Earnings Call: Q2 2019

Aug 1, 2019

Good day, and welcome to the DuPont Second Quarter Earnings Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Lori Koch. Please go ahead. Good morning, everyone. Thank you for joining us for DuPont's second quarter 2019 earnings conference call. We are 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 on the Investor Relations section of DuPont's website and through the link to our Dien Desmond, our Chief Financial Officer and Ed Breen, Executive Chair. 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. 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 modified by our first quarter Form 10 Q and current reports include 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. Our reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our press release, and in the appendix Q and A and then end a little early so that you can join the Corteva call, which starts at 9 am. I'll now turn the call over to Mark. Thanks, Laurie, and good morning, everyone. Before we get started, I'd like to acknowledge the incredible accomplishments achieved by the entire DuPont organization that enabled the successful separation of Dow on April 1st and Corteva on June 1st. I'd like to thank I'd also like to specifically acknowledge Jim Fahey for his role in the integration of the Dow and DuPont Electronics businesses. And his more than 25 years of service. As we announced this morning, John Kemp will succeed Jim as president of the E and I segment. Let's get started on the quarter by staying dedicated to our core principles and operating EBITDA margins and grew pro form a adjusted EPS in the high single digits versus the year ago period. We also continued to drive returns on our innovation spend with key new wins across several high growth trends, including auto electrification, 5G, healthcare, water, and sustainable food sources. Looking closely at the numbers, total sales of $5,500,000,000 were down 3% on an organic basis as continued strength in safety and construction was more than offset by the well documented weakness Organic sales in our core segments were down by 1.7%. Regionally, organic sales were down 2% in the U. S. And Canada down 3% in EMEA, down 4% in Asia Pacific and up 1% in Latin America. The organic sales decline in the U. S. And Canada was primarily driven by lower sales in the non core segment from weak polysilicon pricing impacting demand. Weakened automotive and electronics end markets continued to drive the declines in both Asia Pacific and EMEA. However, we did see sequential improvement in our China results with sales down 3% versus prior year in the second quarter versus 10% in the first quarter. One of the key bright spots in the quarter was a substantial improvement in gross margin, which was realized in all of our core segments. Gross margin improved more than 200 basis points as a result of our pricing discipline, plant productivity and cost control. All in swift action in light of prolonged market weakness led us to outperform from an operating EBITDA perspective versus expectations in spite of a weaker top line. Operating EBITDA of $1,400,000,000 was essentially flat with the prior year period resulting in strong operating leverage and demonstrates our ability to deliver Excluding currency, operating EBITDA in our core We also delivered operating EBITDA margin improvement of 170 basis points versus the prior year and have delivered operating EBITDA margin improvement of greater than 300 basis points since the second quarter of 2017. Adjusted EPS as shown on Slide 3 was up 9% on a pro form a basis versus prior year, driven by lower depreciation and amortization. The quarter also benefited from in line with the share repurchases we did as part of DowDuPont and a priority that we will maintain as part of new DuPont evident in the $250,000,000 in purchases that we have completed to date. Before I turn the call over to Gene to discuss the quarter in full detail, I'll provide an update to For the full year, prolong weakness in our short cycle businesses, primarily automotive and semiconductors, causing both lower volumes and pricing headwinds as a result of to be on the low end of our previously stated range. We are targeting $80,000,000 in cost actions in addition to the $30,000,000 we took in the second quarter to mitigate the macro headwind from both price and volume in the second half. These new cost actions are biased towards the fourth quarter and include the benefit of a restructuring program authorized during the second quarter of up to $130,000,000. All in versus our previous guidance, we lowered our organic sales by approximately 300 basis points versus the previous midpoint and lowered EBITDA by about 90 basis points versus the prior midpoint which is a direct reflection of our ability guidance range to $3.75 to $3.85 per share, reflecting the strong 2nd quarter results, the net impact of expected to be at the From an earnings perspective, we despite a lower top line. For the third quarter, we expect pro form a adjusted EPS to be in the range of $0.94 to $0.99 per share. In the appendix we provide segment level commentary as well as some additional modeling guidance. Overall, I'm very pleased with how our team continues to navigate the market uncertainty