Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the DuPont Fourth Quarter 2022 Earnings Conference Call. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Chris Mecray, Vice President, Investor Relations. You may begin your conference.

Good morning and thank you for joining us for DuPont’s fourth quarter and full year 2022 financial results conference call. Joining me today are Ed Breen, Chief Executive Officer; and Lori Koch, Chief Financial Officer. We have prepared slides to supplement our remarks, which are posted on DuPont’s website under the Investor Relations tab and through the webcast link. Please read the forward-looking statement disclaimer contained in the slides. During this call, we will make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K, as updated by our current and periodic reports, includes detailed discussion of principal risks and uncertainties which may cause such differences. Unless otherwise specified, all historical financial measures presented today exclude significant items. We will also refer to non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measures included in our press release and has been posted to DuPont’s Investor Relations website. I will now turn the call over to Ed.

Good morning and thank you for joining our fourth quarter and full year 2022 financial review. We posted strong quarterly top and bottom line results in line with our previously communicated guidance in an uneven global economy. Fourth quarter revenue included a 5% organic growth versus the year ago period, strong volume in water and auto adhesives, as well as ongoing strength in industrial end markets such as healthcare and aerospace, helped mitigate volume declines in consumer electronics end markets and softening conditions in North American construction markets. Strong pricing growth in the quarter reflects actions taken largely prior to the fourth quarter to offset persistent inflationary pressures in raw materials, logistics and energy. We sold over $800 million in year-over-year inflation headwinds for full year 2022. We delivered year-over-year operating EBITDA growth in the fourth quarter despite a slight volume decline, currency headwinds and the impact of portfolio divestitures. We also saw a margin improvement of 120 basis points, demonstrating solid operational execution and focus on items we can control within the highly diverse end markets where we participate. The closing of the M&M sale was a milestone event in the fourth quarter and our last contemplated large-scale divestiture. The transaction further transforms our portfolio to concentrate in more stable, secular, higher growth and higher margin end markets. As you can see on Slide 4, our transformation actions have significantly strengthened our balance sheet, increased our financial flexibility and positioned the company to continue to generate shareholder value through disciplined capital allocation. Following the M&M sale, we acted quickly in accelerating return of capital to shareholders. We authorized a new $5 billion share repurchase program in November and launched an accelerated share repurchase transaction for $3.25 billion of common stock, allowing the retirement of about 39 million common shares…

Thanks, Ed and good morning. The quality of our portfolio was highlighted this quarter as strong top line results across the majority of our business lines offset weaker conditions in consumer electronics and construction. The global economy remains challenging, but our team’s focus on execution drove solid fourth quarter earnings growth and operating EBITDA margin expansion against the prior year period. Turning to our financial highlights on Slide 6, fourth quarter net sales of $3.1 billion decreased 4% as reported and increased 5% on an organic basis versus the year ago period. Global currency volatility resulted in a 5% headwind from U.S. dollar strength against key currencies, most notably the yen, yuan and euro. We also saw a 4% portfolio headwind driven by the impact of non-core divestitures. Breaking down the 5% organic sales growth, 7% pricing gains were partially offset by 2% volume declines. Continued strength in water solutions and over 20% volume gains in auto adhesives were more than offset by further softening in smartphones and personal computing within interconnect solutions, a slowdown in semiconductor and construction market, as well as continued lower year-over-year volume from Tyvek protective garments within safety solutions. As we exited the year, we saw lower volumes in areas we have highlighted with total December organic sales up 2% year-over-year, including down high single-digits in China, driven by acceleration of COVID disruptions and low single-digit organic sales growth in the U.S. and Canada due to muted demand in construction and destocking by customers. From an earnings perspective, operating EBITDA of $758 million increased 1% versus the year ago period despite currency headwinds and the impact of portfolio. Organic earnings growth was driven by pricing and disciplined cost control, which more than offset inflationary cost pressure and lower volumes, including the impact of production rates.…

[Operator Instructions] Your first question comes from the line of Scott Davis from Melius Research. Your line is open.

