DuPont de Nemours Inc Aktie

Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the DuPont First Quarter 2026 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Ann Giancristoforo, VP of Investor Relations. You may begin.

Good morning, and thank you for joining us for DuPont's First Quarter 2026 Financial Results Conference Call. Joining me today are 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 will make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K, as updated by our current and periodic reports, includes detailed discussions of principal risks and uncertainties which may cause such differences. Unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items.

We will also refer to other non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials and has 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, and thanks, everyone, for joining our call. Earlier today, we reported our first quarter financial results, which exceeded our previously communicated guidance. Through disciplined commercial and operational execution, we delivered organic sales growth of 2%, 130 basis points of pro forma margin expansion and double-digit adjusted EPS growth. Free cash flow generation and conversion were solid in the quarter.

As a result of our first quarter performance, along with price increases due to the Middle East conflict, we are raising our full year 2026 financial guidance. Antonella will provide further details shortly. We also announced that we expect to launch a $275 million accelerated share repurchase under our existing program. A clear example of how we continue to advance our strategic priority of driving disciplined capital allocation by returning cash to shareholders.

On the next slide, I will cover the progress we are making on driving growth and continuous improvement. We completed the previously announced divestiture of the Aramids business on April 1. We are confident in [indiscernible] ability to continue to drive growth and opportunity for the employees and customers of the combined businesses. We also recently issued our 2026 sustainability report and announced our new 2035 sustainability goals. The progress we made in 2025 highlights the power of our innovation engine, creating sustainably advanced solutions that help our customers succeed. We continue to reduce our environmental footprint and increase the use of renewable energy sources across our operations while maintaining a strong focus on execution and discipline.

Safety and culture continue to differentiate DuPont with record safety performance and high employee engagement reinforcing the connection between what we do every day and the value we create for our customers. Our 2035 goals reinforce our commitment to delivering value by embedding sustainability directly into our business strategy. These goals focus on 3 impact areas. Sustainable innovation, resilient operations and people, partners and communities. They are designed to drive growth through innovation, operational excellence and accountability across our value chain while also advancing progress in areas such as climate action, circularity, safety and responsible sourcing.

Moving to Slide 4. We continue to advance our strategic priorities and are seeing direct impacts from the implementation of our business system. We strengthened our performance-based culture with a clear emphasis on growth and continuous improvement, reinforced by the launch of our refreshed core value. This is enabling greater consistency across the businesses as we drive excellence in innovation, commercial execution and operations.

Starting with innovation. It remains at the core of our value proposition. Our 2025 [ Vitality ] Index was 35% above the benchmark we previously outlined reflecting the strength and relevance of our product portfolio. During the quarter, we delivered a steady cadence of new product introductions and customer wins across health care, water and diversified industrial end markets. Recent launches include upgraded FILMTEC nanofiltration elements designed to help municipalities and drinking water utilities produce high-quality water with lower energy consumption and reduced operating costs. These innovations are being enabled not only by strong R&D execution but also by continuing investments in digital and AI capabilities.

Last week, we announced that we are collaborating with [indiscernible] an AI-driven platform for end-to-end product and application development, focused on accelerating development, improving cycle times and sharpening how we translate ideas into differentiated solutions for customers. This collaboration streamlines and accelerates the work we have been doing on connected lab infrastructure and digital innovation.

From a commercial standpoint, we are making steady progress in demand generation and pipeline discipline. Across the businesses, we are advancing targeted sales leads that bring together our technologies and application expertise to address specific end markets where we see attractive growth and differentiated value. We continue to standardize how opportunities are identified, reviewed and advanced, supported by a clear cadence, better data quality and stronger collaboration between commercial, technical and operations team. These efforts are driving better visibility, improved conversion and stronger alignment between our commercial team and customers' highest value needs, improving the quality and durability of our pipeline.

On operational excellence, our teams remain intensely focused on the fundamentals. Safety, quality, delivery, inventory and productivity. During the quarter, we delivered meaningful improvements in asset reliability and equipment effectiveness across our key facilities, which supported better on-time delivery and stronger operational throughput. At the same time, we continue to drive productivity through focused maintenance and reliability initiatives, main execution and Kaizen activity across our sites. I am personally excited as we recently kicked off our annual CEO Kaizen event, in which myself and the executive leadership team will each participate in events focus on strengthening our value creation processes across the company.

We are also advancing how we operate by pairing process discipline with digital and AI capabilities. Over the last several quarters, we have expanded the use of data-enabled tools to improve maintenance, planning, accelerate defect detection and optimize asset performance. These capabilities are allowing our teams to convert operational data into actionable insights faster, improving reliability, reducing variability and reinforcing safe operations, all while delivering cost and productivity benefits.

Importantly, this operational rigor positions us well as we navigate a dynamic external environment. While we are mindful of potential macro and geopolitical headwinds, our focus on productivity, automation, and structural improvement is creating resilience in the businesses. We are building a strong pipeline of Kaizen events and improvement projects for the balance of the year aimed at sustaining momentum in growth and productivity.

Our first quarter results demonstrate that we are off to a great start. Our April sales were in line with our expectations, and we continue to see strong order growth trends across the majority of our businesses. Our teams continue to focus on driving growth and operational discipline and our strategic priorities position us well for long-term value creation.

With that, I'll now turn the call over to Antonella to cover the financials and outlook in more detail.

Thanks, Lori, and good morning, everyone. The first quarter marked a strong operational start to the year, with results exceeding our financial guidance. Favorable top line mix and effective productivity actions drove strong operating EBITDA performance and meaningful margin expansion in the quarter. Throughout today's call, I will provide comments on our results against our prior year reported financials, as well as on a pro forma basis, which adjusts for our post-separation corporate costs, interest expense and income tax rate. This is consistent with the methodology and financial metrics that we provided at our 2025 Investor Day.

Beginning with our first quarter financial highlights on Slide 5. Net sales of $1.7 billion were up 4% versus the year ago period on 2% organic sales growth and a 2% benefit from currency. Organic sales growth was led by strength in health care and aerospace, partially offset by continued softness in construction markets and logistics disruptions due to the conflict in the Middle East. These disruptions primarily impacted sales in our water business in the quarter.

From a segment view, during the quarter, organic sales grew 3% in Health Care & Water Technologies with organic sales growth about flat in Diversified Industrials. First quarter operating EBITDA of $414 million increased 15% versus the year ago period on organic sales growth, favorable mix and productivity. This resulted in operating EBITDA margin of 24.6% in the quarter, an increase of 230 basis points year-over-year. On a pro forma basis, operating EBITDA increased 10%, with margins expanding 130 basis points year-over-year.

Turning to cash flow. We delivered transaction-adjusted free cash flow of $147 million and related conversion of 65%, a solid start to the year.

Turning to Slide 6. On a reported basis, adjusted EPS for the quarter of $0.55 increased 53% year-over-year. On a pro forma basis, adjusted EPS for the quarter was up 20% versus the year ago period. The increase was primarily driven by higher segment earnings of $0.06 with an additional $0.03 benefit coming from a lower tax rate, share count and exchange gains and losses.

Turning to Slide 7. Healthcare & Water Technologies first quarter net sales of $806 million were up 6% versus the year ago period on 3% organic growth and a 3% benefit from currency. For the first quarter, health care sales were up high single digits percent on an organic basis versus the year ago period. Organic growth was broad-based, led by continued strength in medical packaging and biopharma. Broader sales were down low to mid-single digits percent on an organic basis as strength in industrial water and microelectronics markets were more than offset by logistics disruptions in the Middle East.

Operating EBITDA for the segment during the quarter of $244 million was up 9% versus the year ago period on organic growth, favorable mix and productivity gains. This resulted in operating EBITDA margin of 30.3% in the quarter, an increase of 110 basis points year-over-year.

Turning to Diversified Industrials on Slide 8. First quarter net sales of $875 million increased 3% versus the year ago period on a 3% benefit from currency. Organic sales growth was about flat in the quarter. At the line of business level, organic sales for building technologies were down low single digits percent on continued weakness in construction markets. Industrial technologies organic sales were up low single-digits percent as continued strength in aerospace and growth in automotive were partially offset by declines in the printing and packaging businesses.

Operating EBITDA for Diversified Industrials of $200 million was up 8% versus the year ago period on favorable mix and productivity. Operating EBITDA margin during the quarter was 22.9%, expanding 110 basis points versus the year ago period.

Turning to Slide 9. We are raising our full year 2026 financial guidance, given our strong start to the year as well as now including the interest income benefit from the Aramids transaction. For the second quarter, we estimate net sales of about $1.8 billion, operating EBITDA of about $430 million and adjusted EPS of $0.59 per share. Our second quarter net sales guidance assumes about 3% organic growth year-over-year. Currency is expected to be a slight tailwind in the quarter.

For the Healthcare & Water segment, we expect second quarter organic sales growth in the mid-single digits percent range, led by strength in medical device, biopharma and industrial water markets. For the Diversified Industrial segment, we expect second quarter organic sales growth in the low single digits percent range on continued strength in aerospace and growth in printing and packaging, partially offset by continued softness in construction markets.

For the first half, our estimated net sales of about $3.5 billion assumes growth of about 4% year-over-year. This translates into operating EBITDA of about $844 million, a year-over-year increase of about 8% on a reported basis and 7% on a pro forma basis, resulting in strong operating leverage and an incremental margin greater than 40%. Our first half net sales and operating EBITDA guidance, both represent approximately 48% of our total expected full year results at the midpoint. This is in line with our historical sales and earnings cadence.

For the full year 2026 at the midpoint, we now expect net sales of about $7.185 billion, a net increase of $80 million versus our prior guide. Our full year net sales guidance now assumes about 4% organic growth, including about 1% from pricing actions taken to fully offset higher input costs due to the Middle East conflict. A stronger U.S. dollar has also reduced our expected full year currency benefit to less than 1%.

Operating EBITDA at the midpoint is now expected to be about $1.745 billion, primarily reflecting our stronger first quarter results partially offset by currency headwinds. Our adjusted EPS range is now expected to be $2.35 to $2.40 per share, a $0.10 increase versus our prior guidance. Our EPS guidance now includes benefits from higher interest income due to the Aramids transaction as well as a lower tax rate which we now expect to be in the 24% to 25% range. At the midpoint, our adjusted EPS is about a 40% increase on a reported basis, and a 15% increase on a pro forma basis.

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 comes from the line of Scott Davis with Melius Research.

Congrats on second kind of clean quarter in a row, numbers look pretty good overall. But a couple of kind of big picture questions. I mean you guys have been implementing 80/20. Where are we in that process? And what kind of impact has that had on your top line?

Yes. So we are well into the process within the Diversified Industrials portfolio. So we selected 4 businesses to start, and we're about 2/3 through the initial study. We didn't have any impact in the full year guide on either top line or margin with respect to any implementation, but we would expect over time to see nice margin appreciation with minimal top line impact as we look to improve the margin profile of the businesses and scope.

Okay. Fair enough. And then -- well, I'm going to move on to stranded costs. Where are we with stranded costs in the quarter and for the year. I can't recall what you expected? .

Yes. So Scott, we had estimated overall. There's about $30 million of stranded costs, which we committed to taking out within the first 2 years. So this year, we'll have a nice start on that. So for the full year, we'll have approximately like $10 million out from a run rate basis, we'll be actually halfway there. So I would tell you, we're right on cadence with where we expect to be. And again, we expect to have that out in the first 2 years.

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

So I wanted to dig into the water business a little bit more. And especially just given some of the headwinds that you're seeing around the Middle East logistics. I guess a couple of things on it. Can you help us to think about the cost of navigating around some of these issues. Can you speak to also the customer base? And if there's been any -- I know there's been some [indiscernible] impact in the region. I guess any of your customers that may not be coming up, say, when things resume or the strait reopens, et cetera. Can you just help us to think about that?

Yes, thank you. So in the quarter, we had about $10 million of sales that weren't able to ship out of the Middle East. And so if you look at the results for water, we were down kind of low to mid-single digits. If you isolate out that impact of $10 million, we would have been about flat to slightly down. Those materials have already shipped in April, and so we continue to be on track with respect to our Q2 expectations.

We didn't bake in a ton of disruption in Q2 with respect to the Middle East for the water business. We will, on a full year basis, continue to expect to be up mid-single digits for water. It's about flat in the first half and then up in the second half, really driven by the timing of some large projects. And so large projects last year were the reverse of this year where they were stronger in the first half in the second half. But the underlying kind of consumables or recurring revenue business is growing nicely each quarter.

With respect to the impact from our customer base, nothing as of this point. So there have been a little bit of disruption in our site in Saudi Arabia, but nothing that we can't navigate around. We do have some large projects in the second half in the Middle East around the [indiscernible] as you had mentioned. Right now, we continue to expect them to be on track, but we'll have to watch as the broader situation evolves.

Got it. Okay. No great results in a really tough, tough environment. I guess our second question would just be around the operational side. So the margin is clearly coming in really strong at this point. I guess how much of that is mix versus some of the operational improvements you were speaking to? And if it's more leaning toward the latter? It seems like you're -- if anything, you're solidly ahead of kind of the 150 to 200 basis point target that you had set for the next 3 years, I guess any thoughts or comments around that?

