Good morning, and welcome to the DuPont Fourth Quarter 2023 Earnings Call. Please note that this call is being recorded. All participants are now in listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the call over to Chris Mecray. You may begin your conference.

Good morning, and thank you for joining us for DuPont's fourth quarter and full year 2023 financial results conference call. Joining me today are Ed Breen, Chief Executive Officer, and Lori Koch, 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 will make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K, as updated by our current and periodic reports, includes detailed discussion of principal risks and uncertainties which may cause such differences. Unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items. We will also refer to other non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials and have been posted to DuPont's Investor Relations website. I'll now turn the call over to Ed.

Good morning, and thank you for joining our fourth quarter and full year 2023 financial review. This morning's earnings release is consistent with the preliminary results announced on January 24th, and we have added our customary segment detail and end market color while also providing incremental detail on our 2024 financial forecast. Broadly, we continue to see encouraging stabilization within electronics markets. Our Semiconductor Technologies business reported sequential sales growth of 2% in the fourth quarter as expected as the first sign of getting past the bottom at chip production. In Interconnect Solutions, we saw a return to year-over-year volume growth with volumes up 2% versus the prior year after sales bottomed earlier in 2023. However, as we finished 2023, we did see additional channel inventory destocking within many of our industrial-based businesses as well as continued weak demand in China with incremental weakness in our China water business. This resulted in fourth quarter net sales, which declined 7% year-over-year, falling below our guidance expectations. We have already noted that we see a continuation of similar volume trends into the first quarter, and I will come back to this, but we are encouraged that we see signs of market stabilization, bottoming of customer inventories and a pickup in orders in the month of January that support a view of recovering sales and earnings through 2024. Fourth quarter operating EBITDA of $715 million was down 6% year-over-year, reflecting continued pressure across many of our largely short cycle businesses. We remain very focused on managing what we can control, including discretionary spending levers, and also executing the restructuring actions announced last November. This focus helped to contain margin impact in the period despite a 9% drop in volume. Looking into 2024, we continue to target annualized cost savings of $150 million, which…

Thanks, Ed, and good morning. Our financial results in 2023 were clearly impacted by significant destocking and demand pressure in China, but our focus has remained on sound operational execution across the business. I'm very pleased that our team's effort to drive productivity and operational excellence clearly minimize decremental margins and help drive substantial cash flow improvement. In 2024, our continued proactive approach to managing the business will yield impactful cost reduction beginning later in the first quarter and building from there from the restructuring actions announced last November. We anticipate yielding at least two-thirds of the total $150 million in restructuring benefits during 2024, with the balance realized next year. Like Ed, I'm also encouraged by the expected trajectory of demand and volume based on direct customer feedback and data supporting the bottoming of channel inventory in key end markets. Our current forecast assumes a bottom for total company sales and earnings in the first quarter, followed by steady recovery as the year progresses with the return to year-over-year growth in the second half. I'll come back to the outlook later, but first I'll cover our results. Regarding our fourth quarter financial highlights on Slide 5, net sales of $2.9 billion decreased 7% versus the year-ago period, as a 10% organic sales decline was partially offset by a 3% portfolio benefit due primarily to the Spectrum acquisition. The organic sales decline reflects a 9% decrease in volume and a 1% decrease in price. Lower volume included the impact of channel inventory destocking within W&P's safety solutions line of business, most notably for Tyvek medical packaging. We also saw accelerated volume decline within water solutions in China, driven primarily by distributor destocking and weaker demand. On a segment view, W&P and E&I organic sales declined 15% and 7%, respectively, while…

Thank you. At this time, we will open the line for questions. [Operator Instructions] Your first question comes from Scott Davis with Melius Research. Please go ahead.

Hey, good morning, Ed, and Lori and Chris.

Good morning, Scott.

Good morning.

Good morning.

Good morning. Not a lot -- I mean, no huge surprises here, but some of the commentary around kind of price versus cost seemed a little bit incrementally cautious. Is that just a function of kind of weaker demand in general, just sloppy demand that's out there? Is it kind of a mix, just given how weak China is? Just level set, maybe I'm overreading this a little bit, so if we can just talk about kind of pricing power versus maybe what you're expecting overall in '24, that would be helpful.