Hi, good morning, everybody.

Good morning, Scott.

Let’s – if you don’t mind, I’d love to get a little bit more color on the inventory levels. When you think about, I mean, two different businesses really with the interconnect and the semiconductor side. But how high did inventories get? Meaning kind of how above normal were they? And where would you characterize them today versus where perhaps they were maybe a quarter ago?

Yes. So on ICS, as Lori just mentioned, Scott, that started its downturn actually middle of 2022. So that’s been going through a downturn. It’s obviously lower demand. And a lot of that lower demand, by the way, is China related lower demand because of COVID and lockdowns and all that. And so we have talked to our 10 largest PCP customers mainly in China, and it looks like they are going to begin their ramp in the second quarter. We’re thinking more in the middle of the second quarter. And maybe to give you a couple of numbers behind it, their PCB fabs usually run in the high 70% utilization rate. They have been – they are all a little bit different, but they have been running kind of between 40% and 60% and they expect the second half of the second quarter to be kind of up to 60% to 65% and then ramp up from there. So that’s what we’re getting granularly on the ground. And of course, smartphones are supposed to pick up in 2023 from last year. And remember, the smartphones in China were down 20% last year. So it was just a big down. I mean nobody – none of the consumers were shopping. So I think just China coming back on its own from kind of this artificial COVID thing alone is going to help with demand. And remember, we’re high on electronics in that market in general. So I think we will see a boost there. And then if we’re right with our customers on the PCB side, we will start seeing that in the middle of the second quarter. And then on the semi side, I think that’s pretty public knowledge. But those fabs were all running high, kind of 95%.…

Yes. If I can just add to, we referenced the market research inventory index for semi to get an understanding of what inventory exists in the channel. And right now, usually, it says it kind of goes into surplus mode when the inventory index is above 1.2. We’re looking to be in that – butting up against the 1.2 as we close the first quarter. And the second quarter to our earlier point is the peak where it gets a little bit higher than 1.2, and then it starts to come back down. For reference, back at the last semi downturn in the late 2018, 2019 downstream, it was much higher. So it doesn’t feel like we have the same dynamics going on at what we had back then. But it does feel like there is more in the channel than where we were definitely last year at this time, we were kind of at a below one level with respect to the inventory index.

Okay, I am going to stick to one question. It’s main issue for me. Thank you and best of luck.

Thanks, Scott. Good to hear from you.

Thank you.

Your next question comes from the line of Steve Tusa from JPMorgan. Your line is open.

Hi, guys. Good morning.

Good morning, Steve.

So just looking at the guide, I think you guys have like $0.60 or something like that of tailwinds off of the 340 base kind of gets to just above $4. The low end of the range at 350 just seems like what’s embedded in the low end of that 350 range? I feel like the math gets us to something a little bit higher, at least at the low end?

Yes. So the low end on both the top and bottom line really assumes not much improvement coming out of Q1. So a little bit mainly driven by seasonality, but not a lot of recovery in the end markets that we had spoke about. So it is more on the pessimistic side. We believe a lot of indicators that we’re seeing and the conversations that we’re having with our customers would suggest that wouldn’t come to fruition, but we wanted to bucket it on the low end just to be cautious.

Yes, got it.

I mean, Steve, it would be more a global recession scenario. So we’re just bracketing it. But I would point you to the midpoint of our guidance is we’re obviously trying to zero in at.

Yes, that’s where we are anyway. I saw some news on an employment contract. I got a lot going on this morning. But can you just maybe give us a little bit of color there for you?

Yes, Steve. So I had a contract in place, I think it was a 3-year contract that ends at the end of this calendar year. And a question I get pretty frequently from investors is that your retirement date because that’s when your contract expires. So the Board and I wanted to take that off the table. I’m going to continue employment after the end of the year. And I don’t need a contract anymore because some of the stipulations were back in from the DowDuPont days. And so I’m just an at-will employee, but excited to continue after the end of the year.

