DuPont de Nemours Inc (DD) — Q2 2024 Earnings Call Transcript

Good morning and thank you for joining us for DuPont's second quarter 2024 financial results conference call. Joining me today are Ed Breen, Executive Chairman; Lori Koch, Chief Executive Officer; and Antonella Franzen, Chief Financial Officer. We've 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 statement disclaimer contained in the slides. During this call, we'll make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance or results may differ materially from our forward-looking statements. Our Form 10-K, as updated by our current 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 that have been posted on DuPont's Investor Relations website. I'll now turn the call over to Lori.

Good morning and thank you for joining. I'm excited to be here today for my first quarterly call as CEO and to be joined by Antonella, our newly appointed CFO. We both look forward to partnering with Ed and our global teams to continue to drive value creation for all stakeholders. We remain focused on driving results and demonstrating the performance potential of our combined portfolio while furthering the plans to unlock value through our previously announced separation. This morning, we reported second quarter financial results ahead of our previous guidance, reflecting continued positive momentum led by broad-based electronics recovery as well as sequential improvement from all W&P lines of business. We were very pleased with this outcome and by the continued focus and strong execution of our global team. On a consolidated basis for the quarter, we saw improvement across all key financial metrics. Net sales and operating EBITDA were both up year-over-year and sequentially, including a 17% pickup in operating EBITDA versus the first quarter. We saw strength in the semi business driven by growth in advanced technology applications, including AI. We also realized continued recovery and new wins within the consumer electronics market to drive both year-over-year and sequential growth for interconnect solutions. We did see some favorable timing benefits within each of these businesses during the second quarter relative to our expectations. In the W&P segment, we were pleased to see a better-than-anticipated sequential step-up in our water business in China as well as improvement in Tyvek medical packaging within Safety Solutions which was in line with our expectations. Our year-over-year growth in operating EBITDA reflects solid margin expansion with operating EBITDA margin improvement of 130 basis points, driven by favorable business mix, stronger production rates in our electronics businesses, and realization of restructuring-related cost savings, partially offset by higher variable compensation expense. Second quarter adjusted earnings per share increased 14% year-over-year. Strong cash generation and related conversion of over 100% was another bright spot for the quarter, highlighting disciplined working capital management and leading to a sequential sales ramp. For the full year 2024, we are raising our guidance for net sales, operating EBITDA, and adjusted EPS which Antonella will detail shortly. I also wanted to highlight that earlier this week, we closed our acquisition of Donatelle, a manufacturer of sophisticated medical devices. We are delighted to welcome the Donatelle team to DuPont and are excited about this transaction which will deepen and complement our expertise in the medical device market alongside Spectrum, which we acquired last year. Donatelle will be managed within our E&I Industrial Solutions line of business alongside the Spectrum team. Together, these offerings are expected to enhance our position as a partner of choice for customers in the high-growth medical device field. I'll now turn the call over to Ed, who will provide a progress update on our planned separation.

Thanks and good morning, everyone. As seen in our second quarter results, we are well into the recovery phase from last year's inventory corrections in most key end markets, and electronics may be setting up for a prolonged positive cycle. Turning to the separations; we've received very encouraging feedback since our May announcement of our intent to separate the electronics and water businesses and the formation of three independent companies. We believe our investors broadly appreciate the value creation opportunity of having three industry-leading global companies with compelling growth opportunities and distinct investment propositions. As we shift gears to ramp up our separation activities, we have also worked to ensure our teams internally are highly motivated to remain focused on serving customers and driving business performance. That remains the top priority, and I'm confident our operating teams will continue to execute. As you can see on Slide 4, we have already begun working on the rigorous project management processes necessary to ensure the separation work is executed smoothly. Our teams have plenty of experience to rely on to ensure we stay within the 18 to 24-month timeline from our May announcement, with all three companies well positioned for day one. One key short-term milestone that has already been completed is the establishment of key work stream leaders as part of our integrated project management team under Lori and Antonella's leadership, along with myself. Key separation work streams underway include legal entity standup, IT separation and stand, our financials, and talent selection. A current priority, along with our Board, is to complete executive leadership appointments for electronics and water along with corporate governance aspects including board appointments. We currently anticipate announcements in early 2025. We are also making progress towards the future capital structures of the three intended companies. Specifically, during June, we redeemed $650 million of our 2038 bonds and entered into new interest rate swaps that hedged the rate risk on our longer-dated maturities. To the extent that it becomes necessary to repay these bonds, the new swaps hedge the risk of higher debt repayment costs that would occur in a lower interest rate environment. So while it is still early in the process, you can see that the separation work is progressing along and we look forward to updating you as we move forward. Before I turn it over to Antonella, I'd like to mention one of the updates detailed in our 10-Q which will be filed later today, specifically around the South Carolina MDL. Now that the water district settlement has become final, the court has indicated a focus on the personal injury cases. Earlier this year, the court ordered cases not involving one of the eight medical patients to be dismissed by August 22 unless certain evidence is presented. About half of the 6,000 cases depending on June 30 are expected to be dismissed on that basis. They can be refiled over the next four years if those evidence requirements are later met. We do not, however, expect any trials in 2024 in the South Carolina MDL. With that, let me turn it over to Antonella, who will provide additional details on our financial results and outlook.

