DuPont de Nemours Inc (DD) — Q3 2020 Earnings Call Transcript

Good morning, everyone. Thank you for joining us for DuPont’s third quarter 2020 earnings conference call. We’re 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 to 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 slide. 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 2019 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’ll now turn the call over to Ed.

Thanks, Leland, and good morning everyone and thank you for joining us. I’d like to begin by recognizing the tremendous efforts of our employees across the world to deliver another solid quarter in the face of this global pandemic. Lori will cover the specifics of the quarter shortly, but I’d like to take a few minutes to highlight our performance in a few key areas. The timely actions that we took earlier this year to protect our employees, ensure the safe operation of our sites, strengthen our financial position and do our part to combat the pandemic enabled us to deliver strong results this quarter. My senior leadership team and I closely monitor developments globally to ensure we are taking the right precautionary measures to continue protecting our employees; their safety and well-being remains our top priority. Our intense focus on safety has enabled all 170 of our global manufacturing sites to continue operating according to plan. This in turn has given us the ability to deliver for customers during a period of continued uncertainty. Additionally, our balance sheet remains strong. In fact, so far this year, we reduced our commercial paper balance by approximately $1.4 billion to end the quarter with less than $400 million in CP, which was enabled by strong free cash flow and proceeds from the TCS and Hemlock divestitures we announced in September. Since the end of the quarter, we have further reduced our commercial paper balances and we look to make additional progress through year end. We also remain committed to doing our part to help during these unprecedented times. We continued to enable production of approximately 30 million Tyvek protective garments per month in an effort to provide healthcare and frontline workers with the protection they need to battle this global pandemic. I’ll cover more details regarding operational excellence on the next slide, but let me just say that I am encouraged by the progress we are making here. We continue to remove structural G&A cost and execute on our working capital improvements, which helps to drive our strong free cash flow and operating earnings improvements. We have moved faster and found additional pockets of G&A costs to streamline, enabling us to increase our expected cost savings from our 2020 initiatives from $180 million to $280 million. I am also pleased with the progress that we have made in advancing the N&B and IFF transaction, as well as the divestitures of non-core assets. In August IFF shareholders voted overwhelmingly in favor of the transaction and we remain on track for first quarter 2021 close, targeting February 1st. With regards to non-core, in September we announced the divestiture of the TCS business along with our equity interest in the Hemlock semiconductor joint venture for $725 million. Earlier this month, we also signed a deal to sell the biomaterials business for $240 million. These portfolio refinement efforts contribute to value creation by increasing cash flow, strengthening the balance sheet and focusing our portfolio in markets where we expect to see solid growth opportunity. Moving to Slide 3, I would like to provide more specifics on the progress we’ve made, improving our cash generation and G&A productivity. Free cash flow conversion on a year-to-date basis was 140%. Through September, we’ve delivered approximately $1.9 billion of free cash flow versus $1.6 billion for all of 2019. This growth is primarily attributable to actions we have taken to reduce our capital expenditures and improve working capital. During the quarter, we significantly reduced inventory balances and the team focused on reducing past due accounts receivable, also yielded positive results as we reduced our past due balances as a percentage of accounts receivable to 4%. We’ve also lowered planned capital spending for 2022 to approximately $1.0 billion, nearly $500 million less than 2019 levels. As a reminder, we did not reduce any safety-related CapEx and have developed detailed plans for restarting our growth projects to ensure we are able to capture demand when markets fully recover. We delivered more than a 185 basis point reduction in non-manufacturing costs as a percentage of sales in the quarter, mostly in G&A. Of the approximately $150 million of cost savings that we realized, $100 million was structural in nature. As I mentioned, we now expect our 2020 in-period savings from current year actions to be $280 million, versus our prior estimate of $180 million. Our cost actions are targeted towards G&A expenses and are aimed at enabling a highly productive, appropriately scaled, cost structure. Growth through innovation remains a key component of our strategy. And we continue to invest in critical areas like sales, application development, and R&D so that we will be well positioned to capture growth when we fully emerge from the current market environment. Before turning it over to Lori, I’d just like to make a few comments on some of the sequential trends that we saw in the third quarter. We saw a 15% increase in operating EBITDA, as well as a 200 basis point improvement in operating EBITDA margin versus the second quarter. This rebound was most significant within T&I, as global auto builds were up more than 60% sequentially, stronger than our expectations going into the quarter. Additionally, our third-quarter decremental margins were approximately 31%, an improvement of approximately 1,400 basis points versus the second quarter, led by strengthening topline and continued structural cost removal across the company. I’ll now turn it over to Lori to walk through some of the details for the quarter.