Yes. So, overall, full year, we have about a 1% price decline in total on the top-line, and we expect carryover benefit from further raw material, logistics and energy savings to offset that, to be neutral from a spread perspective for a year. So, I wouldn't say it's any material change. We had always been in that camp in the raw material side with the pricing, maybe we're being a little bit cautious just based on where the volumes fit in the first half. But overall, no material change. And I don't know that 1% total price is all that material to the total company.

Scott, I'd also say, I think we said on the last earnings call, there's a couple of end markets we would probably have to give up a little price to maintain our market position. I don't want to get into the details what they are on the call. But generally speaking, we have been holding price across the platform and we continue to hold price across the platform. So, really no change there at all.

Okay. That's helpful. And guys, I think one change at the margin just we've seen this quarter is just China continues to be really weak and perhaps maybe even outlook for 2024 degrading a bit as we speak. But can you give us a little bit more color on your confidence in your guide as it relates to just the degradation in China being kind of over and perhaps we're at a bottom here?

Yeah. So, Scott, it was very interesting. I'll just kind of give you an overall DuPont comment on orders and then specifically the water business in China where we've seen a real significant destock. And by the way, overall, it was really interesting to watch. We were still declining, as we said, in the fourth quarter on our order rates. But through the month of January, we've had high single-digit growth pretty much across the platform except for Kalrez and biopharma, which we expect to come back later in the year before they pick up. I'll give you two other data points which are really interesting. And the water business declined in the fourth quarter, but through the first month of January, our orders were up 13%. And a chunk of that was the water business in China. And interestingly there, as you look at the order pattern of that increase, most of that starts May on, which is about what our distributors have been telling us when they bottom out on their inventory. And just another data point because it was one of the other ones we saw destock as we went through the back half of the fourth quarter was our safety orders, which include medical packaging, which was another one that had a significant destock. Those orders were up 10% in the month of January. And that, by the way, is a shorter cycle book than water. Water is the only one we kind of get booked out three months, four months because people are accustomed to having the book out that far, but most of our other businesses are very short cycle. So, the 10% up on the safety orders and medical packaging would bode well for the lift that we're expecting to see from first to second quarter on the top-line. So, it was really interesting, we were going still negative going into the end of the year and now pretty broadly positive for the month of January.

Yeah. And I would say on volumes in China specifically, they did -- they are still down on a full year basis, but we did see less of a decline as the year went on and it varied by business. So obviously, E&I was kind of first into the China downturn, and they actually delivered 1% volume growth in China in the fourth quarter. And then, as the year went on, we saw primarily the water business in China decelerate per Ed's comment. So, it is still a tough market in China, but it looks like E&I is on the upswing, and we expect further improvement in the W&P business in water starting towards the tail line of the second quarter.

Okay. Helpful. Thank you. I'll pass it on. Good luck this year. Bye, guys.

Thanks, Scott.

Your next question comes from Mike Leithead with Barclays. Please go ahead.

Yeah, thanks. Good morning, guys. I just wanted to follow-up...

Good morning, Mike.

Good morning. I just wanted to follow-up on the inventory dynamics in W&P. I guess can you maybe help us better understand how the fourth quarter unfolded? Did your customers just stop buying at some point? Or just kind of what caught you so off guard with the declines there? And then, around the January improvement you just talked about Ed, I guess what do you make of it? Does it seem like those just delayed orders from your end? Or do you think end demand is truly getting better there?

Well, I think, there was a couple of things. I think we got hit a little harder than we were expecting in the fourth quarter, simply because it was most people's fiscal year end, and they're aggressively trying to work down inventories. By the way, as DuPont did, we were aggressively doing it. We accelerated it, as you could see from our cash flow and our inventory position even more in the fourth quarter. So I think it was just trended a little more than we expected. I'd also say I would add to that, remember that in W&P, specifically, 50% of our business goes through distribution. So, they can easily tell you just shut it off for two months or three months and don't ship them yet. And that's what we saw a little bit more of than we were expecting. But very interesting, as I said, it is a month, it's not a quarter yet, but most of those and those distributor orders turned around in the month of January. And again, it was pretty broad-based across the portfolio, ex a couple of these end markets that I talked about. And specifically, by the way, in safety, the distribution orders sort of coming into January, shelter were very heavy through distribution. And we know we've bottomed that. We actually expect slight growth this quarter and that to build a little bit more as the year goes on. And then, I mentioned the water one already, that's 40% globally through distribution, and it was mostly our distributor customers that delayed orders, not our end customers. So that's kind of the dynamic, but very interesting to see this January thing now.