by capitalizing fully on our competitive strengths, and focusing on the levers within our control to deliver strong bottom line results. These actions will position us well as markets recover to capitalize on our improved cost structure and investments and innovation. I'll now turn the call over to Jean. Thanks, Mark. On Slide 5, you can see a snapshot of the 2nd quarter sales and operating EBITDA results for each of our segments. Before I move into the segment details, I want to assess our performance opposite 2 of our medium term financial targets. Organic revenue growth and operating leverage. We set a medium term target for organic sales growth of 3% to 5%, which was based on a 3% global GDP. Regardless of your view of what global GDP will be for 2019, It's clear that our current year performance is well short of this medium term target. While several of our most exciting end markets, such as water solutions and probiotics, saw high single and double digit growth in the quarter. The softness in short cycle businesses that Mark talked about are overpowering these bright spots. We are committed to meeting is bias towards high growth, high return areas that we believe will allow us to continue to accelerate our innovation led growth. We are also taking actions in noncore which is now a separate segment in our reported results. Once complete, These portfolio actions alone are expected to improve our underlying performance. For 2019, We expect the non core segment to negatively impact our organic sales growth by about 80 basis points. Let me also address operating leverage. We are committed to delivering 1.5 times operating EBITDA growth over our expected top line growth. Through the first half, we've generated greater than 80 basis points of operating EBITDA growth in an environment where our top line has declined nearly 500 basis points. With continuing softness in the second half, we are taking additional cost actions, as Mark mentioned, to maintain our leverage. With that, let me provide some additional details on the segment results. Starting with electronics and imaging on Slide 6. 2nd quarter sales of $858,000,000 and operating EBITDA of $246,000,000 reflects continued soft consumer demand coupled with customer destocking, which was mostly driven by high inventory levels in the memory sector. Our position in advanced materials for the production of next generation smartphones launching later this year remains strong. We are encouraged by the pace of early orders. Additionally, we continue to see strong volume gains in OLED display materials. However, greater than expected softness and high inventory levels resulted in a year over year volume decline in Semiconductor Technologies. One of our highest margin businesses in E And I. These declines led to a less favorable product mix lowering operating EBITDA margin by 2.80 basis points versus the second quarter of 2018. Looking forward, we expect growth in but also anticipate continued soft market conditions in the semiconductor space. You can see the results of our nutrition and biosciences business on Slide 7, which delivered 150 basis points of operating EBITDA margin expansion year over year, on cost synergies and pricing gains across all regions and businesses. Nutrition And Biosciences delivered operating EBITDA of $391,000,000 on sales of $1,600,000,000. Bright spots within the NMB portfolio included probiotics, which returned to double digit growth this quarter, with particular strength in Asia Pacific and mid single digit growth in microbial control. We also continue to see Offsetting these areas of strength, we saw declines in functional solutions within food and beverage, driven by the unseasonably cool start to the summer season in North America, impacting our dairy market sales. Volumes in Pharma Solutions declined low single digits due to capacity constraints and mix enrichment as we shift the portfolio towards higher margin products. We expect to see a solid growth trajectory and pharma solutions in the second half. We will continue to invest our R and D dollars into exciting spaces such as the microbiome, to drive innovation led growth. Slide 8 shows the results of our Transportation And Industrial segments. Similar to E and I, T and I is exposed to short cycle businesses, mostly autos and electronics, where weak demand continues driven by the global macroeconomic conditions and U. S.-China trade tariff. This weaker demand also led to additional softness in Europe where volumes for the segment were down mid teen percent primarily driven by a weaker export market an organic basis with 12% volume decline, partially offset by 5% pricing strength. In the second half, we anticipate year over year pricing gains will diminish and sequential prices will decline modestly as supply demand balances normalize versus the prior year. Operating EBITDA of $357,000,000 declined 11% with lower volumes and a currency headwind, more than offsetting price increases and cost synergy savings. For the third quarter, we expect a similar volume environment with ongoing weakness in auto and electronics, as a result of lower improved in the second quarter, and we anticipate polymer inventory levels to normalize by year end. We anticipate lower demand will be partially