Okay, great. Thanks a lot, guys.

Thank you.

Your next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is open.

Thank you, and good morning, everyone. You guys had really strong pricing in 2022, obviously, to get after that $800 million of inflation. How do we think about that price cost relationship in ‘23? Presumably, there’ll be parts of your business that will hopefully see some deflation, and then maybe wages and stuff are still a headwind. But how should we be thinking about carryover pricing into ‘23? And how you’ll manage pricing where you might see some deflation?

Yes. So we haven’t seen any positive impact yet in our numbers, but I would expect on the logistics and freight side, maybe we will start to see something towards the end of the second quarter there. We’ve baked very little into our 2023 business plan for any benefit from price cost A. little bit is in the second half of the year. But not much when we start to see it, we will highlight it obviously and look at our forecast again. But I mean, obviously, it looks like some of these roles are going to start to come down here and again, see some benefit from the extreme freight rates in the middle of last year. But again, we’ve baked very little of that in so far.

Yes. And from a price – carryover price perspective, we do see a little bit in Q1 in the low single-digit range and then it pretty well waned as we lap. The significance of the price increases that we drove happened in Q1 of last year. So you’ll pretty well lap that in the first quarter.

Okay. And then, Lori, just a follow-up, do you have a sort of rough guide for free cash flow conversion for ‘23? I mean it’s very clear there was a lot of moving parts and noise in the ‘22 number. But how are you thinking about ‘23 at this point?

Yes. Obviously, 2022, as you had mentioned, was noisy with the transaction cost, coupled also with the supply chain environment that caused us to hold more inventory than what we normally would. So we don’t see that repeating. Obviously, on the transaction side from that perspective and the working capital situation should get better. So we should target to be at that 90% conversion range that we target for the full company. So you can use kind of the midpoint of guide that we had provided and a calculated into a number, making sure that you contemplate that roughly $150 million to $200 million in transaction costs that are primarily associated with some straggling carryover from the M&M separation and then the Delrin Divestiture.

We did start to bring inventory down in the fourth quarter. So we’re going to start hopefully trending here. Now the supply chains are kind of moving back to sort of normal.

Okay. Great. Good news. Thank you.

Thanks, Vincent.

Your next question comes from the line of Christopher Parkinson from Mizuho. Your line is open.

Great. Thank you so much. You posted pretty solid results, water, protection, specifically in water and safety. Can you just go over some of the guide framework you hit on a lot on E&I? Can you get on some of the guide framework as it pertains to W&P and just speak about kind of what’s driving that and as well as the sustainability as we think throughout ‘23 and even into ‘24? Thank you so much.

Yes. From an organic basis, we will continue to see strength within water. So we had really nice performance in the water segment in general in 2022 with organic sales up kind of high single digits, and we would expect a similar performance this year. The one end market that will be weak for us, as Ed had mentioned, is Shelter. So in the first quarter, we do see Shelter down kind of in the mid-teens, that will moderate as you go – as you go through the year, is down into the mid-single digits potentially on a full year basis. But we don’t see a full recovery in shelter within the 2023 timeframe. And then generally, in safety, those are industrial end markets for the most part, minus maybe a little bit of destocking that’s happening at some of the big distributors that should generally perform in line with industrial production on a full year basis.

Yes. And on the Shelter side, remember, there is seasonality in that business. So the first quarter is usually the lowest that we’ve planned kind of a recession scenario for construction throughout the whole year, but then you will get some seasonality lift as you’re in the middle of the year, just naturally off of a tougher bottom, but.

Got it. That’s very helpful. And then you also hit on some remarks regarding just the Delrin timing and just how do we think about that? Do you have anything else that you’d be comfortable adding at this time in terms of just the process, where you stand, your confidence level versus a few quarters ago? That would be very helpful. Thank you so much.