Yes. So first quarter margins were very strong, as you mentioned. And I would say we got a benefit of both actually. So mix was quite positive in the quarter. That added about 50 basis points of margin. But I would also say net productivity was about another 70 basis points of margin. So again, really strong performance as we move forward.

When you take a look at our full year guidance that we have, margins continue to be strong. And even when you go to the first half to the second half, there's another incremental 40 basis points of margin expansion. So to your point, I would say we are well on our way to our 3-year targets that we laid out at our Investor Day.

Your next question comes from the line of Christopher Parkinson with Wolfe Research.

Just as it relates to your health care exposure, obviously, it seems like you're building a decent amount of momentum there. You addressed this at your Analyst Day, but I'd love to hear your updated thoughts. Just in terms of your balance between [ PB, ] biopharma, med device, and some of the larger secular trends that's going on. And do you feel you're underexposed to anything within that spectrum non pun intended? And is there anything that you think you'd like to add to the portfolio to really round it out?

So our overall health care segment is about $2 billion in sales. So it's about $1.2 billion of Tyvek sales and the remainder being the [indiscernible] sales and underneath Tyvek about half of that is health care packaging and the rest primarily are the [ garment. ] So we like our exposure as we sit today, we're nicely positioned in the med device profile between both spectrum on the CDMO side and then also on the Tyvek health care side with packaging needs.

So we've got an intent to continue to add to that piece of the portfolio. We've got a nice robust pipeline of assets that are both accretive to growth and also affordable. So there are assets that we would like to add, whether it's around the packaging side to have a broader net packaging offering or whether on the CDMO side, they continue to round out our sales into that space.

With respect to our appetite for M&A, we obviously closed the Aramids transaction on April 1. So we got about $1.2 billion of gross proceeds, about $1.1 billion net proceeds. We will continue to be balanced. We announced the $275 million ASR this morning. And we also continue to be prudent. So we're not going to lever up to do a deal. We targeted 2x leverage. We're a little below that today. So between the dry powder we have on the balance sheet as well as the remaining proceeds from the Aramids divestitures, it puts us in good position to also take advantage of potentially an accretive growth deal for us.

And just as a quick follow-up, just kind of a broader question on pricing in terms of the second quarter and also the second half environment. Just how are you thinking about this by segment in terms of what you're seeing in your inputs, transportation, logistics cost. Just obviously, a lot of moving parts. I'd love to just hear your thoughts on strategy and how quickly you believe the organization can pivot?

Yes. So I would say the organization has done a great job pivoting as all this has started. So we already have surcharges as well as certain price increases in place to cover these incremental costs. So overall, our expectation is around incremental cost of around $90 million, which we expect to fully cover from a top line perspective related to price and surcharges. As you would expect, it's starting in Q2, so we don't have a full run rate in the second quarter, but the second half will have a full run rate. Just to put a little bit of numbers around it, the second quarter is around $25 million or so of price on the top line to cover those costs.

Your next question comes from the line of Chigusa Katoku with JPMorgan.

Congrats on a great quarter and a challenging operating environment. So I just wanted to follow up on the price cost. So margins were really strong this quarter. If my math is correct, it looks like it's going to step down to around 24% in the second quarter. So if you could just help me understand the puts and takes around this. I think that you plan to institute price increases on April 1, you had inventory. So I think meaningful raw material inflation as opposed to come be felt around maybe late 2Q, but any moving pieces here? And what's impacting the doctor margins in the second quarter?

Yes. So when you go from the first quarter to the second quarter, 2 things to keep in mind, price cost, to your point, we have pricing actions we'll have costs in the P&L. That's about a 30 basis point margin headwind. And there's about 40 basis points of a margin headwind from Q1 to Q2 related to mix. So that's your Q1 to kind of Q2 walk relative to where we're at, but underlying performance continues to remain very strong.

When we talk about kind of what's embedded in terms of the full year, and the timing of that. So we did have some that started in April, I'll tell you, a majority of increases related to surcharges and price increases started on May 1 because there is some customer notification time that's needed relative to that. Obviously, every product that we have in inventory has different terms associated with it. So keep in mind that these increased costs started at the latter end of the first quarter. So we definitely have some impact related to that in the second quarter. And as I mentioned, when you take the difference between price on the top line and costs on the bottom line, it's about 30 basis points of the headwind in the quarter.

Okay. Great. So is my understanding correct that the majority of increases started in May versus April. So you haven't been seeing the order trends. I guess, maybe put it differently, after you started some price increases in April, how have order trends been compared to March?

Yes. So as Lori mentioned, I would say our order trends in April were actually -- we have very similar demand as we have been seeing and nice increases overall on a year-over-year basis. So order trends are doing well.

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

I think you noted strength in automotive during the quarter. Maybe you could comment a little bit on where that came from and how sustainable that might be since I think the auto outlook is not that rosy right now.

Yes. So we've got automotive. It's primarily within the industrial technologies line of business within Diversified. So we've got the predominant exposure within [indiscernible] we also have physicians in [indiscernible]. So our outperformance amid a tough market, as you had mentioned, is really based on the battery adhesive volumes that we have.

So we've got about roundly $300 million of sales that go into EVs. A piece of that is battery, which is all incremental growth for us, and it's growing nicely in the year, well above kind of where the 20-ish percent EV growth expectations are because it's new volume for us and new wins. So we continue to be positioned nicely and realize the pipeline has been building over the last couple of years, frankly, as we got qualifications with the large OEMs.

And then just a clarification. When you talk about desalination, is that municipal to you? Or is that industrial to you?

It's primarily industrial. Primarily RO as well. It's the reverse osmosis component of water.

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

I wanted to follow up on just the Middle East impacts around water. I think on some of the pre-closed conversations, there was messaging that there were maybe $25 million a month in sales into and out of the Middle East. And there is an inability to get material out, I guess, while the strait is closed. Just based on your comments about not really baking in much in terms of the outlook, have you found alternative routes for those materials? I guess it sounds like you've mitigated that, but I'm not 100% clear. So can you expand on that a bit more? .

Sure. So let me size up our total exposure related to the Middle East. So in total, it's around $300 million, about 4% of our top line. Half of that is related to sales into the Middle East and the other half is related to things that are sourced from the Middle East. So when you kind of do the math around that and 1 month of the strait being closed, that's kind of where the $25 million came from. As we mentioned earlier, there was about a $10 million impact to the top line in the first quarter related to products that we weren't able to get out. So that clearly tells you we have been able to mitigate quite a bit of that and obviously have taken that into consideration relative to our Q2 guidance.

But I guess if I take that then in those comments, it seems like half of it is still impacting, maybe a little bit less. So is there something to the tune of $30 million to $40 million in sales and maybe 1/3 of that in terms of EBITDA impact in 2Q to assume that the impacts linger or does that lessen through the quarter and therefore, this whole map becomes somewhat not necessary?

All that math is not necessary. I would say that the teams have done a great job to find alternative routes in order to get some products out and to make sure that we have the necessary raw materials in order to be able to produce at the site as well. So again, the teams have stepped in very quickly to find alternatives related to that. We were able to have minimal disruption as in first occurred and clearly have plans in place as we move forward.

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

Lori, just on construction, can you talk about the weakness in those markets? And how much is it down for you guys in Q1 and your expectations for the first half of the year?

Yes. So we continue to expect overall construction markets to be about flat on a full year basis. We do have about 1% price in that space that will give us some slight organic growth but it's really kind of slightly down in the first half and then slightly up in the second half.

So in the first quarter, we were down low single digits. Our performance was in line with the market where the resi, primarily North America resi continues to be weak and then you're seeing about flattish in the commercial and do-it-yourself base once you back out the data center volume that happened in commercial, our commercial is more on the health care, education, retail side.

Very good. And just on the Middle East conflict, are there any opportunities longer term from you being a more U.S. supplier, reliable supplier at lower cost overall down the road?

Yes. I mean I think there's always opportunities that we're looking for to be able to continue to expand both our share and our TAM. Not only are we well positioned from a share perspective, we're also well positioned with where our asset base sits, which has enabled us to navigate quite a few disruptions over the past couple of years. So starting back with tariffs, we were able to move product around our supply chain to mitigate the headwind there. And then now with the Middle East tariffs, we've been able to move volume around to be able to mitigate the impact that was felt initially within our KSA plant in Saudi Arabia. .

Your next question comes from the line of Matthew DeYoe with Bank of America.

So health care sales seem to be like accelerating quite a bit. I wanted to just dig in a little bit more on comps versus market versus owned portfolio position for 1Q. And as we look, I guess, to the guidance a bit, you're looking for 4% on the year, 1% from price. I think 1Q is probably closer to 1.5%. And so I kind of bridge this like 1.5%-ish from 1Q to 3% for the back half. It seems like maybe normalization of water, but can you fill in the gaps and maybe how that also relates to how health care should trend from here?

Yes. So we had a very strong quarter with health care in Q1, where our results were up high single digits organically. That was really nice volume and some nice price as well. And we continue to expect health care to be up mid-single digits as the year progresses and land at maybe mid- to high single digits on a full year basis.

So we have really nice positions I had mentioned on the health care packaging side and see nice growth in procedures that influenced both the med packaging as well as the spectrum side. [ Livio, ] which is our biopharma business, a really, really nice results in Q1. So there's a nice recovery in demand there that will continue to see nice results. And then maybe just quick on water. I had mentioned that it was down in the first quarter that was really more around the $10 million of volume that didn't ship as well as the timing of large projects. So we'll be will be about flat overall in water in the first half and then we think up kind of high single digits in the second half really around the project timing volume to land at mid-single digits for the full year.

The only thing I would add to that is just around the water business, although it's relatively flat first half, high single digits in the second half, if you adjust for the timing of the projects and normalize that, you're more going from like a 4% growth to a 5% growth.

Okay. And then quickly, so Tyvek's been able to absorb a fair amount of raw material pressure in the short time. And I'm looking at obviously, some of your suppliers talking about another $0.20 per pound for May. And I don't know we'll see if they can get it, right? But I'm wondering, is there kind of an ongoing propensity to be able to push surcharges in a world where this gets increasingly sketchy. I'm thinking almost maybe a little bit more on the building products side because I feel like health care would probably be less plastic, but maybe that's not the case.

Yes. I mean we had nice success with both mix of prices and surcharges that we already put in place, whether it was April 1 or May 1. And so I think if you can provide the documentation to your customers around what we're seeing with respect to input costs, as we had mentioned, are most felt on the [ HDPE ] side, as you had mentioned within TYVEK and then with the [indiscernible] side in water and [indiscernible]. But there's other pieces that we've seen as well.

So I think there's -- we haven't received an abnormal amount of pushback. Obviously, there's always a discussion that needs to be had, but we're not looking to profit. We're looking to just cover it, and the conversation has been constructive.

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

You called out some weakness in packaging. We've been hearing sort of mixed things about the packaging arena. So maybe you could just talk about what you're seeing there what the outlook is for the remainder of the year? And I would assume there's also some inflation there that you need to push through.

Yes. So our impact in the packaging business weakness in the first quarter was really more around the [indiscernible] business in scope. It's really around home and office shrinking. It was a tough comp from a strong first quarter of last year. I think on a full year basis, we see the overall printing and packaging businesses normalizing being up kind of low single digits.

Okay. And I think the answer to this is there's nothing. But is there -- is there any at all update to [ PFAS ] or anything that's going on with the personal injury litigation?

Happily, no.

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

You previously noted, I think, free cash flow greater than 90% for 2026. Is that still the case? And how should we think about working capital dynamics given the higher input costs potentially impacting cash generation cadence for the year. .

Yes. So first off, yes, free cash flow generation is still expected to be greater than 90% for the year. As I mentioned in our prepared remarks, our first quarter conversion was around 65%. So we did have a good start to the year. As you would expect, we tend to have a stronger free cash flow conversion in the second half of the year than the first half of the year, predominantly in the third quarter as we have our interest payments twice a year in Q2 and in Q4. Clearly, the increased cost in materials will increase your inventory dollar value, but the teams, I would say, are doing a good job relative to our inventory days outstanding and kind of taking those numbers down on a year-over-year basis.

So we do have that embedded within our free cash flow conversion. So I would say we are managing working capital very well, and the teams are also focused not only on inventory but as well as DSO in terms of collections, which will put us in a good spot to achieve our free cash flow conversion for the year.

Great. And then I think this is the first time you kind of explicitly called out microelectronics within water. So can you help us size the business there? What sort of growth rates we should expect? And any color on market penetration, new technology, new wins?

Yes. So microelectronics is primarily within ion exchange. So it's about 20% of ion exchange. We saw nice volume in the first quarter, as you would expect, just around the broader data center trend. So we continue to expect to perform nicely there with that business. .

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

This is [ Avi ] on for Mike. I wanted to confirm your assumptions underpinning your full year '26 guidance. So when are you assuming the conflict in the Middle East resolved, if at all? And if it stretches to the end of the year, does that mean you're going to have to raise prices of more than 1%, offset incremental raw material inflation do you think you'd see any demand destruction if it stretches that long? Any color you can give would be helpful. .

