, and they're both related to China. So first is a shift of sales that we had expected to land in 2Q that landed in 1Q, and that was primarily with customers pulling in some volume because of what was going on in China. We would size that at about $35 million of sales. And then as far as the shutdown that happened, it started to get progressively worse in mid-March, and we're anticipating a mid-May reopening. We estimated we missed about $20 million worth of sales. And there's also an impact on our margins with our plants not running at full capacity. So we have two sites in China that went into full lockdown mode in mid-March. We expect them to be fully reopened by mid-May. And then we had some key raw materials within our electronics business that we sourced from China that we weren't able to get full supply, so we ran some of our domestic plants at lower unit rates. And so that was impacting our margin profile.

Yeah, to give you a specific one, what Lori said, in Circles, Ohio, we make our Kapton, which is a high-margin product. We're fully sold out. We get half of a monomer of China, so we did have supply of the monomers, so instead of running it full China. So there's an example of the China lockdown.

And I think the other piece, Jeff, too, with our guidance for the second quarter, but beyond just China and the progress that we noted in our slide, But on a full-year basis, it's about $35 million of EBIT, probably about $80 million of sales. But, you know, that's impacting primarily to Q&B on.

And then, Jeff, when you look at the full-year guide, you know, we'd be by $90 million in EBIT than the first question.

Your next question comes from John Walsh from Credit Suisse. Please go ahead.

Good morning, and thanks for taking the questions here.

Good morning, John.

I guess just first thinking about a couple of end markets that you touch where there's some investor angst, I mean, residential, auto, consumer smartphones. Can you talk about what you're kind of expecting there from volume and then what you're expecting from price, either if you can break it out, what's inflation and then that price component that you have because of the higher value you're adding to the customer's offering there?

Yeah, I would say as far as demand is concerned in the 3N markets, you had notes. So we saw strength in residential construction. We expect that to continue to be a point of strength in the second quarter. We did note softness in consumer electronics, but that was primarily in China with respect to the lockdown. And also a little bit of an impact of our own doing of seasonality with respect to when we do our normal smartphone shipment. So we've telegraphed in the past that the first half will be weaker, the second half will be stronger because of a change in seasonal patterns as we sell into the smartphone market. But on a full-year basis, we expect that end market to be up mid-single digits. And then in auto, you've seen the revisions downwards with respect to IHS auto bills. I think now it's sitting at 4% on a full-year basis. So our estimates would probably be a little bit lighter than that with respect to what we think that the market will do. But the underlying demand remains strong. It's just really a matter of supply chain, specifically around the chip constraints that are impacting that. But I think the highlight, too, there is we do continue to see very strong growth within the EV space. And so for us, a large portion of that comes from our adhesive business. We saw really nice growth in our EV-related sales in Q1, and we expect to about double those sales in Q2 in line with where the EV market is going in general. And we really look forward to the incoming business from Rogers to pay. On the price side, I wouldn't say it materially differs across those end markets with what we're seeing with respect to inflation. Inflation is not as material as what it is within W&P, and you see that in price. So we got about one NW&P, so there is more than just around the raw material inflation-related items.

Great. Thank you. And then maybe one quick follow-up to Jeff's question around capital allocation. Maybe can you just update us on what the deal pipeline looks like and if you're seeing sellers' expectations change given what's happened in the public markets? Thank you.

Yeah, so, Jack, my gut is as we sit right now, I don't see any deal that we would want to do until we're in this 2023. And I'm not saying I know something is available in 2023, But the way stock prices are moving around right now and all, it just makes it a tougher environment. So I don't see any. We get into 2023, and quite frankly, we don't have anything. We have a couple things we're interested in, as I said before. But I don't see them actionable any time in the near future. So that could change. So don't help me do that. But I can't see anything happening until we're nicely into 2023, if then, depending on what's going on.

Appreciate it. Thanks for taking the questions.

Your next question comes from Chris Parkinson from Mizuho. Please go ahead.

Great. Thank you so much. There are a lot of moving parts to the DuPont capital allocation thesis, just including the net proceeds from deals based for cash flow generation, working capital, and then obviously your stated buyback goals. You know, when it's all said and done, and I appreciate your remarks for the deal outlook for 2023, Just absent anything new in 2022, you know, what is the kind of the base range that you, based on the current buyback, that you believe you'll have cash on the balance sheet, just plus or minus? Thank you.