Yes. So we’ve done all the clean room work that’s all set. We’ve been doing some education on the business externally. If I had to kind of guess at this point, I think we’re going to launch more formally at the end of this quarter that we’re now in. We think the markets are better than they were in the fourth quarter. There is probably strategic and private equity interest. So that’s why we are being careful on the timing. And so my gut is we will launch around them. And the business looks like it’s having a pretty decent first quarter as we can see it right now. So I think that the timing might be good there. And we should be able to wrap up a deal fairly quickly in that business. So it’s not that complicated. So that’s why we made the comment that we should be able to close that, obviously, in 2023.

Very helpful. Thank you so much.

Your next question comes from the line of Mike Leithead from Barclays. Your line is open.

Great. Thank you. Good morning.

Good morning, Mike.

First, I just wanted to go back and talk about the expected cadence for full year earnings. It sounds like kind of reading between the lines, you’re indicating late in 2Q things start to pick up, inflect in electronics and some input deflation. So should we model a pickup really starting in the second quarter? Or does the recovery begin more notably in the third quarter in your view?

You’ll get some lift in the second quarter, and I would say, predominantly because of China coming back kind of online, if I should say it that way. So I would model – we’ve given you the first quarter. I would model some sequential improvement, but the bulk of it would be the third and fourth quarter. And again, it lays out. We think the middle of the second quarter, the ICS business start, the fab start ramping up. So most of that benefit, you’ll see third and fourth quarter, a little bit in the second quarter. And then we don’t – we’re not planning on semi picking up until the third quarter. Maybe it will happen in the middle of the second quarter, but somewhere in that ZIP code. And so you get a little bit of China uplift, maybe a little on ICS. But again, planning mostly third quarter for that. Maybe a little in semi. But again, planning more third quarter for that. So I think you can kind of build that out. to get to kind of maybe our midpoint that we’ve guided to for the year.

Great. That’s super helpful. And then quickly, just a second question just on M&A. we have seen a few transactions start to pick up a bit as of late. Can you just talk about are you seeing some of the potential acquisition size?

Yes. We are looking at a couple of things we have been interested in. Of my – my gut is we will do a bolt-on acquisition this year, but that’s not a given. We are in no rush. We want to get it at the right price. So, we will see. But we are definitely looking and zero in on a couple of things. But I will put them more on the bolt-on size, from a spend category, and it would clearly be in one of our growth pillars where we have the expertise. And what we really want to do is pick up innovation and R&D and technologies in core areas to build out a couple of the platforms.

Great. Thank you.

Yes. Thank you.

Your next question comes from the line of Aleksey Yefremov from KeyBanc Capital Markets. Your line is open.

Thank you and good morning everyone. In E&I, you are discussing several new products launched in both interconnect and semiconductor technologies. So, I wonder how are your customers looking at adoption of new technologies, things like new nodes for your fab customers, is it getting pushed out or there is policy interaction on that?

No. I mean, the interaction still remain very robust and they are a key portion of our delivery of top line growth, especially within semi. So, we would still expect that 200 basis points to 300 basis point outperformance versus the end markets and the discussions are still very frequent and common for us to be able to continue to drive that relationship.

Yes. I mean – and let’s keep in mind that when the semi thing picks up for the second half of the year on the next decade looks pretty incredible for the semi business. You see all the announcements on the fabs. Almost all of these fabs are the denser small or high end chips. And that’s why we, as Lori just mentioned, we get the 200 basis point to 300 basis point overgrowth from the market is because we get to participate more and more on the advanced node side. So, the – we are going to have a couple of soft quarters here, but the outlook over the next decade is pretty incredible in this space. So, we stay very much up on the R&D, and we are very close to the top semiconductor customers doing design and work with them.

Thanks a lot.

Yes.

Your next question comes from the line of Josh Spector from UBS. Your line is open.

Yes. Hi. Thanks for taking my question. Just your guidance doesn’t appear to really factor in any further buybacks beyond the ASR you have ongoing. I was just wondering if you could talk about your willingness to either deploy that additional $2 billion on top of the ASR immediately following. How you are thinking about when that plays into your framework?