Yes. So I would say our overall full year guidance anticipates that the current situation continues through the remainder of the year. So current oil prices, current natural gas prices, our assumption is that continues all year long. That is covered by the pricing actions that we have already put in place. Clearly, if this were to escalate or get even worse from where we are today, that would obviously have some impact on the assumptions that we've made, but we're not planning on it going away. Also, I would tell you if things were to escalate from where we are today, the teams would obviously see what other actions that we could take in order to mitigate any disruptions.

Got it. And then just pivoting back to health care, can you just talk about some of the underlying demand trends that are driving growth across the medical packaging and devices spaces. .

Yes, a lot of it is around the aging population and health care access. So that's one of the key global mega trend drivers for both med packaging and the health care needs. A lot of our exposure on the Med packaging side to the higher-end Class 3 devices and on the med device side with spectrum, it's really around cardiovascular and higher-end growth not elective surgery type application. So really, with the aging population and the access to health care is what's driving that megatrend.

And the last question will come from Arun Viswanathan with RBC Capital Markets.

Sorry, I was on mute. Apologies for that. I guess just 1 final question for me was given that you've had many years of portfolio transformation here, would you expect -- and maybe you can just provide us an update on the 80/20 strategy within Diversified Industrials and so -- there's any further portfolio reconfiguration that we can expect?

Yes. So the 80/20 work within Diversified is really to look at enhancing margin profile. So we had targeted 4 businesses to start and have been working through a really robust process on making sure that we're looking at the [ tailspin, ] looking we're investing, making sure that we're investing for growth in pockets of where there's opportunity across those businesses. I would say more broadly with respect to the portfolio, we're excited about the portfolio that we have. It's nicely balanced between Health Care & Water and Diversified Industrials. We're about 50-50 today. We've mentioned that over the medium term, we would like to get to more 2/3, 1/3 with respect to growth above market. So moving more of the company more towards that Health Care & Water space. But as of now, we're happy with the portfolio. But we'll always be looking, as I had mentioned, due to some M&A, we've got dry powder and cash from Aramids to be able to potentially take advantage of some good opportunities.

Okay. And sorry, just 1 more. Given the $275 million ASR, is that really the last kind of accelerated repurchase activity that we should expect? Or maybe you can just comment on your outlook for further buybacks or yes, capital return. .

Yes. I would say, overall, we're always looking to see what's going to bring the best return to our shareholders. So we already had completed, as we announced in the last quarter, the $500 million ASR. We now announced this morning an additional $275 million ASR. As Lori mentioned, we do have a lot of flexibility relative to the cash in the door related to the Aramids transaction as well as the balance sheet we have. So we will continue to evaluate. As a reminder, we do have a $2 billion program, of which we've used the $500 million and now the $275 million. So we'll continue to evaluate our opportunities, and we'll act on what brings our shareholders the most amount of value.

I will now hand the call back over to Ann Giancristoforo for closing remarks.

Great. Thank you, everyone, for joining our call. For your reference, a copy of our transcript will be posted on DuPont's website. This concludes today's call.

Thank you. This concludes today's conference call. You may [ now disconnect. ]

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to DuPont's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Ann Giancristoforo, Vice President, Investor Relations. Ann, please go ahead.

Good morning, and thank you for joining us for DuPont's Fourth Quarter and Full Year 2025 Financial Results Conference Call. Joining me today are 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 disclaimer contained in the slides.

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

We will also refer to other non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials and has been posted to DuPont's Investor Relations website.

As a quick reminder on the basis of presentation for our fourth quarter and full year financial results, our total company net sales, operating EBITDA and adjusted EPS reflect the separation of Qnity and the previously announced divestiture of the Aramids business reported as discontinued operations.

I'll now turn the call over to Lori, who will begin on Slide 3.

Good morning, and thanks, everyone, for joining our fourth quarter call. Earlier today, we reported our fourth quarter and full year financial results, which were ahead of our previously communicated guidance. We finished the year strong, delivering full year organic sales growth of 2%, operating EBITDA growth of 6% and 100 basis points of margin expansion. Operational discipline and a focus on productivity were key to our earnings growth and margin improvement.

These results led to an adjusted EPS of $1.68 per share, up 16% year-over-year. Free cash flow generation was strong in the year. While delivering on our financial metrics, we also executed significant operational and portfolio transformation during the year. We successfully completed the separation of Qnity Electronics, up a premier pure-play technology solutions partner to the semiconductor value chain.

We also completed the build-out of my executive leadership team, adding external talent from well-run companies as well as promoting within the organization. We set the strategic direction of New DuPont, starting with enhancing our core values to drive a culture focused on growth and continuous improvement. This includes building a robust business system and continuing the progress on both our commercial and operational excellence framework.

Finally, we set clear and robust medium-term financial targets aligned with our performance-based culture. I want to thank our employees for remaining focused on delivering these results and driving the transformation during the year. The momentum and progress we made in 2025 is carrying forward to our 2026 strategic priorities, which I will cover on Slide 4.

Consistent with what we outlined at Investor Day, our strategic priorities for 2026 are clear: Drive above-market organic growth, continue to build out a robust business system, deploy a balanced capital allocation model, all while consistently delivering financial results. We have successfully repositioned ourselves and have a streamlined portfolio of leading businesses, the majority of which are aligned to secular end markets, which will enable strong organic growth.

We saw 2% organic growth for full year 2025 and expect it to accelerate to about 3% in 2026. We are well positioned in secular end markets and our top line growth will continue to be bolstered by our innovation engine, which launched more than 125 new products in 2025. Our new products generated greater than $2 billion in sales this past year, and our vitality index remained strong at about 30%.

We are advancing the build-out of our business system and made significant progress last year. We introduced a core set of enhanced KPIs focused on driving improvement for our shareholders, customers and employees. These KPIs are embedded in our refresh set of management standards, which has added more visibility, rigor and structure to our business processes. In addition, we will continue to expand the use of Kaizen events across the businesses and functions to identify areas to drive productivity, improve end-to-end processes and accelerate commercial development.

On commercial excellence, we continue to advance the framework across commercial enablement, sales effectiveness and strategic marketing. We have completed a maturity assessment resulting in the identification of key initiatives in 2026 that are primarily on demand generation and pipeline discipline. Operational excellence enhancements will continue in 2026.

Last year, we rolled out an updated set of KPIs aligned with our focus on safety, quality, delivery and cost and refreshed our excellence toolkit with a stronger focus on lean methodologies. In addition, we invested in people and process capabilities across our supply chain and quality functions in order to enhance the customer experience. These improvements and investments will drive overall productivity in 2026.

Across these disciplines, we are also actively deploying digital capabilities and AI to accelerate our progress. Within innovation, we are making investments in our lab to enable streamlined workflows and accelerate our product Within operations, we are utilizing tools in the reliability and maintenance base to improve uptime and reduce costs. And on the commercial side, we are focusing on investments in workflow and process automation to improve the customer experience.

On capital allocation, we have a proven model that enables both consistent investments and high-return organic opportunities as well as bolting on to existing businesses with M&A to enable even greater returns. A strong balance sheet is a priority for us. We will continue to return cash to shareholders through a quarterly dividend, in line with our targeted payout ratio as well as utilizing share repurchases.

We previously announced a $2 billion share repurchase authorization, and we executed a $500 million ASR in the fourth quarter of 2025. With these priorities, let's move to our 2026 outlook on Slide 5.

Our financial guidance for 2026 is in line with the medium-term targets that we outlined at our September Investor Day. On a reported basis, we expect organic sales to grow about 3% year-over-year, operating margins to expand 60 to 80 basis points and adjusted EPS of $2.25 to $2.30 per share. On a pro forma basis, our EPS will grow 10% to 12% year-over-year. Free cash flow generation will be solid with an expected conversion of greater than 90%.

Underpinning our organic growth is a mixed macro environment. Market indicators for health care and water technologies continue to expect mid-single-digit growth in both spaces on increasing medical procedures to support an aging and growing population and strong global wire demand. Overall automotive demand is about flat in 2026 with weakness in the U.S. and Europe. However, we continue to expect EV builds to significantly outpace overall build.

In construction, after years of decline, market stabilization is expected with flattish demand year-over-year. We are off to a good start to the year. Our January sales were in line with expectations, and overall, we are seeing improving order trends in our Industrial Technologies business, which we view as an indication that these markets, which were down last year, are beginning to stabilize and recover.

Overall, our teams are executing with a focus on driving growth and operational discipline, and our strategic priorities position us well for long-term value creation.

With that, I'll now turn the call over to Antonella to cover the financials and outlook in more detail.

Thanks, Lori, and good morning, everyone. The fourth quarter marked a strong operational finish to the year. We exceeded our financial guidance on better-than-expected top line mix and productivity, resulting in strong EBITDA and margin improvement in the quarter.

Beginning with fourth quarter financial highlights on Slide 6. Net sales of $1.7 billion were about flat versus the year ago period as a 1% organic sales decline was offset by a 1% benefit from currency. Organic sales consisted of a 1% decrease in volume, which included a $30 million or 2% headwind from order timing shifts into the third quarter from the fourth quarter due to system cutover activities in advance of the electronic separation.

Adjusting for the timing shift, organic sales would have grown 1% in the quarter. Looking at the second half, organic sales increased 2% versus the year ago period. From a segment view, during the quarter, organic sales grew 3% in Healthcare & Water Technologies, offset by a 4% decline in Diversified Industrials. From a second half perspective, Healthcare & Water Technologies grew 5% on an organic basis, partially offset by a 1% decline in Diversified Industrials.

From a regional perspective, in the quarter, we saw organic growth in Europe, up 2% year-over-year, with Asia Pacific down 2%. North America was about flat year-over-year. Fourth quarter operating EBITDA of $409 million increased 4% versus the year ago period on favorable mix and cost productivity. Operating EBITDA margin during the quarter of 24.2% increased 80 basis points year-over-year.

Turning to Slide 7. Adjusted EPS for the quarter of $0.46 was up 18% versus the year ago period. The increase was driven by higher segment earnings of $0.02, lower interest expense of $0.04 and a $0.02 benefit from exchange gains and losses. This was partially offset by a $0.01 headwind from a higher tax rate.

Turning to Slide 8. Healthcare & Water Technologies fourth quarter net sales of $821 million were up 4% versus the year ago period, on a 3% organic growth and a 1% benefit from currency. Organic growth included a headwind of approximately $15 million or 2% in order timing shifts into the third quarter. Adjusting for this headwind, organic sales growth was 5% in the quarter.

For the fourth quarter, Healthcare sales were up mid-single digits on an organic basis versus the year ago period. Organic growth was broad-based led by continued strength in medical packaging and medical devices. Water sales were up low single digits on an organic basis, primarily due to strength in Industrial Water markets.

A majority of the headwinds from the order timing shift was within Water. Operating EBITDA for the segment during the quarter of $255 million was up 4% versus the year ago period, on organic growth and productivity gains, partially offset by growth investments. Operating EBITDA margin during the quarter was 31.1%, flat with the prior year.

Turning to Diversified Industrials on Slide 9. Fourth quarter net sales of $872 million decreased 3% versus the year ago period on a 4% organic decline partially offset by a 1% benefit from currency. The organic decline included a headwind of approximately $15 million in order timing shifts into the third quarter. Adjusting for this headwind, organic sales declined 2% in the quarter.

At the line-of-business level, organic sales for Building Technologies were down high single digits on continued weakness in construction markets. Industrial Technologies organic sales were down low single digits as strength in aerospace was more than offset by weakness in printing and packaging markets. A majority of the headwind from the order timing shift was within Industrial Technologies.

Operating EBITDA for Diversified Industrials of $197 million was up 2% versus the year ago period, unfavorable mix and cost productivity. Operating EBITDA margin during the quarter was 22.6%, up 110 basis points versus the year ago period.

Turning to Slide 10, which outlines our first quarter and full year 2026 financial guidance. For the first quarter, we estimate net sales of about $1.67 billion, operating EBITDA of about $395 million and adjusted EPS of $0.48 per share. Our first quarter net sales guidance assumes about 2% organic growth and about a 2% benefit from currency. Our operating EBITDA assumes a 10% increase year-over-year and margin expansion driven by business improvement and lower corporate costs.

For the full year 2026, as Lori noted, our guidance is in line with our medium-term targets. We expect net sales of about $7.1 billion, operating EBITDA of about $1.74 billion and adjusted EPS of $2.25 to $2.30 per share. Our full year net sales guidance assumes about 3% organic growth and a currency benefit of about 1%. Our operating EBITDA assumes a 6% to 8% increase year-over-year with 60 to 80 basis points of margin expansion. Our adjusted EPS guidance at the midpoint assumes about a 35% increase on a reported basis and an 11% increase on a pro forma basis.

For the Healthcare & Water segment, we expect full year 2026 organic sales growth in the mid-single-digits percent range. This assumed growth is expected to be driven by broad-based strength within health care, primarily due to demand in medical packaging applications and medical devices.