Thanks, Ed. And good morning, everyone. Turning to Slide 4 and the financial highlights for the quarter, net sales for the quarter were $5.1 billion, down 6% organically and as reported. The portfolio was neutral as acquisitions in Water Solutions offset divestitures in E&I and non-core. Likewise, currency was neutral in the quarter. Pricing was mixed across the portfolio with gains in S&C and non-core offset by price declines primarily in T&I. Price declines in T&I were down mid-single digits were in line with expectations. We expect similar T&I pricing through the fourth quarter as nylon 66 prices had generally stabilized in the back half of the year. On a regional basis, organic sales increased 3% in Asia-Pacific versus a year ago, with declines in the other regions. China sales in our core segments improved 14% versus the third quarter of 2019 and 10% sequentially from the second quarter of 2020. I’ll provide additional color on our segment top line results on the next slide. We delivered operating EBITDA of $1.3 billion and adjusted EPS of $0.88 per share, well above expectations driven by better-than-expected top-line results in our E&I and T&I segments and more favorable product mix with continued strength in semiconductors, Tyvek protective garments, and probiotics. Once again, our teams maintained strong cost control to deliver operating EBITDA decline in line with the sales decline on a percentage basis. Our decremental margin was approximately 31%, also ahead of our expectations heading into the quarter. Excluding approximately $60 million of costs associated with temporarily idling facilities, primarily in T&I and S&C as well as gains in both the current and prior year periods, our decremental margins were in the mid-single digits. A significant improvement from the second quarter, driven by the improving top line and continued structural cost takeout. As Ed mentioned, we are also delivering on our cash targets, free cash flow of approximately $1.9 billion through the first nine months of the year, led to a conversion rate of approximately 140%. In addition to the strong free cash flow, Ed mentioned the progress we have made on the non-core divestitures, which enabled the reduction of commercial paper balances in the quarter. These actions have lowered our net debt position and improved our net debt-to-EBITDA ratio to below three times. Slide 5 provides more detail on the year-over-year change in net sales, consistent strength across semiconductors, probiotics, home and personal care, Tyvek protective garments and water solutions, coupled with improvement in automotive and residential construction markets led to an overall organic sales decline of 6%, which reflects steady growth of the second quarter growth. Several of our businesses have market-leading products, which enabled them to succeed despite global challenges presented by the pandemic. Within electronics and imaging, semiconductor technologies delivered their third consecutive quarter of organic growth. Likewise, with Nutrition & Biosciences, our probiotics and home and personal care offerings continue to capitalize on robust global demand, each with double-digit growth in the quarter. Finally, within Safety & Construction, the Tyvek protective garment business is providing critical PPE to our medical communities and frontline workers. The water business continues to provide market-leading innovation demanded by our customers. In the third quarter, sales in the water business are up low single digits on an organic basis and up mid-teens percent as reported due to the acquisitions we have made in the space. We also saw market improvement in other key markets in the third quarter, most notably automotive and residential construction, which contribute to the sequential improvement in the top line. We estimate that global auto builds were down about 4% in the third quarter versus the same period last year, a substantial improvement from the historical lows in the second quarter and stronger than we anticipated. And down 9% for the quarter, our T&I volume performance is consistent with the improvement in market demand and the lag we expect due to the majority of our automotive sales going into the Tier 1 and Tier 2 suppliers. There were also green shoots in residential construction, a market that represents approximately 40% of the shelter business within S&C. Our solutions to the residential construction market include Tyvek Building Wrap, Styrofoam Insulation, and GREAT STUFF Insulating Foam, which has also experienced strong retail demand from an increase in do-it-yourself projects. Despite tailwinds in residential construction, our shelter business was down versus last year due to ongoing softness in commercial construction, which makes up the remaining 60% of the shelter business. Also contributing to the improvement in top line was demand for our materials that enable smartphone technology. Increasing material content, which now accounts for up to $4 a phone in the top-end model, overcame an overall declining smartphone market and drove high single-digit growth in our interconnect solutions business as premium phone manufacturers prepared for model launches and holiday demands. Overall, top line performance continues to be impacted by significant weakness in oil and gas, aerospace, commercial construction, and select industrial markets. These market dynamics are most prevalent in the safety and shelter businesses within S&C, the health and biosciences business within N&B, and across the non-core segment. Before moving to the next slide, let me comment on our year-to-date performance. I am pleased that our teams focus on execution and operational excellence, two areas that Ed and I have been focused on since day one. Through the first nine months, our sales have declined 6% on an organic basis. And our focus on streamlining our overhead structure has enabled us to better maintain our earnings. Over the same time period, our EBITDA margin has declined just 7% excluding costs associated with temporary idling facilities in the second and third quarters. Choosing to run these sites for cash was the right decision for the strength of the company and it is showing in the strength of our balance sheet and cash flow. Turning to the adjusted EPS bridge on Slide 6. Adjusted EPS of $0.88 is down 8% versus the same quarter last year, driven by lower volume, costs associated with idling facilities, and the impacts of non-core divestitures. These headwinds are partially offset by the delivery of cost savings. As I mentioned, our cost actions from the 2019 restructuring program, coupled with the incremental action we are driving in 2020, contributed to approximately $150 million of savings in the quarter. The impact of portfolio actions is a net headwind, primarily due to the absence of the gain on the sale of the DuPont Sustainable Solutions business in the third quarter of 2019. We realized three-center benefits from below the line items, primarily a lower share count due to share repurchases we executed in the second half of 2019 and early 2020, and lower interest rates enabled by the reduction in commercial paper balances. These benefits were offset by a slightly higher base tax rate of 21%. In summary, I would emphasize again, what Ed said at the start of the call, our team is laser-focused on execution, and we are now consistently delivering on our earnings, cash flow, and cost-saving commitments. Through a period of significant uncertainty, we continue to progress our strategic priorities, which position us well as we look ahead to 2021 to continue creating value for our shareholders. As we show on Slide 7, we will continue to strengthen our balance sheet with the anticipated closing of the N&B and IFF deal in the first quarter of next year, as well as the closing of the biomaterials deal in the first half of 2021. Tyvek’s strength alone will generate over $7.5 billion of cash proceeds, nearly $2.5 billion of which we will have available after planned debt repayment fees for creating shareholder value. Additionally, we expect our strong free cash flow generation to continue into 2021. As we said earlier, we have significantly improved our net debt position with the reduction of commercial paper balances and we do not have any debt repayments until the fourth quarter of 2023. Beyond those, we intend to satisfy them with the proceeds from the N&B and IFF deal. I’m excited for what’s ahead, and I commend our team for staying focused on execution to put us in a position to have the flexibility to capitalize on the opportunities for growth and shareholder value creation going forward. With that, let me turn it back to Ed for an update on the N&B and IFF transaction and some final comments on what we expect in the fourth quarter.