Thanks, Ed and good morning, everyone. I'm excited to be here today and honored to serve as CFO of DuPont. Turning to Slide 5; I will cover our second quarter financial highlights in further detail. Our second quarter results were clearly encouraging. Volume recovery is a key driver of our improved Q2 financial performance. Additionally, our ongoing commitment to drive productivity and operational excellence as well as continued savings from restructuring actions announced last November are also contributing to top line growth, margin expansion and cash flow improvement. Net sales of $3.2 billion increased 2% versus the year-ago period, as a favorable portfolio benefit of 4%, reflecting the Spectrum acquisition was partially offset by a 2% currency headwind. Organic sales were flat as a 2% increase in volume was offset by a 2% decrease in price. Higher volume was driven by broad-based growth in electronics markets within semi and interconnect solutions with year-over-year reported volumes up more than 20% and mid-teens, respectively. These gains were partially offset by year-over-year declines in China within Water Solutions, as well as Tyvek Medical packaging. However, we did see sequential improvement in these areas, as Lori mentioned. On a segment view, E&I organic sales inflected to grow 8% while W&P organic sales decline moderated to 6%. Organic sales in corporate decreased 5% versus the year-ago period. From a regional perspective, Asia Pacific delivered 3% organic sales growth versus the year-ago period with growth driven by China, where organic sales were up 8%, led by strong growth in E&I. In other regions, North America was down 2% and Europe was down 7%. Second quarter operating EBITDA of $798 million increased 8% versus the year-ago period as volume gains, lower product costs, savings from restructuring actions, and the earnings contribution from Spectrum were partially offset by higher variable compensation. Operating EBITDA margin during the quarter was 25.2%, up 130 basis points versus the year-ago period and up 190 basis points sequentially from the first quarter. Additionally, I am very pleased with our cash flow performance as we reported another quarter of strong cash generation and conversion. On a continuing operations basis, cash from operations of $527 million, less capital expenditures of $102 million, resulted in adjusted free cash flow of $425 million. Adjusted free cash flow conversion during the quarter was 104%. Turning to Slide 6; adjusted EPS for the quarter of $0.97 per share increased 14% from $0.85 in the year-ago period. Higher segment earnings of $0.10 and the benefit of a lower share count of $0.09 were partially offset by lower interest income of $0.05, resulting from a reduction in cash on hand versus the prior year. Other below-the-line items totaled a net $0.02 headwind as a higher tax rate and depreciation were partially offset by lower exchange losses versus the year-ago period. Our base tax rate for the quarter was 26.4%, up from 23.7% in the year-ago period, driven by certain discrete tax expenses as well as geographic mix and earnings. Our full year 2024 base tax rate is now estimated to be at the high end of our prior range or approximately 24%. Turning to segment results, beginning with E&I on Slide 7. E&I second quarter net sales of $1.5 billion increased 15% versus the year-ago period, as the Spectrum sales contribution of 9% and organic sales growth of 8% were partially offset by a currency headwind of 2%. Organic sales growth of 8% reflects a 10% increase in volume, partially offset by a 2% decrease in price. At the line of business level, organic sales for semi were up more than 20%, driven by continued semi demand recovery, including AI-driven technology ramps, as well as higher volumes for OLED materials led by new product launches. A resurgence of demand for leading-edge materials requiring higher content and accelerated buying in support of new fab capacity, primarily in China, also contributed to the volume increase in the second quarter. Overall, semi fab utilization improved from the first quarter, with average utilization in the mid-70s. Within Interconnect Solutions, organic sales were up low teens, driven by mid-teens volume gains, reflecting continued broad-based consumer electronics recovery, incremental share gains, and a demand benefit from AI-driven technology ramps. We also saw earlier-than-expected timing of orders within certain consumer electronics markets that helped volumes in the second quarter. As expected, organic sales for Industrial Solutions were down low double digits, due primarily to ongoing destocking for Kalrez and biopharma markets. On a sequential basis, sales for Industrial Solutions increased 9% during the second quarter, including improvement in Kalrez and biopharma. Operating EBITDA for E&I of $419 million was up 20% versus the year-ago period, driven by volume growth and the impact of increased production rates in both semi and interconnect solutions, savings from restructuring actions, and the earnings contribution from Spectrum. These gains were partially offset by lower volume in Industrial Solutions and higher variable compensation. Operating EBITDA margin of 27.8% increased 120 basis points versus the year-ago period. Turning to Slide 8; W&P second quarter net sales of $1.4 billion declined 7% versus the year-ago period due to a 6% organic sales decline, of which 4% related to volume and 2% related to price, as well as a 1% currency headwind. Within Safety Solutions, organic sales were down high single digits versus the year-ago period on lower volumes, driven mainly by channel inventory destocking for Tyvek Medical Packaging. However, we did see a sequential increase of more than 20% in this end market, confirming a recovery is in process. Within Water Solutions, organic sales were down high single digits versus the year-ago period, driven primarily by lower volumes resulting from distributor inventory destocking. Market conditions in Water Solutions also improved during the second quarter, with net sales up 12% sequentially, which was ahead of our expectations and driven primarily by an initial recovery in China. Shelter Solutions sales increased low single digits on an organic basis due to demand improvement in construction markets compared to the prior year period. Operating EBITDA for W&P during the quarter of $344 million was down 7% due to lower volumes and higher variable compensation, partially offset by the impact of lower product costs and savings from restructuring actions. W&P saw a nice step-up sequentially from the first quarter in both the top and bottom line, with nearly 50% incremental margin. Moving to our outlook on Slide 9; for the third quarter, we expect net sales, operating EBITDA, and adjusted EPS to increase sequentially to approximately $3.2 billion, $815 million and $1.03 per share, respectively. For the full year 2024, we are raising our guidance for net sales, operating EBITDA, and adjusted EPS. At the midpoint of the revised ranges provided, we now expect full year net sales of about $12.45 billion, operating EBITDA of about $3.085 billion, and adjusted EPS of $3.75 per share. Our full year net sales guide reflects about $50 million of incremental foreign currency headwinds in the second half of the year versus prior guidance assumptions, which are expected to be partly offset by a sales contribution from the Donatelle acquisition which closed earlier this week. With that, we are pleased to take your questions and let me turn it back to the operator to open the Q&A.

