Earnings Call: Q3 2020

Oct 29, 2020

Good day, and welcome to the DuPont Third Quarter Earnings Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Leland Wheat Please go ahead. Good morning, everyone. Thank you for joining us for DuPont's third quarter of 2020 earnings conference call. We're making this call available to investors and media via webcast. We have prepared slides to supplement our comments during this conference call. These slides are posted to the Investor Relations section of DuPont's website and through the link to our webcast. Joining me on the call today are Ed Green, Chief Executive Officer and Lori Tach, Chief Financial Officer. Please read the forward looking statement disclaimer contained in this slide. During our call, we will make forward looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risk and uncertainty, our actual performance and results may differ materially from our forward looking statements. Our 2019 Form 10 K as updated by our current and periodic reports includes detailed discussion of principal risks and uncertainties, which may cause such differences. Unless otherwise specified, all historical financial measures presented today exclude significant items. We will also refer to other non GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and posted to the investor page of our website. I'll now turn the call over to Ed Thanks, Leland, and good morning, everyone, and thank you for joining us. I'd like to begin by recognizing the tremendous efforts of our employees across Laurie will cover the specifics of the quarter shortly, but I'd like to take a few minutes to highlight our performance in a few key areas. The timely actions that we took earlier this year to protect our employees, ensure the safe operation of our sites strengthen our financial position and do our part to combat the pandemic enabled us to deliver strong results this quarter. By senior leadership team and I closely monitor developments globally to ensure we are taking the right precautions measures to continue protecting our Our intense focus on safety has enabled all 170 of our global manufacturing sites to continue operating according to plan. This in turn has given us the ability to Additionally, our balance sheet remains strong. 4,000,000,000 to end the quarter with less than $400,000,000 in CP, which was enabled by strong free cash flow and proceeds from the TCS and Hemlock divestitures we announced in September. Since the end of the quarter, we have further reduced our commercial paper balances and we look to make additional progress through year end. We continued to enable production of approximately 30,000,000 tyvek protective garments per month in an effort to provide healthcare and frontline workers with the protection they need to battle this global pandemic. I'll cover more details regarding operational excellence on the next slide, but let me just say that I am encouraged by the progress we are making here. We continue to remove structural G and A costs and execute on our working capital improvements, which helps drive our strong free cash flow and operating earnings improvements. We have moved faster and found additional pockets of G And A costs to streamline enabling us to increase our expected cost savings from our 2020 initiatives from 180,000,000 to $280,000,000. I am also pleased with the progress that we have made in advancing the NMB and IFF transaction as well as the divestitures of non core assets. In August, IFF shareholders voted overwhelmingly in favor of the transaction and we remain on track for first quarter 2021 close. And we are targeting February 1st. With regards to noncore, in September, we announced the divestiture of the TCS business, along with our equity interest in the Hemlock semiconductor joint venture for $725,000,000. Earlier this month, we also signed a deal to sell the Bio Materials business for $240,000,000. These portfolio of refinement efforts contribute to value creation by increasing cash flow, strengthening the balance sheet and focusing our portfolio in markets where we expect to see solid growth opportunity. Moving to Slide 3, I'd like to provide more specifics on the progress we've made improving our cash generation and G and A productivity. Free cash flow conversion on a year to date basis was 140%. Through September, we've delivered approximately $1,900,000,000 of free cash flow versus 1,600,000,000 for all of 2019. This growth is primarily attributable to actions we have taken reduce our capital expenditures and improve working capital. During the quarter, we significantly reduced inventory balances and the team is focused on reducing past due accounts receivable also yielded positive results as we reduced our past due balances as a percentage of accounts receivable to 4%. We've also lowered planned capital spending for 2020 to approximately $1,000,000,000 nearly $500,000,000 less than 2019 levels. As a reminder, we did not reduce any safety related CapEx and have developed detailed plans for restarting our growth projects to ensure we are able to capture demand when markets fully recover. We delivered more than 185 basis point reduction in nonmanufacturing costs as a percentage of sales in the quarter, mostly in G And A. Of the approximately $150,000,000 of cost savings that we realized, $100,000,000 was structural in nature. As I mentioned, we now expect our 2020 in period savings from current year actions to be $280,000,000 versus our prior estimate of $180,000,000. Our cost actions are targeted towards G And A expenses and are aimed at enabling a opponent of our strategy and we continue to invest in critical areas like sales, application development, and R and D so that we will be well positioned to capture growth when we fully emerge from the current market environment. Before turning it over to Laurie, I'd just like to make a few comments on some of the sequential trends we saw in the third quarter. We saw a 15% increase in operating EBITDA as well as 200 basis point improvement in operating EBITDA margin versus the second percent sequentially, stronger than our expectations going into the quarter. Additionally, our 3rd quarter decremental margins was approximately 31% and a proven of approximately 1400 basis points versus second quarter led by strengthening top line and continued structural cost removal across the company. I'll