Great. That's super helpful. And then maybe a question...

And just, Mike, just an overall comment, we're 90% of short cycle company. It can go down pretty quickly and it can go up pretty quickly. A lot of this is hangover from COVID excess inventory, people working it off. And so, you can see the bounce back also.

Well, it makes a lot of sense. And then second, maybe just a quick question for Lori. Can you talk about your expected cash flow conversion in 2024? You gave us CapEx, but should we expect any material cash needs for restructuring, pension or just some other key items there?

Yes. So, the pension should be roundly $50 million to $60 million of a cash funding. So no material difference from where it was in 2023. We had noted the CapEx, which also isn't a material change from 2023. We would expect to be, again, around that target of 90% conversion for 2024. We'll see how the timing of the volume lift unfolds. That could create a receivables headwind as you get into the back half of the year as you see that nice volume lift year-over-year. So, I expect it to deliver strong cash flow. We made a lot of progress on one of the areas that we really focused on with respect to inventory in 2023, and we're not going to give back that benefit that we saw and we'll work to hold on to those gains.

Great. Thank you.

Your next question comes from Josh Spector with UBS. Please go ahead.

Yeah, hi, good morning.

Good morning.

Good morning. Just on the second half expectations, so obviously, visibility is pretty low. But I mean, at the high end of your guide, you're kind of projecting that you could see EBITDA up about 15% maybe in the second half. What needs to happen for that to play out? Kind of what's the expectation on the volume or restocking dynamic that would see you get to that end of the range?

Yeah. So, by the way, just a few bullet points on kind of first half, second half ramp there, obviously, the increased semi fab and PC utilization rates, remember, semi is a very high-margin business for us. So, we see that coming back. And we've already started to see, as we just commented slightly, we're seeing an improvement. It was about 2% in the quarter. So, we clearly bottomed out there and we'll now lift. Destock will be mostly complete in the second half of the year. The only ones that might slip into the fourth quarter and we've taken that into account as biopharma and Kalrez, although many in biopharma think that's going to lift by the inflection point at the middle of the year, we're a little more cautious than it's -- maybe more of a fourth quarter, and then clearly improved factory absorption from the hits we've been taking there to keep inventory in line. And then we'll have more of the cost savings from the restructuring program. So, I'd say that's the big items that kind of build first half, second half. And obviously, just volume ramp in general because of destock ending.

Okay. Thanks. That's helpful. And just to maybe follow-up, just more on the first half, are there discrete items we should be thinking about first quarter to second quarter, so that 10% lift you potentially see. I guess, is there a headwind baked in there in the first quarter because you're taking additional inventory actions that's ex or something else that actually absent a material demand improvement improves earnings, or is this more destocking volume driven? Thanks.

Yeah. So sequentially, a lot of it is volume driven. So, we see about $150 million of revenue ramp first quarter to second quarter. That's primarily volume. We also see a little bit of a build in the cost savings program. So, we had mentioned it will really kick in at the end of Q1. So you'll see some ramp as you head into Q2. Those are the biggest items. The largest improvement is going to be the volume increase, though, first quarter to second quarter.

Okay. Thank you.

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

Thank you. Just one for me. In shelter solutions, now that the channel is destocked, are you expecting a normal seasonal sequential improvement or below normal in that segment?

We would expect normal. So normally, 2Q and 3Q are the best quarters for shelter within 1Q and 4Q being lower than those averages.

Great. Thank you.

Thanks, John.

Your next question comes from David Begleiter with Deutsche Bank. Please go ahead.

Thank you. Good morning. Ed, you were very...

Good morning, David.

Good morning. You were very valuable electronics business as not being valued by the market, what are the options in your mind to unlock or have that value being realized?