offset by additional productivity actions. The results of our safety and construction business are shown on Slide 9. Net sales of $1,300,000,000, up 5% on an organic basis, coupled with operating EBITDA margin improvement of 6.90 basis points led to operating EBITDA of $382,000,000, up 29% from the prior year. The 5% organic growth included a 4 led by Safety And Water Solutions. The 1% volume growth included high single digit growth in the Water Solutions business which was led by gains in Asia Pacific. On continued softness in the North America residential construction market. Growth in operating EBITDA was led by Water And Safety Businesses, where local price gains, cost synergies, productivity improvements, and higher volumes in water more than offset a currency headwind. As we look to the second half for safety and construction, we anticipate the pace of price improvements to decline as we begin to lap many of our prior year price increases. We also have several planned maintenance shutdown in the back half of the year which will impact both our volumes and our earnings. You'll see that our capital structure is nearly final at this point with a few remaining items, including a $200,000,000 funding into our Swiss pension, which is planned before year end as part of the separation. At the end of June, our net debt was $15,600,000,000. From a working capital perspective, we did see We typically see an intra year increase, but our second quarter increase was greater than normal, driven by higher inventory levels due to a weaker demand and higher accounts receivable, primarily due to stand up activities required as part of the separation. We continue to see a $1,000,000,000 working capital productivity opportunity and expect to bring our working capital more in line by year end. We will publish a cash flow statement as part of the 10 Q, which will be filed next week. However, it includes the results of Dow and Corteva up until their separation. Earlier, I spoke about 2 of our midterm financial targets: organic revenue growth and operating leverage. Return on invested capital is the 3rd financial metric we have put in place and have stated a target of 100 basis point improvement annually. And since the beginning of 2017, we have driven well above a 200 basis point improvement. This performance shows that we have taken the actions necessary to make this a meaningful metric for DuPont and ROIC is now an embedded mindset across the company which will help drive sustainable earnings growth. I'll now turn the call over to Ed. Thanks, Jean. I'll provide an update to our strategic priorities on Slide 11. We are committed to delivering best in class performance and in the quarter, we continue to advance our performance towards these goals. Our focus on innovation continues to accelerate growth from our robust R and D portfolio, as evidenced by our 8th consecutive quarter of pricing growth. We have and will continue to invest in innovation even during the weakness we are experiencing in our short cycle businesses. In fact, our R and D spend as a percentage of sales was held steady at 4% for the quarter in line with our targets. I am pleased with our cost productivity including delivering over $100,000,000 in cost synergies in the quarter. Leading to 170 basis points of margin expansion. We also continue to execute our portfolio actions and are actively engaged in discussions to sell the businesses within our non core segment. We expect to have made meaningful progress on these divestitures within the calendar year. From a broader I am pleased with the We recently issued a performance grant to members of our leadership teams, which has ROIC improvement as a key metric in the payout. Integral to achieving this goal is effective capital allocation and our commitment to this priority is evidenced by our completion year to date of $250,000,000 of share repurchases under our $2,000,000,000 plan. I can assure you that the organization will stay focused on its top strategic priorities with the ultimate goal of creating shareholder value. I'll now turn it to Lori to open the Q And A. Thank you, Ed. With that, let's move on to your questions. First, I would like to remind you that our forward looking statements apply to both our prepared remarks and the following Q and A. Please provide you. We will take our first question from Vincent Andrews of Morgan Stanley. Please go ahead. Hi, this is Angel Castillo on for Vincent. Just a quick question around your back half expectations. So you guys had talked about the 3Q guidance, but just just looking at what that implies for 4Q, it looks like it's a pretty sharp improvement in E and I for the fourth quarter and then also some improving trends in T and I, even though 3Q guidance seems to be getting worse sequentially. So just curious as to what's actually embedded in the back half. How do you risk you feel it is and just how maybe how dependent it is on trade resolution? Yes. Thanks for the question. Let me given a little bit of an overview. And then let me turn it over to Mark for a little bit more detail. The difference by way, just high level between the first half of the year and the sequencing through the year is the first half and second half sales are virtually flat and