DuPont de Nemours, Inc. Q4 FY2025 Earnings Call

Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today. At this time, I would like to welcome you to DuPont's fourth quarter and full year 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star followed by the number one on your telephone keypad and if you'd like to withdraw that question again press star one thank you i would now like to turn the conference over to ann gian cristoforo vice president investor relations and please go ahead good morning and thank you for joining us for dupont's fourth quarter and full year 2025 financial results conference call joining me today are laurie Koch, Chief Executive Officer, and Antonella Franzen, Chief Financial Officer.

We have prepared slides to supplement our remarks, which are posted on DuPont's website under the Investor Relations tab and through the webcast link. Please read the forward-looking disclaimer contained in the slides. During this 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 risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our 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 are on a continuing operations basis and 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 presentation materials and has been posted to DuPont's Investor Relations website. As a quick reminder, on the basis of presentation for our fourth quarter and full year financial results our total company net sales operating ebitda and adjusted eps reflect the separation of community and the previously announced divestiture of the aramid's business reported as discontinued operations i'll now turn the call over to lori who will begin on slide three good morning and thanks everyone for joining our fourth quarter calls.

Earlier today, we reported our fourth quarter and full-year financial results, which were ahead of our previously communicated guidance. We finished the year strong, delivering full-year organic sales growth of 2%, operating EBITDA growth of 6%, and 100 basis points of margin expansion. Operational discipline and a focus on productivity were key to our earnings growth and margin improvement. These results led to an ingested EPS of $1.68 per share, up 16% year-over-year. Free cash flow generation was strong in the year. While delivering on our financial metrics, we also executed significant operational and portfolio transformation during the year. We successfully completed the separation of CUNITY Electronics, standing up a premier PurePlay Technology Solutions partner to the semiconductor value chain. We also completed the build-out of my executive leadership team, adding external talent from well-run companies as well as promoting within the organization. We set the strategic direction of New DuPont, starting with enhancing our core values to drive a culture focus on growth and continuous improvement. This includes building a robust business system and continuing the progress on both our commercial and operational excellence frameworks. Finally, we set clear and robust medium-term financial targets aligned with our performance-based culture. I want to thank our employees for remaining focused on delivering these results and driving the transformation during the year. The momentum and progress we made in 2025 is carrying forward to our 2026 strategic priorities, which I will cover on slide 4. Consistent with what we outlined at Investor Day, our strategic priorities for 2026 are clear drive above market organic growth continue to build out a robust business system deploy a balanced capital allocation model all while consistently delivering financial results we have successfully repositioned ourselves and have a streamlined portfolio of leading businesses the majority of which are aligned to secular end markets which will enable strong organic growth We saw 2% organic growth for full year 2025 and expect it to accelerate to about 3% in 2026. We are well positioned in secular end markets, and our top line growth will continue to be bolstered by our innovation engine, which launched more than 125 new products in 2025. Our new products generated greater than $2 billion in sales this past year, and our vitality index remained strong at about 30%. We are advancing the build-out of our business system and made significant progress last year. We introduced a core set of enhanced KPIs focused on driving improvement for our shareholders, customers, and employees. These KPIs are embedded in our refresh set of management standards, which has added more visibility, rigor, and structure to our business processes. In addition, we will continue to expand the use of Kaizen events across the businesses and functions to identify areas to drive productivity, improve end-to-end processes, and accelerate commercial development. On commercial excellence, we continue to advance the framework across commercial enablement, sales effectiveness, and strategic marketing. We have completed a maturity assessment resulting in the identification of key initiatives in 2026 centered primarily on demand generation and pipeline discipline. Operational excellence enhancements will continue in 2026. Last year, we rolled out an updated set of KPIs aligned with our focus on safety, quality, delivery, and cost, and refreshed our excellence toolkit with a stronger focus on lean methodologies. In addition, we invested in people and process capabilities across our supply chain and quality functions in order to enhance the customer experience. These improvements and investments will drive overall productivity in 2026. Across these disciplines, we are also actively deploying digital capabilities and AI to accelerate our progress. Within innovation, we are making investments in our labs to enable streamlined workflows and accelerate our product development cycle time. Within operations, we are utilizing tools in the reliability and maintenance space to improve uptime and reduce costs. And on the commercial side, we are focusing on investments in workflow and process automation to improve the customer experience. On capital allocation, we have a proven model that enables both consistent investments and high return organic opportunities, as well as bolting on to existing businesses with M&A to enable even greater returns a strong balance sheet is a priority for us we will continue to return cash to shareholders through a quarterly dividend in line with our targeted payout ratio as well as utilizing share repurchases we previously announced a two billion dollar share repurchase authorization and we executed a 500 million dollar asr in the fourth quarter of 2025. with these priorities let's move to our 2026 outlook on slide five Our financial guidance for 2026 is in line with the medium-term targets that we outlined at our September Investor Day. On a reported basis, we expect organic sales to grow about 3% year-over-year, operating margins to expand 60 to 80 basis points, and adjusted EPS of $2.25 to $2.30 per share. On a pro-forma basis, our EPS will grow 10 to 12% year-over-year. Free cash flow generation will be solid with an expected conversion of greater than 90%. Underpinning organic growth is a mixed macro environment. Market indicators for healthcare and water technology continue to expect mid-single-digit growth in both spaces on increasing medical procedures to support an aging and growing population and strong global water demand. Overall automotive demand is about flat in 2026 with weakness in the US and Europe. However, we continue to expect EV builds to significantly outpace overall build. In construction, after years have declined, market stabilization is expected with flattish demand year over year. We are off to a good start to the year. Our January sales were in line with expectations and overall we are seeing improving order trends in our industrial technology business, which we view as an indication that these markets, which were down last year, are beginning to stabilize and recover. Overall, our teams are executing with a focus on driving growth and operational discipline, and our strategic priorities position us well for long-term value creation. With that, I'll now turn the call over to Antonella to cover the financials and outlook in more detail.