Thanks, Lori. And now turning to Slide 8, we highlight the progress we’ve made since announcing the N&B and IFF transaction. During the quarter, we completed two additional milestones. In August, IFF shareholders voted overwhelmingly in favor of the transaction with more than 99% of the votes cast in favor of the deal. Then in September, N&B issued $6.25 billion of senior unsecured notes in a private placement. The net proceeds from the offering are intended to fund part of N&B special cash payment of $7.3 billion to DuPont. The net proceeds are held in escrow until the deal closes. The offering was more than five times oversubscribed and resulted in a very favorable cost of borrowing for these notes. We continue to make progress regarding regulatory approval. Additionally, our integration planning remains on track as the teams work toward a first quarter 2021 closing. I remain excited about this combination and confident that the new company will be well positioned for growth and to deliver sustainable value for shareholders. Let me close with our financial outlook on Slide 9, which we have prepared assuming no substantial change in the slope of the recovery due to the pandemic. Obviously, this is a fluid situation with increasing cases and we are monitoring this closely. We expect to deliver net sales for the year in the range of $20.1 billion to $20.2 billion, and adjusted EPS in the range of $3.17 to $3.21. Sequentially from the third quarter, normal seasonal declines in E&I from smartphone production cycles, and S&C from the timing of North America construction activity will be partially offset by improvement in T&I as auto demand continues to recover, although at a much more gradual pace as compared to the prior quarter. Our forecasted earnings also reflect the absence of a $30 million technology sale in E&I and the loss of earnings from Hemlock and TCS, which were divested in September. We will stay focused on driving improvements in working capital and delivering our cost savings commitments. With that, let me turn it back to Leland to open the Q&A.

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. We will allow for one question and one follow-up question per person. Operator, please provide the Q&A instructions.

Hey guys, good morning.

Hey, good morning, Steve.

Can you just maybe comment on the – there was a bit of a change of language in the last filing with regards to the IFF transaction around your decision on whether you’re going to spin or split? Can you maybe just talk about what your thoughts are there? Looks like maybe a split is more likely, but you want to obviously maintain the flexibility and optionality with the kind of whole cleanup spend dynamic. Maybe just talk about what your latest thoughts are on that front.

Yes, Steve. We will be making that decision by mid-December. And we truly have not made a decision yet. I wouldn’t put a leaning one way or the other on it. We took some language changes because we wouldn’t do a hybrid-type approach. We’ll pick one or the other, and that was the change in language. But no decision at this point in time. I wouldn’t read anything into it.