planning. They're up just very, very slightly. And don't forget the fourth quarter, we have an easier comp because our businesses dropped off last year. So we'll have a positive organic growth in the fourth quarter, still negative in the third, but that's an easier comp. So, but you actually look at the sequencing, what we're saying, we're counting on the same soft the short cycle market staying down the rest of the year, which is basically the E and I type businesses, the T and I stuff and in E and I, the semiconductor businesses. So, we're not counting on any improvement happening from that standpoint. So we're planning our cost structure and our business actions around that. But Mark, why don't you give a little more detail on that? Yes, thanks Ed. And yes, just to build on what Ed said, there is a couple of sequential changes. I mean, there's a slight improvement in ANI that's really driven by the premium smartphone market. As we said last quarter, as launches happen in the second half, we'll see some additional sales. We're pretty confident with that. The orders started to pick up in the second quarter. And some of that is leading to a slight improvement in the back half for E and I. And then you asked about the trade resolution. We're not assuming that there's any change in the trade environment. So for our second half outlook, we're sort of staying the course here on the current situation. Great. That's very helpful. And just the other question I had just was on cost cutting. So you guys talked about the $80,000,000 here in the second half. How sustainable are these costs? Or if things improve, are these costs going to come back? Or how should we think about that? Yes, I could probably make a couple of comments on it. I think we're looking at these costs as more permanently out of the system. So we did $30,000,000 in the 2nd quarter and Mark are doing another $80,000,000 in the second half is, I think Jean said buy us more, Mark said buy us more towards the fourth quarter by the time they kick in. But I'd also like to highlight for you a comment that Jean did make. We are not touching R and D. If we're just because we're seeing a little short term softness. We're going to run the R and D between around 4%, maybe just slightly above 4%, which is exactly aligned with all the detailed plans. That the team has. And I think that's really important. We're not going to clip our future growth prospects just because of a little weakness in short term. Very helpful. Thank you. And our next question will come from Jeff Sprague with Vertical Research. Please go ahead. Thank you. Good morning, everyone. Good morning, Jeff. Good morning. Two questions from me. I want to pick up on the margins and then also, thinking about cash flow. So the gross margin performance was very solid, impressive Just picking up on the prior point a little bit, at or Mark, just thinking about synergies versus kind of ongoing cost actions, how that mix might change, or synergies kind of starting to run their course tail off and we might and might we see kind of more, you know, kind of restructuring actions of this ill going forward, even even in the face of perhaps better macro trends, say, into 2020. Yes, Jeff, this is Mark. I'll take that. I mean, yeah, what will be seeing is, I mean, take 2Q as an example, we still delivered about $100,000,000 in synergies, that'll be happening through the end of the year here, but we also delivered productivity on top of that. As I said, about 30,000,000 we'll see more productivity, less synergy going into 2020. And we've already teed up a number of areas that we intend to focus on And so you'll see us talking more about that on a going forward basis. The synergy program will end, early next year deliver the last portion of that. One of the big areas that the team is focused on to Mark's point about going in the future is we have, as you know, a factory efficiency program going on productivity there, which is pretty big for DuPont with some of the large facilities we have. And a big part that emanates in our SNC business, which has our bigger, tougher, facilities. And as you can see during this year, the team has made really good progress in that business. And we were up almost 700 basis points in that business over the last year. And again, great progress in the quarter there. A lot of that is coming, we are getting pricing in that business. We are seeing some volume growth, but really underlying that is really tremendous progress on that productivity on the factory footprint. So that's a big thing. And by the way, that's not just that business. It happens to be the biggest opportunity Mark's got a program with the team across all the businesses when it comes to that factory. Efficiency. And we will take our next question from Steve Byrne of Bank of America. Please go ahead. Sorry. Hi. I wanted to ask you about where you're seeing revenue synergies within your businesses? And is there potential for any more tailwind from this as we move forward? Yes, yes, Steve, let me take that. It's Mark. Yeah, what we've said from last year is that there are opportunities across the portfolio. The revenue synergies take a little bit longer to build due to qualification timing. There are some launches that have been happening