Thanks, Lori, and good morning, everyone. the fourth quarter marked a strong operational finish to the year we exceeded our financial guidance on better than expected top line mix and productivity resulting in strong ebitda and margin improvement in the quarter beginning with fourth quarter financial highlights on slide six net sales of 1.7 billion were about flat versus the year ago period as a one percent organic sales decline was offset by a one percent benefit from currency organic sales consisted of a one percent decrease in volume which included a 30 million dollar or two percent headwind from order timing shifts into the third quarter from the fourth quarter due to system cutover activities in advance of the electronic separation adjusting for the timing shift organic sales would have grown 1% in the quarter. Looking at the second half, organic sales increased 2% versus the year ago period. From a segment view, during the quarter, organic sales grew 3% in healthcare and water technologies, offset by a 4% decline in diversified industrials. From a second half perspective, healthcare and water technologies grew 5% on an organic basis, partially offset by a one percent decline in diversified industrials. From a regional perspective, in the quarter we saw organic growth in Europe up two percent year over year, with Asia Pacific down two percent. North America was about flat year over year. Fourth quarter operating EBITDA of 409 million increased four percent versus the year ago period on favorable mix and cost productivity. Operating EBITDA margin during the quarter of 24.2% increased 80 basis points year over year. Turning to slide seven, adjusted EPS for the quarter of 46 cents was up 18% versus the year ago period. The increase was driven by higher segment earnings of 2 cents, lower interest expense of 4 cents, and a 2 cent benefit from exchange gains and losses. This was partially offset by a one cent headwind from a higher tax rate turning to slide eight healthcare and water technologies fourth quarter net sales of 821 million were up four percent versus a year ago period on three percent organic growth and a one percent benefit from currency organic growth included a headwind of approximately 15 million or two percent in order timing shifts into the third quarter adjusting for this headwind organic sales growth was five percent in the quarter for the fourth quarter healthcare sales were up mid single digits on an organic basis versus a year ago period organic growth was broad based led by continued strength in medical packaging and medical devices water sales were up below single digits on an organic basis primarily due to strength in industrial water markets a majority of the headwinds from the order timing shift was within water operating ebitda for the segment during the quarter of 255 million was up four percent versus the year ago period on organic growth and productivity gains partially upset by growth investments operating ebitda margin during the quarter was 31.1 percent flat with the prior year turning to diversified industrials on slide nine fourth quarter net sales of 872 million decreased three percent versus the year ago period on a four percent organic decline partially offset by a one percent benefit from currency the organic decline included a headwind of approximately 15 million in order timing shifts into the third quarter adjusting for this headwind organic sales declined two percent in the quarter at the line of business level organic sales for building technologies were down high single digits on continued weakness in construction markets industrial technologies organic sales were down low single digits as strength in aerospace was more than offset by weakness in printing and packaging markets a majority of the headwinds from within industrial technologies. Operating EBITDA for diversified industrials of 197 million was up 2% versus the year ago period on favorable mix and cost productivity. Operating EBITDA margin during the quarter was 22.6%, up 110 basis points versus the year ago period. Turning to slide 10, which outlines our first quarter and full year 2026 financial guidance. For the first quarter, we estimate net sales of about $1.67 billion, operating EBITDA of about $395 million, and adjusted EPS of $0.48 per share. Our first quarter net sales guidance assumes about 2% organic growth and about a 2% benefit from currency. Our operating EBITDA assumes a 10% increase year-over-year and margin expansion driven provide business improvement and lower corporate costs for the full year 2026 as laurie noted our guidance is in line with our medium term targets we expect net sales of about 7.1 billion operating ebitda of about 1.74 billion and adjusted eps of two dollars and 25 cents to two dollars and 30 cents per share our full year net sales guidance assumes about three percent organic growth and a currency benefit of about one percent. Our operating EBITDA assumes a six to eight percent increase year over year with 60 to 80 basis points of margin expansion. Our adjusted EPS guidance at the midpoint assumes about a 35 percent increase on a reported basis and an 11 percent increase on a pro forma basis. For the health care and water segment, we expect full year 2026 organic sales growth in the mid-single digits per set range. This assumed growth is expected to be driven by broad-based strengths within healthcare, primarily due to demand in medical packaging applications and medical devices. In water, we expect continued growth primarily driven by demand for reverse osmosis and ion exchange within industrial and municipal water market for the diversified industrial segment we expect full year 2026 organic sales growth in the low single digits percent range within building technologies after a year of market decline we are expecting 2026 to be about flat primarily driven by stabilization within us construction markets in industrial technologies we expect a low single digit growth year over year driven by strength in aerospace and demand recovery within markets served by our industrial-based product lives. With that, we are pleased to take your questions, and let me turn it back to the operator to open the Q&A.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again, press star 1. We also ask that You limit yourself to one question and one follow-up. Any additional questions, please re-queue. And your first question comes from the line of Jeff Sprague with Vertical Research Partners. Please go ahead.