Yes. So, the guide does contemplate starting potentially another ASR when this was one is completed like the beginning of the fourth quarter. So, our guidance that we provided for EPS has a reduction in the full year versus the first quarter outlook, and that reflects getting started on that second tranche of $2 billion that we have remaining on the authorization. But we also have the ability to still purchase over the top on the existing ASR should we feel it prudent. So, we have some volume that we can purchase as needed while the current ASR is open. Generally, you try to keep your volume under 15% of daily purchases, so that you don’t work against yourself and our current contracts on the ASR allow us to do a little bit over the top.

Josh, as a reminder, Page 16 of our slide deck has some additional modeling guidance, including share count, but don’t miss the fact that we took quite a few shares out in the fourth quarter associated with the ASR that was enacted in mid-November. So, you may have been missing that effect in the fourth quarter and then the guide for ‘23 on the year-over-year.

No. Got it. I appreciate that. And just Ed, I guess a follow-up on the contract you have in place to keep going beyond this year. I guess it’s become a bigger question for investors around long-term transition planning. So, I guess where would you say you and the Board are in terms of thinking about kind of the next step for DuPont, maybe it’s multiple years out, but where are we in that process?

Yes. The Board is well aware of internal candidates being developed and continuing to go through their career. So, we – the Board is clearly aware of who internally is an option for the next CEO role. But we are also not at that point, but we do discuss it regularly in the development plans for the internal candidates. So, I will just leave it at that.

Okay. Thank you.

Your next question comes from the line of John Roberts from Credit Suisse. Your line is open.

Thank you. Ed, you didn’t mention the U.S.-China trade technology restrictions, including the new Huawei controls. Is that an immaterial issue for DuPont?

Yes, it’s 50 – John, the reason we didn’t – I know we mentioned it last quarter, but it’s about $50 million to $60 million of revenue. So, it’s not that significant, though. But we did bake that obviously into our forecasting that we did. And so whether you can take that as – you can extract that down to EBITDA, it’s not that big in the scheme of things. But that’s definitely in place, yes.

Yes. And that’s on that Ed said on the direct Huawei exposure, there is really not much there. So, we don’t have exposure there.

Right, that $50 million to $60 million is semi.

Yes.

Can you remind us when the first PFAS trial is scheduled and any update on the negotiations there?

Yes. John, it’s scheduled in June of this year. And we have ongoing conversations for a settlement. By the way, I think having a – the judge appointed a mediator, I think that was around the time we did last earnings call, if I remember. And I would say that’s very helpful to the process. So, I will leave it there.

Thank you.

Your next question comes from the line of Arun Viswanathan from RBC Capital Markets. Your line is open.

Thanks for taking my question. Just kind of understanding kind of the back half cadence and you will be exiting the year on. So, if you think about the guidance you offered, does it look like maybe the back half is kind of at a run rate basis, maybe at the upper end or maybe at the middle end of the range, say, Q3, Q4 averaging close to $1 or – and what is it going to take to really get to that kind of level of earnings power? Is it mainly a macro recovery, or are there other levers within your control that you can leverage? Thanks.

Yes. So, you are pretty well spot on the second half EPS trajectory, and it really is all impingent upon the pace of the recovery in the end markets that we highlighted. So, seeing the semi destock and the demand return, seeing the smartphone and consumer electronics destock stop and the demand return. And then obviously, the continued China reopening will have a positive impact on our business. So, that impacted us in December and it will impact us on Q1 as they continue their reopening. But remember, we have got 20% of our sales into China. So, a nice opportunity as they continue to recover from the full COVID lockdown. So, it’s really that the shift between the first half and the second half is really all from the top line and expected to recover…

Yes. And you get, sorry Chris, you do get a nice lift in margins and it benefits from mix in part. I mean as E&I comes back, remember, you have got a nice margin lift. So, you are kind of in the mid-24s on a margin in the first half and then you are up in the low to mid-25s in the second half, again benefiting from that mix and the timing of that E&I rebound from first half to second half. So, you end up averaging. The overall margins for the year end up being relatively flat, but there is a nice lift on a run rate basis when you are in the second half there.