now turn it over to Laurie to walk through some of the details for the quarter. Thanks Ed and good morning everyone. Turning to Slide 4 and the financial highlights for the quarter. Net sales for the quarter were and water solutions, offset divestitures in E and I and noncore, likewise currency was neutral in the quarter. Pricing was mixed across the portfolio with gains in S And P And Non Core offset by price declines, primarily in T and I. Price declines in TNI of down mid single digits were in line with expectations. We expect similar TNI pricing through the 4th quarter as nylon 66 prices had generally stabilized in the back half of the year. On a regional basis, organic sales increased 3% in Asia Pacific versus a year ago period with declines in the other regions. China sales in our core segments improved 14% versus the third quarter 2019 10% sequentially from second quarter 2020. I'll provide additional color on of $0.88 per share, well above expectations, driven by better than expected top line results in our E and I and P and I segments, and more favorable product mix with continued strength in Semiconductors, high bet protective garments and probiotics. Once again, our teams maintained strong cost control to deliver operating EBITDA declines in line with the sales declines on a percentage basis. Our decremental margin was approximately 31%, also ahead of our expectations heading into the quarter. Excluding approximately $60,000,000 of costs associated with temporarily idling facilities, primarily in T And I And S And C, as well as gains in both the current and prior year periods our decremental margins were in the mid single digits, a significant improvement from the 2nd quarter, driven by the improving top line and continued structural cost takeout. As Ed mentioned, we are also delivering on our cash targets. Free cash flow of approximately $1,900,000,000 through the 1st 9 months of the year led to a conversion rate of approximately 140%. In addition to the strong free cash flow, Ed mentioned the progress we have made on the noncore divestitures, which enabled the reduction of commercial paper balances in the quarter. These actions have lowered our net debt position and improved our net debt to EBIT ratio to below 3 times. Slide 5 provides more detail on the year over year change in net sales, consistent strength across Semiconductors, probiotics, Bowen personal care, private protected garments, and water solutions, coupled with improvement in automotive and residential construction markets. Led to an overall organic Several of our businesses have market leading products, which enable them to succeed despite global challenges presented by the pandemic. Within electronics and imaging, Semiconductor Technologies delivered its 3rd consecutive quarter of organic growth. Likewise, with the Nutrition And Biosciences, our probiotics and home and personal care offerings continue to capitalize on robust global demand. Each with double digit growth in the quarter. Finally, within safety and construction, the tieback protective garment business is providing critical PPE to our medical communities and frontline workers, and the water business continues to provide market leading innovation demanded by our customers. In the third quarter, sales in the water business are up low single digits on an organic basis and up mid teens percent as reported. Due to the acquisitions we have made in this space. We also saw market improvement in other key markets in the 3rd quarter. Most notably automotive and residential construction, which contributed to the sequential improvement in the top line. We estimate that global audit bills were down about 4% in the third quarter versus the same period last year. A substantial improvement from the historical lows in the second quarter and stronger than we anticipated. At down 9% for the quarter, our P and I volume performance is consistent with the improvement in market demand and the lag we expect due to the majority of our automotive sales going into the tier 1 and tier 2 suppliers. They were also green shoots in residential construction, a market that represents approximately 40% of the Shelter Business Within S And C. Our solutions for the residential construction market include tieback Building Rapp, cyrofoam insulation, and Great stuff insulating foam, which has also experienced strong retail demand from an increase in do it yourself projects. Despite tailwinds in residential construction, our Shelter business was down versus last year due to ongoing softness in commercial construction, which makes up the remaining 60 percent of the shelter business. Also contributing to the improvement top line was demand for our materials that enable smart own technology. Increasing material content, which now accounts for up to $4 a phone in the top end model, overcame an overall decline, declining smartphone market and drove high single digit growth in our interconnect solutions business. As premium phone manufacturers prepared for model launches and holiday demand. Overall, top line performance continues to be impacted by significant weakness in oil and gas, aerospace, commercial construction, and select industrial markets. These market dynamics are most prevalent in the safety and shelter businesses within SNC to help in Biosciences business within N And B and across the non core segment. Before moving to the next slide, let me comment on our year to date performance. I am pleased that our teams focus on execution and operational excellence, two areas that Ed and I have been focused on since day 1. Through the 1st 9 months, our sales have declined 6% on an organic basis, and our focus on streamlining our overhead structure has enabled us to better maintain our earnings. Over the same time period, our EBITDA margin has declined just 7%, excluding costs associated with temporary idling facilities, in the second And Third quarters. Choosing to run these sites for cash was the right decision for the strength of the company, and it is showing in the strength of our balance sheet and cash flows. Turning to the adjusted EPS bridge on Slide 6. Adjusted EPS of $0.88 is down 8% versus the same quarter last year, driven by lower volumes, costs associated with idling facilities and the impact of noncore divestitures. These headwinds were partially offset by the delivery of cost savings. As Ed