Hey, thank you. Good morning, everyone. Good morning, Jeff. Good morning. Nice to see a solid, clean quarter. And also, Lori, your opening remarks there, all the focus on internal KPIs and growth. And you were working on that along the way. But a shift to execution from portfolio moves is welcome on my behalf, anyhow.

Thank you.

Yeah. Good luck with all that. I wanted to shift, though, a little bit to the external, if I could. You just put a little bit finer point on the industrial side of the equation, sort of the soft U.S. industrial production in your guide that you mentioned, but then seems a little bit countered by your comments about industrial orders picking up. So maybe just a little bit more color of what you're seeing really in the core industrial parts of the portfolio, how orders are trending, and what you think is going on with channel inventories.

Yeah, thanks, Jeff. So on the industrial side, so like talking ex-the-shelter business, which we had mentioned, we think will be about flat this year, so moderating from down mid-single digits in 2025. And the flat on the shelter side is general kind of low single-digit growth expectations for the full year on non-res and repair and remodel, and then down low to mid-single digits on the resi side. But on the industrial side, it's primarily coming from the advanced mobility businesses, which comprise automotive and aerospace, and on the consumer packaged goods side with some of our packaging goods in styro. So we've seen nice order pick up as we exited the year and went into Q1. A lot of it is being driven by aerospace. We're seeing nice, low double-digit improvement in order in aerospace. It's about 3% or 4% of our revenue, so it's in that range. But all the businesses kind of in that industrial technology space are doing nicely and seeing kind of the short-cycle recovery that other needs have been going into.

