The operator welcomes everyone to the DuPont Second Quarter 2024 Earnings Call and introduces Chris Mecray, who will be leading the call. Mecray is joined by Ed Breen, Executive Chairman, Lori Koch, Chief Executive Officer, and Antonella Franzen, Chief Financial Officer. They will be discussing the company's financial results and making forward-looking statements. Historical financial measures will be presented and non-GAAP measures will also be referenced. Lori Koch expresses excitement for her first quarterly call as CEO and looks forward to partnering with Ed and the global teams to drive value creation for all stakeholders.

The company is focused on delivering strong results and unlocking value through a previously announced separation. They reported better-than-expected second quarter financial results, with improvements in all key financial metrics and strong performance in the semi and consumer electronics markets. The W&P segment also saw growth and margin expansion, driven by a mix of factors including restructuring-related cost savings. Adjusted earnings per share increased 14% year-over-year.

The third paragraph discusses the strong cash generation and increased guidance for the full year, as well as the recent acquisition of Donatelle. The call is then turned over to Ed, who provides an update on the planned separation of the electronics and water businesses into three independent companies. The company has received positive feedback on this decision and is focused on continuing to serve customers and drive business performance.

The company has already begun working on the separation processes necessary for the planned separation of the three companies. They have established key work stream leaders and are making progress on legal, IT, financial, and talent selection aspects. The company has also made progress on future capital structures and has redeemed bonds and entered into new interest rate swaps. The court is focusing on personal injury cases in the South Carolina MDL and has ordered cases not involving one of the eight medical patients to be dismissed by August 22 unless certain evidence is presented.

In the second quarter, DuPont's financial results showed encouraging signs, with a 2% increase in net sales and a 4% increase in portfolio benefit from the Spectrum acquisition. The company's commitment to productivity and operational excellence, as well as restructuring actions, also contributed to top line growth, margin expansion, and improved cash flow. While organic sales were flat, volume increases in electronics markets and sequential improvement in areas such as Water Solutions and Tyvek Medical packaging were noted. The E&I segment saw an 8% increase in organic sales, while W&P saw a 6% decline and corporate sales decreased by 5%.

In the second quarter, Asia Pacific saw 3% organic sales growth, led by strong growth in China. North America and Europe experienced declines in organic sales. Operating EBITDA increased by 8% due to volume gains and lower costs, but was partially offset by higher variable compensation. Cash flow performance was strong, resulting in adjusted free cash flow of $425 million. Adjusted EPS increased by 14%, driven by higher segment earnings and a lower share count. The base tax rate for the quarter was 26.4%, and is estimated to be approximately 24% for the full year. E&I segment results are discussed on Slide 7.

In the second quarter, E&I's net sales increased by 15% due to a 9% contribution from Spectrum and 8% organic sales growth. This growth was partially offset by a 2% currency headwind. Semi sales were up over 20% due to increased demand for AI-driven technology and OLED materials. Interconnect Solutions saw low-teens sales growth due to continued recovery in consumer electronics and AI technology ramps. Industrial Solutions saw a low double-digit decline in sales, but showed a 9% increase from the previous quarter. Operating EBITDA for E&I increased by 20% due to volume growth, restructuring savings, and the contribution from Spectrum, but was partially offset by lower volume in Industrial Solutions and higher variable compensation.

In the second quarter, the operating EBITDA margin increased by 120 basis points compared to the previous year. Net sales for W&P were down 7% due to lower volumes and currency headwinds, but there was a sequential increase of more than 20% in the Tyvek Medical Packaging market, indicating a recovery. Market conditions also improved for Water Solutions, with a 12% increase in net sales driven by China. Shelter Solutions saw a low single-digit increase in organic sales due to improved demand in construction markets. Operating EBITDA for W&P was down 7%, but there was a 50% incremental margin compared to the first quarter. For the third quarter, the company expects a sequential increase in net sales, operating EBITDA, and adjusted EPS, and for the full year, they have raised their guidance for these metrics.

The company expects full year net sales, operating EBITDA, and adjusted EPS to be at the midpoint of revised ranges. There will be some foreign currency headwinds and a sales contribution from the Donatelle acquisition. In the Q&A, the company discussed growth in the electronics market, with a majority of it being market recovery but also some pre-buying. The company also noted that AI is driving growth in the semiconductor and integrated circuit business, with $250 million in sales currently.

In the paragraph, Jeff Sprague asks about the impact of the strong pricing in the electronics industry on semi and ICS packaging and thermal management. Lori Koch and Antonella Franzen explain that there was a $30 million pre-buy in semi and Interconnect, with $20 million in semi and $10 million in Interconnect. They also mention that there was a slight decrease in price in Water and Power due to strong pricing over the past couple of years compensating for cost increases, and the timing of price increases.

The speaker responds to a question about the product mix in AI applications and explains that it is the same product but with higher volumes due to advanced nodes. They also mention that their MSI is a typical indicator of market growth and they expect to be 200-300 basis points above market growth. In terms of guidance, they mention that normal seasonality would see a $50-100 million lift from Q2 to Q3 and a $100 million decline from Q3 to Q4, but this year's recovery and pre-buy in Q2 are muting those numbers. The decline from Q3 to Q4 is expected to be around $50 million.