mentioned, our cost actions from the 2019 restructuring program, coupled with the incremental actions we are driving in 2020, contributed to approximately $150,000,000 of savings in the quarter. The impact of portfolio actions is a net headwind primarily due to the absence of the gain on sale of the DuPont Sustainable Solutions business in the third quarter of 2019. We realized $0.03 of benefits from below the line items, primarily a lower share count due to share repurchases we executed in the second half of twenty nineteen, and early 2020 and lower interest rate enabled by reductions in commercial paper balances. These benefits were offset by a slightly higher base tax rate of 21%. In summary, I would emphasize again what Ed said at the start of the call. Our team is laser focused on execution, and we are now consistently fee, we continue to progress our strategic priorities, which positions us well as we look ahead to 2021 to continue creating value for our shareholders. As we show on Slide 7, we will continue to strengthen our balance sheet with the anticipated closing of the N and B and IFS deal in the first quarter of next year, as well as the closing of the Bio Materials deal in the first half of twenty twenty one. These actions alone will generate over $7,500,000,000 of cash proceeds, nearly $2,500,000,000 of which we will have available after planned debt repayments to use for creating shareholder value. Additionally, we expect our strong debt position with a reduction of commercial paper balances, and we do not have any debt repayments until the fourth quarter of 2023. Beyond those that we intend to satisfy with the proceeds from the NMB and IFS deal. I am excited for what's ahead, and I commend our team for staying focused on execution to put us in a position to have the flexibility to capitalize on the opportunities for growth and shareholder value creation going forward. With that, let me turn it back to Ed for an update on the NND and IFF transaction and some final comments on what we expect in the fourth quarter. Thanks, Laurie. And now turning to Slide 8. We highlight the progress we've made since announcing the NMB and IFF transaction. During the quarter, we completed 2 additional milestones and August IFF shareholders voted overwhelmingly in favor of the transaction with more than 99% of the votes cast in favor of the deal. Then in September, NNB issued 6,250,000,000 of senior unsecured notes in a private placement. The net proceeds from the offering are intended to fund part of NMB special cash payment of $7,300,000,000 to DuPont. The net proceeds are held in escrow until the deal closes. The offering was more than five times oversubscribed and resulting in a very favorable cost of borrowing for these notes. We continue to make progress regarding regulatory approval And additionally, our integration planning remains on track as the team's work to a first quarter 2021 closing. I remain excited about this combination and confident that the new company will be well positioned for growth and to deliver sustainable value for shareholders Let me close with our financial outlook in the slope of the recovery due to the pandemic. Obviously, this is a fluid situation with increasing cases and we are monitoring this closely. To $20,200,000,000 and adjusted EPS in the range of $3.17 to $3.21. Sequentially from the third quarter, normal seasonal declines in E and I from smartphone production cycles and SNC from the timing of North America construction activity will be partially offset by improvement in TNI as auto demand continues to recover, although at a much more gradual pace as compared to the prior quarter. Our forecasted earnings also reflects the absence of a $30,000,000 technology sale in E and I and the loss of earnings from Hemlock and TCS which were divested in September. We will stay focused on driving improvements in working capital and delivering our cost savings commitments. With that, let me turn it I would like to remind you that our forward looking statements apply to both our prepared remarks and the following Q and A. Operator, And we will hear our first question from Steve Tusa with JP Morgan. Please go ahead. Good morning, Steve. Can you just maybe comment on the there was a bit of a change of language in the last filing with regards to the IFF transaction, around, your decision on whether you're going to spin or split. Can you maybe just talk about what your thoughts are there. Looks like maybe a split is more likely, but you want to obviously maintain the flexibility and optionality with the kind of whole clean up spin dynamic maybe, maybe just talk about what your latest thoughts are on that front? Yes, Steve, we will be making that decision by mid December. And we truly have not made a decision yet. I wouldn't put a leaning one way or the other on it. We took some language change because we wouldn't do a hybrid type approach. We'll pick 1 or the other and that was the change in language. But no decision at this point in time. I wouldn't read anything into it. Okay. And then just the follow-up would be on the 4Q. I think the implied, downside in to 4Q guide is a bit more than what you're losing from noncore and that gain in T and I. Is there anything else sequentially that's on an absolute basis kind of getting worse, I guess, you mentioned seasonality in electronics, but what is is T and I basically, you know, did you overfill the channel before or is that are you kind of like, is it a timing dynamic where at some point in the next couple of quarters that will snap back to the kind of line and recouple? Yes. So, let me go first to the sequential. So there's no real change in market dynamics as we see it right now. There's actually continued sequential lift in TNI kind of in the mid single digit space that drops sequentially in revenue and EBITDA is more driven by seasonality, and it's normal seasonality that we see in our businesses. So primarily, it fits within smartphones. So as we get ready in the third quarter for the holiday demand coming up. We had a lot of sales in 3Q that would not be there in 4Q just due to normal seasonality. Additionally, within our construction space third quarter tends to be high just with the summer months driving a lot of the construction. So you'll see a little bit of deceleration there from a seasonal perspective. The decline that you're kind