Q4 2024 Earnings Call Transcript

Thank you for standing by, and welcome to the DuPont Fourth Quarter 2024 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Chris Mecray. You may begin.

Good morning, and thank you for joining us for DuPont's Fourth Quarter and Full Year 2024 Financial Results Conference Call. Joining me today are Ed Breen, Executive Chairman; Lori Koch, Chief Executive Officer; and Antonella Franzen, Chief Financial Officer. We have prepared slides to supplement our remarks, which are posted on DuPont's website under the Investor Relations tab and through the webcast link. Please read the forward-looking statement disclaimer contained in the slides.

During this call, we'll make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K as updated by our current and periodic reports, includes detailed discussion of principal risks and uncertainties which may cause such differences. Unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items.

We will also refer to other non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measures included in our press release and presentation materials that have been posted to DuPont's Investor Relations website. I'll now turn the call over to Lori, who will begin on Slide 3.

Good morning, everyone, and thanks for joining our fourth quarter call. Earlier today, we reported solid quarterly results to close out a strong year of performance. Fourth quarter sales grew 7%, including another consecutive quarter of double-digit organic growth in E&I and highlighted by a return to organic growth in W&T of 6%. We showed strong operating leverage as operating EBITDA of $807 million increased 13% year-over-year.

Operating EBITDA margin of 26.1% expanded 140 basis points and adjusted EPS of $1.13 grew 30% from the prior year. From an end market view, fourth quarter saw continued strong demand within Electronics, driven by the ongoing transition to advanced nodes and related AI-enabling technologies. Further improvement in health care markets resulted in a return to volume growth for both our medical packaging and biopharma products, which both grew at double-digit rates. Additionally, we continue to see growth acceleration in Water in the quarter, with 4% sequential sales lift and an 11% year-over-year increase.

Looking back at full year financial performance, volume growth of 2% was solid and grew as the year went on, accommodating an 8% growth for the fourth quarter. This, combined with operational discipline and productivity actions, was key to our earnings growth and resulted in strong incrementals and margin improvement. Coupling improved segment earnings with the benefit of a reduced share count led to a robust 17% growth in adjusted EPS. Working capital optimization, which has been another key operating priority for the team helped drive strong cash generation with transaction-adjusted free cash flow conversion of 105%.

I'd like to thank the entire DuPont team for all their hard work and dedication to achieve these results. Turning to Slide 4. I will cover our key priorities for 2025, organic growth, operational execution and portfolio management. Starting with the top line. As mentioned, we saw volume growth improvement in both E&I and W&T as we progress through this past year.

Looking into 2025, we expect further acceleration in volume growth, targeting mid-single-digit organic sales growth for the total company. To enable this, we will continue focusing on optimizing our growth opportunities within each business, which includes both continued investment and innovation as well as driving commercial excellence initiatives, including strategic marketing and sales effectiveness activities. To ensure success, we recently hired a Chief Commercial Officer to drive consistent execution across all of our businesses. Additionally, our businesses continue to focus on driving operational excellence.

We are entering our fourth year of driving an enhanced focus on OpEx, and our profitability continues to benefit from the expanded toolkit and disciplined rollout across the organization. Coupling our standard OpEx framework with steady investments in digital tools will lead to continued improvement in financial performance. Finally, regarding portfolio management, we announced last month that we are targeting November 1st of this year for the intended spin-off of the Electronics business, which is nicely accelerated from the initial time frame of 18 to 24 months. We remain excited about the sizable shareholder value creation opportunity from creating a leading pure-play electronics company.

We continue to make progress towards establishing the future boards for Electronics and DuPont and remain on track to be able to announce new Board members as well as executive leadership for the future electronics company by the end of the first quarter. We continue to see the excitement building internally and externally, and I look forward to updating you in the coming months. With that, I'll turn it over to Antonella to cover the financial results and outlook in detail.