In Water, we expect continued growth, primarily driven by demand for reverse osmosis and ion exchange within industrial and municipal water market.

For the Diversified Industrial segment, we expect full year 2026 organic sales growth in the low single-digit percent range.

Within Building Technologies, after a year of market declines, we are expecting 2026 to be about flat, primarily driven by stabilization within U.S. construction markets.

In Industrial Technologies, we expect low single-digit growth year-over-year driven by strength in aerospace and demand recovery within markets served by our 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] And your first question comes from the line of Jeff Sprague with Vertical Research Partners.

Nice to see a solid, clean quarter and also Lori, your opening remarks there, all the focus on internal KPIs and growth and you were working on that along the way, but the shift to execution from portfolio moves is welcome, on my behalf anyhow.

Thank you.

Yes. Good luck with all that. I wanted to shift to a little bit to the external, if I could. Can you just put a little bit finer point on the industrial side of the equation, sort of the soft U.S. industrial production in your guide that you mentioned, but then seems a little bit countered by your comments about industrial orders picking up. So maybe just a little bit more color what you're seeing really in the core industrial parts of the portfolio, how orders are trending and what do you think is going on in the channel inventories?

Yes. Thanks, Jeff. So on the industrial side, so like talking ex the shelter business, which we had mentioned, we think will be about flat this year. So moderating from down mid-single digits in 2025 and the flat on the shelter side is general kind of low single-digit growth expectations for the full year on nonres and repair and remodel and then down low to mid-single digit on both on the resi side.

But on the industrial side, it's primarily coming from the Advanced Mobility businesses, which comprise automotive and aerospace and on the consumer packaged goods side that some of our packaging goods is So we've seen nice order pickup as we exited the year and went into Q1, a lot of it is being driven by aerospace. We're seeing nice low double-digit improvement in order in aerospace. It's about 3% or 4% of our revenue, so it's in that range. But all the businesses kind of in that industrial technology space are doing nicely and seeing kind of a short cycle recovery that other

Great. And then just on price cost, obviously, a lot of attention on metals cost, which is maybe less of an issue for you than some of the metal vendors I cover. But what's going on, on the inflation side of the equation? What sort of kind of price is embedded in the outlook for 2026?

So Jeff, when our organic growth of 3% is predominantly related to volume for 2026. I would tell you, we're not really expecting any significant headwinds from any of the logistics and kind of utilities kind of going into next year. We expect that to be relatively flat. And given our productivity initiatives, we expect to see a nice improvement in our gross margins on a year-over-year basis.

Your next question comes from the line of Scott Davis with Melius Research.

I echo what Jeff said. Nice to see a more normalized quarter here. I wanted to follow up a little bit on Jeff's question, but on the shelter side. Going from kind of a negative high single digits to something that's more flattish. How do we cadence that into 2026? Is it more back-end loaded or do you see real green shoots here in -- early in the year that you've already seen to be able to call a recovery?

Yes. So let me start on that one. So when you look at our overall shelter business, we mentioned that it was down around mid-single digits in 2025. So when we start off 2026, I would tell you that we expect it to be slightly down as we start the year. So part of it is going to be the comps on a year-over-year basis. So just keep in mind that in Q1 of 2025, we were down around 6% in that business. So on a year-over-year basis, when you look at the 2-year stack, it's not really changing significantly from kind of the second half of the year where we're exiting kind of going into the beginning of the year. So we do expect a slight improvement as we go through the course of the year, if we start out slightly negative, getting a little bit better, that gets you to the overall flat for the year.

Okay. That's helpful. And I don't recall hearing Vitality Index on these calls in the past, maybe you do it, and I just haven't heard it. But 30% seems like a pretty robust number, but I don't really have any context to what that's been historically. And perhaps just some color on how helpful is this as it relates to mix or price or volume? Are these iterative, slight improvements or are there real meaningful product changes? Just a little color would be helpful, I think.

Sure. Yes, we had first talked about at Investor Day where we mentioned that the 2024 number was about 30%, and we expect that same performance in 2025. So it is helpful on both the top line side as well as the margin side. So there's work that goes into not only releasing new products where we can get enhanced price and get some incremental share, there's also work that goes on, on the kind of the value engineering side to take cost out and deliver margin improvement.

So if we look at the margin profile of those products that comprise any product sales, it is higher than the overall margin of the company. And so we're seeing nice lift from both sides. Our efforts internally, we did 125 new products last year, we'll expect to continue to do nicely this year. And we'll focus on making sure that the shift is happening from renew versus grow. So you had mentioned the impact to the top line. There is a portion of that 30% vitality index that is replacement and making sure that we take differentiated, and we want to continue to do that, but also shift the mix towards growth so that we can get incremental top line growth out of the innovation engine.

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

This is [indiscernible] on for Steve. So my first question is on -- so you're making great progress on the margin front and I just wanted to go back to the margin bridge that you provided at Analyst Day and you provided like 0 to 50 bps of productivity here, and I was wondering given the execution, is there potential upside here or are you tracking ahead of plan?

Yes. So I'll say let's take it 1 year at a time as we progress through the 3-year plan. But I would say we're clearly starting out of the gates in a nice good spot. And when you look at our guidance for 2026, we have at least 20 basis points of margin expansion coming from productivity. Clearly, the teams are doing a great job. Lori outlined a lot of activities that we have ongoing in the organization. I think you saw some of the benefit of that in our Q4 results. You'll see that continue as we go into 2026, and we'll continue to drive that as we move through the 3-year period.

Okay. That's great. And then on the Aramids divestiture, I think, is expected to close at the end of the first quarter, which is going to bring in about $1.2 billion of pretax proceeds, if I remember correctly, but any initial thoughts on what you're thinking about capital deployment?

Yes. So we're still in that range of closing around the end of the first quarter, and it will be about $1.1 billion on a net tax basis. Keep in mind, we've already deployed about half of that with the $500 million ASR that we announced last quarter and have completed already, which is enabling about 2.5% PS growth for us this year. So we'll continue to be shareholder-friendly with respect to deployment of the proceeds.

We have mentioned that we would like to continue to add to the top line through M&A. So we've got some opportunities that we're looking at primarily in the health care side right now within similar aspects to what we did with Spectrum and Donatelle. We'll continue to be mindful, obviously, about ensuring a really strong return. So we'll look to get up to higher than our cost of capital by year 5 with respect to the IRR on the deal. So we'll continue to be shareholder friendly. We've proven that we've done it in the past significantly, and we'll look to deploy them efficiently.

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

Maybe I wanted to dig into the diversified margin lift. It was a pretty chunky lift. I guess -- how much of that is around the mix with the benefit of aerospace kind of hanging in as a really strong driver versus -- how much of it is tied to some of that 80-20 kind of work that I know Beth is working on really kind of accelerating as we push over the next 12 to 18 months. Can you help us to think about that?

Yes. So a couple of things that I would mention there. I would say you're not really yet seeing the benefits of 80-20. It's a little too early. As you know, Beth recently arrived. So yes, she is working on that, but the benefits of that, I would say, are to come, as we move forward. When you kind of look at the activity in the fourth quarter, I would point more towards what drove the margin expansion to be a bit of mix related to the businesses that were growing when you look at the line of business level as well as a strong push relative to productivity is what really drove the nice margin expansion in the fourth quarter on a year-over-year basis.

Got it. Okay. And then in terms of innovation, you mentioned the Vitality Index, you kind of spoke to, I think it was $2 billion of of growth that you saw from some of the new products. I guess can you help us to think about some of the more exciting innovations, the ones that are starting to move the needle maybe more than others that we should be looking for as we kind of look through '26 into '27?

Yes. So the $2 billion is the total new product sales that are within around the $7 billion of sales that we reported. So it's a portion of replacement and a portion of growth. So we'll continue to try to shift that mix towards more growth versus replacement in the future. But as far as exciting innovations that are on the come, I think one for this year, we highlighted on the last call, and I'll highlight again just because it was such a sizable improvement where the enhanced

So we announced at a trade show late last year that we came out with a new model that has the best breathability and the best protection in the industry, and we've seen really, really nice customer reaction to that. We announced it first in Europe, and we'll continue to roll it out across the globe.

On the Water side, we continue to advance the latest technology within the reverse osmosis side. So this year, we're expanding capacity at our site to be able to produce Gen 4, which would be the highest-end technology that enabled a significant total cost of ownership to our customers. So we're continuing to advance that and we'll look to commercialize that in 2027. So those are just 2 of the highlights, but obviously, with 125 new products last year, it's happening kind of all across the portfolio.

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

Congrats on a good start here.

Thank you.

Could you provide some margin on the 4 subsegments: Water Health, Building and Industrial? I'm not sure how much detail you want to provide there.

As we typically give color on the revenue side of our segments. But when you do look from a margin perspective, I mean, what I would add is you will see margin improvement, I would say, in both of our reportable segments as we move forward, and we'll also obviously get some margin expansion from a lower corporate cost as well and that's certainly what's going to drive the 60 to 80 basis points of margin expansion in 2026.

And then your Asia Pacific sales were down 2% organic, was that Water supply chain contraction again or is there something else going on there?

No, it wasn't Water. It was primarily within the Diversified side. We had a supply chain change in our shelter business that was the single largest item. So it was really just a change in the distributor joint venture relationships, so nothing permanent. We'll push it into 2026. So nothing material. We expect to return to growth across all the regions, both in the quarter and the full year for 2026.

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

I had 2 questions on Water, maybe one slightly related to the comment earlier on Asia. Is that -- in your forecast, you're talking about mid-single-digit growth in water for '26, China is lower than that. Can you go into some of the details on why and what you're seeing there? I mean you and some other peers are seeing slower growth in China in general. And then secondly, does that help or hurt your mix in the overall segment?

Yes. So we are seeing a slower start in China with respect to overall growth within the Water business, and it's primarily stemming from just the reduced industrial production in the region. So we'll start in the low single digits in China in Water and then we'll ramp into the back half to get over all to that mid-single digit.

And I think -- as you had mentioned, our peers are seeing a similar dynamic. So it's really just a reflection of the industrial production malaise in China. About half of our water is used in the industrial wastewater treatment or industrial utility water space. And so when industrial production is down, obviously, it would have an impact on that. As far as the mix, no material change in the mix depending on where the regional growth is or margins.

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

This is Paul on for Aleksey. Can you discuss what you're currently seeing in auto trends right now and maybe the cadence for your outlook for 2026?

Yes. Overall, the expectation for auto builds from IHS is to be about flat. We would expect to slightly outperform that just based on our EV growth. And so we did see nice EV growth in 2025, and we'll continue to see nice EV growth in 2026. It will vary by quarter, but overall, the full year is about flat and will be slightly up.

Your next question comes from the line of Matthew DeYoe with Bank of America.

So clearly, the portfolio is shaking out a lot, but as we settle here, is there any hope to establish annual pricing initiatives in any of the businesses that could be enough to actually drive structural pricing gains across consolidated DuPont, whether that's 50 bps or 100 bps? Do we have a framework there?

We do. I mean we've had -- obviously, the past 2 years have been the unwind of the sizable price that we took through the inflationary environment coming out of COVID. But going forward, we would expect to see structural price lift. As Antonella mentioned at the beginning, in 2026, our 3% organic is primarily volume, but they're -- underneath that, there is some price in some of the businesses.

We continue to expect to have to give back a little bit on the shelter side primarily as that sizable price raise that we drove in the 2022-2023 time frame starts to unwind. But yes, there is opportunity to drive structural price in most of the businesses in our portfolio.

And as you comment on something like tie back with the new advanced garments, right? How much margin uplift would something like that give versus legacy product? And I guess maybe -- I don't know if you want to comment specifically on that, but is a different one maybe like what is the average margin uplift? If you were to look at the Vitality Index and you're thinking about replacement, is this through the index of 30 basis points or 100 basis points or is it flat? What's the uplift look like as we think about...

Yes, I'd rather not comment on the margin lift that kind of at the product line level. But overall, in the Vitality Index, in the 30%, we have about 145 basis points of margin lift from those products that are introduced in the past 5 years.

Your next question comes from the line of Chris Parkinson with Wolfe Research.

Great. Can we just take a step back and look at your health care portfolio, I know this is a focus of your CMD. But Lori, what are you the most enthusiastic as you go through '26 and perhaps even the longer-term growth algos and on the biopharma side, is that part of solutions, med device like -- if you could just comment on the enthusiasm in terms of your product portfolio, Livio, that would be particularly helpful, then I'll have a follow-up?

Yes. It's really across all 3. So both med packaging, med device and biopharma all are nicely contributing to the kind of mid- to high single-digit range in 2026. They all participate nicely in the higher-end aspects of the med device universe. So if you think about the majority of our applications are more in the cardiovascular space, which has an overall higher growth rate with respect to overall surgical procedures. So all 3 of them are going to contribute nicely. We'll continue to differentially invest in those businesses to ensure that we can continue to grow.