of getting at is roughly in the $100,000,000 space sequentially 3Q to 4Q. About a third of that is related to the seasonal decline that we just discuss. Another third of it is we did have a gain on a technology sale in E and I in 3Q that won't be there in 4Q. And the rest, the largest primary piece is the sale of the Hemlock TCS assets that were sold in September. So within TNI, we don't really see any level of, channel level, high inventory levels in the channel. So if you see where we look year to date, our volumes are down about 23%. So I think we're outperforming there. There's really, if you look at where we sell into, as we mentioned on the call, we sell into the tier 1 and tier two players primarily. So it doesn't always exactly line up with the auto bill's number. You kind of got to look at it year to date to understand the lag. So And we're comfortable where we sit going in, no material changes from a market perspective as we see it right now. And we will hear our next question from Scott Davis with Melius Research. Please go ahead. Hi. I'm kind of curious you've been chipping at corporate and G And A really since we got involved in your story and Is this a kind of a is there an end game, I guess, is this kind of every quarter you look at just trying to to take levels down or are you opportunistic we can or is there a certain goal post of where you want to get to and then you you feel like that's the sustainable right level? Yes, Scott. I mean, I'd put it more in the category chipping away at it. As we streamline some of our functions and capabilities, we can get, you know, do a little more streamlining on our overhead. We're putting in some digital tools and we're going to do a central finance tool and things like that really, help us out. So, I think we're getting the best in class on our G And A, when you look peer companies and all, I think we're doing a heck of a job there. I would highlight one area. We're not touching or taking down at all. As we said in our prepared remarks, it's clearly our sales people around the world, our application engineering, jeans around the world and we're going to continue to spend at the level we've been spending out on the R and D front. So we want to come out of the softness in the pandemic period real strong with lots of new product introductions coming. So it's really going to continue to stay focused on the G and A piece of it. And then I would really say that the next big focus and we're focused on it now, but we're really doubling down is going to be on the gross margin line. And our our factory efficiency, our up times. And again, we're doing a fair amount of digital tools. They're not overly expensive to really look predictive analytics at our facilities, with a lot of AI capability. And we really think we can do some fair amount of improvements there and hopefully help the gross margin line. So that's where you'll see some of the kind of the effort as we're going into 2021. Okay, good. And then on the inventory side, another big drawdown this quarter, Where do inventories sit at kind of through the channel? And are you do you feel like we've gotten to the the level where you want them both your inventories and then obviously as you look through the channel? Our inventories have a ways to go still. Now, by the sales pick up, that'll mute us a little bit here. On progress, but we're expecting nice progress again in the fourth quarter. We still have over a $500,000,000 opportunity on inventory to get to where we think we can get to. So that's kind of our bogie out there. And again, we'll make good progress, in the fourth quarter. As far as inventory in the channel, Scott, I actually feel very good about it right now. As you know, the auto industry doesn't have a lot of finished goods. There's not any stuffing in the channel going on. And I really don't see it anywhere except maybe just a little bit in the electronics space. I think there may potentially, and I've heard some of our competitors talk about maybe a little pre buying from some of the Chinese players. I'm nervous about what's going on geopolitically right now. But I don't even think that was a big number. And in the scheme of all of our sales and electronics, you know, not significant, but that'd be maybe the one area where there's a little bit of that. And our next question will come from Bob Koort with Goldman Sachs. Please go ahead. Thanks. Good morning. Good morning, Don. Yes, I was curious in the T and I business, you guys have been idling capacity and obviously that's hurting your margins, but helping your working capital. If we look to next year in a more normalized world and guess global auto builds are going to be up mid teens and GDP up mid single digits. Can you talk about how powerful the incremental recovery might be and where those margins might get to relative to the 23% operating margin you just reported? Yes. So we see the C and I portfolio, around the mid-20s from an EBITDA margin perspective in the normal market. So we've got some sequential upside as we head into next year. Really driven by the items that you had mentioned. So a top line recovery, as well as having a lot of the idle facilities behind us. And is there any update on the, the discussions with Chemours and Corteva in terms of your separation indemnification agreements? Thank you. Yes. Well, 1st of all, the arbitration is started up, with the Chemours on that. And there probably won't be any decision on that until kind of mid next year if you look at the timeline on it. But we continue to talk to each other about settlement. In fact, Mark Grenano, the CEO of Chemours, and I actually just talked this Monday, a couple open points We continue to get closer and then we'll see if we can get it to the finish line. So that's paralleling along while the arbitration starts. And our next question will come from John Inch with Gordon Haskett. Thank you. Yes, thank you. Good morning, everybody. Yes. Good morning. What are the cost savings that spillover from actions taken in 2020 into 2021? And are you planning for, prospectively, more restructuring or would that potentially be too disruptive given all of the restructuring that's already gone on against the backdrop of what I will describe as a fledgling recovery. Yes. So I think the savings that will trickle into, 2021 is around 120,000,000 we're targeting now $280,000,000 