Thanks, Lori, and good morning, everyone. We are pleased with the solid finish to a strong year of financial performance. End market recovery and improved volumes have been the primary driver of our accelerated sales and earnings growth throughout 2024 and our teams have also continued to execute well on our operational excellence initiatives, including both enhanced productivity and the previously announced cost actions. I look forward to the continued momentum that we are carrying into 2025, but first, I'll cover our fourth quarter financial highlights in further detail, beginning on Slide 5. Net sales of $3.1 billion increased 7% versus the year ago period as an 8% increase in volume was slightly offset by a 1% decrease in price.

Currency and portfolio were both flat. Higher volume was led by continued strong demand in Electronics end markets with Semi and Interconnect Solutions, both up double digits. Further acceleration in Water Solutions yielding double-digit volume gains and a return to year-over-year growth in both Safety Solutions and Industrial Solutions. On a segment view, E&I and W&P organic sales grew 10% and 6%, respectively.

Organic sales in corporate declined 7% versus the year ago period. From a regional perspective, Asia Pacific delivered 11% organic sales growth year-over-year, including another strong quarter in China, where organic sales also increased 11% due to continued strength in Electronics markets and acceleration in Water. Organic sales were up 5% in North America and up 1% in Europe. Fourth quarter operating EBITDA of $807 million increased 13% versus the year ago period as volume gains, the benefit of higher production rates and savings from restructuring actions were partially offset by higher variable compensation.

Operating EBITDA margin during the quarter of 26.1% increased 140 basis points year-over-year. Fourth quarter cash generation was strong, reflecting a continued working capital discipline across the businesses. On a continuing operations basis, cash flow from operations of $564 million, CapEx of $161 million and $52 million of separation-related transaction cost payments resulted in transaction-adjusted free cash flow of $455 million and related conversion of 96%. As Lori mentioned earlier, 2024 was a strong year for cash performance, with transaction-adjusted free cash flow of $1.8 billion and related conversion of 105%.

Turning to Slide 6. Adjusted EPS for the quarter of $1.13 per share increased 30% from $0.87 in the year ago period. Higher segment earnings of $0.17 as well as below-the-line benefits totaling $0.09 from a combination of lower share count, tax rate and foreign exchange losses drove the year-over-year increase. Turning to segment results, beginning with E&I on Slide 7. E&I fourth quarter net sales of $1.5 billion increased 11% versus the year ago period on organic sales growth of 10% and favorable portfolio impact of 1%, reflecting the Donatelle acquisition. Organic sales growth of 10% reflects an 11% increase in volume, slightly offset by a 1% decrease in price.

At the line of business level, organic sales for Semi were up low teens on continued semiconductor demand recovery driven by AI technology applications. Semi demand continues to be notably strong in China with the year-over-year growth of about 40% during the quarter. Given elevated levels of growth throughout 2024, we currently anticipate relatively flat Semi sales in China for 2025, though overall organic growth in Semi is expected to be up 6% to 7% for the full year. Interconnect Solutions posted another quarter of strong results with organic sales up low double digits reflecting broad-based end market strength, additional share gains and continued volume benefits from AI-driven technology ramps.

Industrial Solutions returned to organic growth in the quarter, with organic sales up mid-single digits due to improved demand for biopharma within health care and continued strength in printing and packaging applications. Operating EBITDA for E&I of $457 million was up 21% versus the year ago period. On volume gains, the benefit of higher production rates, savings from restructuring actions and a [ $13 ] million gain related to a technology license agreement, which was contemplated in our guidance. The year-over-year increase is partially offset by higher variable compensation.

Operating EBITDA margin during the quarter was 30.3%, up 250 basis points versus the year ago period. For the full year, E&I net sales of $5.9 billion increased 11% with 6% organic sales growth. For the full year, operating EBITDA of $1.7 billion increased 17% with operating EBITDA margin of 29%, up 140 basis points from the prior year. Turning to Slide 8. W&P fourth quarter net sales of $1.4 billion increased 6% versus the year ago period due to an 8% increase in volume, partially offset by a 2% decrease in price.