Well, David, I think, look, we've got -- we're working our way through this destock. And I think the year is going to lift very nicely. I think we just have to be patient to see how it looks as we're kind of exiting 2024. And I think we haven't been in stability here with the destock going on in the short cycle nature. But to your point, David, it's a phenomenal franchise. We're in the sweet spot of it. We got a lot of upside coming with the AI opportunity. All these new facilities, fabs we have built are mostly advanced chips, which plays even more to our strength. So, when people can really see these numbers cranking again, as we're going through the second half of the year, we'll see how the company is valued.

Very good. And just on PFAS, Ed, what's your expectation for improvement on that issue this year?

Well, I think we're within days or a couple of weeks of the judge finally getting the whole water district thing done at all. I think it was just -- they're probably waiting. I think what's going on is they're just waiting to get one announcement from all the companies out. And I think 3M just last Friday, had their kind of I'll call it a preliminary hearing. So, I think that's very, very close to being finalized here. And then, nothing will happen on the personal injury cases most likely this year. However, our kind of take is, we like to settle these things before there's any trial, but they are going through picking some of the -- who would be the initial ones that would go to trial. I think there's 28 of those on the list right now and the judge and all will narrow that down to a smaller group. But I don't think that's a 2024 issue on that.

Very good. Thank you.

Thanks.

Your next question comes from John McNulty with BMO Capital Markets. Please go ahead.

Yeah. Good morning. Thanks for taking my question.

Good morning, John.

So, Ed, we have a lot of new fabs coming on. I mean, just kind of looking at kind of high level, it looks like almost double digit coming on this year and then again in '25 and '26. I guess, can you help us or remind us when you get those wins, like when you see that? And how much of that cake is baked at this point? And then maybe any commentary on share wins or shifts that you might have seen on some of these fabs that are coming up?

Yeah, sales process works. We do a lot of application engineering and development directly with the top -- really, it's about 10 major customers in the semi side. So, it's really the win we get there, where it's processed at a fab is somewhat irrelevant to us. Although we like the fact that these fabs are coming on because the world thinks there's a lot of demand coming over the next cycle here in the semi world, which there should be because everything needs to chip nowadays and more of its advanced chips. But our win rate is really at the design stage with these 10 large customers around the world. And again, where they make it doesn't really matter that much to us, but still a very good sign. And I'd say, overall, market share does not shift much in this business. There is a couple of key players, especially on the higher-end chips and market share is pretty steady across the board year in and year out.

Got it. Fair enough. And then on the shelter solutions side of the business, can you help us to think about what the utilization rates are now that it looks like you've kind of bottomed out in that business? And then, how we should think about the incrementals on that as volume starts to really come back?

Yes. So, we had mentioned we saw an improvement in volume as the year went on. The volumes in shelter were kind of down about 4% in the fourth quarter, and we expect them to be slightly up in the first quarter and then build from there to about 4% by the time we close out the year. So, the utilization rates will definitely improve. This is not a high fixed cost business. So when we talked about the absorption headwinds that we saw throughout 2023, that was primarily in the E&I side, and then it started to kick in a little bit on the safety side with the heavy assets in that portfolio. So there isn't a huge absorption headwind within shelter, but we will see some benefit from volume that would have a little bit of benefit absorption as the year goes on.

Great. Thanks very much for the color.

Your next question comes from Steve Tusa with JPMorgan. Please go ahead.

Hi, good morning.

Good morning, Steve.

Is there any reason over the course of this recovery, why your business should decouple from broad electronics trends? I mean, are you guys less exposed to what's going on in AI and data center? Have you guys -- do you think you've lost share anywhere because a different technology is required in those applications? I mean it just seems like electronics right now is kind of a multispeed world. And I think I would have expected a little more out of you guys so far, but maybe just some comments on how kind of coupled you're going to be to that recovery.

I think we're very coupled to it because the big -- one of the big demand drivers next year is data center and that's a lot of advanced chip applications. I won't say the customer's name, but there's one that's been out there very steadily that is requiring a lot of advanced chips that is a key customer of ours. So, that whole drive towards AI data center and the need for advanced chips plays right to the sweet spot of our portfolio. So no, we won't decouple at all. There's no area that's going to grow faster in the semi side that we won't participate in. That truly is our sweet spot as we go forward here. Remember, in a typical times, we've consistently outgrown the market to 300 basis points because of that dynamic.

Okay.