of in period savings. So on a run rate basis, that's about $400,000,000 as we exit. So another 120 next year. There are some headwinds that we'll face next year as well. Obviously, there'll be some snap back in the temporary savings, but we've really biased our actions towards the structural, so we don't have a material headwind, but there will be some opening up of the economy that would lend itself to some P and E and some other stuff that we've really seen plant down this year. Right now, as I had mentioned, I don't see additional structural cost takeout, really they opportunity for us is within gross margin and driving more productivity and gross margin. And second to that continuing to drive our activity and working capital. So we've made a lot of nice progress this year. We're up about from a working capital to trade perspective, only about $250,000,000 year to date that we've nicely dug ourselves out of the hole that we got in earlier in the year and we're still targeting more than $500,000,000 of working capital savings this year, but we still have a ways to go to get to best in class there. Hi, thanks, Laurie. I'm assuming these gross the gross margin initiatives are probably longer term. Ed, I wanted to ask you also kind of for your strategic thoughts to do possibly even further S and C expansion into water. I'm thinking maybe technologies where you don't play currently such as UV or even say, I don't know, getting into the production of equipment as well as the filtration products that you currently provide. Yes. So, John, we're very interested if we can in expanding the water business that would be one area. I don't want to comment on details because you get pretty specific and there's not that many targets out there. So I won't get into that, but the water business would be 1. There's some areas in the electronics business. I will mention that when 5G type stuff, we would be interested in. And but let me just say overall, we're really looking at things I would put in category of bolt on acquisitions, nothing on a bigger scale in 2021. But could be several bolt ons during the year if they make financial sense. And our next question will come from Jeff Sprague with Vertical Research. Please go ahead. Good morning. Hey, maybe just a couple of follow ups on kind of segment level kind of dynamics. First on TNI, just thinking about the price pressure there, I think, is largely a function of kind of year over year dynamics. But I wonder if you could just give us a view on how you see pricing playing sequentially with the builds firming up, do we move to a little more constructive price environment? Perhaps not as soon the price environment. So I think the majority of the nylon 66 headwinds that we've seen are behind us. So we did see year over year headwinds in the 3rd quarter and we'll expect year over year headwinds again in the fourth quarter, but those are really just a function of the price decline, from the prior year where they were quite strong. So sequentially, looking at about flat pricing. As we look into 2021, obviously, we've done a nice job taking advantage where we can of constrained environments and we'll be able to keep our eye on that to be able to see any games that we could possibly pick up there. I think also within T and I, just overall, once the market normalizes and stabilizes, we do expect to get back to that 1.5 times auto build outperformance, within that portfolio. You can see it year to date. So as I had mentioned earlier, our T and I volume is being down about 15 percent year to date versus auto build seeing down 23% year to date. So you can see that outperformance and we'll look to continue that going forward once the market fully recovers. And on the semi side, specifically, I mean, you kind of spoke to the seasonal let up on, you know, handset within, with E and I, but semi has kind of continued to surprise to the upside kind of all year here. Do you and there's a lot of consolidation starting to happen in that industry, right? Do you see anything that kind of disrupt your growth trajectory there? And what's your view looking forward kind of a quarter or 2 there in terms of the end demand environment? Yes, Jeff, I'll just comment on kind of total bird because I know that, demand feels pretty good still on the semi side. So we're not really seeing any change from what we've been seeing in the last few quarters. So, at least so far going into the fourth quarter, that feels nice. And again, I just think the dynamics of work at home everyone's doing with data centers and nodes and all that. You know, looks like potentially good momentum going into next year, but we'll see when we get closer to the end of the year. I know one of our key competitors, a very, very good company and CEO is a good friend of mine. He talked very bullishly about demand going into 2021 also. So that feels good. And again, the only thing in electronics you just mentioned it was a little bit of the seasonality on the smartphones, because we had such strong shipments in the third quarter for the shipments and launches of the new phones in the fourth quarter. But we feel good about the portfolio we have on the 5G side that as more phones are enabled 5G going into 2021. It's nice, nice upside opportunity for us. And our next question will from John McNulty with BMO Capital Markets. Yes, good morning. Thanks for taking my question. So I guess the first one would just be, look, we've had about a month of kind of the COVID surge and especially kind of out of Europe and a little bit less of that in the U. S. Any changes in demand pull that you've seen either positive for maybe some of your health care related products or negative as just some of the economy shutdown? Anything that we should be thinking about and trying to think about extrapolating going forward? Well, no change in any of the end market demand that we've talked about due to the rising cases. I mean, I say so far, It's all the same ones. I mean, obviously, auto coming back really strong residential construction. We're now seeing those green shoots coming back, not surprising with what's going on in the resi market. And all the areas that are down kind of significantly oil and gas, aerospace, commercial construction. They've all come up a little bit, but not significantly. So they're not dropping anymore. You know, they're picking up