Safety Solutions returned to year-over-year growth as organic sales were up high single digits, reflecting continued improvement in health care markets, evidenced by medical packaging sales lift for 3 consecutive quarters, including a 6% increase from Q3. Shelter Solutions sales were flat on an organic basis with headwinds in North America construction markets offset by growth in repair and remodel demand. Within Water Solutions, sales were up low double digits on an organic basis, driven by continued broad-based volume recovery. On a sequential basis, Water Solutions sales also increased for a third straight quarter with sales up 4% from Q3. Operating EBITDA for W&P during the quarter of $357 million was up 14% versus the year ago period as volume gains and savings from restructuring actions were partially offset by higher variable compensation and the absence of about $25 million of discrete item benefits reported in the prior year.

Operating EBITDA margin during the quarter was 26.3%, up 170 basis points from the year ago period. For the full year, W&P generated net sales of $5.4 billion with operating EBITDA of $1.4 billion. Operating EBITDA margin for the full year of 25.1% increased 50 basis points. Turning to Slide 9, which outlines our first quarter 2025 and full year guidance expectations.

At a consolidated level for the first quarter, we estimate net sales of about $3.025 billion, operating EBITDA of about $760 million and adjusted EPS of $0.95 per share. Our first quarter net sales guidance assumes mid-single-digit organic growth and a currency headwind of about 1.5% versus the first quarter of 2024. We expect a more normal seasonal progression into the second quarter with a sequential sales lift of about 6% to 7% from the first quarter. For the full year 2025, we estimate consolidated net sales of $12.8 billion to $12.9 billion, operating EBITDA of $3.325 billion to $3.375 billion and adjusted EPS of $4.30 to $4.40 per share.

Our full year consolidated net sales guidance assumes mid-single-digit organic growth and a currency headwind of about 1%. Our EPS estimate includes a headwind from below-the-line items, totaling $0.10 related primarily to an assumed 1% higher tax rate versus this past year. I would also like to highlight that we plan on realigning our segment reporting structure in the first quarter, in advance of the intended separation of Electronics later this year. We will begin reporting under this new structure when we release our first quarter 2025 results.

The businesses comprising the future electronics company will be reported as the ElectronicsCo segment. While the businesses that will remain with DuPont will be reported as the IndustrialsCo segments. We are providing historical segment information reflecting these realignments for comparison purposes, which you can find in the earnings presentation accompanying today's call. For the new ElectronicsCo segment, we expect full year 2025 organic sales growth in the 6% to 7% range.

This assumed growth is expected to be driven by ongoing strength within semi, fueled by continued AI adoption and transition to advanced nodes, as well as the impact from more normalized sales in China, as previously mentioned. In Interconnect Solutions, we expect continued growth driven by improved sentiment within consumer electronics and refresh cycles in support of AI adoption. For the new IndustrialsCo segment, we expect full year 2025 organic sales growth in the 3% to 4% range. Within healthcare markets, we expect growth acceleration in medical devices, along with continued stabilization for medical packaging applications and in biopharma markets.

In Water, we expect a strong year for the business with continued volume growth year-over-year, and we expect stable demand within markets served by our remaining industrial-based product lines. With that, we are pleased to take your questions, and let me turn it back to the operator to open the Q&A.

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

You guys talked -- you referenced AI-related revenues a few times in the call. Is there any -- can you size that for us at all? And kind of give us a sense of what kind of growth rates you've seen there?

Yes, Scott, we saw really nice growth this year, up about 30%, in the AI-related sales were up over $300 million now. And so we continue to expect that to be a key piece of the growth for the ElectronicsCo as we move to separate them towards the end of the year.

Okay. That's helpful. And then the incremental margins, 47% or so is what I was calculating is pretty strong. But you've got a little bit of price perhaps headwind in front of you, how do you think about incrementals in 2025 and the sustainability kind of puts and takes of costs coming back?

And I know there's going to be some noise in the transition here. But is there -- do you think there's an opportunity to keep those incrementals above historic levels? Or do you see some costs coming back and some price issues?

Yes. In 2024, we saw incrementals kind of in the low to mid-60s, and we have them, as you had mentioned, in the mid-40s in 2025. So again, very strong. We had mentioned that we do have a 1% assumed price headwind in 2025 versus 2024. But net between that and inflation and absorption tailwinds, we see that about neutral on the bottom line. So we'll share a lot more about margin projections when we do Investor Day later in the fall, but we continue to expect to see really nice margins driven across both new DuPont and Electronics.