Got it. And just a similar question for the Water business now that all the dust has settled post the split, when you take a look at your water portfolio in filtration in particular across like IFRO U.S., is there -- it's clearly a great business, but do you feel as though you're missing any scale? Do you feel as though there's a piece of your portfolio. Obviously, that is like ion exchange over the years, like what else do you think you need to do, if anything, quite frankly, to further garner investor appreciation for that specific business?

Yes. I think from a technology perspective, we've got the leading technology across all the main components within water filtration, so leading an RO leading in ion exchange, leading in U.S. and nano filtration. So we're nicely positioned there. We've mentioned the desire to start to build around water, so potentially going into spaces beyond filtration just given filtration would be difficult from a regulatory perspective for us, given that we've got the leading position.

So we continue to scout and look for opportunities to expand in the water space. Obviously, we'll be highly in tune to the valuations there. They can be quite pricey. We've seen a few assets with some of our competitors trade in the last few quarters that had a high valuation, it would make it difficult for us, but we'll continue to see.

We recently added just to continue to shore up our supply chain in the water space and asset in China. RO has huge growth in China. We didn't have an established footprint. We bought an asset outside of Shanghai that give us established membrane capacity in the region for us to continue to be competitive and local to our customers there.

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

I wanted to ask on Healthcare. You called out in the deck that surgical procedures, you're expecting to be up mid-single digits this year. Can you just give us a sense, is that sort of the normal growth rate? And is that favorable or about the same versus 25%? And then is your portfolio sort of well represented across that entire cohort or how should we think about it?

Yes. I would say it's a similar growth rate to what we saw in '25 minus the destock that happened in the first quarter that kind of drove up the overall health care growth for the year. So we're nicely positioned, as I mentioned, in the areas that are driving kind of above the average surgical procedure rates. So if you say general surgeries is about 4% where we play, we expect that overall average to be more market weighted to about 5%.

So we're nicely positioned on both the health care side with the tieback packaging as well as on the spectrum divide on the device, our single largest end market there is also within the cardiovascular and vascular space.

Okay. And then just to follow up on the balance sheet and capital allocation. You ended the year with, I think, $750 million in cash, you've got the $1.1 billion coming in. Earlier, you spoke to well, we've kind of spent some of that $1.1 billion already with the $500 million ASR, so can you just refresh us on sort of what the minimum level of cash is that you want to carry?

And then as you move forward through the year and generate more cash, obviously, you're expecting another very strong year of cash conversion, understanding sort of the dual track of pursuing M&A as well as share repurchases. Should we think about that sort of remaining proceeds from the divestiture to be sort of earmarked for M&A, but the sort of free cash flow generation from this year to sort of be ratably allocated to to CapEx to dividends and to repurchases or is that not the right way to think about it?

Yes. So let me start with your first question. So typically, on the balance sheet, we will carry around $1 billion in cash. So we were a little bit below that at the end of the year, given the cash that we spent on the ASR of $500 million. So as you mentioned, we will have a nice cash flow generation year in 2026. So we do expect our free cash flow conversion in '26 to be greater than 90%. In addition to that, we do have the proceeds that are coming in the door related to the Aramids transaction.

As Lori kind of mentioned earlier, I would say in terms of capital allocation, we view that in the eyes of a shareholder in terms of what creates the most amount of value. So I wouldn't say there's a specific amount earmarked towards an M&A deal or a specific amount earmarked towards share repurchases. We'll continue to look at both. We do have a pipeline of some M&A that we are looking at.

Ultimately, you'll see if they come to fruition or not. But clearly, we will continue to deploy capital in the best interest of our shareholders as we move forward.

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

This is [indiscernible] on for Patrick. So I think in an earlier response, you mentioned all regions should be up organic sales-wise this year and in 1Q. So with recent PMI is trending more favorably. Can you just provide more color on that response and maybe what you're seeing in terms of organic sales growth versus

You kind of dropped off at the end, I couldn't hear which quarter you were referencing. But to the earlier comment, we do expect to see organic growth across all regions, both in the first quarter and in the full year. The improvement kind of the first quarter being at 2% organic and the full year being at 3%. Most of that improvement is going to be in North America just based on the improvement that we expect to see on the shelter side. So we shelter starting kind of slightly negative and trending. So even on the full year, you'll see that lift given the majority of the end markets in shelter are in North America.

Got it. And can I just ask what sort of level of visibility you have for order books across the Healthcare portfolio in general?

Yes. I'll answer the question broadly for the company because it's a bit about -- we don't have a long lead time, I'll put it that way. So we start each month with about 80% of the orders on the books and we start each quarter with about 50% of the orders on the books and then we build from there. Shelter is definitely the shortest cycle. On the longer cycle, I would say, would be our aerospace businesses and our water business would be on the longer end and everyone else, we kind of fall in between.

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

Nice quarter and outlook. Just a quick one on U.S. construction. Your outlook is flat, any differences between nonres, res and repair and model in that outlook?

Yes. So as we look into 2026, our expectations would be that nonres would be up in the low single-digit range as well as repair remodel, and that would be offset by a low to mid-single-digit decline on the resi side of the business.

Got it. And then a quick follow-up. Your outlook and your results, particularly the organic growth continues to look a lot better than the chemical folks. Are you still looking to -- is it still possible to change your industry designation? And how does that work, given I think your results have been much more steady than my group.

Yes. So when you take a look clearly at the portfolio, our portfolio is not a chemical company portfolio. And to your point, when you look at our performance, our performance is not mirroring that of a specialty chemical company either. So I would tell you, we continue to make some progress in terms of the classification. But what I would tell you is our first priority is just to continue to execute, but we will continue to move forward in terms of trying to get the code changed to more appropriately reflect the portfolio that we have today.

Our last question comes from the line of Arun Viswanathan with RBC Capital Markets.

I just wanted to, I guess, clarify on both Healthcare and Water. So did you see any destocking there? We did see maybe one of your competitors within Healthcare Packaging referenced some of that. And then similarly, on Water, maybe some of the downstream players are also speaking about that in different regions. So I guess you're not seeing that given your robust outlook for Healthcare. Is that correct?

Correct. Yes. I mean we -- the destock was behind us in the first quarter of 2025, so we continue to see normalized inventory levels across both those businesses.

Just given that being the case, sorry if I missed this, but did you also mention maybe M&A across both of those businesses, if there are opportunities and where you are kind of in that trajectory?

Yes, sure. No, we continue to scout opportunities in both spaces. I would say the pipeline is more robust on the health care side, just given the fragmentation that exists as well as the valuations are a little lower in that area. So we continue to look hard at both. We've been busy looking on the med device side similar to the acquisitions that we did with Spectrum and Donatella, as we continue to build out a total fleet of offerings to our customers, really building our relationship with them and then viewing us as a solutions partner and an application development partner, but we continue to look.

Ladies and gentlemen, I will now turn the conference back over to Ann Giancristoforo for closing comments.

Great. Thank you, everyone, for joining our call. For your reference, a copy of our transcript will be posted on DuPont's investor website. This concludes today's call.

Ladies and gentlemen, thank you for your participation, and you may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin and I will be your conference operator today. At this time, I would like to welcome everyone to DuPont's Third Quarter 2025 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Ann Giancristoforo. Please go ahead.

Good morning, and thank you for joining us for DuPont's Third Quarter 2020 Financial Results Conference Call. Joining me today are 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 will make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K, as updated by our current and periodic reports includes detailed discussion of principal risks and uncertainties, which may cause such differences. Unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items. We will also refer to other non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials and has been posted to DuPont's Investor Relations website.

As a quick reminder on the basis of presentation for our third quarter financial results, our total company net sales, operating EBITDA and adjusted EPS include segment results for ElectronicsCo and IndustrialsCo, excluding results for the previously announced divestiture of the Armed business, which is now reported as discontinued operations.

I'll now turn the call over to Lori, who will begin on Slide 3.

Good morning, and thanks, everyone, for joining our third quarter call. Earlier today, we reported another solid quarter ahead of our previously communicated guidance. Third quarter sales of $3.1 billion grew 6% on an organic basis. Operating EBITDA of $840 million increased 6% year-over-year, resulting in an operating EBITDA margin of 27.3%. As a result of our strong third quarter financial performance, and our expected operational improvement, we are raising our full year earnings guidance for the new DuPont. Antonella will provide further details shortly. Third quarter saw organic growth across all businesses with continued strong volume growth in health care and water coupled with strength in electronics driven by AI technology demand in both interconnect solutions and semi.

Today, we also announced capital allocation updates for the new DuPont both in the form of a quarterly dividend and a new share repurchase authorization. We declared our initial quarterly dividend under New DuPont in the amount of $0.20 per share in line with our targeted 35% to 45% payout ratio. The Board of Directors also approved a $2 billion share repurchase authorization under which we expect to quickly launch an ASR in the amount of $500 million. Both of these actions underpin our commitment to a disciplined capital allocation model and are a testament to our financial strength and dedication to delivering value. Earlier this week, we announced the successful completion of the unit separation as a premier pure-play technology solutions partner to the semiconductor value chain. Unity is well positioned to deliver growth and value creation for its shareholders.

Turning to Slide 4. As part of Investor Day, I outlined a clear strategy for the New DuPont to drive value creation for all our stakeholders. Our strategy is focused around driving above-market organic growth, building a robust business system, deploying a balanced capital allocation model and consistently delivering results. We are already seeing progress against these value creation drivers. We have successfully repositioned ourselves and have a streamlined portfolio of leading businesses, the majority of which are aligned to secular end markets, which will enable strong organic growth. We saw nice growth in the third quarter, and we continue to expect 2% organic growth for the full year. Our innovation engine continues to deliver. We announced the launch of our latest technology in Tibet Garment branded Tyvek Apex. This latest technology for PPE provides enhanced readability while maintaining the same level of protection and durability. The launch clearly demonstrates how we collaborate with customers and deploy our application development expertise to meet their needs.

As I noted at Investor Day, we are driving towards building a robust business system starting from a strong jump-off point with a full suite of tools that are being actively deployed. This quarter, we introduced a core set of enhanced KPIs that are focused on driving improvement for our shareholders, customers and employees. These KPIs were embedded in a refreshed set of management standards, which has added more visibility, rigor and structure to ensure we achieve our business objectives. On commercial excellence, we have advanced the framework across commercial enablement, sales effectiveness and strategic marketing. A key priority was focused on pipeline discipline. We have designed a more transparent, data-driven process, which links demand generation, opportunity qualification and conversion metrics to deliver against our growth target.

Specifically, within our water business, we have taken a regional approach to the rollout and have improved pipeline rigor in North America and Europe, leading to sizable improvement in our opportunity funnel. We plan to launch in Asia later this quarter. We also continue to drive enhancements in operational excellence. During the quarter, we rolled out an updated set of KPIs aligned with our focus on safety, quality, delivery and cost. We also refreshed our toolkit around OEE and reliability which is driving reductions in unplanned downtime and improving our maintenance spend and rent time. On capital allocation, I highlighted earlier the dividend and share repurchase authorization that was approved by our Board. In addition, we also announced in late September that we signed an agreement to acquire manufacturing capacity to expand our reverse osmosis footprint in China. This aligns with our local-for-local strategy and increases our capacity to meet growing demand for industrial water purification and reuse in the region.

With this backdrop, I remain confident in delivering the medium-term targets for '26 through '28 that we outlined for you at Investor Day. 3% to 4% organic growth 150 to 200 basis points of margin expansion, 8% to 10% EPS growth and generating strong free cash flow conversion at greater than 90%.

With that, I'll now turn the call over to Antonella to cover the financials and outlook.

Thanks, Lori, and good morning, everyone. We delivered another quarter of year-over-year growth in organic sales and operating EBITDA on volume strength across many key end markets. Operational focus by our teams drove solid financial performance in the quarter, including strong cash conversion beginning with third quarter financial highlights on Slide 5. Net sales of $3.1 billion increased 7% versus the year ago period on 6% organic sales growth and a 1% benefit from currency. Organic sales growth consisted of a 7% increase in volume, partially offset by a 1% decline in price. Organic sales included a $70 million benefit from order timing shifts into the third quarter from the fourth quarter due to system cutover activities in advance of the separation. Excluding this, organic sales growth would have been 4% in the quarter.

From a segment view, both segments saw organic sales growth with IndustrialsCo and ElectronicsCo, up 4% and 10%, respectively. All businesses had organic growth during the quarter, led by low teens growth in Interconnect Solutions high single-digit growth in both health care and Water Technologies in semi and low single-digit growth in diversified industrial. We saw organic growth across all regions with North America and Asia Pacific, up 7% and Europe up 6% year-over-year. Third quarter operating EBITDA of $840 million increased 6% versus the year ago period as organic growth and productivity benefits were partially offset by growth investments and unfavorable mix. Operating EBITDA margin during the quarter of 27.3% was down approximately 30 basis points year-over-year due to unfavorable mix in ElectronicsCo.

Turning to cash flow. We delivered transaction-adjusted free cash flow of $576 million and related conversion of 126%. This was in line with our expected acceleration this quarter.

Turning to Slide 6. Adjusted EPS for the quarter of $1.09 per share was flat with the year ago period. Higher segment earnings of $0.09 was primarily offset by a headwind from a higher tax rate year-over-year. Our base tax rate during the quarter was 24.6%, the prior year base tax rate, which included discrete benefits was 19.5%.