slightly, but they're still off very negative numbers. So now we haven't seen any change in October and patterns that we weren't expecting. Got it. Okay. Thanks for the color. And then, look, on the other side, you've gotten a lot of the non core assets kind of out the pipeline. I guess, does that in terms of how you're thinking about going forward, does that free up time to look at kind of bigger, more strategic options? Or is it really right now a little bit more about running the business in admittedly a pretty volatile time with a lot of kind of puts and takes going on? How should we be thinking about about where management's putting their time right now? Yes, no, it's John. It's very much running the business. I keep telling the team all hands on deck here. You know, we want to string together a lot of consistent results. You know, we've been doing that. We got a ways to go here. Some things still to get the best in class performance on like working capital. So no, it's more of that and it's more looking at bolt ons next year. And I would think as we get into next year, we'll be having a serious conversation with the board about the share repurchase where we're trading at or where new DuPont will be trading at as NMB goes out of the portfolio. So that's the mode we're in. And our next question will come from Steve Byrne with Bank of America. Please go ahead. Yes, thank you. Was there anything in particular that provoked the house environment subcommittee to ask for some nifty's data from your part from the legacy Parkersburg and the Circerville facilities. And do you have a sense of where their diligence is going these days with respect to, you know, PFAS contamination broadly? Yes, Steve, I didn't read anything into it. We're going to supply all the information and answer all the questions. All that data is obviously available and it's been supplied to many federal agencies already. So I don't just information we've given before. So we'll answer it in a timely manner. But maybe I would go to a little bit broader to your question there. The EPA put some regulation in place. We're always asked that and that might be part of the push here. And, we are actually for that. We said that in front of Congress when we testify, not everyone in the industry is for that, but we think it would be great to have a national standard set on where those levels should be at instead of it being a patchwork by state and maybe by municipality. Who knows? And we actually think that would be very helpful that we're all targeting the same thing as we do remediation and all that. So that's where we see a lot of the push at the federal level and we're all for that happening. And just to follow-up on that, Ed, Is a national standard something that you think would focus their attention on less on manufacturing sources and more on product use as a source of PFAS contamination? And is that where you see the potential benefit? No, no, I just think having a standard set out there that we're all marching to would be very helpful instead of having literally 50 different standards being set. And by the way, just to make a point, let's say, I make every one of these calls. There's many more locations that had pea us, but remember, a high, high percentage of this is fire fighting foam. And I think you'll, DuPont we'll let that play out here in the South Carolina consolidation here and potentially we'll settle it or we'll let it go through, the court system, but we never made the firefighting foam. So, our work is really remediation in some of our sites where we, that's a manufacturing, which is a handful. And next, we'll hear from David Begleiter with Deutsche Bank. Go ahead. Thank you. Ed, first on the cost savings, what drove the increase from the 180 to 280 for the full year? Yes. So that was, really a function of really clamping down on 3rd party spend, so consultants and the like. And then we were able to accelerate a bit some of the off rolls that we had planned, the benefit is benefiting the in period savings for this year. Got it. And Ed, with the IFF transaction 3 months away from closing, what are your updated thoughts on what's next for the DuPont portfolio? Specifically, unlocking some value in E and I to maybe another RMT? Thank you. I said a few minutes ago, we're we're operationally gonna run new DuPont, the way we are. I gotta we wanna clean up the non core some more. So we're very focused on that also from a portfolio standpoint. We'll be in an interesting position going into next year with the cash we're receiving from the IFF transaction. As Lori mentioned, we'll have at least $2,500,000,000 to $3,000,000,000 of excess cash available. So, as I said, we'll be talking to the board about how we're going to deploy that to create shareholder value. In 2021. And I would expect a few maybe bolt on acquisitions would fit in there next year if they make financial sense for us to do. And our next question will come from Mike Sison with Wells Fargo. Please go ahead. Hey, good morning. Nice quarter. In terms of nutrition and biosciences, your EBITDA growth, is up high single digits, so this year, tough sales comps. So if you think about getting better growth in that business next year, where do you think EBITDA growth should sort of be as volume is return? Yes. So we've always thought that the N and B portfolio could get closer to the company average from a margin perspective. So looking at 26 or 27%. So they've got continued upside. A lot of that's really going to come from just, a higher favorable mix. So as they grow probiotics as they grow their enzyme portfolio as they grow their meatless meat market. Those are all very high margin product lines that will lift you all margin of this segment. Great. Quick follow-up then. If you do get to close the business on February 1st, how do you feel about the integration synergy potential you've had a year here to plan for it? Is there upside and if there is, where could that be? Well, I will talk about if there's upside. I should probably leave that to the IFF team when they do their earnings. That would not be fair of me. But but I feel good about it. We've got multiple teams as we've did when we did DowDuPont and all that, working on all the integration efforts we're right on track. By the way, I must say I'm surprised we're doing as well as we are considering everyone's working at home, but