Yeah. I think, Steve, too, so on semi, it's around a $2 billion business for us, about $700 million of that is data center. So it's a pretty large chunk. If you look at the results and the forecast that the OEMs are providing, it's oftentimes skewed by the price of the chip, which it has no impact on our volumes and our revenues. So that's one thing maybe just to clarify to make sure that if you're seeing lift in some of the OEMs, it's probably right now more coming from price, especially on the memory side. Our portfolio is about 30% memory, 70% logic foundry from a disposition perspective as well.

Sorry. So you said $700 million of that as to what you can see clearly as being like data center related customers?

Yes.

Yes.

And how fast did that grow in like the fourth quarter? Or did it grow in the fourth quarter?

Yeah. So, overall, semi volumes in the fourth quarter were down in the high single-digits as some of the OEMs continue to destock. So that's one other piece, too, is they could still be producing and they're producing out of inventory versus buying new materials to add to their inventory. But if you compare our results that have been released year-to-date versus the peers that sell materials in those subsegments they are in line.

Okay, great. All right. Thanks a lot for the color. Appreciate it.

Thanks, Steve.

You're welcome.

Your next question comes from Aleksey Yefremov with KeyBanc Capital Markets. Please go ahead.

Thank you. Good morning, everyone. I wanted to come back to water filtration in China. Do you have visibility into the underlying demand? Apparently, you do have destocking, but what data points are you tracking to understand how healthy the actual market is?

Yes. So, Aleksey, it's a great question. I would say true demand is down 3% or 4% negative. If you look at our direct customers we sell to over there, they have a little bit of destocking going on at their end, but by and large, when you look at their demand, again, they're in the 3% to 4%, some of them are 5% down, somewhere right in that range. But if you go to our distributor customers, they were down over 30%. And that's where we started to see orders come back through January for deliveries kind of in the May, June, July timeframe. And as I mentioned earlier, the water orders in January were up 13%. And a big part of that was the China orders from the distributors. So, the market is definitely down a little bit. But if we could just get all the destocking to come back, that's a huge swing for us even if the market for a little bit stays down. So, the inventory in China on water will bottom in that kind of May, June timeframe. And that's why I think we're starting to, obviously, then see these orders, at least preliminarily in January, come in kind of for that time period.

And just from a logistics perspective...

Thanks, Ed. And...

Yeah, go ahead, Lori.

Yeah. Maybe just real quick, on the logistics perspective, so Ed had mentioned an expected bottoming of the distributor inventory levels in China in the May-June timeframe. We ship from the US to them primarily. So, there's about a 60-day lag between when they need the material at their facility versus when we ship it, and then we recognize the revenue when we ship it. So, there will be a bit of a favorable impact from our perspective on revenue versus when it arrives at their facilities for use in China.

So, what is the sort of two to three year growth rate for the water business? Will it step down you think because China is slower, or this is temporary?

Yeah, we think it should still be in the mid-single-digit range. So, we think that China is just resolving of some higher inventory levels. If you look back at the volumes before we started to see a downturn globally, I'm going to talk about global volumes, water was up 8% in full year 2022. And then, in the first half, it was up 4% in Q1 and 9% in Q2, and then we started to see the downturn in Q3. So, we think it's a temporary dislocation. There's still a lot of confidence and opportunity for outsized growth versus GDP in the water business.

Thanks a lot.

Thanks, Aleksey.

Your next question comes from Patrick Cunningham with Citi. Please go ahead.

Hi, good morning. I'm just curious on your expectations for the retained businesses in the corporate segment into the year and given maybe we're starting to see a challenging auto and EV backdrop into the first half of the year.

Yeah. So, 2023 was very favorable for the auto industry, kind of up in that high single-digit range, and we would outperform that in the EV space just by about 25% to 30% of our portfolio is now EV. On a full year basis, though, for 2024, we do see it about flat from a volume perspective, in-line with where auto builds are. So, obviously, China is going to slow down a bit in 2024 off of a really strong 2023, especially tail end of 2023. But longer term, we're still very confident in the EV expansion opportunity and the pace of the EV growth, and we have a really nice position to continue to benefit from that, not only in the corporate retained businesses primarily with adhesives, but also within the W&P portfolio, Nomex. We've got a really nice opportunity on the e-motor side of the house with using Nomex as an insulator.