Congrats. Whoever would like to take it. I'd just love to drill a little bit more into electronics. A couple of things you said were quite interesting. First, maybe, is there any kind of inventory rebuild that's going on in that market? Or is this growth you think clearly indicative of what end demand is? And I wonder if you could just elaborate a little bit for us what in the context of DuPont AI-driven demand really means how significant it might be content per chip or anything that you could give to provide some perspective on that question.

Yes. Jeff, maybe to your first question. So yes, the majority of the growth that we saw within the semi and ICS business was just market recovery, but there was probably about $30 million of pre-buy, especially within Asia Pacific, as some of the new fabs come online. So that drove the Q2 performance up a little bit and then it will mute a little bit the ramp into Q3 and the back half of the year. But overall, still really nice recovery in the electronic space. As we have noted, a lot of it is coming from the AI acceleration that's felt in both the semi and the ICS business. In total, AI is about $250 million of sales for us today; so a lot of improvement to be able to drive growth there. Like I had mentioned, it's felt across the board in semi as well as ICS on the packaging and the thermal management side.

And also on the consumer side of electronics, I think there was a comment about orders being stronger. Is there just some timing issues there? There's certainly some hope that there's a stronger iPhone cycle here into the holidays? Is that what you're starting to see? Any other color there would be helpful.