Every one of the work streams is right on track. Laurie and I review it literally weekly, with the IFF team. So we're ready to go on the synergy work, that we've outlined publicly and we'll get off to a very quick start. And next we will hear from John Roberts with UBS. Please go ahead. Thank you. Staying on N And B for a second here, food and beverage sales were down probably close to the 4% decline for the overall segment. Can you give us some regional and maybe application granularity on the decline in food and beverages? Big piece of the decline was driven by sales into the food service space, which makes up about 5% of total NMB of do it bigger obviously within the food and beverage segment. That was down kind of, in the mid mid teens. And so that's really selling into sports arenas, cafeterias. So really the industries that been hit hard by COVID. So nothing, nothing underlying there beyond that. And a lot of that was in Europe. So I think Europe was one of the markets that were hit hardest within the N And B portfolio and it's really back to the food services play. Also, another impact that we saw a headwind was just as travel has clamped down, we have a large market into like the chewing gum and mint space within our sweeteners portfolio. So as less travel, less people going through airports that impacted the business. And then do you think you'll report your year end before February 1 close or after? And do we get N and B as a discontinued op in 4Q if you report after February 1? Just trying to figure out the information flow we're going to get here over the next few months? Yes. So I would look us most likely to be after the federal and spend dates that we we can report kind of on a remainco basis. When we report disc costs, there'll be a function of when we make the decision on spin versus split. So if we end up doing a split. You have to do disc ops earlier. If you end up doing a spin, you do disc ops as of the separation date. Our next question will come from P. J. Juvekar with Citi. Please go ahead. Yes. Hi. Good morning, Ed and Lori. Good morning. There is a big green movement happening in Europe, parts of Asia, California, with both EVs and hydrogen. How is DuPont positioned for that trend in terms of your portfolio? And particularly, can you address the EV market? Yes. So this will obviously mostly be within T and I. There's also a play within S and C and E and I as well into the electric vehicle space. So we're very well positioned And obviously as the conversion continues towards hybrid and electric, you need a lighter car, so that advantages our TNI portfolio as we take out metal and replace it with polymer. Within SNC, we have a nice opportunity within the battery play. We have, a use of our No Mex paper as a separator. And then obviously with an E and I as the enhanced electronics cooling, the electric vehicles, really nicely positioned there. And so with the, obviously, full electric vehicles are a small section section of the total auto build production today, but growing very quickly. And we're we're we're kind of happy with the portfolio that we have. Great. Thank you. And I just have a follow-up on E and I. You know, Intel has had some well publicized issues at 7 nanometer nodes and companies like TSMC are gaining share Can you talk about your position related to your customers and what kind of wins or losses have you had at 7 nanometers? Thank you. Yes. So, I don't want to really speak to a customer level, but you can see by our results within this semi space that we're seeing really nice performance. So in this last quarter alone, we were up 8%, 9%. So we've got a nice dispersion. We play with all of the big players. So as the consolidation continues, we'll still continue to be well positioned in this space. Also, as the layers, as you had mentioned, get more and more complex that advantages our portfolio. So the more layers, the more steps, the more polishing that has to be done, the more cleaning that has to be done. The more complex layers get, with advanced nodes that advantages our portfolio within as well. So I think we're nicely positioned to take advantage of growth there. And our next question will come from Chris Parkinson with Credit Suisse. Please go ahead. Great. Thank you very much. You've done an impressive job on the cash conversion firms. I think we're all aware of the rough conversion targets over time, which you've mentioned in the past. But do you have any brief updates on this given some of the portfolio changes as well as the ongoing incremental efforts on working capital? Thank you. Yes. So I think you're asking about our free cash flow conversion. You cut out a little bit, so I couldn't quite hear it. Yes, so we've made some really nice progress there. So we're up to about 40% year to date. We are actually butting up against 200% in the quarter, really enabled by that strong, greater than $300,000,000 working capital activity. So we'll look to keep that free cash flow conversion number greater than 90%. We've been right around 100%. For the past several years. So I I don't see any material headwinds there. And there's no real change in that metric as the portfolio changes. So each business was generating nice free cash flow conversion. From an ROIC perspective, the goal that we've had is to deliver 100 basis points of improvement annually. So we'll look to get, to get that out as well. That's one important piece of that is once the separation happened mid lot year, we started to put ROIC into our comp metrics. So within a lot of the executive K metrics, there's a piece of ROIC. So obviously, the drive continued focus, along with just the management, deep down deep dive within that space. That's helpful. And just as a quick follow-up, you've also been doing a pretty solid job on the cost front, including the recent increase and also the percent that will be structural, which you hit on a little while ago, how should we be thinking about the further cadence as we enter 2021? And are there any consideration for base cost inflation if we're just trying to kind of figure out the net benefits on a per annum basis? Thank you. Yes. So we'll have another 120 $1,000,000 roughly on a run rate basis of savings into 2021. There will be offsets that, as we had mentioned, so we are right now planning for a merit increase. We didn't have one in 2020, so we'll look