So are you talking after the, considering the proceeds from the M&M sales? Yeah, if you look at the proceeds from the M&M sales, the cash flow generation in 2022 2022 and 2023, as well as where our leverage targets are at 2.75 times where we would expect to be, you quickly get to the $10 to $11 billion range of cash to deploy after we pay down the Rogers debt. So as we had mentioned on the call, it's significant. And we'll look to take a balanced approach to driving significant share repurchase as well as M&A opportunities.

Got it. And the second question I have, just, you know, obviously over the last couple of weeks, there's been a bit of a noise across global electronics, some of your peers, which has been pertinent to semis, 5G, you know, base consumer electronics demands, a lot of that driving from China. but can you just give us a quick update overall about how your team is thinking about your relative subsegments within E&I, just given the current demand environment, and then also how you would project your relative performance versus some of your core U.S. peers? Thank you.

Yeah, so we see very strong demand continuing in electronics, and so we had very strong results in Q1. And on a full-year basis, we expect to be up, pushing double digits within electronics between price and volume. And we'll obviously add to that as we close the Rogers transaction later this year. So we see a lot of strength. We see a lot of opportunity. If you look at – we do a lot of detailed analysis about our results versus peers, and a couple of them have already been out before us, and we stack up very nicely when you compare likes to like product lines. And so we also stack up very nicely when you compare our results versus some of the key benchmarks out there. So, for example, MSI is one of the key components of the SEMI business. People are expecting that to be up 7% to 8%. We've mentioned that we should outperform by 200 to 300 basis points. And if you look at our Q1 results in SEMI, we were in line with that expectation. So we are very excited about the portfolio. We'll look to continue to see where we can opportunistically broaden and strengthen that portfolio as well.

Thank you, as always.

Your next question comes from Steve Byrne from Bank of America. Please go ahead.

Yes, thank you. Are there any water treating technologies that are really deficient in your platform? Would you consider acquiring or developing anything you don't have and maybe more broadly in water? Would you consider moving downstream to essentially utilize your expertise in the breadth of water treating technologies you have to provide service to customers as a downstream expansion similar to Ecolab?

Yeah, I would say two things, Steve. Very good about, and it's a fairly broad portfolio, so we touch most of the water filtration type markets out there, wastewater, home application, and desalination, as we mentioned on our prepared remarks. So we feel good about the breadth of what we have and the technology we have behind it. And the one area that we would look at, and by that doesn't mean it's an acquisition, that could be organically done is we need to expand our manufacturing footprint and we need a bigger presence with manufacturing in the Asia market, which is a very fast-growing market for us. So we've been studying very hard a project there in the next couple years in that area. So that's a high priority for us. And then this kind of goes to the second part of your question there. The one opportunity we have or potentially have in our R&D teams and application teams are looking at is digitizing the water business. So we know when replacement components are needed ahead of time and it's kind of systematized, and that could be a real opportunity for us to kind of satisfy our customers by doing it that way.

Thank you for that, Ed. And maybe any update from you on PFAS issues, any trends that you're observing, any changes to inbound inquiries that you can comment on?

Yeah, nothing new has changed in the landscape except in conversation with the plaintiffs down in the MDL who's down there in charge of these MDLs.

Your next question comes from David Beckletter from Durcha Bank. Please go ahead.

Good morning. Ed, how is Rogers EBITDA tracking your earlier expectations given what you've seen in both Q1 and Q4. I believe the EBITDA view was $2.70 for this year.

Yeah, so in the first quarter, they were under the impact of the same things that we were with respect to the China COVID situation. We're really looking forward to the second half when we will own them, and they have a pretty sizable expected ramp as those end markets really open up coming out of the China recovery, and they continue to see a nice growth opportunity within the EV space, and so I think if you look at the second half trajectory that's being planned by Rogers, it would be more in line with where our expectations were on a full-year basis for that portfolio.

They have the backlog. A lot of it is in the EV, just a matter of half of the year.

Laura, can you comment on what was M&M EBITDA in the quarter?

Yeah, so that'll come out Friday in the queue. So in the queue, we'll deconstruct the discontinued operations number that we've reported today. I can give you a high level that they were impacted, obviously, by the China COVID situation as well and the auto end markets, obviously, being their largest factor. But they did continue to do a really nice job of getting price.

Great. Thank you very much. Thank you, David.

Your next question comes from Alexei Yefremov from KeyBank Capital Markets. Please go ahead.

Thank you. Good morning, everyone. John, can you update us on how the Delrin sale process is going?