Great. And then just on price cost, obviously a lot of attention on metals costs, which is maybe less of an issue for you than some of the metal vendors I cover. But, you know, what's going on on the inflation side of the equation? What sort of kind of price is embedded in the outlook for 2026?

So, Jeff, when our organic growth of 3% is predominantly related to volume for 2026, I would tell you, We're not really expecting any significant headwinds from, you know, any of the raw logistics and kind of utilities kind of going into next year. We expect that to be relatively flat, and given our productivity initiatives, we expect to see a nice improvement in our gross margins on a year-over-year basis.

Got it.

Yep. Your next question comes from the line of Scott Davis with Malia's Research. Please go ahead.

Hey, good morning, Laurie and Antonella.

Good morning, Scott.

I echo what Jeff said. Nice to see a more normalized quarter here. I wanted to follow up a little bit on Jeff's question, but on the shelter side, going from kind of a negative high single digits to something that's more flattish, how do we cadence that into 2026?

Is it more back end loaded or do you see real green shoots here in and early in the year that you've already seen to to be able to call a recovery yes so let me let me start on that one so when you look at our overall shelter business you know we mentioned that it was down around you know mid single digits in 2025 so when we start off 2026 i would tell you that we expect it to be slightly down as we start the year so part of it's going to be the comps on a year-over-year basis so just keep in mind that in Q1 of 2025, we were down around 6% in that business. So on a year-over-year basis, when you look at the two-year stack, it's not really changing significantly from kind of the second half of the year of where we're exiting, kind of going into the beginning of the year. So we do expect slight improvement as we go through the course of the year.

If we start out slightly negative, getting a little bit better, that gets you to the overall flat for the year. okay that's helpful and i i don't recall hearing vitality index on these calls in the past maybe yeah you do and i just haven't heard it but um 30 seems like a pretty robust number but i don't really have any context to what that's been historically and perhaps just some color on how helpful is this as it relates to to mix or price or you know volume um you know these iterative slight improvements or are there real meaningful product changes? Just so Kyler would be helpful, I think. Thanks.

Sure. Yeah. We had first talked about it in Investor Day where we mentioned that the 2024 number was about 30%. We expect that same performance in 2025. So, it is helpful on both the top line side as well as the margin side. So, there's work that goes into not only releasing new products where we can get enhanced price and get some incremental share there's also work that goes on on the kind of the value engineering side to take costs out and deliver margin improvement so if we look at the margin profile of those products that comprise any product sales it is higher than the overall margin of the company and so we're seeing nice lifts from both sides our efforts internally you know we did 125 new products last year and we'll expect to continue to do nicely this year and we'll focus on making sure that the shift is happening from renew versus grow. So you had mentioned the impact to the top line. There is a portion of that 30 percent fatality index that is replacement and making sure that we stay competitive and differentiated. And we want to continue to do that, but also shift the mix towards growth so that we can get incremental top line growth out of the innovation engine.

Okay. Thanks, Lori. Best of luck. I just appreciate it. Pass it on. Thank you.

Your next question comes from the line of Steve Tusa with J.P. Morgan. Please go ahead.

Hi, this is Shigusa Kotoku on for Steve. Thanks for taking my question. So my first question is on, so you're making great progress on the margin front, and I just wanted to go back to the margin bridge that you provided at Analyst Day, and you provided like zero to 50 bits of productivity here. And I was wondering, And given the execution, is there a potential upside here or are you tracking ahead of plan?

Yes. Well, I'll say let's take it one year at a time as we progress through the three-year But I would say, you know, we're clearly starting out of the gates in a nice, good spot. And when you look at our guidance for 2026, we have at least 20 basis points of margin expansion coming from productivity. Clearly, the teams are doing a great job. Lori outlined a lot of activities that we have ongoing in the organization. I think you saw some of the benefit of that in our Q4 results. You'll see that continue as we go into 2026, and we'll continue to drive that as we move through the three-year period.