Yes. So the $30 million of pre-buy was probably about $20 million in semi and about $10 million of Interconnect. So on the Interconnect side, it would be a little bit of a timing shift for some of the premium smartphone deliveries.

Lori and Antonella, it's great to have you leading the call. I wanted to dive deeper into price. I expected price to decrease in E&I but not necessarily in W&P. Is it mainly a pass-through like with Tyvek? I'm trying to understand why price would drop in Water; perhaps it's related to the comparisons and the price increase you implemented in response to the significant inflation surge at the beginning of last year? Any insights on this would be appreciated.

Sure, Scott. It's Antonella. So just a couple of quick things that I would mention. I think it's important to keep in mind, particularly in W&P, we had some really strong pricing over the last couple of years. And I would say, particularly, there's a few businesses where our pricing over the last two years was about in the mid-teens that more than compensated for any of the cost increases that we saw. So it's not unlikely that we would see a couple of points that we would kind of give back really more just so to maintain share. So to your point, it's really the timing of the price increases that we had.

Okay. That's what I thought. Just going back to Jeff's question, I'm not an expert in electronic chemicals, but is the product mix going into AI applications the same? I assume the volumes per purchase are higher, but is it the same product or are there variations?

Yes. It's the same product. It's just more content into the space because of the advanced nodes. And so the advanced nodes have more stacks and/or thermal management requirements that require more of our material. So one rule of thumb that we point out is in the semi space. MSI is a typical indicator of market growth and we would be 200 to 300 basis points above market growth because of the advanced node exposure that we have. So they need more material to be able to produce the higher-end chips.

Okay, that makes sense. That's what I thought. So thank you. Best of luck.

Congrats everyone in the room there. Just on the guidance, what is kind of normal seasonality now for EBITDA? It looks like it should be up mid-single digits quarter-to-quarter, at least that's kind of what it did last year but you're more in recovery mode, it feels like. So unclear to me why it would only be up a couple of percent like you haven't guided.

I believe we need to look back a couple of years to understand the typical seasonality pattern. Historically, we've seen an increase of around $50 million to $100 million from Q2 to Q3, followed by a decline of about $100 million from Q3 to Q4. This year, however, the recovery is dampening that trend, as is the pre-buy in Q2, which has moderated the increase to approximately $30 million. Our anticipated decline from Q3 to Q4 is now reduced to about $50 million, thanks to the ongoing recovery we are observing. Seasonality presents some challenges whenever there are changes in the market, but that's how we arrived at our guidance. If we exclude the effects of the pre-buy, we would see the usual seasonal changes more clearly.

Okay, that makes sense. And then, Ed, you mentioned the change in the PFAS item there. Where do we stand on like State AG as well as just remind us what the other major moving items around PFAS actually are and how significant this South Carolina News is in the context of what's remaining here.

Yes. Steve, there's really two buckets left. Obviously, we settled the big one on the water district cases. The two buckets left are the state AG cases and the personal injury cases. And I think the comment we made this morning on the PI basis, I think, is fairly significant because it reduces the cases from about 6,000 down to about 3,000. And remember, this is not like some of the other settlements we did where we had a location and we settled because we used PFAS. In this case, this is because of firefighting foam again. So only 3,000 cases and this goes back to what the plaintiffs also said in our settlement that we are probably responsible for 3% to 7% as a consortium group, and we're only one-third of the 3% to 7%. So I think you can wrap your head around a number that's pretty reasonable here.

For PFAS in general, for the other companies involved that have larger exposures, I assume they are experiencing a similar impact. Is there any reason why assessing the extent of injury might differ from one company to another when it comes to the fundamental injury itself?

No, the distinction lies in the fact that we did not produce firefighting foam. Companies that did are categorized differently. This is likely why our percentage is only 3% to 7%, whereas we account for one-third of that.

And then any update on?

Pretty nice news.

Any update?

I don't expect any settlement this year, but we are working hard to settle as much to the rest of the PFAS as we can by the time of the spin to get them out clean. So we're working hard at it.

I wanted to ask on W&P. Just within the guidance in the context, the year-on-year comps get easier, so you're clearly expecting some growth there in the second half. But it kind of seems like you're guiding things somewhat flattish from a sales and EBITDA perspective. So I'd be curious, are you seeing continued improvement from destocking? Are you not? And what are your assumptions around that?