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

So maybe just a question on Water. Obviously, there were some easy comps there, but it also it seems like it really continued even on a sequential basis. Can you help us to think about some of the drivers that you're seeing there that are really pushing that growth and how we should be thinking about them as we go through 2025?

Yes. We did see a really nice recovery. So it was up about 11% year-over-year organic in the fourth quarter, and we see about mid- to high single-digit organic growth overall in 2025 for Water. So a lot of it really is just around the secular tailwinds in the Water space.

So the access to clean water, we see nice growth across all key technologies. We are the one player within the space that has all the 4 key technologies when it comes to filtration. And there's some incremental opportunities, not necessarily in '25, but longer term around both DLE, so direct lithium extraction, within the battery space and then also some PFAS opportunity as well.

Got it. Okay. And then with regard to Semis, there is -- it looks like there's a number of node transitions kind of especially rolling in, in the second half of '25. Can you help us to think about what that means for the cadence of growth in the semi-tech platform for you as we look through 2025?

Yes. So we had mentioned for overall new ElectronicsCo, it will be about 6% to 7% organic growth. That's about even between both sides of it. So between Semi and ICS.

Q1, just given the favorable comp, will be the highest growth, we said low double digits, I believe, for the new Electronics and then -- so it will moderate as the year goes on. But again, really nice overall 6% to 7% on top of a really strong year in 2024.

Our next question comes from the line of Steve Tusa from JPMorgan.

Did you see any kind of pull forward in demand with regards to any concerns around tariffs or new administration in the fourth quarter?

Steve, it's Antonella. We've talked about in the last couple of quarters that we saw, I would call it more of prebuy in the semi space related to a lot of the new fabs that have started up during the course of the year. So you heard us talk about that in Q2 and Q3. We would estimate that in Q4, it was probably around $20 million or so. I would say we would attribute it more to the new fab start-ups versus tariffs per se, but there could have been a little bit of it related to the tariffs coming in 2025 as well.

Okay. And then I think there was a modest gain in the Electronics segment. I'm not sure if you flesh that out. How big was that?

Yes. So we commented on that in our prepared remarks. It was $13 million, and it was included in the guidance when we provided it on the third quarter call.

Our next question comes from the line of Jeff Sprague from Vertical Research.

Sorry if I missed just at the beginning, I was also about 10 minutes late getting on. Just on the spin and the timing now, I feel that's a pretty hard lock on November 1. And maybe any update on just kind of the cost to separate and the kind of stand up stand-alone costs associated with Electronics? Again, I apologize if you addressed that.

Jeff, it's Antonella. So yes, timing is pretty locked in. I would say the team has clearly done a lot of work to accelerate timeline. We've had a lot of good practice in the organization in doing this.

So we have a really good plan in place and things are progressing as expected. In terms of a couple of updates. So our separation costs we had said would be around $700 million. We do expect that to be a little less than that as we move forward now given that Water will remain in the DuPont portfolio.

But I would just be mindful that a lot of things that kind of went into that is will still continue to happen, whether it was 1 separation or 2 separations. In terms of dissynergies, we initially quoted that as around $60 million. Now we would expect that, that would be closer to $40 million.

Great. Then when that -- would that also encompass sort of the stranded cost? That $40 million, is that sort of the public company cost for new ElectronicsCo separate and apart from sort of stranded that you'd need to get after? Could you just kind of put a finer point on that?

Sure. So when you kind of take a look at our dissynergies, it is predominantly standing up 2 public companies. So when you kind of compare where our corporate costs are today versus where we expect corporate costs to be in the future, that is a big bulk of it. There's a little bit of it that is in the businesses.

As we've said before, it does not include per se, stranded costs, but I would tell you that at this point, based upon all the work that we've been doing in terms of getting 2 organizations ready for day one and kind of having a cost structure that's fit for purpose in terms of their size. We do not expect that to be very material.

Our next question comes from the line of Chris Parkinson from Wolf Research.