Okay. And then just the follow-up would be on the 4Q, I think the implied downside in to 4Q guide is a bit more than what you’re losing from non-core and that gain in T&I, is there anything else sequentially that’s on an absolute basis kind of getting a worse, I guess you mentioned seasonality and electronics. But is T&I basically, did you overfill the channel before, or is that – or are you kind of like is it a timing dynamic where at some point in the next couple quarters that will snap back to the kind of line and recouple?

Yes. So let me go first to the sequential. So there’s no real change in market dynamics as we see it right now. So there’s actually continued sequential lists in T&I kind of in the mid-single digit space. The drops sequentially in revenue and EBITDA, it’s more driven by seasonality and it’s normal seasonality that we see in our businesses. So primarily it fits within smartphones. So as we get ready in the third quarter for the holiday demand coming up, we had sales in 3Q that would not be there in 4Q due to normal seasonality. Additionally, within our construction space, third quarter tends to be high just with the summer months driving a lot of the construction. So you’ll see a little bit of deceleration there from a seasonal perspective. So the decline that you’re kind of getting at is roughly in the $100 million space sequentially 3Q to 4Q; about a third of that is related to the seasonal decline that we just discussed. Another third of it is we did have a gain on a technology sale in E&I in 3Q that won’t be there in 4Q; and the rest of the largest primary piece is the sale of the Hemlock TCS assets that were sold in September. So within T&I, we don’t really see any level of channel high inventory levels in the channel. So if you see where we look year-to-date, our volumes are down about 15% in T&I versus the auto builds are down about 23%. So I think we’re outperforming there. There’s really if you look at where we fell into as we mentioned on the call, we fell into the Tier 1 and Tier 2 players primarily. So it doesn’t always exactly line up with the auto builds number. You kind of got to look at it year-to-date to understand the lag. So we’re comfortable where we sit going and their material changes from a market perspective as we see it right now.

Hi, good morning, guys.

Hey, Scott.

Hey, Scott.

Hi. Kind of curious, you’ve been chipping at corporate and G&A really, since we got involved in your story. And is this kind of – is there an end game, I guess, is this kind of every quarter you look at just trying to take rebels down or you opportunistically can. Or is there a certain goalpost of where you want to get to and then you feel like that’s the sustainable right level?

Yes. Scott, I mean, I’d put it more in the category of chipping away at it, as we streamline some of our functions and capabilities we can do a little more streamlining on our overhead. We’re putting in some digital tools and we’re going to do a central finance tool and things like that really help us out. So I think we’re getting the best-in-class on our G&A, when you look at peer companies and all, I think we’re doing a heck of a job there. I would highlight one area we're not touching or taking down at all as we said in our prepared remarks, is clearly our salespeople around the world, our application engineering teams around the world and we’re going to continue to spend at the level we’ve been spending out on the R&D front. So we want to come out of the softness in this pandemic period, real strong with lots of new product introductions coming. So it’s really going to continue to stay focused on the G&A piece of it. And then I would really say that the next big focus and we’re focused on it now, but we’re really doubling down is going to be on the gross margin line and our factory efficiencies. And again, we’re doing a fair amount of digital tools; they’re not overly expensive to really look into predictive analytics at our facilities with a lot of AI capability. And we really think we can do some fair amount of improvements there and hopefully help the gross margin line. So that’s where you’ll see some of the – kind of the effort as we’re going into 2021.

Okay, good. And then on the inventory side, another big drawdown this quarter. Where do inventory sit at kind of through the channel? And do you feel like we’ve gotten to the level where you want – your inventory is, and then obviously, as you look through the channel.

Our inventories have a ways to go still now by sales pickup, that’ll help us a little bit here on progress. But we’re expecting nice progress again in the fourth quarter. We still have over a $500 million opportunity on inventory to get to where we think we can get to. So that’s kind of our bogey out there. And again, we’ll make good progress in the fourth quarter. As far as inventory in the channel, obviously, Scott, I actually feel very good about it right now, as you know, the auto industry doesn’t have a lot of finished goods. There’s not any stuffing in the channel going on. And I really don’t see it anywhere, except maybe just a little bit in the electronics space. I think there may potentially, and I’ve heard some of our competitors talk about maybe a little pre-buying from some of the Chinese players, nervous about what’s going on geopolitically right now. But I don’t even think that was a big number. And in the scheme of all of our sales in electronics, not significant, but that’d be maybe the one area where there’s a little bit of that.

Thanks, good morning.

Good morning, Bob.

I was curious in the T&I business, you guys have been idling capacity and obviously that’s hurting your margins, but helping your working capital. If we look to next year in a more normalized world and I guess global auto builds are going to be up mid-teens and GDP up mid-single digits. Can you talk about how powerful the incremental recovery might be and where those margins might get to relative to the 23% operating margin you just reported?