And just as a follow-up then, if you look at ‘24, you will be facing easier comps, especially in the first half in E&I. Do we return kind of to a double-digit EPS growth rate in ‘24? Again, would you be inclined to increase the repurchase activity to reach that level if needed? Thanks.

Yes. I mean I think it’s a little early to start looking at ‘24. Obviously, this should – we have got nice EPS growth from the capital allocation decisions that we have made, and we will see that carry into 2024 as well because the second piece of the existing authorization really won’t be put in place until the fourth quarter. So, you won’t get the full benefit on a full year basis from that. But yes, in a normal environment, we should drive really nice top and bottom line growth. We have got end markets that would suggest in total, you would be in that mid-single digit range on the top line if they perform in a normal macro perspective. And then I think we have proven that we do a really nice job of driving margin improvement and leverage across the P&L. So, we wouldn’t see any material change there from that dynamic.

Thanks.

Your next question comes from the line of John McNulty from BMO Capital Markets. Your line is open.

Hi. Good morning Ed and team. This is Bhavesh Lodaya for John. In your guide, you have a cautious outlook on the construction end markets pretty much throughout the year. Is there a way to quantify what the year-over-year EBITDA impact is from the downturn? And then I realize it’s early, but when do you expect to get more clarity on a potential trajectory of recovery there?

Yes. So, for the Shelter segment, it’s about 13% of sales. And we had mentioned on a full year basis, we would expect that to be down mid-single digits. And we have sized the EBITDA margin profile of shelter as below the W&P segment average. So, I think we have given you several data points there that you can back into what we believe the EBITDA headwind will be to W&P and the total company from shelter in 2023.

And then you highlighted cost – yes, sorry, please.

You go ahead.

You highlighted cost control measures initiated during the fourth quarter and those clearly helped from the margin perspective. Is there a way to quantify the benefit? And do you need to do more of these in 2023, or maybe what’s built into your guide around these?

Yes. So, we took costs out in the fourth quarter. We opened a restructuring program. And under the restructuring program, we took about a $60 million charge. And a lot of that was to get after the stranded costs that we saw coming out of the completion of the M&M divestiture, and there also were some actions in the business is able to drive productivity. So, we have got further room under the restructuring program if we would need it to be able to continue to drive margin and the decremental margin that we target. As of now, there is really nothing planned or baked into the guide incrementally, but we have the flexibility as we need to.

Got it. Thank you.

Your next question comes from the line of Mike Sison from Wells Fargo. Your line is open.

Hey. Good morning guys. Nice end of the quarter. Nice end of the year. In terms of your outlook for construction, I mean are you hearing from your customers now that their backlogs are really weak at the end of the second half, or is it just more planning for difficult environment that with high interest rates and such?

Yes. It’s just the planning at this point. And by the way, not to get overly optimistic, I heard a couple of homebuilders during this last quarter, actually reported numbers that were kind of nicely better than were expected with decent backlog, actually. So, I think it’s mixed out there. I think certain regions of the country, if you look at the detail, are doing better, in construction, some of the Southeast and Southwest areas. But having said that, again, we are also in a deleveraging mode here right now. And remember, some of our construction materials go into big box for do-it-yourself stuff and there is clearly destocking going on there. So, that part of it will end. But we have just planned look with interest rates where they are at the macro on the shelter business right now, just assume the whole year stays at about the level it’s at. And Lori mentioned the percentages. So, I think it’s just prudent planning on our part.

Got it. And then for E&I, it does seem like you need some volume growth in the second half to hit the midpoint. How much of that is from new products and some of your innovation that you have done and maybe wins on new nodes and memory?