Okay. That's great. And then on the area that's divestiture, I think, is expected to close at the end of the first quarter, which is going to bring in about $1.2 billion of pre-tax proceeds, if I remember correctly. But any initial thoughts on what you were thinking about capital deployment?

Thanks. Yeah, so we're still in that range of closing around the end of the first quarter, and it'll be about a billion one on a net tax basis. Keep in mind, we've already deployed about half of that with the $500 billion ASR that we announced last quarter and have completed already for us this year. So we'll continue to be shareholder friendly with respect to deployment of the proceeds. We have mentioned that we would like to continue to add to the top line through M&A, so we've got some opportunities that we're looking at primarily in the healthcare side right now within similar aspects to what we did with Spectrum and Donatel. We'll continue to be mindful, obviously, about ensuring a really strong return. So we'll look to get up to, you know, higher than our cost of capital by year five with respect to the IRR on the deal. So we'll continue to be shareholder-friendly. we've proven that we've done it in the past significantly, and we'll look to deploy them efficiently.

Okay, great. Thank you.

Your next question comes from the line of John McNulty with BMO. Please go ahead.

Yeah, good morning. Thanks for taking my question. Maybe you wanted to dig into the diversified margin lift. It was a pretty chunky lift, I guess.

How much of that is around the mix with the benefit of aerospace kind of hanging in as a really strong driver versus how much of it is tied to some of that 80-20 kind of work that uh that i know uh beth is working on really kind of accelerating as we as we push over the next 12 to 18 months can you help us to think about that yeah so a couple things that i would mention there i would say you know you're not really yet seeing the benefits of 80 20 it's a little too early um you know as you know beth recently arrived so yes she's working on that but the benefits of that i would say are to come as we move forward when you kind of look at the activity in the fourth quarter i would point more towards what drove the margin expansion to be a bit of mix related to you know the the businesses that were growing when you look at the line of business level as well as a strong push relative to productivity is what really drove a nice margin expansion in the fourth quarter on a year over year basis got it okay no thanks for the color and then um in terms of innovation i mean you You mentioned the Vitality Index.

You kind of spoke to, I think it was $2 billion of growth that you saw from some of the new I guess, can you help us to think about some of the more exciting innovations, the ones that are starting to move the needle maybe more than others that we should be looking for as we kind of look through 26 into 27?

So, the $2 billion is the total new product sales that are within the, you know, around the $7 billion of sales that we reported. so it's a portion of replacement and a portion of growth. So we'll continue to try to shift that mix towards more growth versus replacement in the future. But as far as exciting innovations that are on the come, I think one for this year, we highlighted on the last call, and I'll highlight again, just because it was such a sizable improvement, were the enhanced Tyvek garments. So we announced at a trade show late last year that we came out with a new model that has the best breathability and the best protection in the industry. And we've seen really, really nice from customer reaction to that. We announced it first in Europe and we'll continue to roll it out across the globe. On the water side, we continue to advance the latest technology within the reverse osmosis side. So, this year we're expanding capacity at our Adina site to be able to produce the Gen 4, which would be the highest end technology that would enable a significant total cost of ownership to our customers. So, we're continuing to advance that. And we'll look to commercialize that in 2027. So, those are just two of the highlights, but obviously with 125 new products last year, it's happening, you know, kind of all across the portfolio.

Got it. Thanks very much for the caller.

Your next question comes from the line of John Roberts with Mizuho. Please go ahead.

Good. Thank you and congrats on a good start here. Could you provide some margin on the four sub-segments, water, health, building, and industrial? I'm not sure how much detail you want to provide there.

Yes, we typically give color on the revenue side of our segments. But when you do look from a margin perspective, I mean, what I would add is you will see margin improvement, I would say, in both of our reportable segments as we move forward. And we'll also obviously get some margin expansion from a lower corporate cost as well. and that's certainly what's going to drive the 60 to 80 basis points of margin expansion in 2026.