Yes. So this is Antonella. Just a couple of comments there. So as we mentioned, we did see a nice lift off of Q1 in both medical packaging in Tyvek as well as in our Water business where we saw the biggest impact from destocking. As we move forward, we do continue to expect that we will see a little bit more lift in medical packaging as we go through the year. For water, as we mentioned, we actually saw a bigger lift headed into Q2 than we were originally expecting. So that will be pretty consistent. As we head into the third quarter, we'll see a little bit more of a lift in the fourth quarter as well. So overall, revenue is relatively flattish as we go into the second half of the year for W&P. And I would just keep in mind, there's probably a little bit of muted seasonality that we built in, in the shelter business just given the soft residential market and just we're keeping a close eye on the macros out there. And so that's a little bit of a cautious view, I would say that we have built into our guidance currently.

And I guess what about margins? Kind of the same line of thought there. I mean that was a bright spot in the quarter here, getting back to kind of a year ago margins and volumes still down. Is there something incremental negative on the margin sequentially? It seems like you're assuming that's a little bit lower versus what you did in 2Q.

No. Actually, the margins in W&P are expected to be flattish to up a little bit actually as we head into the third quarter and expect it to continue to improve as we head into the fourth quarter as well.

This one regarding the split. So you've had the big announcement this past quarter. I guess can you speak to interest that you may be seeing in some of those assets, sometimes there's not a lot of interest until announcements get made and then all of a sudden, people start lining up. So maybe you can help us to think about that, especially around maybe the water business? And if not, I guess I'd also ask, it does look like the M&A markets are heating up in a couple of areas, especially in water. Would you consider bolting on businesses ahead of the split to any of the other assets? Or is that just too much to deal with for the organization at this point? How should we be thinking about that?

Yes. Yes. So your last point, no, we wouldn't do anything where we bolt something on the asset. I don't want to get out in front of ourselves on any speculation of what's going on. But as I said on the last earnings call, John, if there is interest in the water business, we obviously will look at it and study it hard if there's a better path to creating value for our shareholders, we would clearly do that. And I'll just leave it at that for now.

Okay. Fair enough. And then I guess just a question on the PFAS issue. So look, you guys have been doing a pretty good job of cleaning up the liability so far. Earlier this quarter, we had the Chevron decision kind of get overruled by the Supreme Court. I guess I'm wondering, what does that do in terms of how you think about the liability and the ability to put that to rest. Does it change kind of the strategy or how you're thinking about that, what that liability might mean going forward?

Yes. So it kind of goes back to the whole Superfund circle issue. And to make it very clear, manufacturers of products are not responsible under circle. There's kind of four key categories, if you don't mind me telling you these for a minute just to clarify this issue. The responsible parties are current owners and operators of facilities where substances are located, owners of facilities where hazardous substances were disposed, aggregators and generators, and persons who arrange for disposal of a substance at a site and transporters who transported it to those sites. So by the way, there's a Supreme Court case on this just to clarify it more. An entity will not be held liable as an arranger merely for selling a new and useful product if the purchaser of that product later and unbent to the seller disposes of the product in a way that led to contamination. So I think it's pretty darn clear, as we've said all along that we don't have responsibility under this.

Great. Thanks very much for the clarity.

Regarding the spin-off, will we need to wait for the SEC filings to see the income statements and debt allocations for the new company, or do you expect DuPont to start reporting more like a holding company and provide summary income statements and balance sheets for electronics and water before the SEC filings?

Yes. We intend to report in the new structure prior to the Form 10 detailed filings would go out. So we're targeting sometime early next year to have leadership appointments and then ultimately report on the new segments for the future spin.

Okay. And then will new DuPont report medical or health as a separate segment? Or is it going to continue to be split across industrial and safety? I think it's going to be over 25% of new DuPont but it's a little hard to see in the current reporting.

Yes. So we will most likely have three reportable segments for Remainco, one of which is health care, which would be the combination of Tyvek, Spectrum, the Liveo Biopharma business and now Donatelle given that acquisition closed. And the other two reportable segments would be a next-gen mobility which would help all of our EV automotive exposure. And then the remaining would be generally the safety business and the shelter business and the rest of the printing businesses and industrial businesses not semi-related.