Just going back to the water protection, you hit on this towards the end of your prepared remarks, but could you just give us a little bit more perspective on how you see things shaping up across Safety, Shelter and Water throughout '25 as well as just kind of the key considerations that we should be looking at in terms of potential market outperformance?

Yes. So I'll answer your question in the new form, given that's how we're going to we're going to report in 2025. So for the three pieces within the new DuPont. The Water and Healthcare will be about 40% of the portfolio, and we expect them to have nice mid- to high single-digit growth organically in 2025. So a continued improvement coming off at the bottom [indiscernible] that we saw throughout 2024. So we had noted medical [indiscernible] got better every quarter, and we exited a really nice position from 2024, the same with Water. So Water improved kind of every quarter, and we exited in a nice position, and we see the destocking that we had telegraphed early in 2024, essentially complete.

Then the remaining portion of the portfolio probably will be around the low single-digit growth. So that would encompass the [indiscernible] business, the shelter business, and then the businesses that we picked up from the Industrial Solutions business within electronics. So overall, nice 3% to 4% organic, definitely outsized within the healthcare and the Water portion.

Got it. And just as a quick follow-up, just on the Interconnect side. You mentioned, obviously, some AI-driven tech benefits. But could you sit on kind of the key drivers of the remainder of the portfolio? And just any differences based on geography as well?

Yes. Within Electronics, within the Interconnect business, we had mentioned the AI around the packaging space. There's also a lot of upside that [indiscernible] 2024 and continue to expect to 2025 on the layer. So this was the business that we had acquired back in 2021. It's a lot around thermal management.

So we're looking as the chips get smaller and [indiscernible] for us to be able to drive a lot of outperformance on the layer side. So that was key to the growth before, and we expect it to be strong again this year.

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

I wanted to ask on IndustrialsCo guidance, but specifically on first quarter versus the year. So in your first quarter, it seems like you're guiding for low single-digit growth. You just did mid-single-digit growth in fourth quarter and you have a pretty easy comp in first quarter. So what am I missing about why that growth shouldn't be higher in the first quarter as it relates to the year?

Yes. So the largest piece is within the automotive portion of new DuPont. So overall, last year was still robust for them in Q1 from both the automotive side of the adhesive piece as well as within [indiscernible] within the business. So one of it is a comp a little bit less of a favorable comp than maybe what you would have expected.

Also, if you look at the build, you're going to go year-over-year, you're comparing and you're going to go sequentially, but the [indiscernible] in Q1 2025 are expected to be down more year-over-year than what they were in Q4 of 2024. So that would meet the expectations. Otherwise, everything else is generally the same between the 2 quarters.

Okay. And if I could just follow up on cash deployment. You guys haven't bought back stock in about 3 quarters now. Your leverage is low, understanding you're going through everything with the splits. But seems to be an opportunity for you to deploy some cash into buybacks. So why isn't that something that we're doing now?

Yes. So as we mentioned in some prior calls, we do not plan on doing any more share buyback until [indiscernible] to separation. I would just be mindful, obviously, there are a lot of cash costs related to the separation. So that's where our cash will be deployed in the near term.

Your next question comes from the line of Patrick Cunningham from Citi.

The pro formas seemed to imply the EBITDA margin profile that corporate retained business is maybe high teens, low 20s. I mean, would you characterize these as normal levels? And does it change maybe what the long-term margin target would be for the IndustrialsCo versus W&P?

Yes. So you're right. So the businesses that are coming into the new DuPont. So the businesses that were incorporated [indiscernible] &M and then the businesses that were in the Industrial portion E&I and a lower overall margin profile than the heritage businesses.

And so from the corporate [indiscernible] businesses that came in, you called it right, they were kind of in the high teens, maybe low 20s. I would say that, that benchmark level, if you look to the other [indiscernible] and then the businesses that we picked up from the Industrial business, a lot of that would be the Spectrum piece that came in through acquisition and then we had done that acquisition, we said the margins were [indiscernible]. So we're right sitting at 23%, 24% in 2024 for IndustrialsCo. We'll look to continue to drive productivity and mix enrichment.