And then your Asia-Pacific sales were down 2% organic. Was that water supply chain contraction again, or is there something else going on there?

No, it wasn't water. It was primarily within the diversified side. We had a supply chain change in our shelter business that was the single largest item, so it was really just a change in the distributor-joint venture relationship, so nothing permanent. We'll push it into 2026. So nothing material. We expect a return to growth across all the regions, both in the quarter and the full year for 2026.

Thank you. Your next question comes from the line of Josh Spector with UBS. Please go ahead.

Yeah. Hi. Good morning. I had two questions on water, maybe one slightly related to the comment earlier on Asia is that when you're forecast, you're talking about mid-single-digit growth in water for 26. China's lower than that. Can you go into some of the details on why and what you're seeing there? I mean, you and some other peers are seeing slower growth in China in general. And then secondly, does that help or hurt your mix in the overall segment?

Yeah. So we are seeing a slower start in China with respect to overall growth within the water business, and it's primarily stemming from just the reduced industrial production in the region. So, we'll start in the low single digits in China in water, and then we'll ramp into the back half to get over all to that mid-single digit. And I think, as you had mentioned, our peers are seeing a similar dynamic. So, it's really just a reflection of the industrial production malaise in China. About half of our water is used in the industrial wastewater treatment our industrial utility water space and so when industrial production is down obviously it would have an impact on on that um as far as the mix no material change in mix depending on where the regional growth is or margin okay thank you i'll leave it there your next question comes from the line of alexi yefremov with keybank please go ahead hi uh this is paul on for alexi can you discuss what you're currently seeing in um auto trends right now and maybe the cadence for your outlook for 2026. thanks so much yeah overall the expectation for auto builds um from ihs is to be about flat we would expect to slightly outperform that just based on our ev um growth and so we did see nice ev growth in 2025 and we'll continue to see nice ev growth in 2026. um it'll vary by quarter, but overall that the full year is about flat and will be slightly up.

Your next question comes from the line of Matthew Gayle with Bank of America. Please go ahead. Morning, everyone.

So clearly the portfolio is shaken out a lot, but as we settle here, is there any hope to establish annual pricing initiatives in any of the businesses that could be enough to actually drive, you know, structural pricing gains across consolidated DuPont, whether that's 50 bps or 100 bps? Do we have a framework there?

We do. I mean, we've had, obviously, the past two years have been the unwind of the sizable price that we took through the inflationary environment coming out of COVID. But going forward, we would expect to see structural price lift. As Antonella mentioned at the beginning, in 2026, our 3% organic is primarily volume, but underneath that, there is some price in some of the businesses. We continue to expect to have to give back a little bit on the shelter side primarily as that sizable price raise that we drove in the 2022-2023 timeframe starts to unwind. But yes, there is opportunity to drive structural price in most of the businesses in our portfolio.

Thanks for that. And as you comment on something like Tyvek with the new advanced garments, right? How much margin uplift would something like that give versus a legacy product? And I guess maybe, I don't know if you want to comment specifically on that, but it's a different one maybe. What is the average margin uplift? If you were to look at the vitality index and you're thinking about replacement, is this through the index at 30 basis point or 100 basis point, or is it flat?

What's the uplift look like as we think about land? yeah i'd rather not comment on the margin list that kind of at the product line level but overall in the vitality index um in the 30 percent we have about 145 basis points of margin lift from those from those products that are that are introduced in the past five years oh that's great thank you your next question comes from the line of chris Parkinson with Wolf Research.

Please go ahead.

Great. Thanks so much for taking my question. We just take a step back and look at your healthcare portfolio. I know this is a focus of your CMD, but Lori, where are you the most enthusiastic as you go through 26, you know, and perhaps even the longer-term growth algo? Is it on the biopharma side? Is it pharma solutions, med device? Like, you know, if you could just comment on your enthusiasm in terms of your product portfolio, Livio, that would be particularly helpful, and then I'll have a follow-up. Thank you.