Turning to Slide 7. IndustrialsCo. third quarter net sales of $1.8 billion were up 5% versus the year ago period on 4% organic growth and a 1% benefit from currency. Organic growth included a benefit of approximately $30 million in order timing shift. Excluding this benefit, organic sales growth was 2% in the quarter, in line with our expectations. For the third quarter, health care and water sales were up high single digits on an organic basis versus the year ago period. Organic growth was led by continued strength in medical packaging, biopharma, reverse osmosis and ion exchange. Diversified Industrial sales were up low single digits on an organic basis as growth in Industrial Technologies was partially offset by continued softness in construction markets. Operating EBITDA for IndustrialsCo during the quarter of $465 million was up 4% versus the year ago period on organic growth and productivity gains, partially offset by growth investments.

Operating EBITDA margin during the quarter was 25.9% flat with the prior year, absorbing a margin headwind from currency. Sequentially, operating EBITDA margin improved 30 basis points.

Turning to ElectronicsCo on Slide 8. Third quarter net sales of $1.3 billion increased 11% versus the year ago period on 10% organic growth and a 1% benefit from currency. Organic growth included a benefit of approximately $40 million in order timing shifts. Excluding this benefit, organic sales growth was 7% in the quarter. At the line of business level, organic sales for semiconductor technologies were up high single digits on continued strong end market demand driven by advanced node and AI technology applications. Interconnect Solutions also posted another strong quarter with organic sales up low teens, reflecting continued demand from AI-driven technology ramps and benefits from content and share gains across advanced packaging and thermal management solutions. Operating EBITDA for ElectronicsCo of $403 million was up 6% versus the year ago period as organic growth was partially offset by growth investments to support advanced node transitions and AI technology ramps.

Operating EBITDA margin during the quarter was 31.6%, down 140 basis points versus the year ago period primarily due to unfavorable mix and currency headwinds. As a reminder, community management will host a call later today to provide a business update. Earlier this week, we announced the successful completion of the unity separation. In connection with this transaction, we received approximately $4.2 billion of cash in the form of a midnight dividend from Unity, which will be used to reduce DuPont's debt and achieve the targeted capital structure that we outlined at Investor Day.

Turning to Slide 9, which outlines our latest view on 2025 financial guidance. As a reminder, we provided an updated view of our full year 2025 expectations, reflecting the separation of unity and the presentation of the Aramis business as discontinued operations, As part of our Investor Day in mid-September. Also in the fourth quarter, we will be reporting under a new segment structure of health care and water technologies and diversified industrial. In the appendix to the slide deck, we have included preliminary recasted quarterly segment information for your reference. From a top line perspective, our expectation of organic sales growth for the full year remains in line with the guidance we provided at Investor Day. We expect organic sales to be up 2% year-over-year on strong demand in health care and water partially offset by ongoing weakness in construction end markets.

Our current full year sales guidance of $6.84 billion reflects slightly lower currency benefits from our prior expectations. We are raising our full year operating EBITDA guidance to $1.6 billion, driven by our stronger third quarter performance, underlying operational improvements across the businesses and lower corporate costs. We expect full year adjusted EPS to be $1.66 per share an increase of about 16% year-over-year. Our full year base tax rate is expected to be about 28%, including about 200 basis points of headwind related to total company interest expense that cannot be reflected as discontinued operations. We continue to expect that our go-forward tax rate will be in the 25% to 26% range consistent with the guidance provided at Investor Day. For the fourth quarter, we estimate net sales of about $1.685 billion, operating EBITDA of about $385 million and adjusted EPS of $0.43 per share. Our fourth quarter guidance assumes about 1% organic growth when normalizing for the third quarter timing shift.

On a reported basis, we expect a fourth quarter organic sales decline of about 1% versus prior year. As you will recall, we provided full year 2025 pro forma estimates as part of our Investor Day to serve as a baseline for our medium-term targets. Our stronger underlying performance translates into revised full year 2025 pro forma estimates for operating EBITDA of $1.63 billion and adjusted EPS of $2.02 per share compared to the $1.62 billion and $2 per share. Our lower corporate costs are accelerating our run rate towards our expected $95 million public company corporate cost structure.

I want to thank our employees for remaining focused on delivering these results and for driving the successful completion of the unity separation.

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 comes from the line of Jeff Sprague of Vertical Research Partners.

Just -- I wanted to kind of focus more on just sort of the end market trends and there's some color on Page 12 that helps. But first, this timing benefit, is this something you did or kind of pushed on behalf of your customers, so they wouldn't somehow be disrupted? Maybe just give us a little sense of like what was behind that, if you don't mind.

Yes. So Jeff, kind of the way to think about it is as you would expect, the separation that we did really touched every legal entity within the organization. So in essence, we had like repipe everything in all of our financial systems to do that. So our customers were notified that we would be in a blackout period in early October as we did this after quarter end. And therefore, we had some orders that were originally set to go out in the October time frame that our customers accelerated into the third quarter given we were going to be in a blackout period. So it was completely customer driven. Again, no changes related to our expectations of what we expected from an organic growth perspective in the second half, but it clearly created a higher organic growth in the third quarter and a lower organic growth in the fourth quarter.

Yes. And then I think you probably intentionally didn't say anything about 2026 today. But -- maybe give us some initial thoughts on sort of these exit rates that we're looking at here in Q4, again outlined on Page 12, what might be sort of the pluses and minuses as we shift into next year, particularly interested in what you're seeing in the health care and water businesses, especially.

So we're exiting the second half at about 2% organic growth in line with where we are for the full year. So from an end market perspective, we would expect health care and water to be right in line with what we gave in our medium-term targets, which is about 5% organic growth on average. And then on the diversified side, in the 2% that we'll report for the second half, shelter is still down. So it's going to be down about 1% in the second half, but full year, it's about 4%. So given that, that's about 25% of our revenues, if that were just even to normalize to flat, that would be a nice lift as we head into 2026. So no material changes. We put the targets out just 6 weeks ago. We mentioned that in order to be able to deliver against expectations, we can't start in a hole, so we would expect our medium-term targets to be something that we would consistently deliver. We'll obviously be paying close attention to the construction market, though, and see how they play out.

Your next question comes from the line of Scott Davis of Melius Research.

Echo what Jeff said. Congrats, you guys have done a lot of wood shop in the last few years, particularly the last few months. There's kind of a lot of moving parts in my head spinning a little bit. But if we could just start with a little bit of minutia. -- what's your plan with the balance sheet? I think you're something like 0.8x pro forma leverage, I know you still have some liability issues you got to manage. But what is kind of the plan and target there? And will there be -- I saw the buyback announcement, but will there be other deals like spectrum, things like that, that you guys would be potentially looking at in '26?

Yes. So let me start with -- from a balance sheet perspective. So we would expect our pro forma debt to be around $3.25 billion, and we would expect to have $1 billion of cash on the balance sheet. So our starting point net debt-to-EBITDA leverage is around 1.7x. Our target is to stay below 2x from that perspective in terms of where we expect to be on the balance sheet. As you saw this morning, we did announce the $2 billion share repurchase authorization, and we expect to, I would say, imminently start an ASR in the size of about $500 million that we will do. And then clearly, as we progress during the year, as we mentioned at Investor Day, we would have a balanced approach. We would continue to look at share buybacks. We will continue to look at M&A activity. But we're clearly in a very good spot from a balance sheet perspective quite honestly, Scott, to be able to do both.

We have a really strong balance sheet going in. We have the Aramis proceeds that will be coming in, in the first quarter as well. And as we talked about at the Investor Day, over the next 3 years, even accounting for dividend payments and share creep, we would have about another $500 million a year that is deployable in free cash flow.

Yes. And on the opportunities you had mentioned spectrum. So we did actually complete a small tuck-in acquisition in the water space recently. So we bought RO capacity in China that really helps with our footprint there and enabling us to be local for local given that China is the largest RO footprint for us. So we'll continue to be opportunistic we're looking in all spaces in the health care with respect to not only additional spectrum like assets in the CDMO space but also potentially in Med packaging and other areas that have nice secular growth. And then we'll also be opportunistic as we can in additional water opportunity. So we've got a really rich pipeline. And as Antonella mentioned, the strong balance sheet to be able to be proactive with it and will be prudent. So we'll have a profile on a return that we want to deliver. So we would get to ROIC greater than WACC by year 5 and a nice path line to it. to a net synergy number that is in line with our affordability range.

Okay. That's helpful. And then at Investor Day, you talked a little bit about a renewed focus on lean and operational excellence. I think you made higher in that regard on chief operation, I think, title, whatever you to. But can you just talk about what you're trying to achieve on that front? I don't have a great sense of where you are today and as it relates to lean. In the in your current portfolio? Just talk a little bit about the opportunity and what you're planning for here.

Yes. So we picked up Dave Cook from Danaher. So he was the op leader for Paul, and we're fortunate to get him into our organization, and he's made an impact already in just the couple of months that he's been here. So we started down the path a few years ago on an OpEx framework that deployed lean tools as well as some six-sigma tools and with a continuous improvement mindset. So we're going to take that baseline that we have and kind of put it on steroids and make sure that it influences truly the way that we work. And so we've rolled out enhanced management standards, which really will dictate how we monitor the performance in our business and solve problems in our businesses to make sure that we have a continuous improvement mindset.

So we've identified 8 core KPIs 4 of them are shareholder or financial related, 2 of them are customer-related and to of them are employee related, and they will form the basis of our monthly business reviews and allow us to be able to understand performance and understand improvement opportunity. So it's really a cultural change around a continuous improvement mindset, looking for net productivity opportunities year in, year out.

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

This is Chiusaatoko on for Steve. Just following up on the 80/20 initiatives that you talked about at Investor Day on the flip side, there's probably some opportunity to prune the portfolio on the edges, but if you can talk about any opportunities you're seeing there would be great.

Yes. Thanks. So we had mentioned at Investor Day, to as part of the team refresh we brought in Beth Forero, who had a background at ITW who was well versed within the 80/20 framework. And so she's actively deploying that toolkit across the diversified industrials businesses to see opportunities for us to improve margins across that side of the portfolio. I think as far as pruning, we had mentioned that we have a goal to be able to continue to work the portfolio towards more secular based end markets. And so today, we're about 50-50 with respect to health care and water in the diversified businesses and ideally we would be more like 2/3, 1/3. So I don't really want to comment on what businesses those would entail, but the goal is to continue to get more into the secular base, mid-single-digit growth.

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

Maybe just a quick 1 on the pro forma EBITDA forecast, inched up a little bit, not a huge amount, but it's a pretty brief amount of time. And I think you attributed it to stronger underlying business performance. I guess where is the area that you're being surprised on? And is it on the volume front? Or is it more on the cost and efficiency side, would you say?

I would say it's more on the margin side. So what you see us kind of putting through in the pro formas is really how we exceeded or how we raised our guidance this year related to the segment performance that we had. So you see that kind of flowing through the pro forma -- so it's from the margin perspective and better operational performance that we had.

Got it. Okay. And then with regard to M&A, I mean, you made the reverse osmosis asset acquisition. So clearly, some things out there on your radar that you're opportunistically going after. I guess can you give us a little bit more color as to what you see in the pipeline if there are a lot of targets out there at this point if it's a little bit scarce, I guess, how you're thinking about that?

Yes. So we have a robust pipeline. I would say it is deeper on the health care side than it is on the water side, just given the fragmentation that exists in health care and the consolidation that exists in water. So water there still opportunities probably to go beyond the water filtration assets that we have today and to potentially other areas within the water value chain. And on the health care side, it is pretty deep, just given, as I had mentioned, the fragmentation that exists on the CDMO side. So there's lots of players the majority of them on both sides actually are owned by private equity, so that gives us the opportunity to be able to transact at some point versus having to try to take something loose from a strategic. And so it's deep and we're actively pursuing opportunities and reviewing opportunities with our strategy in M&A.

Your next question comes from the line of Chris Parkinson of Wolfe Research.

Great. So when you take a step back as an independent company and you look at your strategy and margins and market performance, whether it's this quarter or what you are forecasting on a preliminary basis for '26. What do you think -- the Street is missing the most about the independent company's outlook? And what are you the most enthusiastic about now that you have full independence.

Well, I think if I speak in that today and now I think -- the Street is confused on our number, just given where the free market trading is. So there was a lot of noise, obviously, around the numbers with arms coming out as a disc ops and maybe consensus not getting fully reset. But we had a beat and raise. We beat our Q3 numbers and New DuPont raised our side of the numbers as well. So I think that's 1 kind of short-term confusion. I think longer-term, it's just a view on who we are. And so I think there's still a view that potentially we're a chemical company versus we have significantly transformed the portfolio to a multi-industrial and we've got the financial performance that is right in line with the multi-industrial. And so we would expect that we would continue to re-rate up towards more of that multi-industrial multiple. So I think that's one of the biggest confusing points is that we have a much more streamlined, simplified portfolio and a refresh team to be able to continue to deliver.