And as mentioned earlier in the call, we'll get into more of the margin for [indiscernible] would expect for each of the to new companies at their Investor Day [indiscernible].

Great. And apologies if I missed this, but is there any update on Kalrez? How is that business performing? We had a few quarters of sharp destocking, should we expect some rebound there in 2025, helping underpin some of the strong growth rates in the Electronics business?

Yes. I would say midyear 2025 is the one business that we have in the portfolio that hasn't quite gotten through in destock yet. So we're targeting midyear 2025 for that to get back to a more normal growth level.

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

How are you thinking about Industrial's portfolio now that you decided to keep the Water business? Any further divestments or do you see any interesting bolt-ons here?

Yes. I would say it's both. I mean, as we continue to look at the remainco portfolio and [indiscernible] can take [indiscernible], to high-growth secular end markets, you'll continue to see portfolio activity on the new DuPont side. And then we'll look to invest in M&A primarily around the health care and the Water business as we look to outsize our exposure there.

So we'll come out at about 40% of sales in the health care and Water and look to [indiscernible] for both M&A and also growth as we move forward.

Great. And then a follow-up on Electronics. Do you have an assumption for underlying market growth in Semis and Interconnect or a [indiscernible] for each of these segments in '25?

Yes. So in 2025, we see MSI of around mid-single digits. And again, we have talked through 2024 with a little bit disconnected with respect to wafer starts and wafer consumption because of the inventory levels that were consumed on the ship side. So we see our view of MSI at around 6% growth.

We see overall fab utilization in the high 70s in 2025. And then on the ICS side, kind of the combination of PCB and smartphones, we see in the mid-single-digit range.

Your next question comes from the line of John Roberts from Mizuho.

Congrats on a good quarter. Are you planning to change the name of IndustrialCo? And any progress on industry reclassification?

Yes. So I'll do the [indiscernible]. So IndustrialCo will be DuPont, and I'll turn it over to Antonella Franzen on the [indiscernible].

Yes. So we're doing some work around the reclassification as we talked about before with clearly the intent of getting that move from the chemical classification to an industrial classification. The change would not necessarily be made [indiscernible] the separation is complete, but we are working on that, and that is clearly our intent as to where we should be and where we need to be.

And then secondly, are you planning on keeping Water separate within IndustrialsCo that would preserve the option for a spin later on if that's what you wanted to do?

So Water will be reported as a segment than new DuPont I think that's probably the question that you're asking. So Water would be a segment, [indiscernible] we'll want to highlight water and health care [indiscernible] growth profile. So those would be segments within the new [indiscernible].

Your next question comes from the line of Michael Leithead from Barclays.

For the Electronics still, are we 100% headed for a spin here in November? Or is there any chance of merger or selling these assets before them?

Yes, we're headed towards the spin.

Okay. And then I apologize if I missed that...

[indiscernible] will announce management teams before the end of this quarter, and we're already set with full word slate for Electronics, which we'll also be announcing before the end of the quarter.

Great. And then I apologize if I missed this, but did you announce your new Chief Commercial Officer will be and will they stay with Industrial still, I presume?

He will stay with IndustrialsCo. His name is [indiscernible] joining us from SKF next week.

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

Lori, in Semis, you referenced flat sales in China in '25. Can you give a little more color as to why that's happening? And just how big is China for the entire semi-tech business?

Yes. So it's more around the normalization of the volume growth versus demand. So in 2024 in China for Semi, we saw a 40% volume growth. So -- and I mentioned that probably overall, we saw about $6 million for pre-buy activity.

So normalizing that against [indiscernible] a flat volume within China for semi. Overall, Semi-China is about a $600 million market, about 2/3 of it is local Chinese spending producers and the rest are the [indiscernible].

And how much of your basis is semi-tech is China?

That's the $600 million. So about 30% -- ish.

Got it. And just on North American construction, any signs of progress in either resi or commercial?

If you would actually -- if we look at our shelter business, what I would say is, we've actually fared pretty well again in the environment that we're in. So as we talked about in the fourth quarter, we did see a little bit of softness on both the resi and nonresi side being offset by some growth in repair and remodel. And kind of as we go forward, we are currently anticipating, I would say, low single-digit growth in that business for 2025.