Well, let me just give you, overall, our new products are – that have been launched in the last few years or like 30% of our sales. So, we track that very, very closely. We are constantly bringing out new versions, I would say, of our technology all the time. And that’s what keeps us ahead of the pack on, for instance, the advanced nodes in semi. And as – so it’s constantly happened. But I wouldn’t say that it’s not going to have a material effect on where our revenue ends up. That’s just a month-by-month that happens.

Yes. I think I mean back to the outperformance that we highlighted. So, currently the full year MSI expectations are in the down mid-single digit range, obviously vary dramatically by the quarters with the first quarter starting at it, down kind of low-double digits. But our expectations opposite that full year down low-single digit MSI number or down mid-single digit MSI number would be to be down low-single digits. So, we would still expect that outperformance by the innovation engine that we have that allows us to be able to be more exposed to the high-end nodes and continuing to build relationships with those customers.

And that, again, that low mid-single digits for MSI is very negative in the first quarter and build during the year, and it gets positive in the back half of the year, which we believe that also having talked to our semi customers.

Got it. Thank you.

Your next question comes from the line of David Begleiter from Deutsche Bank. Your line is open.

Thank you. Ed and Laurie, how should we think of – in E&I, how should we think about incremental margins in the back half of the year?

Yes. We would expect in the back half of the year, the overall EBITDA margins to be more in that 31%-ish range that we would expect from the E&I perspective. So, they will be a little bit muted in the first half and we would expect a return from the EBITDA margin profile in the second half.

So, what is implied for incrementals in the back half of the year, mid-30s or higher?

A little higher, yes, mid-30s, maybe upper-30s incremental margins. They shouldn’t be too different than the – obviously, the gross margin you would see within the E&I segment.

Understood. And just in W&P, what drives earnings higher in ‘23?

I mean I think if you see a little bit of deflation that would drive earnings higher, we had mentioned in 2022 and the current expectation for 2023 is, there is about a 100 basis point headwind from net price cost. We haven’t baked any material benefit in from that perspective. So, that would be one tailwind that would help to drive the EBITDA margins higher. And then the other would just come within E&I mix enrichment. So, the quicker recovery in summary, that’s obviously our highest margin segment. So, that would help as well to drive the E&I margins.

Thank you.

And the last question comes from the line of Frank Mitsch from Fermium Research. Your line is open.

Thank you so much for squeezing me in under wire. I appreciate the granularity on China, your expectation that you are going to see a pickup by the mid-second quarter. But just curious, what are you seeing here real time post Chinese New Year in terms of economic activity there?

Yes. I mean obviously, we can see January is also a little hard to see through given the timing of Lunar New Year. So, this year, it was full in January, last year full in February, so it makes it a little bit different from a year-over-year comp perspective. But the reopening is definitely happening. Right now, I think the benefit of the reopening is more on the essential side. So, spend is more towards those essential needs, and we would need it to obviously tend over to the discretionary needs that we would expect to see as you get further into the first half. But definitely, the lockdown appears to be well behind them and they are returning to some form of normalcy.

Very helpful. And if I could stick to the geographic theme, your year-over-year volume declines in Europe moderated from the third quarter here in the fourth quarter. So, I am just curious as to what are you seeing on the ground in that part of the world and what your expectations are for ‘23 over in Europe?

Yes. So, Europe does feel a little bit better as they get the concerns around the access to energy behind them. And obviously, the energy rates or it’s a tailwind for everybody. So, you have seen a really material pullback in the European natural gas rates. And so we are cautiously optimistic on Europe and the continued benefit there. For a full year basis, we are still generally flat for overall volumes in Europe. We will see how that trends as the year plays out.

Very helpful. Thank you.

I think – is a big part of how that plays out because of water [ph] in Europe is fairly significant.

Got it. Thank you.

And this ends our question-and-answer session. Mr. Chris Mecray, I will turn the call back over to you for some final closing comments.

Yes. Thanks everybody for joining our call. We appreciate your participation and for your reference, and a transcript will be posted on our website. This does conclude our call. Thank you.

This concludes today’s conference call. Thank you for your participation. You may now disconnect.