Yeah, it's really across all three. So, you know, both med packaging, med device, and biopharma all are nicely contributing to the, you know, kind of mid to high single-digit range in 2026. They all participate nicely in the higher-end aspects of the med device universe. So, if you think about the majority of our applications, they're more in the cardiovascular space, which has an overall higher growth rate with respect to overall surgical procedures. So, all three of them are going to contribute nicely. We'll continue to differentially invest in those businesses to ensure that we can continue to grow.

Got it. And just a similar question for the water business now that all the dust has settled, you know, post the split. When you take a look at your water portfolio infiltration in particular across, like, you know, NFRO, UF, you know, is there – it's clearly a great business, but do you feel as though you're missing any scale?

Do you feel as though there's a piece to your portfolio? obviously that is other things and like I on exchange over the years like what else do you think you need to do if anything quite frankly to further garner investor appreciate appreciation for that specific business yeah I think from a technology perspective we've got the leading technology across all the main components within water filtration so leading an RO leading in you know I on exchange leading in US and nano filtration so we're nicely positioned there. We've mentioned the desire to start to build around water, so potentially going into spaces beyond filtration. Just given filtration would be difficult from a regulatory perspective for us, given that we've got the leading position. So, we continue to scout and look for opportunities to expand in the water space. Obviously, we'll be highly in tune to the valuations there. They can be quite pricey. We've seen a few assets with some of our competitors trade in the last few orders that had a high high valuation that would make it difficult for us but we'll continue to see we recently added just to continue to shore up our supply chain in the water space and asset in china ro has huge growth in china we didn't have an established footprint we bought an asset outside of shanghai that gave us established membrane capacity in the region for us to continue to be competitive and local to our customers there helpful as always thank you so much you're welcome Your next question comes from the line of Vincent Andrews with Morgan Stanley.

Please go ahead.

Thank you very much. I wanted to ask on health care. You called out in the deck that surgical procedures you're expecting to be up mid-single digits this year. Can you just give us a sense? Is that sort of the normal growth rate, and is that favorable or about the same versus 25? And then is your portfolio, you know, sort of well-represented across that entire cohort, or how should we think about it?

Yeah, I would say it's a similar growth rate to what we saw in 25, minus the D-stock that happened in the first quarter that kind of drove up the overall health care growth for the year. So we're nicely positioned, as I mentioned, in the areas that are driving kind of above the average surgical procedure rate. So if you say general surgeries is about 4%, where we play, we expect that overall average to be more market-weighted to about 5%. So we're nicely positioned on both the healthcare side with the tieback packaging as well as on the Spectrum and Donatel side on the device. Our single largest end market there is also within the cardiovascular and vascular space.

Okay. And then just to follow up on the balance sheet and capital allocation, the end of the year with $715 million in cash. You've got the billion one coming in. Earlier you spoke to, well, we've kind of spent some of that billion one already with the $500 million ASR. So can you just refresh us on sort of what the minimum level of cash is that you want to carry? And then as you move forward through the year and generate more cash, obviously you're expecting another very strong year of cash conversion, understanding sort of the dual track of pursuing M&A as well as well as share repurchases, should we think about that sort of remaining proceeds from the divestiture to be sort of earmarked for M&A, but the sort of free cash flow generation from this year to sort of be rateably allocated to CapEx, to dividends, and to repurchases, or is that not the right way to think about it?

Yeah, so let me start with your first question. So typically on the balance sheet, we would carry around a billion dollars in cash. We were a little bit below that at the end of the year, given the cash that we spent on the ASR of $500 million. So as you mentioned, we will have a nice cash flow generation year in 2026. So we do expect our free cash flow conversion in 2026 to be greater than 90%. In addition to that, we do have the proceeds that are coming in the door related to the Aramage transaction. As Lori kind of mentioned earlier, I would say in terms of capital allocation, we view that in the eyes of the shareholder in terms of what creates the most amount of value. So, I wouldn't say there's a specific amount earmarked towards an M&A deal or a specific amount earmarked towards share repurchases. We'll continue to look at both. We do have a pipeline of some M&A that we are looking at.