I have two quick questions regarding E&I. First, as we move into the second half, could you provide more insight into Semi tech, especially in light of your previous comments on the overall trends? Additionally, concerning pad slurries, you mentioned older materials in your press release and PowerPoint. Could you help us understand how we are trending into 2025, 2026, and possibly entering a larger upcycle?

Yes. So we expect nice high single-digit growth in the current construct of E&I as we head into 2025, a lot of that coming from the growth acceleration from AI as well as overall continued pickup within the consumer electronics space. So we think we'll be from a utilization perspective on the semi front more in the high 70s as we exit 2024 overall. It's more like in the low 80s in the advanced nodes in DRAM and then lower than that in the legacy nodes and some of the more legacy memory applications.

Got it. Lori, I want to revisit a couple of years back regarding the ICS business and specifically Laird. When you first announced that transaction, you mentioned AI as a potential opportunity. At that time, you were discussing the shielding and thermal management portfolio. Can you help us understand the current state of the ICS business compared to the traditional perspective on handsets? It seems like there might be a lot more happening beneath the surface in terms of how we should view sustainable growth rates.

Yes. So ICS, I kind of think about it in two big buckets as far as market opportunity is concerned. One is like a powerhouse with respect to interconnect solutions and one is a powerhouse with respect to thermal management and you see opportunity on the three lines of business underneath across both of those segments. And so the Laird acquisition has continued to play out nicely for us to drive opportunity across the ICS portfolio. It's been really timely with the AI boost and the ADAS boost that's coming to have that thermal management business within our portfolio.

All right. Our next question comes from the line of Mike Leithead of Barclays.

One on E&I, just strong results mostly across the board with the exception of maybe industrial and you called out the one headwind around kind of ongoing Kalrez destocking. I just wanted to dig into that. So your volumes in your sense really consistent with end market trends for the product? Or is there any competitive dynamics impacting Kalrez specifically there?

No. No, there's no competitive dynamics. It's really just the destock from the 2023 high volumes that went on. So there's nothing competitively. We did see sequential improvement in Kalrez as we had expected. We actually do forecast a return to volume growth in Industrial Solutions in total in the back half. So it was really just getting through the destock in Kalrez and also in the biopharma, which are both in Industrial Solutions.

Okay, great. And then just as a quick follow-up, maybe a question for Antonella on the cash flow statement this quarter. It looks like cash flow from operations for discontinued operations was a $400 million use of cash in the quarter. Can you just help us understand that?

Yes. So keep in mind, as Ed mentioned earlier, we did have the settlements. So really, that's predominantly all the cash out of about $408 million related to the MOU settlement.

Nice result. If I could stay on the cash flow side of things, Laurie, when you were wearing your prior hat as CFO. There was an expectation that the second quarter cash flow conversion might be lower than the first quarter in part with interest payments. And obviously, it came in materially above or nicely above, I should say. So can you speak to the factors behind that as well as what the outlook is in terms of cash flow generation?

Yes, so good memory. I had signaled that usually, Q2 is a little muted because of the interest payment which we did pay. It was really a reflection of better working capital performance for the most part. So we had sequential revenue, but we're really able to keep the working capital headwind. So we've done a really nice job primarily on the inventory front around driving productivity across our businesses to get better at cash. So we're still in that 90% target range for the year, we're at about 96% quarter-to-date. So we're in good shape to be able to deliver against the targets that we have out there.

All right. Terrific. And then maybe just a second or two in terms of the corporate line. Sales were relatively flat sequentially, yet EBITDA picked up materially. Can you talk about the factors there and what your outlook is?

Yes, really, that was driven by a bit of our corporate expenses. So there's always a little bit of timing from quarter-to-quarter. So I would say when you take a look at kind of corporate expenses, we're probably a little heavy in Q1, a little light in Q2 and on average, kind of expected where we would typically be. As you look into the second half of the year, as you look at corporate as a segment, we did point out in the materials that we do expect overall less income coming from corporate in the second half of the year than we had in the first half of the year.

This is David Hwang here for Dave. I guess, first, on Industrial Solutions, when do you expect volumes to recover and turn positive here?