Got it. Very helpful. And then just on Spectrum, how is it performing relative to expectations? And has it been hit by any residual destocking or deterioration in primary demand?

Yeah. It's in-line with our expectations. It's ramping nicely with the new customer win that we highlighted when we acquired the business, that's going very well. We've actually integrated the business within the company and combined it with our Liveo healthcare business to further take advantage of those commercial synergies that continues to be a nice opportunity for us.

Okay. Thank you.

Thanks, Patrick.

Your next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Hi. First, can you just clarify on the full year remarks? When you talk about sales and profit growth in the back half, are you talking 3Q and 4Q? Or maybe not 3Q, but definitely 4Q?

It starts in 3Q. It's greater in 4Q from a year-over-year perspective.

Okay. And then, Ed, can I ask you the destocking is what it is and it's going to be what it's going to be. But thereafter, in managing these businesses and investing in them and presenting them to the investment community, how do you think about shipments versus demand and making sure that we don't get into another situation where the supply chain lines up with more products than we'll ultimately want? Or is that not something that you can really have the visibility on to control and that, too, will just be what it's going to be?

Vincent, only twice in my like, I think, 26 years now doing this, has this happened. So, it's a very rare event. I mean it was obviously -- look, you know the semi stores, just they overshot so much on inventory. But a lot of this was COVID-driven, the craziness of the supply chain. It's just not something that would normally happen. It really is kind of one of those once in opportunities or dislocations let me say it that way. And by the way, interestingly, it goes down rapidly in a short cycle and can go up rapidly. It happened -- by the way, the little bit of '08, '09 was destocking. It was mostly a true recession where demand was down, but I'd say about a third of that then turned into destocking because of the situation. And so, it got worse quicker than people were expecting, but that recovered also fairly quick. So, I don't -- I just don't see something like this happening again. And we are almost, as I said, almost all the short-cycle business so we really saw it across a lot of the portfolio in normal times, you're just not going to overshoot.

Okay. Thanks very much...

I mean, semi will overshoot once in a while, but not to the extent of what we saw here the severity of it.

Okay. Thank you again.

Your next question comes from Frank Mitsch with Fermium Research. Please go ahead.

Yes, hi. Good morning. Ed, you indicated that, obviously, you made a proactive decision to work down your inventories. And you've mentioned a couple of times the negative impact of factory absorption in 4Q and in '23. I was wondering if you could size that for us. And obviously, the expectation is that, that's not necessarily going to continue in '24, so that should be a nice tailwind for you?

Yeah, Frank, we had a little north of $200 million of absorption headwinds in 2023. Most of that in E&I. It did kick in a little bit towards the tail end of the year in 2023 for W&P, and that will continue in Q1 as well. So, we do see absorption headwinds in Q1. Right now, given that our full year midpoint guide of $12.1 billion is about flat with this year. On a year-over-year basis, we don't really see material absorption tailwinds because volumes aren't materially improving. There will be improvement first half, second half, because the volume story is different first half, second half. But in the guide that we have provided, we didn't take in material benefits. Obviously, if that plays out, [indiscernible] that could be a change, a positive change, but initially, that's where we sit.

Okay. Got you. So, perhaps there's some conservatism built in there, which I kind of got the sense when you're talking about price cost for '24 being neutral, I would assume that you saw some benefits from price cost in the fourth quarter. Could you size that for us?

Yeah. We did see benefit in the fourth quarter in the $50 million to $75 million range. We do see some further tailwinds year-over-year in Q1, just really from that carryover benefit of the raws that we were buying that were stuck in inventory and are now coming out. But right now, our view is that we would still see those benefits about $100 million on a full year basis in '24, but we expect about a 1% price get back with a lot of it being in the shelter business as we had kind of been flagging all along. That's where we got the most price to begin with in the 2022, 2023 timeframe.

Okay. Great. Thank you.

Thanks, Frank.

Your next question comes from Arun Viswanathan with RBC Capital Markets. Please go ahead.

Great. Thanks for taking my question. Obviously, a lot of the questions have been answered. But just wanted to reconfirm, so I know that you made the statement that your volumes could snap back quickly. But is that -- are you a little at all concerned with that happening now with maybe China growing at a slightly lower structural growth rate going forward? Maybe you can just comment on what you're hearing out of China.