Got it. And just very quickly as a follow-up. On the water portfolio, you have a pretty well-rounded enhanced lineup of everything from Ultra to RO and everything else within the filtration side. Do you have the willingness or desire to get further into metering or anything else kind of as a tangential kind of growth theme in terms of how that market is evolving over the next 3, 5, 10 years. Just I'd love to hear about your strategy broader than it's been over the last, let's say, 5 or so.

Yes. We do have a strategy to go beyond just the water filtration. We're obviously the largest player in all the key technologies. So to get larger there via acquisition could be tricky from a regulatory perspective. I would say metering is not one that we're actively looking at just given the valuation are quite high. But we are looking at opportunities more potentially here in systems plays or potentially other areas of filtration beyond just generally water. So we do have, within our ion exchange resins business, some water filtration around food and beverage and microelectronics and dairy. So potentially, are there some opportunities there that kind of take us beyond traditional industrial wastewater purification and desalination.

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

First, I just wanted to try to ask on the cash and the balance sheet comments. I think some of our math was that your upcoming cash might be closer to $1.5 billion to $2 billion before buybacks just given where cash sits today in fourth quarter free cash flow. I don't know if that's wrong from the math or if the $1 billion in cash is a target. So just curious, can you help bridge us for the moving pieces between 3Q and year-end, please?

Yes. So you have to keep in mind a couple of things. So on the cash on the balance sheet at the end of Q3 is the cash position for both the new DuPont as well as community. So there is some cash that will go over to unity as part of the separation. So again, on a pro forma basis, we expect to be at around $1 billion is what the new DuPont will have as a cash position, which, quite honestly, is a pretty healthy spot to be in as we move forward given the size of the organization.

And is that before or after the ASR.

That would be before the ASR. That is our pro forma cash that we expect to keep. The other thing to keep in mind is as we get towards the end of the year between the timing of when certain separation costs would be paid. We obviously said we're going to move pretty imminently on the ASR. So clearly, that's before we get to year-end in terms of doing that. So there will be some cash out the door related to that we'll have before year-end. There's also timing of separation costs. So there is the potential that by end of year, we may have a little bit of commercial paper that's on hand. But clearly, as we mentioned before, we do have a nice amount of proceeds coming in the door in Q1 of '26 related to the Arabic divestiture.

And if I could just follow up quickly on margins. I mean, you reiterated your improvement plan over the next few years. I guess, assuming that the macro demand is a bit softer next year, do you see a bigger opportunity to pull forward some productivity and get more margin expansion? Or Is that more of a volume-dependent type profile where you need to get a stronger macro to achieve that?

I mean as we did our walk that we talked about on Investor Day, we did have a portion of the margin expansion that would be coming from our revenue growth. And as Lori mentioned earlier, I would keep in mind that when you look at our health care and water business, as we exit this year and go into next year, we are still in a very good position to be able to grow at mid-single-digit growth. And you really only need a little bit of growth, I would say, on the diversified industrial side of the house to kind of get to, I would call it, the low end of our organic revenue growth CAGR as we move forward. So that was a piece of it. So we feel really good that we're positioned to do that. In addition, we had about 40 basis points of margin expansion over the 3-year period coming from the removal of our stranded costs.

Clearly, that's 100% in our control. And as I mentioned at the Investor Day, the plan would be to get that out by the end of year to so you'd have that margin improvement in the first 2 years of the plan. And then you heard Lori talk a little bit earlier about our lean initiatives and how we're operating as a new company going forward. So we do have another additional up to 50 basis points coming from productivity, greater than inflation. And I would say the teams are doing a really good job relative to that. We even saw underlying margin improvement this quarter, and we would expect to continue to see that as we go forward.

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

Where are we on the discussions with MSCI on reclassification? And Will we get a pro forma balance sheet at some point? Or just wait until we get the year-end balance sheet for new DuPont.

Yes. So a couple of things. Let me take the good old Dick question first because it's one of my favorite topics. So I would say we are continuing to make progress towards an industry classification change. As I'm sure you've seen, unity got their semiconductor classification, which we obviously positioned for. So that has worked out well. I would say the way that S&P and the MSCI work, they do kind of wait for your publicly filed information. So I think they'll see clearly the new DuPont as we get to this upcoming 10-K filing. But we will continue to push on that. I would say the one thing that I would always recall is that the fact that really our valuation is really going to dependent more so on our consistent performance more than any classification, but I would tell you that I'm on a personal mission related to our GICS code to ultimately as that appropriately reflects the DuPont portfolio that we have today.

In terms of pro forma, on Monday, this past Monday, we did file an 8-K that did show pro forma information. So some of that is actually already out today and already out as of now. And then clearly, as we get to the end of the year, all of our financials will clearly show both electronics and ARM as discontinued operations so you'll have a nice 10-K with historical periods, all recasted for the new DuPont as we go forward.

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

This is Ryan on for Alexia. I just want to echo some of the earlier comments, my congratulations in getting everything done. The earlier part of the call kind of focused a lot on maybe where you could go with the portfolio, but I was hoping to kind of focus on what you currently have and especially in the health care business, there's a lot of talk in the slide deck about medical packaging and biopharma this year. But maybe we could get some additional color kind of on what's going on in medical device space.

Yes. So we're really excited about all aspects of the portfolio, but the health care and water with the mid-single-digit growth are areas that will continue to differentially invest. And so we saw nice growth across the broader health care business. And so we kind of said mid- to high single-digit growth on a full year basis for health care and water combined. The health care business would be north of that average. And so it was really a combination of nice performance across Livio, which is our biopharma business. And so I think as you've seen across many of the peers that have exposure in biopharm, this was a nice year with like kind of completion of the destock and a return to a really nice growth. We saw really nice growth in the Med packaging and then to your question specifically on health care and the med device space, we're seeing nice growth, too, as we exit the year. And so we actually just announced that we are bringing in a new leader for the health care business to lead the spectrum and Livio businesses. He joined us from a long history of running other types of CDMO.

So he starts Monday, and we're really excited to have and joined the portfolio as well. So we look for nice growth from that business and then ideally being able to be opportunistic and add to it as we go forward.

Great. That's helpful. And then just on the construction market, you and a number of players in the space have just kind of been talking about softer market conditions. So just kind of wondering what your outlook is? I know it's still early kind of getting into '26, but just maybe if you can give some high-level commentary about how you're thinking about it.

Yes. So a little bit of reminders of kind of where we've been related to our shelter business that is what's tied to the construction market. So when we look actually at 2024, I would say we were in a relatively good position. We actually held flat with the market. And as you know, I would say, over the last at least 4 years, we've all been in that second half of the year recovery and then it kind of gets pumped into the next year. And those were the early thoughts, I would tell you, as you start to read different reports that are out there related to the construction market that the second half of next year would start to get better. As Lori mentioned earlier, we do expect the shelter business to be down around 4% organically this year. So we do feel we're at a relatively low level at this point. So we really aren't going to be expecting a significant amount of growth next year. But quite honestly, even getting to flat actually has a nice impact on our overall organic growth.

So we do expect a little bit of growth in shelter next year, again, though off of a pretty low bottom here.

Your next question comes from the line of Matthew Deo of Bank of America.

Congrats on the formal separations, but it's been a long road. I think if we look under the surface at new pro forma IndustrialsCo. I think the comment was industrial -- organic sales were plus 4% ex and then 2% ex the pull forward. Can you just parse that out a little bit on a segment basis -- just trying to get a sense for like volume and price in health care and water versus diversified IndustrialsCo. Just trying to get a little bit more granularity on what the pro forma business is doing here.

Yes. So on a reported basis, health care and water were up high single digits. I would say if you kind of adjusted that for the full forward impact, we were at mid-single digits. And diversified industrials was up on a reported basis organically in the low single digits. And I would say, if you adjust for the pull forward, it would have been pretty relatively flat.

All right. And then you had said Shelter was minus 4% on the year. As we just look at like 3Q into 4Q, I can't -- I'm not sure if you said it or not, but like where is where is that construction business comping? Is it like minus 2%, minus 3% in this quarter in 3Q or maybe a little bit more out there.

Yes. I would say in the third quarter, relative to the pull forward we had, it was like down around 2%. And we do expect as we get into the fourth quarter, we're down more in that 3% to 4% range. But I would say when you look at the overall 4% for the year, we were down more in the first half of the year than we are in the second half of the year.

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

Congrats. This is Turner Henrik on for Vincent. I was just wondering if you could provide some color on your confidence in the 3% to 4% top line algorithm for 2026.

Yes. So as we had mentioned, we don't expect to start in the hole to be able to achieve our medium-term targets of 3% to 4% over the '26 to '28 time frame. So if we look at our performance in the second half of 2025, which can be an indicator of what you might be seeing as beginning 2026, our health care and water business is performing in line with our medium-term targets. So with that being around the 5%, about half our company, you get 2.5% organic growth straight from that. And as we had mentioned, the shelter business which is about 25% of portfolio in the second half is down about 2.5%. We don't expect it to continue to be down next year, but we're not really expecting any material growth, but just the absence of a negative brings an opportunity incrementally from the second half.

And as we look at the rest of the industrial tech portfolio, which makes up about 30%, we would expect to see sort of a minimum low single-digit growth, we had mentioned the whole portfolio should be at average 2% for the industrial technology side. So if you take that piece, you can generally roundly get to your medium-term targets at the midpoint range with really just the big inflection point being cooptation of the shelter market and no longer being a drag on the total organic growth.

Great. Great. Appreciate the color. And I wanted to circle back as well on the building and construction discussion, specifically on E&C margins. How are they -- how much are they holding the segment margin back at this point given the weakened demand environment? And how much lift could there be if conditions begin to improve? And would this be in addition to the 150 to 200 basis point improvement that you all are targeting for 2028 overall?

Yes. I would actually say, I believe you mentioned the construction markets of the shelter business. I would say, overall, actually, the business has actually been doing pretty well from a margin perspective. So I would do a nice shout out and kudos to the team that despite the fact that volume has been down, they have been significantly driving productivity, watching costs, making sure that we are positioned for the current market environment that we're in. So that should set us up nicely for when we get back to being in growth mode in the construction.

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

This is Rachel Lee on for Patrick. Can you expand more on the strategic rationale for the ARO acquisition in China. Understand it enables you to be more local for local, but can you touch more on the technology value add perspective? And specifically what you're seeing in terms of water market growth in China.

Yes. So the acquisition was more 1 of a capacity add. So on the ion exchange side, we've got different plants across the globe, so we're able to be local for local. On the RO side, prior to this acquisition, we really had membrane capacity really only at 1 spot for the most part in the U.S. and nothing outside the U.S. of any materiality. And we have started to build fabrication capabilities outside the U.S. through contract manufacturers, and we had established capabilities within the Asia Pacific region. But it was really important that we also get membrane capacity in Asia just given that it's about 1/3 of our sales and there's growing local for local preferences in the region. So it really doesn't give us any additional technology. We've got the leading technologies that we'll continue to protect here in the U.S. operations. It just gives us more local production capabilities for membrane within the China region.

Got it. That's very helpful. And then going to diversified industrials side, it seems like organic sales grew better than expectations due to Industrial Technologies. Can you touch more on maybe how auto, aerospace or other businesses performed better than prior expectations?

Yes. So on the diversified side, we had a little bit better performance than we had expected. A lot of that was related to the timing shift though. So from a full year perspective on an organic basis, we continue to expect to be at 2% and it really hasn't materially changed across any of the lines of business or reporting units. But to your question, we did see nice improvement on the kind of general next-gen mobility space, which would include both the automotive and the aerospace side. So we had mentioned at Investor Day, I believe that we are starting to feel a little bit of momentum building in the auto space, and we saw that play out in Q3. And so the revisions that have been happening in the last few months have been improving with respect to auto builds. And so we're cautiously optimistic that we keep on pace there.

And the improvement that we've been seeing more importantly, has been in the U.S. and North America markets, which is where we're outsized exposure is versus China. So we'll remain optimistic on the automotive piece and then the EV piece that we've talked about to PAUSE continue to perform really well. So we've got share gains realized and more opportunities coming in the pipeline with 1 opportunities with the EV battery space.

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

Just curious, I think the case to change the get code is pretty straightforward. But if it doesn't change as Steve in Chemicals, why do you think that is? And then if you are stuck with us, who do you think would be good comps relative to your performance for investors to look at? Is it like an Ecolab Linde or Sherwin just curious if that sort of scenario unfolds.

Yes. So I would say it's not a straightforward process. One might think that it should be, but it's clearly not in terms of having the classification change. So as I mentioned earlier, we will continue down that path. At the end of the day, our performance will drive our valuation, and that's what we're focused on. So as an organization, nothing will change in terms of our strategy, how we're expected to perform and what we would do relative to peers, quite honestly, none of the chemical peers would be our peers that we should be compared to. I mean we just had very different portfolios. So there is no comparison to the others that are listed within specialty chemicals. We will continue to say for no matter who's following us and reporting on us that at the end of the day, you really got to look at the multi-industrial peers to kind of compare our performance.

Your last question comes from the line of Aaron Viswanathan of RBC Capital Markets.