Yes. We expect volumes to be up low single digits in the third quarter year-over-year for Industrial Solutions and then more in the low double-digit range for the fourth quarter. So we saw a nice inflection sequentially and then we'll see a return to year-over-year volume growth in the second half.

And I guess just on the potential water sale. I guess there is some interested parties there. And it sounds like PFAS continue to progress positively. As when you talk to potential interested parties, what's the initial thoughts from them taking over some of the PFAS liabilities? And I guess is there a threshold they're willing to accept? Or is it, in general, still a big hurdle for them? And you think if that scenario were to play out, it will not involve any PFAS liability allocation at all?

Yes. So we haven't had any conversations on selling the water business. So our intent is still to spend. Each of the three spins will pick up their pro-rata share of the PFAS liability per the trailing 12-month EBITDA underneath the sharing agreement with Corteva.

Can you give a little bit more detail on the sequential momentum in Water & Safety Solutions sort of into Q3 and how much visibility here is the visibility improving in those two businesses or lead times improving?

For the water business, as we mentioned from Q2 to Q3, we do expect it to be relatively flat as we get into the fourth quarter; we do expect a sequential increase in terms of the top line. And some of that is just driven by some project-related activity that we have there. In terms of safety, we did talk about that's where our medical packaging business is within Tyvek; we do expect to see some sequential improvement there as well. I think there, the growth will be a little less muted as we go through the course of the year because there's just a couple of little other puts and takes within that business.

Nice quarter outlook. Ed, just one question. How do you expect the agencies to assign sort of industry codes for each of the entities of the spin? Maybe that would help investors assign the right multiple or comps longer term. And I assume you don't expect the entities to get assigned materials or chemicals. But any color on how you think you can help them sort of make that right decision?

I'll just say it this way. We are going to work at for. The electronics is very clear where that should be and we will work that issue. I mean, there are pure-play comps in those industries that there's only a couple of key competitors against some that have their marking in the water business is the same way; so that will be worked.

Yes. And we'll work to get the Remainco SIC code changed as well. So we've been trying for since we spun out of to get a change more to the multi-industrial diversified SIC code. And so I think we continue to make our case that we should not have the chemicals SIC code anymore. And so we'll work with that one as well.

I guess just kind of curious on the guidance. So you're raising it by looks like around $110 million or so on the EBITDA line for the full year. The Q2 beat was around $80-something million, so $88 million. So that remaining kind of $22 million, it seems like there could be a little bit of seasonal drop off and maybe some moderation in growth. I know you mentioned the pre-buy of $30 million, but anything else you'd call out there as to why you're not raising guidance maybe by a little bit more?

Actually, I would say, always in our guidance, when we kind of take a look at it is not only adding in the Q2 beat, but actually a bit more than that as well. So kind of the way to look at it is if you look where our previous guidance was and to your point, kind of at the beat that we had in the second quarter of around $150 million on the top and $90 million on the bottom, I think you need to keep in mind that incremental headwind from when we previously gave guidance to the tune of $75 million. And clearly, there's an EBITDA impact associated with that as well. That is only partially offset by the Donatelle acquisition that's going in. So on a true underlying basis, if you put FX and acquisitions aside, in addition to the Q2 beat, we are raising the top line close to $100 million in the bottom line, around $30 million or so.

Okay, perfect. And then, I guess just as a quick follow-up. As you look into '25, where are you kind of in that recovery maybe on E&I, would you say like where do you expect fab rates to kind of utilization rates to end the year? And do you see those kind of continuing to move up as you move into '25?

Yes. I think we'll end the year overall in utilization in the high 70s; that will be different between advanced nodes and more legacy nodes. So the advanced node should be in the low 80s and the more mature nodes would not quite be at the average. So it sets up well for 2025 to get back to the more normal utilization patterns that exist in the semi space. As I had noted earlier, we overall probably see high single-digit growth in E&I in total in 2025, with a lot of growth coming from continued acceleration with AI on both the data center side as well as on the ICS side.

Just on the Donatelle acquisition, first, maybe talk about the strategic fit there and even potential cross-selling opportunities where it's complementary in the portfolio? And then can you also help us size the transaction and how much earnings contribution we should expect in the second half?