Yes, so we see the T&I portfolio around the mid-20s from an EBITDA margin perspective in our market. So we’ve got some sequential upside as we head into next year, really driven by the items that you had mentioned. So a top line recovery as well as having a lot of the idle facilities behind us.

And is there any update on the discussions with Chemours and Corteva in terms of your separation indemnification agreements? Thank you.

Yes. Well, first of all, the arbitration has started up with Chemours on MAC. And there probably won’t be any decision on that until kind of mid-next year, if you look at the timeline on it. But we continue to talk to each other about the settlement; in fact, Mark Vergnano, the CEO of Chemours and I actually just talked this Monday. A couple of open points, we continue to get closer and then we’ll see if we can get it to the finish line. So that’s paralleling along while the arbitration starts.

Thank you. Good morning, everybody. And Lori, what are the cost savings that spill over from actions taken in 2020 into 2021? And are you planning for prospectively more restructuring or would that potentially be too disruptive given all of the restructuring that’s already gone on against the backdrop of what I will describe as a fledgling recovery?

Yes. So I think the savings that will trickle into 2021 is around $120 million. So we’re targeting now $280 million of in-period savings, so on a run rate basis, that’s about $400 million as we exited, so another $120 million next year. There are just some headwinds that we’ll face next year as well. Obviously, there’ll be some snap back into temporary savings, but we really biased our actions towards the structural. So we don’t have a material headwind, but there will be some opening up of the economy that was in itself to some T&E and some other stuff that we’ve really seen clamped down this year. Right now as I had mentioned, I don’t see additional structural cost takeout. Really the opportunity for us is within gross margin and driving more productivity and gross margin. So we’ve made a lot of nice progress this year. We’re up about from a working capital trade perspective, only about $250 million year-to-date that we’ve nicely dug ourselves out of the hole that we got in earlier in the year. And we’re still targeting more than $500 million of working capital savings this year, but we still have a ways to already get to best-in-class there.

Thanks, Lori. I’m assuming these gross margin initiatives are probably longer term. And I wanted to ask you also kind of – for your strategic thoughts could do you possibly even further S&C expansion into water, I’m thinking maybe technologies where you don’t play currently such as EUV, or even say – I don’t know, getting into the production of equipment as well as the filtration products that you currently provide.

Yes. So John, we’re very interested if we can and expanding the water business. So that would be one area. I don’t want to comment on details, because you get pretty specific, and there’s not that many targets out there. So I won’t get into that, but the water business would be one. There’s some areas in the electronics business, I will mention that one, 5G-type stuff, we would be interested in. And but let me just say overall, we’re really looking at things I would put in the category of bolt-on acquisitions; nothing on a bigger scale in 2021. But it could be several bolt-ons during the year. They make financial sense.

Thank you. Good morning, everyone. Maybe just a couple of follow-ups on kind of segment-level dynamics. First on T&I just thinking about the price pressure there, I think is largely a function of kind of year-over-year dynamics, but I wonder if you could just give us a view on how you see pricing playing sequentially with the builds firming up. Do we move to a little more constructive price environment, perhaps not as soon as Q4, but into the early part of next year?

Yes, we do. We do see a more constructive price environment. So I think the majority of the Nylon 66 headwinds that we’ve seen are behind us. So we did see year-over-year headwinds in the third quarter and we’ll expect year-over-year headwinds again in the fourth quarter, but those are really just a function of the price decline from the prior year, where they were still quite strong, so sequentially looking at about flat pricing. As we look into 2021, obviously, we’ve done a nice job of taking advantage where we can have of constrained environments and we’ll be able to keep our eye on that to be able to see any gains that we could possibly pick up there. I think also within T&I just overall, once the market normalizes and stabilizes, we do expect to get back to that 1.5 times auto builds outperformance within that portfolio. You can’t see it year-to-date. So as I had mentioned earlier, our T&I volumes being down about 15% year-to-date versus auto builds being down 23% year-to-date. So you can see that outperformance and look to continue that going forward once the market fully recovers.

And on the semi side specifically, I mean, you kind of spoke to the seasonal led up on handset with E&I, but some of yours continued to surprise to the upside kind of all year here. Do you – and there’s a lot of consolidation starting to happen in that industry. Do you see anything that kind of disrupts your growth trajectory there? And what’s your view looking forward kind of a quarter or two there in terms of the end demand environment?