Our next question comes from the line of Vincent Andrews from Morgan Stanley.

I wanted to follow up on the divestitures discussion. And I'm just wondering with Water now staying within IndustrialsCo, is there a window between now and spin where you can get some assets out of the business without having to assing pro-rata [indiscernible] liabilities to them? And if you don't get that done before November 1, do they presumably would have to have liabilities assigned thereafter is November 1, really the hard date on that?

Yes. So technically, you could do a divestiture between now and November 1 and stay above the $2.5 billion threshold and then therefore, that's on to assigned [indiscernible]. We're obviously fully focused on getting the Electronic separation out November 1. And at that point, we'll comply with the size of [indiscernible] and pro rata distribute the side letter agreement with [indiscernible] between new Electronics and DuPont.

Okay. And then just on free cash flow for 2025. Obviously, you're going to have spin costs and other things that are going to be sort of clouding the underlying performance. So could you give us a sense of [indiscernible] had excellent conversion this year? What you think 2025 might look like?

[indiscernible] to 2025 in our free cash flow conversion, we would expect it to be greater than 90%, which is kind of [indiscernible] the number that we've been focusing on. We've had really good conversion this year. [indiscernible] 105%. We did have a nice benefit of a lot of the practices were moving in place related to working capital that helped us this year. And as we go into next year and then the growth that we're kind of expecting both the ElectronicsCo side and the IndustrialsCo side, we will have some working capital usage.

But again, we feel good that we'll be above the 90% conversion, excluding clearly all the transaction costs, which is how we've been reporting our free cash flow over the last couple of quarters.

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

So organic growth in IndustrialsCo in the fourth quarter as well as your outlook in the first quarter, appears pretty differentiated relative to traditional chemical companies where growth seems to be pretty negative. So I expect that helps our cause in getting that designation change. But maybe can you remind us of what other metrics margins, returns on capital or sort of just make the case why this should be more of a multi-industrial business than a chemical business?

Yes. No. I mean, obviously, our growth will [indiscernible] expected 2025 and then even the margin profile is significantly different than what you could see on the chemical side and even just the volatility, like we don't have the swings in pricing that you may see with respect to utilization levels in the commodity chemical side as well. So any support that we can get in our endeavor is from both [indiscernible] really -- would be really helpful because we do believe it's fundamental to how we are [indiscernible] the new company.

We'll target similar leverage profile to the other [indiscernible], we'll have very strong margin profile similar to the multi industrials and a very similar growth trajectory.

[indiscernible] big piece we divested, which was the [indiscernible] really the last vestige of a chemical business within the portfolio. So we avidly work part for [indiscernible] it's 7 years now to get to more of a multi-industrial company and now in the chemical space. So hopefully, good luck [indiscernible].

Sounds good. And then just a quick follow-up. I think in the past, you talked about advanced nodes as a percent of Electronics, which I assume includes AI-related sales. Can you remind us how big, I guess, advanced nodes are now for semi-tech and Interconnect and then maybe what the growth rate for that subset will be in '25?

Yes. So [indiscernible] is about 40% of the semi portfolio. Their growth obviously would be higher than the average 6 to 7 that we had mentioned earlier in the call, we have said that for the AI specific exposures, we saw 30% growth within the Semi business. So you would expect a nice outperformance in the advances versus the more [indiscernible].

Your next question comes from the line of Frank Mitsch from Fermium Research.

And let me echo the congrats on the quarter. You basically hit the trifecta in terms of exceeding guidance on sales, EBITDA and EPS from what you provided in the early part of November. So I'm curious as to what went right or what exceeded your expectations in November and December?

Yes. So I'll take that again. So when you look at the Electronics space, I would say that's the one that really drove the beat. We did continue to have strong demand, as we talked about a little bit earlier.

We did have some prebuy in there as well. I think the other important thing to mention, when you kind of take a look at Q4 is not only did we exceed our expectations as we set them but we also, I would say, covered incremental pressure of changes in foreign currency exchange rates during the quarter as well. But other areas, so Electronics [indiscernible] stand out. But as we talked about, the Water business was even a little bit better than we expected on a sequential basis for the time that medical packaging business looks like better than we expected.