You know, ultimately, you'll see if they come to fruition or not, but clearly, we will continue to deploy capital in the best interest of our shareholders as we move forward. thank you very much your next question comes from the line of patrick cunningham with city please go ahead hi um this is virtually off for patrick so i think in an earlier response you mentioned all regions should be up organic sales wise this year and in one q so with recent pmi's trending more favorably can you just provide more color on that response and maybe what you're seeing in terms of organic sales growth versus GDP?

You kind of dropped off at the end, so I couldn't hear which quarter you were referencing. But to the earlier comment, we do expect to see organic growth across all regions, both in the first quarter and in the full year. The improvement, you know, kind of the first quarter being at 2% organic and the full year being at 3%, most of that improvement is going to be in North America just based on the improvement that we expect to see on the shelter side. So, shelter starting you know kind of slightly negative and trending to even on the full year you'll see that lift given the majority of the end markets um in shelter are in are in north america got it thank you and um can i just ask what sort of level of visibility you have for older books across the healthcare portfolio in general yeah i'll answer the question broadly for the company um because it's it's a bit about um we don't have a long lead time uh put it that way so we start each month with about 80 of the orders on the books and we start each quarter with about 50 of the orders on the books and then we build from there um shelter is definitely the shortest cycle um on the longest cycle i would say it would be our aerospace businesses and our water business would be on the longer end and everyone else would kind of fall in between Great.

Thank you so much for the color.

Your next question comes from the line of Michael Susan with Wells Fargo. Please go ahead.

Hey, good morning. Nice quarter and outlook. Just a quick one on U.S. construction. Your outlook is flat. Any differences between non-res, res, and repair and model in that outlook?

Yes. So as we look into 2026, our expectations would be that non-res would be up in the low single-digit range as well as repair or remodel, and that would be offset by a low to mid-single digit decline on the resi side of the business.

Got it. And then quick follow-up, you know, your outlook and your results, particularly the organic growth, continues to look a lot better than the chemical folks, are you still looking to, you know, is it still possible to change your industry designation, and how does that work, given, you know, I think your results have been much more steady than my group?

Yeah, so when you take a look clearly at the portfolio, our portfolio is not a chemical company portfolio, and to your point, when you look at our performance, our performance is not mirroring that of a specialty chemical company either. So I would tell you we continue to make some progress in terms of the GICS classification, but what I would tell you is our first priority is just to continue to execute, but we will continue to move forward in terms of trying to get the GICS code changed to more appropriately reflect the portfolio that we have today.

Thank you.

Our last question comes from the line of Arun Viswanathan with RBC Capital market, please go ahead.

Great. Thanks for making my question. I just wanted to, I guess, clarify on both healthcare and water. So did you see any de-stocking there? We did see, you know, maybe one of your competitors within healthcare packaging reference to some of that. And then similarly on water, you know, maybe some of the downstream players are also, you know, speaking about that in different regions. So I guess you're not seeing that given your robust outlook for healthcare. Is that correct?

Correct. Yeah. I mean, we, the D stock was behind us in the first quarter of 2025. So we continue to see normalized inventory levels across both those businesses.

Just given that being the case, sorry if I missed this, but did you also mention maybe M&A across both of those businesses, if there are opportunities and where you are kind of in that trajectory? Thanks.

Yeah, sure. Now, we continue to scout opportunities in both spaces. I would say the pipeline is more robust on the healthcare side, just given the fragmentation that exists as well as evaluations are a little lower in that area. So, we continue to look hard at both. We've been busy looking on the med device side, similar to the acquisitions that we with Spectrum and Donatella as we continue to build out a total suite of offerings to our customers, really building our relationship with them and them viewing us as a solutions partner and an application development partner. But we continue to look.

Thanks a lot.

Ladies and gentlemen, I will now turn the conference back over to Anne Gian Cristoforo for closing comments.

Great. Thank you, everyone, for joining our call. For your reference, a copy of our transcript will be posted on DuPont's Investor website. This concludes today's call.

Ladies and gentlemen, thank you for your participation, and you may now disconnect.