Yes. Jeff, I’ll just comment on kind of October because I know demand feels pretty good still on the semi side. So we’re not really seeing any change from what we’ve been seeing in the last few quarters. So at least so far going into the fourth quarter, that feels nice. And again, I just think the dynamics of work-at-home and what everyone’s doing with data centers and nodes, all that looks like potentially good momentum going into next year. But we’ll see when we get closer to the end of year. I know one of our key competitors, a very, very good company, and the CEO is a good friend of mine, he talked very bullishly about demand going into 2021 also. So that feels good. And again, the only thing at electronics and you just mentioned that was a little bit of the seasonality on a smartphone because we had such strong shipments in the third quarter for the shipments and launches of the new phones in the fourth quarter. But we feel good about the portfolio we have on the 5G side, as more phones are enabled 5G going into 2021. It’s nice upside opportunity for us.

Yes. Good morning. Thanks for taking my question. So, I guess, the first one would just be, look, we’ve had about a month of kind of the COVID research and especially kind of out of Europe and a little bit less of that in the U.S. Any changes in demand pull that you’ve seen either positive for maybe some of your healthcare-related products or negative as just some of the economy shutdown, anything that we should be thinking about and trying to think about extrapolating going forward?

Well, no change in any of the end market demand that we’ve talked about due to the rising cases – probably, I say so far. It’s all the same ones. I mean, obviously auto coming back really strong, residential construction, we’re now seeing those green shoots coming back, not surprising with what’s going on in the resi market. And all the areas that are down kind of significantly; oil and gas, aerospace, commercial construction, they’ve all come up a little bit, but not significantly. So they’re not dropping anymore, they’re picking up slightly, but they’re still are negative numbers. So we haven’t seen any change in October in patterns that we weren’t expecting.

Got it. Okay. No, thanks for the color. And then, look, on the other side, you’ve gotten a lot of the non-core assets kind of out of the pipeline. And I guess, does that – in terms of how you’re thinking about going forward, does that free up time to look at kind of bigger more strategic options or is it really right now a little bit more about running the business in admittedly a pretty volatile time with a lot of kind of puts and takes going on? How should we be thinking about where management’s putting their time right now?

Yes. No, John it’s very much running the business. I keep telling the team all hands on deck here. We want to string together a lot of consistent results. We’ve been doing that. We’ve got a ways to go here. Some things still to get to best-in-class performance on like working capital. So, it’s more of that and it’s more looking at bolt-ons next year. And I would think as we get into next year, we’ll be having a serious conversation with the Board about the share repurchase, where we’re trading at, there will be new DuPont will be trading as N&B goes out of the portfolio. So that’s the mode we’re in.

Yes. Thank you. Was there anything in particular that provoked the house environment subcommittee to ask for some data from your part of the legacy Parkersburg and the Circleville facilities? And do you have a sense of where their diligence is going these days with respect to PFAS contamination broadly?

Steve, I didn’t read anything into it. We’re going to supply all the information and answer all the questions; all that data’s obviously available and it’s been supplied to many federal agencies already. So, I don’t – it’s just information we’ve given before. So, we’ll answer it in a timely manner. But I – maybe, I would go to a little bit broader to your question there. This EPA puts some regulation in place. We’re always asked that and that might be part of the push here. And we are actually for that; we said that in front of Congress when we testify, but not everyone in the industry is for that. But we think it would be great to have a national standard set on where those levels should be at, instead of it being a patchwork by state and maybe by municipality. Who knows? And we actually think that would be very helpful that we’re all targeting the same thing as we do remediation and all that. So that’s where we see a lot of the push at the federal level and world for that happening.

And just to follow up on that, Ed, is the national standard something that you think would focus their attention on – less on manufacturing sources and more on product use as a source of PFAS contamination? And is that where you see the potential benefit?

No. No. I just think having a standard set out there that we’re all marching to would be very helpful instead of having literally 50 different standards being set. And by the way, just to make a point, I make every one of these calls, there are many more locations that had PFAS, but remember how high percentage of this is firefighting foam. And I think you’ll, DuPont will – we’ll let that play out here in the South Carolina consolidation here, and potentially, we’ll settle it or we’ll let it go through the court system, but we never made the firefighting foam. So, our work is really remediation in some of our sites, where we did some manufacturing, which is a handful.

Thank you. Ed, first on the cost savings, what drove the increase from the 180 to 280 for the full year?

Yes. So that was really a function of really clamping down on third-party spends, consultants and the like, and then we were able to accelerate a bit some of the efforts that we had planned that benefit is benefiting the inferior savings for this year.

Got it. And Ed, with the IFF transaction three months away from closing, what are your updated thoughts on what’s next for the DuPont portfolio specifically, perhaps unlocking some value in E&I to maybe another RMT? Thank you.