this year. For example, some of the plant based Mead offerings, cellulosics, things like that are coming out of the new cellulosics portfolio. That was the combination of Dow and FMC. We did a beta launch of a smart materials offering around smart conference tables that was also a DOW Plus DuPont integrated offering. And so you'll see more and more of those launches. We've sized the opportunity for revenue synergies at around about 400,000,000 EBITDA, but we said it would be 3 to 5 years out. So the way I think of it is it's a growth kicker but just a portion of the 3 to 5 year growth objective and it's really localized to those overlaps that exist in each the segments actually, if you look at the way we put Dow and DuPont together. And we will take our next question from John McNulty of BMO Capital Markets. Please go ahead. Hi, good morning. This is Bhavesh Laddya for John. As you think about the strategic opportunities to create value using the portfolio, do you think the current macro weakness may facilitate even more options or does it potentially inhibit your optionality if you choose to preserve your balance sheet? I think this is Mark. I'll kick it off and then I'm sure Ed will add something. I think, current macro is probably not the biggest driver for the opportunity here. I think if you look at the strength of each of these businesses in the portfolio, and the opportunities to potentially look for either M and A or other transactions down the road that we see plenty of opportunities across the board. Will the current macro drive more of that activity in the future hard to say? Yes, I don't think the macro or if it's soft or not. I don't think it has any bearing on the strategic moves we would make. What so ever. If you make the right strategic move, you're going to create value. So I don't take that into account. I would say, as Jean mentioned though, just to highlight on your portfolio comment, I feel good about the progress we're making on the non core front. And that'll be cash coming into the company that we can deploy in a very smart way And every metric practically improves as we exit the non core businesses, whether it's revenue growth rate, margins, ROIC. So we're really focused the team on really getting those transactions moving along quickly. Let me just build on Ed's comment. It's a good point on noncore. We do get questions about whether market conditions and potentially softening would impact the value that we get for some of those divestitures. And I can tell you where we're obviously well into things here. We're not seeing any issues there so far. The assets that we're putting up for sale are good product lines businesses. There's strong interest and everything that we're rolling with here. So we're feeling pretty good about the cash generation potential. And our next question will come from Jonas Oxgaard with Bernstein. Please go ahead. Good morning guys. Good morning, John. Hey, John. I have a pretty high level question if you don't mind. With the trade war, there there seems to be some, I don't know, idiosyncratic effects. Like, maybe smarter people than me, foresaw that the trade were lingering would cause all the major demand to drop, but I certainly didn't see that happening. And so as the trade war keeps going, are there other, what do you call it, idiosyncratic effects that you're seeing already or that you're worrying about. But conversely, are there effects that could actually be positive for you? Yeah, yeah, good question Jonas. I think, I think it was hard to predict. And I wouldn't say automotive demand weakening was all about the trade war, but clearly that's a factor. There are multiple factors. I think if you read some of the industry reports, the other industry that clearly there some interesting dynamics is around the electronics industry. A lot of the headlines you read about the Chinese semiconductor industry and Chinese OEMs and U. S. Suppliers. And I think we're relatively well positioned. We have a lot of our production local We've been positioned in Asia for quite some time, both in our automotive and our electronics product lines. But we have to continue to watch those dynamics in U. S.-China relationship and how those might affect the competitiveness of U. S. Companies on the ground there. And we will take our next question from Christopher Parkinson with Credit Please go ahead. Great. Thank you. Thank you. So the N and B segment can use to be a bright spot with a few exceptions like bioactives which was well expected. Can you just walk us through the puts and takes that you saw for the quarter, including the capacity constraint issue in Pharma Solutions? And then also if you could walk us through your long term thoughts on the potential mix benefits from growing probiotics, farm and cultures, at a faster clip than the rest of the portfolio. Just any comments on how that could affect your margin outlook for 2020 2021 would be appreciated. Yes, I'll take your second part and Mark can touch on that on the first part. Bobby, you've been watching for a good 3 years now. The margin expansion every single quarter in the with what was NNH and now it's NMB. But generally, those sets of businesses, we've had margin expansion every single quarter except one. So there's