to get back on track with that in 2021. We also will plan for a full bonus payout in 2021. So that'll be a headwind to 2020 where we won't pay a full bonus. And T and E is another piece but we will control the snapback. So we've seen, you know, T and E plummet down to about $1,000,000 a month. We used to be upwards of 10 or so 1,000,000 a month. So we'll see some snack back there, but we're looking to try to mitigate that, pretty significantly really cutting more so down on the internal versus the customer facing travel. So I think net net with $120,000,000 of benefits that we'll see, in the office that we had just covered, we'll probably have a slight headwind from a cost perspective heading into 2021, probably nothing like some of maybe the others in the space just driven by our dedication to getting structural out versus the temporary that maybe some others have been doing. And our next question will come from Arun Viswanathan with R Capital Markets. Please go ahead. Thanks. Good morning. Yes, my first question is on SNC. You've directed some more of your capacity towards garments. Could you just talk about the trade off there? My understanding is that those are higher margin, but maybe includes you from participating as much in residential. And then as well, maybe you can just address the commercial markets and what you're seeing there in construction. Thanks. Yes. So I think within Tyvex, overall, the entire Tyvex enterprise in the quarter was up in the low 20 so obviously we continue to see nice strength within PPE. That was up 50% plus. Within the tie that building envelope base just given the seasonality within when the construction really takes place. We did see nice growth there. So we saw about 20% growth in residential HIVAC. Where the volume was taken from was more in the medical packaging space, and that's really just a function of the reduction inelective procedures, dampening the demand fare. But overall up, you know, 20% plus, we have been able to enable additional production to come out. We sequentially, we were down a bit as we had to take the asset down for about 2 weeks or so. Year over year, we are having more product coming off the line. Well, we're actually bringing up what we call line 1, an older line that we had that it's not costing us too much to get that up and running. So we're bringing that up for incremental volume. So that's helping us. Thanks. And then as a follow-up, could you also just talk about your plans for the proceeds? I know that from the N and B separation, I know that you've talked about, buybacks or $2,300,000,000 of it and deleveraging for the rest. Is that still your current thinking or how are you thinking about deploying that capital? Thanks. Yeah, yeah, 5,000,000,000 of that money from IFF, NMB will be used to de lever and pay down debt. We'll be in a great shape balance sheet wise when that occurs. And then I would think, as I mentioned, I don't want to get into numbers, but I would think we're doing share repurchase with where our multiples at, as we get into next year. And we still want to gauge the effect of COVID in cases picking up and all that. But that would probably be our leaning along with some bolt on, M and A. Yeah. I could just add on to the to the debt conversation. So we really did a nice job. I wanna highlight in the quarter of reducing commercial And so we were able to use the proceeds from the Hemlock and TCS transaction as well as organic cash flow generation to take that down. Due just under $400,000,000 for the quarter. We've taken it down even since the quarter closed and we'll continue to do that. So that'll be a nice tailwind heading into 2021, not only from a interest expense perspective, but just giving us flexibility to use those 2.3 $2,300,000,000 in proceeds for either M and A or shareholder, remuneration. Yes. Our goal is to get the CT down to 0. Very quickly. And we will take our final question from Frank Mitsch with Fermium Research Please go ahead. Thank you so much and a nice quarter. I just wanted to follow-up on, on IFF since part of the DuPont value proposition is tied up in IFF share price. And obviously, we've seen a 20% decline over the past month. And in your discussions with management there, what's your confidence level that that can turn around? Any thoughts that you can share there? Yes. Frank, I don't want to get into too much detail, but I think there's some technical spelling on right now with that. You know, I've seen some reports. I think, well, one of the analysts on this call wrote a nice report the other day. So I think there's some things going on short term. Maybe overspend split that creates some pressure. But, look, these sets of businesses, the IFF sets of businesses, the N and B, they do very well, when there's distress in the system because of the end markets that we're in. So these are consistent performers yes, there'll be pockets of weakness like we saw because nobody's in airports buying chewing gum and all that. But generally speaking, they're going to do very well through this. And we got a lot of synergies coming up here to create additional value for shareholders. So, but my gut is all that's set down here, rather quickly as we get closer and closer to getting the deal done. Terrific, very helpful. And just as question on the guidance for the fourth quarter. Obviously, yesterday we saw France and Germany implement lockdowns. How should we think about the, the clinical wave to lockdowns being embedded into that guidance? How much of that factored in, any thoughts there? Well, we knew Germany was talking about lockdowns when we just gave the guidance. It looks like France might be going now. But, I think, look, if all of Europe locked down and there were lockdowns in the U. S, that's going to affect everybody out there. So, no, we're not counting on that in the guidance that we gave. You know, we see pretty far end of the quarter now, but if there was massive lockdowns, that would probably affect December type numbers. And, we just have to see, but as we sit today and as long as there's not massive lockdowns, that's the way we gave the guidance. Thank you everyone for joining our call. For your reference, a copy of our transcript will be posted on DuPont's website. This concludes our call. And this concludes today's conference. Thank you for your participation. And you may now disconnect.