Yeah. I mean even if China potentially is at a lower structural growth rate year-over-year, it's coming off a pretty [indiscernible]. So, full year volumes in China were down in the mid-teens. And so, it's not a high hurdle to jump off of as you head into 2024 to deliver growth. We still have a lot of confidence longer term in those markets that are highly rooted in China, especially on the electronics side, and on the water side, we expect improvement.

Yeah. Arun, just turning to the electronics side, I don't think we're being overly aggressive. We've talked to our large customers when you look at the fab utilizations, we're basically going from the low 70%s we said to the low 80%s. In really good times, they run in the 90%s. So, we probably still have more upside that would kick in, in that part of the business even going into 2025. It's not all -- we're not assuming it all snaps back in 2024 to where it had been running.

Right. And then, given that we have experienced a fair amount of volatility here in cyclicality, one of the transformation kind of strategies was to reduce that peak to trough cyclicality. Do you feel still the same way about the current portfolio as far as lowering that cyclicality post transformation...

I totally do...

...or other businesses that would qualify for disposition at this point?

No. I totally feel, in normal times, it will be more consistent portfolio. An unusual time here with the destock and the inventory build from COVID and all short cycle, but now these are good secular businesses. We've got good market position. So, we feel good about where we're at. Just got to get through this period and start lifting.

Got it. Thanks.

Your next question comes from Steve Byrne with Bank of America. Please go ahead.

Yeah, thank you. Your businesses within W&P heavily relying on distributors. I'm curious how much visibility do you have, not just on your own products in inventory at these distributors, but competitor products. And the reason I ask is I'm just wondering whether or not you're seeing the potential for a shift to competitor products perhaps in water in China. Anything that you're seeing there that is a concern on the competitive front?

No, Steve. And by the way, we're tracking -- because of [indiscernible], we're tracking way closer with our distributors. The good news is our distributors in China, there's a handful of really big ones. So, if we can get our arms around that -- we've asked the competitive issue, and we're very close to them. I don't see any issues there at all.

Okay. And how would you look at your businesses and highlight any opportunities for a new technology or a new application of your products that could really drive growth? Anything that you would highlight? An example would be like water moving into lithium extraction. Do you see any meaningful...

Yeah, I would give you two and you just said the one. The lithium opportunity could be substantial for us because that needs a ton of filtration as you guys know. And the other, I would just say big trend out there that we've already talked to, but has a real good opportunity for us because it's in our sweet spot is the whole AI thing. I would say they would be the two big ones.

Thank you.

All right. Thanks, Steve.

Our final question comes from Mike Sison with Wells Fargo. Please go ahead.

Hey, good morning. Ed, when you think about the earnings power of DuPont, when you look at the second half of '24, the run rate EBITDA is going to be much higher than the first half. So, when we think about growing into '25 and beyond, so we take that second half run rate and then -- where do you think the earnings power is longer term, '26, '27 in terms of EBITDA?

Yeah. I mean we, obviously, exited a higher margin than where we started the year. So, our current expectations is we would exit butting up against 26% EBITDA margin in the fourth quarter. We've always said that we think the EBITDA margin profile for the total company should be in that 27%, 28% range, and we don't have a change to that with E&I being in the low 30%s and W&P in the kind of mid-20%s. So, we exit the year, as I had mentioned, butting up against 26% kind of in the low $800 million range. If you look back to our peak earnings in late 2022, they were more in that $850 million range, and they didn't have Spectrum in them. There's still a clearly opportunity for us to see to continue to expand beyond that run rate that we'll expect to see at the end of this year.

And maybe just to add one for the longer term, and again, stabilized times, half this portfolio should outgrow GDP and the other half should grow with GDP, just to give you a feel, and that would be the magnitude. One of the things, as I mentioned a minute ago, still has to come back even more in 2025 is the semi industry and the utilization rates still decline from where we would exit '24.

Got it. Thank you.

Yeah, thank you.

This concludes our Q&A session. I will now turn the call back to Chris Mecray for any closing remarks.

Well, thank you all for joining the call. For your reference, a copy of the transcript will be posted on our website as usual. This concludes our call. Thank you.

This concludes today's conference. You may now disconnect.