Yeah, so Delrin, by the way, we've been putting the data room together and all that. We're just getting ready to launch on that, and we would expect that Delrin will take about a year, just like the other part of M&M, to actually close the deal. So, you know, we'll get a deal done in a four- or five-month window, and then regulatory approvals, it'll kind of take like a year. So Data Room is getting finished up. And obviously, we've had inbound phone calls about it, but we haven't really gone into deep engagement yet. We're just getting ready to do that kind of in the next couple weeks.

And, Ed, you provided initially some expectations for evaluation during the sale of Mobility Business. Would you care to do the same about Delrin, maybe in broad terms? What are your expectations for the multiple?

No, I am not going to do that because we sold 90% of it at 14.1 times. So I think what we said more than happened. And I will say Delrin is a very nice sale there.

Fair enough. Thank you.

Your next question comes from John Spector from UBS. Please go ahead.

Yeah, this is Josh Spector.

So just a question on W&P and pricing. And margins particularly. I think in the past that segment, margins have been mid to upper 20%. Now you're kind of more low to mid 20%. Very clear that you're getting pricing to offset inflation. But do you have any visibility to get pricing more than inflation over the next 18 months, two years? Should we expect margins to expand in the outlook over time? Thanks.

Yeah, so the underlying margin, as we look at it, excluding price and cost, was closer to 26% in the quarter, as we noted on the call. So starting to get back to the more normalized margins that we would expect for the segment in the upper 20s. And in normal times, too, outside the inflation, we would expect to get 1% to 2% of price out of that portfolio that does drop to the bottom line with respect to the new product innovations and favorable mix as we move into the more higher margin segment. So we'll continue to see headwinds on as-reported margins as we go out this year just because of price costs, and we'll continue to let you know what that adjustment looks like so you can get to more of an underlying margin basis opportunity for the W&P segment.

Okay. But I guess we should take that to mean that if inflation stays where it is and you're pricing towards that, this becomes more of the new normal and then it's normal incremental margins. You're not expecting accelerated pricing to persist to drive margins back up in this segment over time. That's not your expectation.

So I think what would occur is hopefully commodity prices come down, and we hold, obviously, some of the price because of the products that we have. I would think that's the more that could play out here. And you're not in like 28% EBITDA margin, so we're certainly not pleased at 26, but 26 we don't feel bad about in this environment, but we would certainly strive to be more in that 28 range, and we have been there. So, as Lori said, part of it, you'll just get by. If you just take all this, because it's not normal times, we'll get a couple points of pricing every year with our new product introductions. We don't get fade like you do in electronics, and we truly can get incremental net pricing in the business, which will help with our biggest opportunity. Okay, thank you.

Your next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.

Thank you, and good morning, everyone. If I could just ask, in safety solutions, where you are sort of on, I guess, what would be considered hard COVID comps with Tyvek into healthcare, and was that part of what was driving sort of the weaker product mix in the overall segment?

yeah that was it so it was a function of last year we were producing full-on Tyvek garments and so we were limiting changeovers on the lines just given that we weren't making other end markets like medical and other types of end market uses for Tyvek and so as you now go into a more normalized environment you have more changeovers so therefore your production is a little bit less, and that was what was driving the impact of the weaker mix within

the W&P segment. Okay. And just as a follow-up, Laurie, and maybe this will make more sense or easier to follow once we have the queue, but just looking at sort of what corporate did on an EBITDA basis in the quarter versus, if I look at slide 14 and, you know, you've got a corporate expense of $135, stranded costs of $50, which would total up to $185, and then you've got unquantified results of retained businesses and biomaterials. So can you give us a little bit of a help on sort of how this is going to progress over the year, presumably start making progress on those stranded costs, the corporate, you know, we can kind of run rate, but what about that third piece of the retained businesses and biomaterials?

Yeah. So the, there are three buckets, as you had mentioned. And so the retained pieces, the margins, I would say, are in the mid teams once you get an on an upward trajectory as we get outside of the COVID lockdown. So the largest piece of the retained business is the adhesive business, and it did see an impact in the quarter with respect to the China situation. So that's the biggest piece, and we will disclose the revenue of the retained businesses in the queue on Friday. When you get that, you'll be able to calculate kind of what the margin profile was for that space. With respect to normal corporate expenses, those would be on the range of $135 million on a full-year basis, as we have in our supplemental guidance. And so you would expect, you know, around $25, $26 million for the quarter. And then the third piece are the net stranded costs. And we continue to be in the range of about a net $50 million on a full-year basis. And that's our target to get after as we look to eliminate those going forward.