The speaker discusses the challenges of seasonality in the market and how it affects their numbers. They also mention the remaining issues related to PFAS, including state AG cases and personal injury cases. The recent settlement in South Carolina reduces the number of personal injury cases from 6,000 to 3,000, and the speaker believes that the company is only responsible for a small percentage of these cases. They clarify that the difference in injury severity among companies is due to whether or not they produced firefighting foam.

The company's W&P segment is expected to see some growth in the second half of the year, with a lift in medical packaging and water business due to destocking. However, revenue is expected to remain relatively flat and there is some muted seasonality built in for the shelter business due to the soft residential market and economic conditions. The company is closely monitoring the macroeconomic environment.

The speaker discusses the cautious view and guidance for the company, mentioning that margins are expected to be flattish to slightly up. They also mention the interest in the company's assets, particularly the water business, and state that they would consider any potential opportunities carefully.

The speaker asks a question about the PFAS issue and how the recent Supreme Court decision may affect the company's liability. The CEO clarifies that manufacturers are not responsible under superfund laws, and provides 4 key categories of responsible parties. The speaker thanks the CEO for the clarification. The next question is about the spin-off and whether the company will provide financial information before the SEC filings. The speaker asks if the company will report like a holding company and provide summary income statements and balance sheets for the spin-off companies. The speaker is answered by a representative from the company.

The company plans to report on its new structure before the Form 10 filings are released next year. The new DuPont will have three reportable segments, including healthcare, next-gen mobility, and remaining businesses. The company expects high single-digit growth in the E&I segment, with a focus on AI and consumer electronics. Utilization in the semiconductor space is expected to be in the high 70s by the end of 2024.

In paragraph 17, Lori Koch discusses the performance of the ICS business and its two main segments: interconnect solutions and thermal management. The acquisition of Laird has been beneficial for driving growth in both segments. In the E&I business, results were strong except for industrial, which was impacted by ongoing Kalrez destocking. There are no competitive dynamics affecting Kalrez.

The speaker discusses the second quarter cash flow results, which came in higher than expected due to better working capital performance and increased productivity. The interest payment that was expected to lower the cash flow was not a significant factor. The company is still on track to meet its target of 90% cash flow for the year.

In the paragraph, Lori Koch from the company discusses their ability to meet their targets and the factors behind their recent financial performance. She also mentions that they expect volume growth in the second half of the year for their Industrial Solutions segment and that they are considering selling their water business, with interested parties showing interest despite potential PFAS liabilities.

Lori Koch confirms that there have been no discussions about selling the water business and that each of the three spins will take on their share of the PFAS liability. Laurence Alexander asks for more details on the sequential momentum in Water & Safety Solutions and Lori explains that they expect a flat Q2 to Q3 but a sequential increase in Q4 due to project-related activity. Safety is expected to see some sequential improvement as well. Mike Sison asks about how the agencies will assign industry codes to each entity of the spin and Ed Breen says they will work on it.

The company is working to get their SIC code changed and is raising guidance by $110 million for the full year. The Q2 beat was $88 million and there could be a seasonal drop off and moderation in growth. The guidance includes a $75 million headwind and the Donatelle acquisition partially offsets this. On a true underlying basis, the company is raising the top line by $100 million and the bottom line by $30 million.

Lori Koch, CEO of Lam Research, discusses the company's performance and outlook for the semiconductor industry. She expects utilization rates to end the year in the high 70s and sees high single-digit growth in E&I in 2025. Koch also talks about the recent Donatelle acquisition, which complements the company's existing portfolio and offers cross-selling opportunities. The acquisition is expected to contribute $75 million in revenue and has slightly better margins than a previous acquisition.

Antonella Franzen clarifies that the $75 million mentioned is for a full year. Patrick Cunningham asks about the increase in corporate earnings in the second quarter and how much lower they will be in the second half. Lori Koch mentions a strong margin performance in the retained businesses in the second quarter, but expects a decrease in the second half due to earnings headwinds and timing of expenses. Vincent Andrews asks about the timing differences in electronics and if they are reflected in the third quarter order book. He also asks for clarification on the number of personal injury cases and DuPont's assumed liability.

The speaker is discussing the expected progress of a trial regarding a case related to firefighting foam. The number of cases has decreased and the company believes it will eventually be reduced to around 3,000 cases. They mention a previous settlement involving a different product and state that they are only responsible for a small portion of the exposure. The company hopes to settle the cases as a class and mentions that their order book is in good shape. The cost of goods was down 2% in the quarter, and the speaker is asked to provide more detail on this. They mention that raw materials may have decreased more than 2% and state that they expect the cost of goods to continue to decrease in the future.

The speaker mentions two things to keep in mind: the impact of deflation on costs and the accelerated restructuring actions. They expect to save $115 million in COGS this year. They also mention investing in a facility in Europe for lithium production. The potential market opportunity for lithium is around $250 million. The call is now concluded.

This summary was generated with AI and may contain some inaccuracies.