like fifteen quarters in a row. 1, we had a little bit lips, so a pretty good track record. And when you really dig into the detail, by the way, obviously, we've had organic growth. That's helped us. Our team has been very cost conscious on the G and A side. So they've done a great job on that. There was a fair amount of synergies in that business because of the Dow stuff and FMC coming in. So they're doing a great job on that. But if you actually do the the waterfall chart, the biggest impact is actually your comment you're making or your question, it's been a rich enrichment story and that should play out still over the next couple of years. So mean, by the way, I think if you do a compare of our businesses to the core competitors, our margins are fairly best in class unless you take an isolated probiotic player something like that. But we still think we have room to drive them up more towards the company average, be consistently up there. So But the biggest part we'll get as we go forward is that mix piece is what you said, it's pharma, it's probiotics in a couple of those pieces. But Mark, why don't you give the puts and takes and we'll happen in the second half. Yes, let me give you a little bit more on the first question. So the positive, the bright spots for NMB in the quarter clearly, as Ed mentioned, probiotics, back to double digit growth, we announced also some pretty significant investments both in capacity and new product launches during the quarter, some additional R and D partnerships with other companies. So we're clearly doubling down to continue that long term growth trajectory. And as Ed mentioned, that's a great mix in richer for margins in the long run. I'd mention also the microbial business was back up mid single digits in the quarter. That was good to see. And obviously the plant based meat trend is a fantastic one. And I think we're pretty well positioned in that market. We're working hard to be the R and D partner of choice for the companies in that space. It's a small business today. It's also a mix and rich sure the margins in that space are higher than the average margins in the segment. So that's going to be a good long term growth driver. On the other side of the coin, I'd say, clearly the industrial enzymes business continues to have some market struggles, some bioethanol continues to be a really tough market. And so that's one that we're looking to, to hopefully get through during the course of the year and maybe see a recovery in 2020. Near term, we had some weakness in the quarter in pharma, which was really driven by capacity issues primarily. And so we do expect in the second half, we'll see the pharma business back to the usual, at least low single digit growth the market demand there is strong. It's a good long term market. We also had a little bit of weakness in the system solutions business because of weather in the quarter and we think that'll pass. We think food and beverage will be back up to low single digit in the second half. And so that's kind of a rundown product by product. And our next question will come from David Begleiter with Deutsche Bank. Please go ahead. Thank you. Good morning. Mark, just on safety and construction, a very strong first half, really good results. But you did call out maybe weaker back half and you are constrained in capacity in Thai and aramids. So given, I know you had a capacity going forward, Given those dynamics, how should we think about safety in 2020, maybe a little bit slower growth and flash margins, or can you drive price to drive higher results? Thank you. Yes. Thanks, David. It's a great question. SNC is obviously firing on all cylinders. As we said, margin expansion, which the team's been working on for several years is coming through. We're seeing great demand in the water business great demand in the safety business. The only weakness is residential construction in the U S. And we do expect at some point that's going to come back. And so we're really bullish here. The second half, a bit of a sequential softening. The primary factor there I'd say is that we've got some PMMA's, which are the big plant turnarounds The Safety And Construction business has some sizable sites. And so when those come up for the once every couple of year, shutdowns that leads to a slug of cost. I'd say we're also being a little bit cautious in the outlook. Demand has been booming pricing is strong right now. We just don't want to assume that that's going to continue forever. But as we look to 20 20, I think we're real positive on the continued growth in that business. The market drivers there, which are clean water, which are worker safety, good exposure to markets like aerospace And Defense. I mean, those are all real strong, spaces globally right now. So the exposure there on the market side is definitely a positive. And our next question will come from Bob Koort with Goldman Sachs. Please go ahead. Good morning. This is Dylan Campbell on for Bob. Last quarter, you guys kind of broke out your key planning assumptions, assuming global auto builds. Were up 4% in the second half. Smartphone deliveries were up 2% in the second half. With the new guidance today, I mean, do you guys see any changes to those assumptions and what do you have embedded