Yes. David, I said a few minutes ago, we’re operationally going to run new DuPont the way we are. I got it. We want to clean up the non-core some more. So, we’re very focused on that from a portfolio standpoint. We’ll be in an interesting position going into next year with the cash we’re receiving from the IFF transaction. As Lori mentioned, we’ll have at least $2.5 billion to $3 billion of excess cash available. So, as I said, we’ll be talking to the board about how we’re going to deploy that to create shareholder value in 2021. And I would expect a few baby bolt-on acquisitions would fit in there next year if they make financial sense for us to do.

Hey, good morning. Nice quarter. In terms of Nutrition & Biosciences, your EBITDA growth is up high single digit till this year, tough sales comps. So, if you think about getting that – getting better growth in that business next year, where do you think EBITDA growth should sort of be as volumes return?

Yes. So, we’ve always thought that the N&B portfolio to get closer to the company average from a margin perspective, they’re looking at 26% or 27%. So, they’ve got continued upside. A lot of that’s really going to come from just a higher favorable mix. So, as they grow probiotics, as they grow their enzyme portfolio, as they grow their meatless meat market, those are all very high-margin product lines that will lift the overall margin of the segment.

Okay. Quick follow-up, then if you do get to close the business on February 1, how do you feel about the integration synergy potential? You’ve had a year here to plan for it. Is there upside and if there is, where could that be?

Well, I won’t talk about if there’s upside; I should probably leave that to the IFF team when they do their earnings that would not be fair to believe. But I feel good about it. We’ve got multiple teams as we did when we did DowDuPont, all that working on all the integration efforts. We’re right on track. By the way, I must say I’m surprised we’re doing as well as we are considering everyone’s working at home, but every one of the work streams is right on track. Lori and I review it literally weekly with the IFF team. So, we’re ready to go on the synergy work that we’ve outlined publicly, and we’ll get off to a very quick start.

Thank you. Staying on N&B for a second here, food and beverage sales were down, probably close to the 4% decline for the overall segment. Can you give us some regional and maybe, application granularity on the decline in food beverages?

Yes. So, a big piece of the decline was driven by sales into the food service fees, which makes us about 5% of total N&B. It would be bigger obviously within the food and beverage segment that was down kind of in the mid-teens. And so that’s really selling into sports arenas, cafeterias. So really, the industries that have been hit hard by COVID, so nothing underlying there beyond that. And a lot of that was in Europe. So, I think Europe was one of the markets that were hit hardest within the N&B portfolio and it’s really back to that food services play. Also, another impact that we saw a headwind was just as travel has clamped down; we had the large market into like the chewing gum and mint stays within our sweeteners portfolio. So, as there’s less travel, less people going through airports, that impacted the business.

And then do you think you’ll report your year-end before February 1 close or after and do we get N&B as discontinued off in 4Q if you report after February 1, just trying to figure out the information flow we’re going to get here over the next few months.

Yes. So, I would look at most likely to be after the February spin dates. So, we can report kind of on remain co basis. When we report discontinued ops, it will be a function of when we make the decision on spin versus flip. So, if we end up doing a split, you have to do discontinuities earlier. If you end up doing a spin, you do discontinuities as of the separation date.

Yes. Hi, good morning, Ed and Lori.

Hi, PJ.

Good morning.

There is a big green movement happening in Europe, parts of Asia, California, with both EVs and hydrogen. How is DuPont positioned for that trend in terms of your portfolio? And particularly, can you address the EV market?

Yes, so this will obviously mostly be within T&I. There’s also a play within S&C and E&I as well into the electric vehicle space. So we are very well positioned obviously as the conversion continues for its hybrid and electric, you need a lighter car. So that advantages our T&I portfolios, we take out metal and replace it with polymer. Within S&C, we have a nice opportunity within the battery play. We have use of our Nomex paper as a separator, and then obviously within E&I as the enhanced electronics, electric vehicles really nicely positioned there. And so it’s obviously full electric vehicles or a small such section of the total auto belt production today, but growing very quickly and we’re – I am happy with the portfolio that we have.

Great. Thank you. And I just have a follow-up on E&I. Intel has had some well-publicized issues at seven nanometer nodes and companies like TSMC are gaining share. Can you talk about your position relative to your customers and what kind of wins or losses have you had at seven nanometers? Thank you.

Yes, so I don’t want to really speak to a customer level, but you can see by our results within the semi space that we’re seeing really nice performance. So in this last quarter alone, we were up 8%, 9%. So we’ve got a nice dispersion. We play with all of the big players. So as the consolidation continues, we’re still continued to be well positioned in this space. Also as the layers, as you had mentioned, get more and more complex that advantages our portfolio. So the more layers, the more steps, the more polishing that has to be done, the more cleaning that has to be done, the more complex the layers get with advanced nodes that advantages our portfolio within as well. So I think we’re nicely positioned to take advantage of growth there.