Okay. Thanks very much.

Your next question comes from Mike Sison from Wells Fargo. Please go ahead.

Hey, good morning. Just, I guess, a quick follow-up on Rogers. I guess if they're being affected by China, you know, in 2Q, you know, sequentially EBITDA probably doesn't improve a lot. And then if we get on the run rate that you noted for the second half, we're probably somewhere in the low 200, 3BITDA. And I know you don't own the business yet. But so just as a follow up, you know, why do you think things will improve in the second half? And then, you know, any updates on synergies that you can accelerate, given it seems like 22 is going to come in a little bit short for Rodgers this year?

Yeah, Rodgers will not run around 200 million in the second half of the year. They have a demand is there. We know the book, again, muted up pretty significantly by COVID. China. And don't forget, it's auto-related, a lot of the business. So, you know, that not being as hot as it should, even though end market demand is there. But they'll be running at a much more significant rate in the third quarter, assuming, you know, again, the COVID stuff has all cleaned up, lockdowns have ended. And we have a line of sight where we're allowed to talk about $15 million. We're highly confident in it on a percentage basis with the combo of that coming in with our like business. It's not a percent that's on the high end at all. So, you know, like Laird was 60, we now line of sight, detail by detail to 63. This one we have, we're really racking and stacking where we have a lot of it identified. So we'll get at it really quick. And remember one of the things that, you know, there's corporate expense of some significance that will be cleaned up very, very quickly. And then we'll start on the rest. Right. So for 23, we should really be thinking

about 270 plus whatever growth that the industry should provide is kind of the base case for

when we model in Rogers for 23. Yeah, I think that's fair. With synergies then, you know, you got them kicking in, you know, we'll hopefully. Understood. Thank you. Okay. And your next

question comes from Aron Viswanathan from RBC Capital Markets. Please go ahead. Great. Thanks

for taking my question. I guess I just had a longer-term question. So, you know, several years ago, your electronics business faced a lot of pressure in China, you know, around innovation and with the Solanet Pace product. I know that's been disposed of, but do you see that kind of issues cropping up in any of your markets in the future? That'd be my first question. Thanks.

no i i don't at all there's nothing in the portfolio actually nothing you know 95 percent of the portfolio technology um if you haven't had the chance you know we did all the teach-ins recently on the electronics business i think we're in a very strong technology position and we're constantly innovating by it's a fast we're innovating literally you know monthly coming out with new products in the marketplace we're always on the cutting edge so i don't see that. I think what you were mentioning with Solomit-based, which yes, was more of a commoditized business that was current, but that's not where the portfolio is headed and certainly not in addition. Okay. Thanks for confirming that. And then if I could, is there any update you could

provide on any of the PFAS dynamics? Do you expect any kind of settlement by year end with the water districts or what are you working on on that side? Thanks. Yeah, no, we've been, as we've mentioned

before we've been talking about settlement with the plaintiffs and by mostly obviously around the water cases. And as I mentioned a few minutes ago, the judge has even encouraged both parties to be talking to each other. Hopefully good progress this year. And the last question for

today comes from Lawrence Alexander from Jeffries. Please go ahead. I guess a question about your

degree of visibility, you know, in terms of how customers are sharing development schedules and order books and the shift in DuPont's portfolio, how many quarters out do you feel you have good

visibility at this point? Yeah, we do look at that to see how our order patterns are. I would say on average, we have about 60 days visibility to orders that come in in combination between E&I and W&P. It's a little bit longer in W&P than what it is in E&I. But as we had mentioned earlier in the call, we look at the 20-day order pattern every week, and it has not changed in any significance for the past several months. And so we continue to see very strong underlying demand. Some of our backlog within the water space and within the adhesive space has started to build with the dynamics that we're navigating within the China COVID situation. But overall, demand remains very, very strong.

And I would just give you one other angle. Obviously, Nick just made this comment. We work very closely with our customers on design wins, as does Laird. Lift in business. So as Lori just mentioned, our HESA business.

We'll turn the call back over to Chris McCray for closing remarks.

All right. Thanks, everybody, for joining the call. And just for your reference, a copy of the transcript will be posted on our IR website shortly. This concludes our call. Thanks again.

This concludes today's conference call. You may now disconnect. Thank you.