in your guidance? Yes, just probably just let me hit that Mark or Jean jump in also. So the areas we talked about before the 3 soft areas, there's obviously residential constructions down, but putting those pieces aside, it's really the semi business is a little soft. The auto business is soft. And the E and I business was soft because of smartphones. So the planning is that autos are still down globally 5% and we're seeing no improvement in the second half of the year. By the way, it really looks like inventories and autos around the world in including China are pretty much getting back to about normal levels. So that's finished goods inventory, but we still think the supply chain, as Gene mentioned, does still have some months to go to make sure that gets cleaned up. And then on the smartphone side, as Mark had commented on, we actually saw the improvement or seeing the improvement in the orders we think, but it's not because global demand is up in smartphones. It's actually down. It's that we're driving extra content and we are seeing those orders. We did see those orders begin in the 2nd quarter, mostly for the content we put in the 5G side. So that's kind of the planning assumption on those 2 big areas. And we're expecting no improvement in the soft conditions on the semi side. Kind of for the rest of the year. Therefore, by that, back to my comment a few questions ago, we're planning kind of revenue flat first half and second half. In the company. I think that's a good planning assumption. So we don't overspend. We watch our cost controls and all that. Let me just build on Don on Ed's comment. Ed mentioned auto smartphones, semiconductor we have revised the full year planning assumptions. So we were saying early this year that it would be sort of low single digit MSI growth, we're now expecting that that's going to be down a bit. And that's just consistent with what we're seeing in the market, particularly in memory, memory prices are weighed down. Volumes are down. The Korean semiconductor market has been really soft here in the second quarter. And that's impacting our material sales. Even as we're investing in next gen qualifications, aggressively in semi for advanced node products, the total volume is just down by a few percent which is different than we expected starting the year. And so those are really the primary areas that we've revised our full year expectations. And our next question will come from Josh Spector with UBS. Please go ahead. Yes. Hey, guys. Just a clarification around free cash flow. When you guys gave prior guidance, you were talking about pension costs around $200,000,000 in cash. Restructuring around $300,000,000. I guess Slide 10 has a couple buckets kind of similar sized adding a $500,000,000 Is that incremental to what you were thinking before? So more cash use or is that the same numbers that you were expecting? Yes. No, those are actually the same numbers we were expecting. That's just pointing to the outflow in the second half of the year. So I wouldn't say we've had any substantial change to our view of free cash flow for the year, which as we've noted before is primarily a lot of our free cash flow for 2019 is was setting up the capital structures for the 3 new companies. So just providing color on the second half. And our next question will come from P. J. Juvekar with Citi. Please go ahead. Yes. Hi. Good morning. Good morning, Pete. Mark with auto bills declining globally. Would you say that your decline was in line with the global market or was it better or was it worse? And then secondly, I think you talked about polymer inventories in auto related supply chain was high. What do you see that clearing up? And if autos remain weak in the second half, is there potential more downside? Thank you. Yes, thanks P. J. It's great questions. I mean, the auto market is down. We think we're down about in line on a revenue basis, maybe a little higher on a volume basis. We think that's the destocking that's been happening But we're watching it closely. And at the end of the day, these numbers are approximate. So within a percent or so, we think we're roughly in line. Going into the second half, yes, we are expecting as Ed said, the end market auto inventories seem to be in a decent place at least certainly in China where the concerns have been. We are still seeing potential for some further destocking in the channel. We think that that's going to continue here certainly through 3Q a little bit hard to see beyond 3Q on what's going to happen. But we have built into the plan that the 4Q volumes will be down quite as much as the 1st 3 quarters of the year. So that's kind of the expectation at this point. And I would just say that through all of this, we're continuing to focus on where we that's seeing continued growth off of a relatively low base on car builds. But it's a bigger and bigger part of our portfolio. And so during the quarter, we had a couple of new design wins and new product launches around ZITEL formulation specifically in that space. We're continuing to invest in the businesses collaborating between S And C and I and T and I. Around auto electrification qualifications. And so we're seeing that as a real growth driver, certainly, for the future. Barry, just to add