Great. Thank you very much. You’ve done impressive job on the cash conversion front. I think we’re all aware of the challenges versus targets over time, which you had mentioned in the past. But do you have any brief updates on this front, just given some of the portfolio changes as well as the ongoing incremental efforts on working capital? Thank you.

Yes. So I think you’re asking about our free cash flow conversion. You cut out a little bit, so I couldn’t quite hear it. Yes, so we’ve made some really nice progress there. So we’re up to about 140% year-to-date. We were actually butting up against 200% in the quarter really enabled by that strong, greater-than-$300 million working capital productivity. So we’ll look to keep that free cash flow conversion number greater than 90%. We’ve been right around a 100% for the past several years. So I don’t see any material headwinds there and there’s no real change in that metric as the portfolio changes. So each business was generating nice free cash flow conversion. From an ROIC perspective, the goal that we’ve had is to deliver a hundred basis points of improvement annually. So we’ll look to get that out as well that. One important piece of that is once the separation happened mid-last year, we started to put ROIC into our comp metrics in a lot of the executive pay metrics. There’s a piece of ROIC. So obviously, that would drive continued focus along with system management deep dive within that space.

That’s helpful. And just a quick follow-up, you’ve also been doing a pretty solid job on the cost front, including the recent increase and also the percent that will be structural, which you had done a little while ago. How should we be thinking about the further cadence as we enter 2021? And are there any considerations for base cost inflation if we’re just trying to kind of figure out the net benefits on a per annum basis? Thank you.

Yes. So, we’ll have another $120 million roughly on a run rate basis of savings into 2021. There will be offset. So as we had mentioned, so we are right now planning for a merit increase. We didn’t have one in 2020, so we’ll love to get back on track with that in 2021. We also they’ll plan for a full bonus payout in 2021. So that’ll be a headwind for 2020 where we won’t pay a full bonus. And TNE is another piece that we will control the snapback. So we’ve seen TNE vomit-down to about $1 million a month. We used to be upwards of $10 million or so a month. So we’ll see some snapback there, but we’re looking to try to mitigate that pretty significantly, really heading more so down on the internal travel versus the customer-facing travel. So I think net-net with $120 million benefits that we’ll see in the offset that we had just covered. We’ll probably have a slight headwind from a cost perspective heading into 2021; probably nothing like some of maybe the others in the space, just driven by our dedication to getting structural costs out versus the temporary that maybe some others have been doing.

Thanks. Good morning.

Good morning.

Yes. My first question is on SEC, you’ve directed some more of your capacity towards garments. Could you just talk about the trade-off there? My understanding is that those are higher margin, but maybe precludes you from participating as much in residential? And then as well, maybe you can just address the commercial markets and what you’re seeing there in construction? Thanks.

Yes. So I think within Tyvek, overall the entire Tyvek enterprise in the quarter was up in the low-20s. And so obviously, we continue to see nice strength within PPE; that was up 50% plus. Within the Tyvek building on the commercial space, just given the seasonality within when the construction really takes place. We did see nice growth there. So we saw about 20% growth in residential Tyvek. Where the volume was taken from, was more in the medical packaging space and that’s really just a function of the reduction in elective procedures dampening the demand there. But overall, 20% plus, we have been able to enable additional production to come out. We sequentially we were down a bit as we had to take the asset down for about two weeks or so, but year-over-year we are having more product coming off the lines.

When we’re actually bringing up what we call line one and older lines that we had that it’s not costing us too much to get that up and running. So we’re bringing that up for incremental volumes; so that’s something else.

Yes, Frank, I don’t want to get into too much detail, but I think there are some technicals going on right now with that. I’ve seen some reports; I think one of the analysts on this call wrote a nice report the other day. So I think there are some things going on short term that maybe overspend split that created some pressure. But look, these sets of businesses, the IFF sets of businesses, the N&B, they do very well when there is distress in the system because of the end markets that we’re in. So these are consistent performers. There’ll be pockets of weakness like we saw because no one’s in airports buying chewing gum and all that, but generally speaking, they’re going to do very well through this. And we got a lot of synergies coming up here to create additional value for shareholders. So – but my gut is that all that settles down here rather quickly as we get closer and closer to getting the deal done. Well, we knew Germany was talking about lockdowns when we just gave the guidance. So it looks like France might be going now, but I think, look, if all of Europe locks down and there were lockdowns in the U.S. that’s going to affect everybody out there. So no, we’re not counting on that in the guidance that we gave. We see pretty far into the quarter. But if there were massive lockdowns, that would probably affect December tight numbers and we just have to see, but as we sit today and as long as there are not massive lockdowns, that’s the way we gave the guidance.

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