Biopharma was actually even a little bit better as well. The only area that I would say we kind of expected is that Water would be softer and it was, shelter was pretty much in line. So from an operations perspective, that's how I would characterize it. Now when you take a look at total [indiscernible] the other factor that we clearly had that drove the [indiscernible] was the tax rate in Q4 was a bit lower than we had anticipated.

So that's in the number as well relative to the fourth quarter. And we did talk about as we go into 2025, we do expect the tax rate to probably be about a point or so higher than where we kind of landed this year.

Understood. And as we sit here today in the early part of February, the segments that you thought were doing better, i.e., Water Packaging, et cetera, that has that continued at that pace, so the follow-through that you're seeing here in the early part of 2025?

Yes, it is playing out as we expected.

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

This is Adam on for Arun. And congratulations on the great quarter. I'd like to double click on the cash a little bit. I know you've said most of the cash deployment for the year is going to be related to transaction costs.

Could you give us a sense on maybe the cadence of some of those costs? Are any of those going to linger into the fourth quarter or first quarter of next year? Are those mostly going to be advanced? Just thinking about, when we could start thinking about resuming maybe cash equipment to other avenues?

Yes. So what we talked about our transactions are around $700 million. We expect it to be slightly less now that we are retaining the Water business within the portfolio. I would be mindful that from a cash perspective, as you can see in the schedules attached to our press release that cash out this year related to transaction costs was only $64 million.

So a bulk of it is all sitting in 2025. I would also be mindful there could be some costs related to debt as well. That's in addition to those transaction costs, which is why the focus in 2025 is all around getting the separation done and kind of putting a majority of all those costs behind us. I mean, they're a little bit of trickling that goes into the following year, but a majority of it will be 2025.

Great. And maybe if we could quickly touch back. You mentioned health care and Water assets potentially as targets for M&A going forward. Any additional color you could give there maybe on types of assets or parameters you do [indiscernible]?

Yes. So we have an active pipeline in [indiscernible] we'll continue to look and see where we can pick up assets that would add to our portfolio. Within the Water space, we would even broaden the aperture beyond just filtration and go into some of the other areas in order to be able to bulk up our exposure there. And within healthcare, you would expect a similar dynamic to what we've done with our last few acquisitions around Spectrum and Donatelle in the med-device space.

So bringing our capability there and adding new capabilities to the toolkit.

Your next question comes from the line of Laurence Alexander from Jefferies.

Just wanted to follow up on the comments around the construction outlook. What specifically are you assuming for remodeling activity? And also, what's your assumption around FX?

So for remodeling within Shelter, our expectation as we go into 2025 and what's built into our guidance is that, that would be relatively flat on a year-over-year basis. Did you say FX, Laurence, for your last question?

Yes, yes, just currency effects, yes.

Yes. So we have about a 1.5% headwind in Q1 and about a 1% headwind for the full year.

Your final question comes from the line of Steve Byrne from Bank of America.

Lori, you mentioned the fourth water treatment technologies in your remarks. I was curious whether any of the revenue in the water business is a service component such as monitoring or maintaining those treatment technologies and/or do you have an interest in adding a service component to that business to help your industrial customers reduce water usage? Is that part of your vision in that business?

We don't have any service revenue today in the portfolio, but you will look broadly in the Water space to be able to add to our exposure. So I would say, services as well as other areas within the Water landscape would be on the table.

I'm just curious about price trends in your various Tyvek products you sell them into construction, into packaging, in the personal protection. How do those end markets differ in terms of price trends at those products?

Yes, there's not really material deviations in price across all the different end markets within Tyvek. So it's a high value. We've got a lot of expertise in the Tyvek overall space, and we'll continue to benefit from the recovery on the medical packaging side as well.

And that concludes our question-and-answer session. I will now turn the call back over to Chris Mecray for closing remarks.

Thanks, everybody, for joining today. For your reference, a copy of our transcript will be posted on our website. Now this concludes the call. Thank you.

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