one point, because Mark, you're talking about the electrification. We would expect once, you know, car inventories again, we think are back to about normal supply chain still working its way through. But once that kind of corrects itself, no matter where auto builds are at, we really feel confident we'll be back to outpacing auto builds by kind of 1.5 times, which is where historically the company has been running quarter after quarter until we went into this destocking mode. And our next question will come from Arun Viswanathan with RBC Capital Markets. Please go ahead. Great. Thanks for taking my question. Just curious on the pricing, momentum. I guess, do you expect those gains to kind of continue? You mentioned lapping prior year price increases. How should we think about pricing going forward? And maybe you can just describe that by segment? Thanks. Yes, why don't I take that, this is Mark. So it's different segment to segment. Clearly, We are assuming that we're starting to lap some of the significant price actions in the TNI segment. And we're assuming also in the SNC business, we'll start to see a little bit less price in the back half. And so as it nets out, we've been running about plus 2 per quarter the first half of the year. On price. We think in the second half on a year over year basis, we'll get down closer to being flat by the end of the year Now, these are planning assumptions. Clearly, it depends very much on the demand environment and it depends on supply situation. So, these things can change relatively quickly. One of the drivers for pricing for us in TNI has been not just the strong demand, but also our very stable predictable supply situation, particularly in the nylon product lines, And so we've been one of the producers that customers can really count on to continue to deliver. So we'll take advantage of that strong supply capability, if there's any further disruptions in supply in the industry and continue to try to drive pricing? And we will take our next question from Frank Mitsch from Fermium Research. Please go ahead. Hey, good morning folks. I was intrigued by the comment regarding China in terms of the declines getting the year over year declines getting better, 2Q versus 1Q. So just curious as to what you're seeing now that the month July is behind us and what your expectations are in that part of the world. And also speaking about the quarter, you called out a customer settlement in noncore What was the order of magnitude of that? And is that included in the $0.94 to $0.99 guidance? Yes, Frank, let me take the first question, then I'll hand the second question over to Jean. It's, I was laughing a little bit because it's rare that we would be bragging about minus 3% growth in China. I can't remember that happening in a long, long time, but it was a sequential improvement and it is a little bit of a sign of life. The strength there has been across several of our segments. Most notably, I'd say that E and I was up. Also S and C continues to be very strong in China. The E and I growth is a statement around the China semi market, which is a bright spot for semi. Also those orders starting for premium phones and the displays market growth is largely happening in China. On the SNC side, the water business just continues to be booming there and the team is doing a great job of capturing oil operations as well as residential water market in China is really booming. And we put out a couple of new products in the quarter and have some notable share gains that are continuing that double digit growth for us. So that's kind of the positive side of the China story right now. And in terms of your question around non core and the guidance for the third quarter, we do have an equity affiliate in noncore that has a history of settlements. They're always hard to call when those settlements are going to hit, but you are right. We are thinking that, you know, they're be one there would be one in the third quarter as part of our guidance. And our final question will come from Duffy Fischer from Barclays. Please go ahead. Yes, good morning. Just want to go back to S and C if we could. Your guidance in May was kind of up low teens. You ended up up high 20s on EBITDA. And at that time, you were thinking you were going to get decent pricing. So I'm just trying to understand what changed from May to the final number that ended up so much better? Yes. Good question, Duffy. I mean, the bottom line is the 2 biggest segments there. Water and safety both over delivered in terms of cost actions productivity actions and pricing came in a little stronger than expected. So I would say We knew it would be a strong environment. But the team really executed well around controlling what we could control, driving productivity and then continuing to deliver on the pricing side of the equation. Order good execution. Again, second half, we're being a little cautious on some of the things that are a little bit less in our control, like the demand and pricing side, but I'm expecting that we're going to keep delivering in SNC and it'll be a good driver here in the second half too. Thank you, everyone, for joining our call. For your reference, a copy of the transcript we 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.