Yes. We closed the acquisition of Donatelle earlier this week, which complements our Spectrum acquisition from a year ago on August 1. Donatelle has strong connections with some large medical device OEMs that Spectrum lacked, creating significant cross-selling opportunities. Additionally, they possess valuable machining and tooling capabilities that enhance our portfolio. Overall, Donatelle contributes approximately $75 million in revenue, with slightly better margins than the Spectrum acquisition, making it a great addition.

Yes. The only thing I would add is the $75 million is a full-year number, just to clarify.

Yes. And then, maybe just a clarification on corporate earnings. I think there was a sizable step-up into 2Q. I know you mentioned there were some expenses that moved around, but were there any areas of strength on the underlying retained businesses that helped 2Q? And how much lower should back half earnings be on the corporate line?

Yes. So I would say in the second quarter, in addition to the timing of expenses, we did have a good strong margin performance in terms of the retained businesses as well. As we shift into the second half of the year, as I mentioned earlier, we do expect the overall earnings in corporate to come down. There is a little bit of pressure that we have in terms of our solar business that we have within the retained businesses. So we have a little bit of earnings headwind related to there. And I mentioned earlier, a little bit of timing related to actual corporate expense.

Could I ask quickly on electronics? The timing differences that you called out in the quarter that were favorable to the quarter, are you seeing in your Q3 order book that those are indeed shifted to Q2? Are you just assuming that? And then we'll see how the quarter plays out? And then separately, Ed, if I could ask you on the PFAS on the personal injury cases, just a little bit of clarification in terms of it sounds like we'll go from 6,000 to 3,000 cases. But has that case count been increasing? Or has it been static around those levels, firstly? And then secondly, on your comments that DuPont is sort of, I think you said 3% to 6% or 3% to 7% sort of the assumed liability. Is that to mean that, that would be your sort of exposure to any payout should there be any? Or is that your exposure to the amount of cases? And lastly on that, how do you expect this to proceed in terms of will something actually go to trial? Will it be the typical MDL where you pick one and they pick one and you see what the outcomes are and then maybe you try to settle? Or is there a path to settling ahead of time? Or just sort of what you think the process is going to be?

Yes, the number of cases has gradually increased, but the trend has clearly shifted downward. It's important to note that the majority of these cases involve firefighters rather than other groups. Therefore, we expect the total cases to decrease to at least 3,000. Overall, since this is related to firefighting foam, it connects back to our previous settlement, where we didn't manufacture the foam but had one surfactant in use for about a decade. Ultimately, it's been assessed that our exposure is in the range of 3% to 7%. You can calculate this similarly to how we did when settling the water cases, which helps put it in perspective. Remember, we're only responsible for one-third of that 3% to 7%. Regarding your earlier point, we aim to resolve these matters collectively, similar to how we handled the water cases, and we are committed to doing our best to achieve this before the separations take place.

Yes. And maybe on your order question. So our order book is trending alongside the guide that we had given. So we feel like we're in good shape there.

Yes. Your cost of goods were down 2% in the quarter. Can you provide a little more detail on that, such as were raws down more than that? Your volumes being a little higher might suggest that raws were down more than that. But more importantly, where do you think that cost of goods year-over-year is likely to go as we move forward?

This is Antonella. So a couple of things that I would mention there to keep in mind. So one, obviously, we are seeing a bit of an impact from deflation of cost that's in there. Secondly, I would also mention in terms of restructuring, we took a lot of actions as we announced the program last year towards late November; some of those actions have actually been accelerated. So we are seeing even more of a benefit this year than we were originally anticipating. So as you may recall, we were first expected we'd have about $100 million of restructuring savings in 2024. We now expect that to be closer to $115 million or so for the year. So that's also helping from a COGS perspective and kind of bringing our costs down.

And then you mentioned on Slide 14, a lot of products in development. And you mentioned your water business has some DLE opportunity. Just a question on that. Is this one lithium project at a temperate that could be many, many years from now? Or is there some breadth to this opportunity that you see in lithium?

We continue to see a nice opportunity. We're actually investing in a facility in Europe to be able to take advantage as well from a production perspective. So it's still a little early. I mean, the potential market opportunity on the low end is probably in the $250 million range as we position ourselves as a component supplier into the space.

I will now turn the call back over to Chris for closing remarks. Thank you for joining the call today. As a reminder, our materials are posted on the website, including the transcript from today's call. Thank you for joining. Good day.