You commented on maybe some details on your health care portfolio. Could you also comment on the water side you guys recently completed that acquisition in China. What else are you guys looking at? And I guess, how are you prioritizing capital allocation towards this business?

Yes. So on the water space, we'll look to see if we can be opportunistic to add to our water filtration capabilities. But as I mentioned, they might be a little bit more minimal because of the consolidation that exists in the space as well as our market leadership that have across the core technology. So we'll look more broadly into potentially systems plays or some services place. I had mentioned that steering probably would be off the table just given the high valuations that come along with those assets, and we'll continue to be prudent to ensure that we can get a return that's in line with our expectations. But I think that the pipeline is rich on both sides, the health care and water will differentially invest in those businesses, both from an R&D and a capital perspective to ensure that we're getting outsized returns and we'll bias our M&A activity towards those businesses as well.

There are no further questions at this time. And with that, I will turn the call back to Ann Giancristoforo for closing remarks. Please go ahead.

Great. Thank you, everyone, for joining our call. For your reference, a copy of our transcript will be posted on DuPont's website. This concludes today's call.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.

Welcome to the 2025 DuPont Investor Day. Please give a warm welcome to Ann Giancristoforo.

Good morning, everyone, and welcome to DuPont's Investor Day 2025. We are thrilled to have you here with us whether in person or virtually as we embark on a day of insight, vision and strategy. For those of you in the room, we hope you had the opportunity to spend some time this morning with our products and displays. What you will hear consistently throughout the day today is a theme around transformation, innovation and acceleration. These words reflect not only our ambition, but the momentum we are building as we reshape DuPont for the future.

Before we begin, during today's presentation, we will make forward-looking statements regarding our expectations for the future because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual results may differ. Please refer to our SEC filings for a description of these risks. From a financial perspective, the basis for today's presentation will be the new DuPont on a pro forma basis, giving effect to the spin-off of Community and the recently announced divestiture of our Aramids business. We have included a description of our non-GAAP measures in the appendix of today's presentation, which has also been filed on our Investor Relations website.

DuPont is entering a new chapter, one that is defined by focus and agility. Following the spin-off of Qnity and the separation of the Aramids business, we are sharpening our portfolio around health care and water technologies and diversified industrials, which will be our reporting segments going forward.

You will hear from the community management team later today, but just a brief reminder on the time line that we expect the spin-off to occur on November 1 and the divestiture of the Aramids business to be completed in the first quarter of 2026.

Now to today's agenda. You will hear from Lori Koch, our CEO, who will share her strategy and vision for the New DuPont and how we are activating change in order to maximize value. Jeroen Bloemhard, President of our Healthcare & Water Technologies business will highlight the key secular trends driving growth within these markets and how we are well positioned to win. Beth Ferreira, President of Diversified Industrials will give a deeper dive into these business and the markets we serve as well as our overall growth strategy. Antonella Franzen, our CFO, we'll bring this all together with a comprehensive financial overview, including our medium-term targets. We'll wrap with closing remarks from Lori and [Audio Gap].

[Presentation]

Please welcome our Chief Executive Officer, Lori Koch.

Good morning, everyone. Thank you for joining us today. I'm excited to be here with you to share how we are continuing to reshape DuPont into a more agile, focused and high-performing company that is driving decisive and aggressive actions to firmly establish ourselves as a premier multi-industrial. Alongside me this morning are a few members of our leadership team, many of which are new to DuPont.

Since I became CEO, I've been highly focused on ensuring that we have the right talent to deliver on our strategy, and I'm thrilled with the optimal balance of internal and external talent that we've assembled to take us to the next level. Our team is energized to continue to drive value from a strong set of businesses and build a culture focused on driving growth and continuous improvement every day.

Our goal for the day is to build momentum for the New DuPont and prove that we have the right leaders, the right strategy and the right vision to continue to drive value for you, our shareholders.

With that, let's get started. To guide our discussion and show how we will deliver, I will focus on five key messages. First, we are executing a transformation at DuPont. Both from a portfolio perspective as well as an operational one. We've made a lot of moves over the past decade to drive simplification and reduce cyclicality. We're excited about the portfolio we have today and recognize that there is still opportunity to optimize.

Second, we are focused on excellence and are codifying our long-standing innovation excellence, our recent success in OpEx and the beginnings of a commercial excellence framework into an overall business system that will not only advance these key pillars but build the important fundamentals and cultural elements that will be critical to our success.

Third, we are poised for growth acceleration. We have been intent on driving to a more focused portfolio while also ensuring that all of our businesses are well positioned to compete and drive growth.

Today, about half of our businesses are well positioned in end markets that are growing above GDP, and we'll continue to differentially invest in these areas to ensure that we are maintaining our leading positions. All of our businesses will lean on strong innovation engines and deep customer relationships to win.

Fourth, we will continue to drive a disciplined capital allocation model, one that will focus on delivering strong returns for our shareholders. And finally, we will enhance our culture, building on the strong foundation of our core values of safety and respect and enhancing it with a focus on driving growth and continuous improvement.

Our portfolio evolution tells a powerful story. We are adept at executing transactions and have never been hesitant to tackle difficult issues. This best owner mindset has enabled us to be a much simpler, more focused and less cyclical company today. This is highlighted by our recent decision to divest our Aramids business, which not only instantly increases our revenue growth by about 50 basis points and expands our margin by about 90 basis points, but we'll also generate about $1.2 billion at closing and cash proceeds that we will, of course, deploy in a manner that creates value.

You can be confident that we are constantly assessing our businesses from a shareholders' perspective and determining whether we have the scale differentiation and capabilities to drive value for every asset in our portfolio.

DuPont for centuries has been synonymous with innovation, and we are a leading advanced solutions provider. Our innovations are crucial to our customers' growth and delivery of their technology pipelines. We are truly viewed as trusted partners based on decades of deep engagement and constant collaboration. We rely on a local presence to work side-by-side with our customers to solve their technical challenges, and our global scale ensures that we are capitalizing on market trends.

You've heard us talk for quite some time about our industry positioning and how our portfolio and our performance near that of a multi-industrial. This slide puts an exclamation point on that message. Our revenue growth EBITDA margins and free cash flow conversion sit firmly with the multi-industrial peer set. We have strategically repositioned the company, divesting many of our chemical and cyclical assets. and have proven that we have the portfolio and the performance aligned with our multi-peers.

Our leadership team is focused on ensuring that we are making the right shifts in both capabilities as well as the way we operate in order to drive strong growth and consistent performance. We have taken significant complexity out of the portfolio and are driving a robust differential investment model to ensure that all of our capital is being invested in the highest return opportunities. We also continue to drive accountability and push full P&L responsibility down into the business. This decentralized approach allows our businesses to act with more speed and agility as well as ensuring full ownership of results.

We have been driving a standardized approach to innovation, operational and commercial excellence. And the next step is codifying this into a business system. I'll get deeper into this in a few slides, but I can tell you that aside from driving growth, this is personally one of the areas that I'm most excited about. I'm confident that having a consistent framework, rigorous tracking of our core KPIs and a relentless focus on continuous improvement is key to driving a high-performance culture and ultimately, achievement of our financial goals. Let's dive a little bit deeper into our businesses and end markets. We are strategically positioned in 3 core businesses. Healthcare, representing about 25% of our sales is a comprehensive portfolio of med device, med packaging, biopharma and protective garments.

We are a trusted partner and over 90% of the top 25 U.S. med device companies rely on DuPont technologies to power their most advanced innovations. From biopharma to protective garments, our solutions are critical to performance and safety. Water, also representing about 25% of our sales, is a leading global filtration player with the most comprehensive technology portfolio and is critical to solving our customers' needs. Our expansive reach not only highlights our exceptional reputation, but also cements our position as a partner of choice, setting the benchmark for innovation and excellence. And diversified industrials, comprising the remaining 50% of our portfolio is our broadest segment and primarily serves the construction, automotive, including EV and aerospace end markets.

We have long tenured and valuable partnerships with our customers, and these relationships truly set us apart as evidenced by our Vespel parts being used in over 97% of the aircraft flown today. These proof points are not just statistics. They are a testament to our innovation, customer trust and industry expertise. Let's talk about market opportunity and growth on this slide. As shown, we are a key player in a combined addressable market of more than $40 billion. The majority of our portfolio is aligned to where the growth is with about half our sales coming from end markets that are outgrowing GDP. And we expect to outperform in these end markets, driven by a combination of share gains as well as being favorably positioned in subsegments that are outgrowing the market average, subsegments like critical care components in the med device space and ultrapure water in the semiconductor space.

Underpinning these strong growth rates are a key focus on sustainability and a growing population. Jeroen and Beth will dive deeper into their businesses and focus on why we are uniquely positioned to win and continue to drive value for our customers and our shareholders. Innovation has always been core to DuPont and will continue to be a key competitive advantage for us. Our customers rely on us to develop solutions that allow them to deliver their technology road maps and grow their businesses. This approach allows us to realize a high return on our investment as evidenced by our robust vitality index of 30%, which has been steadily improving.

Our investments are focused on both top line growth as well as ensuring that the base stays intact and competitive. Ensuring this balance between grow and renew is critical. Today, our new product sales are about 40% growth and 60% renew, and we have plans in place to shift more towards growth to ensure that we're meeting our top line commitments. Also impactful from our R&D investments is the solid improvement in product margins that we realized from our new product sales. This stems not only from better pricing on our newer developments, but also a targeted effort by our technical teams to qualify new raw materials, leading to procurement savings and a strong focus on value engineering, leading to overall a reduction in product costs.

Our commitment to commercial excellence is a cornerstone of our strategy to drive sustainable growth. We are in the early phases of building a robust framework and the foundational elements are now in place. We are actively scaling our approach to ensure long-term impact across commercial enablement, sales effectiveness and strategic marketing. For commercial enablement, delivering a seamless customer experience is critical. We're optimizing order entry, leveraging AI and focusing on returns, quality and on-time delivery to ensure that every customer interaction reinforces trust and reliability.

For sales effectiveness, we are driving better allocation of resources and improving account, pipeline and distributor-oriented to not only ensure that we are capturing demand and driving pricing, but also expanding our share of wallet and driving repeat business. For strategic marketing, we are capitalizing on market opportunities by optimizing our route to market design to ensure that our innovations reach the right customers through the right channels with the right value proposition. We're also actively looking for new applications and seeking new markets for existing products in order to expand our TAM and drive above-market growth. A great example of this is the DLE opportunity in our Water business, which Jeroen will discuss.

As we continue to implement the overall framework, we are focused on 3 priority areas to see short-term gain. They are pipeline discipline, performance management and customer and product optimization. As we continue to focus on our operating culture, we have a clear vision of building a world-class operating model with a performance scorecard and culture to match. This requires building on the strong foundation that we've laid out the past few years and expanding our efforts to create a sustainable flywheel of continuous improvement. We see clear opportunities to accelerate performance by continuing to invest in key capabilities while also bringing a renewed focus on lean fundamentals and increased rigor around our management standards.

The foundation that we are building over the next 12 to 18 months will be critical as we think about our full transformation and inflecting our performance across our key focus areas of safety, quality, supply chain, manufacturing and reliability. As we look to implement our overall business system, it is critical that we're not thinking about the individual excellence frameworks in isolation, but rather as a holistic system of continuous improvement that defines our culture and more importantly, how we operate. This will allow us to drive a much more focused improvement engine and enable us to see opportunities and act on them with more speed and agility. Our leadership team sees this effort as a core element of our transformation.

A critical first step will be a refreshed set of management standards aimed at driving performance across our core set of KPIs. These standards will serve as a baseline for how we measure our own performance against industry benchmarks and provide a platform for us to access a constantly expanding toolkit. These improvements are being driven today and will take shape over the coming months with full support from all layers of the organization. We have a proven capital allocation model that enables both consistent investments and high-return organic opportunities as well as bolting on to existing businesses with M&A to enable even greater returns. Low leverage is a priority for us. We've consistently been at or below 2x, and we'll continue to target that level.

In order to drive growth and ensure that we are delivering for our customers, we will reinvest in our businesses. We'll stay in line with our current metric with respect to R&D as a percent of sales and aim to reduce CapEx over time to be more in line with our multi-industrial peers. We will continue to target a dividend payout ratio of 35% to 45% as shareholder remuneration will continue to be a centerpiece of our model. We believe our business model is designed to generate strong, stable cash flow. And after servicing our dividend, ensuring a strong balance sheet and investing in our businesses, we anticipate having sizable excess cash, and we'll continue to target a balanced approach to buybacks and M&A.

With respect to M&A, we have a robust pipeline of targets and are actively scouting new opportunities. Our sweet spot is in adding additional capabilities in order to take advantage of outsized growth opportunities and extend our value proposition to new and existing customers. The Spectrum and Donatelle acquisitions were great examples of that. We'll continue to be disciplined with our approach and search for targets which offer accretive growth, low capital intensity and low cyclicality. And of course, a clear opportunity to drive scale and capture synergies will be key to ensuring a strong return.

Throughout this presentation, you've heard me talk about the need to build a culture focused on growth and continuous improvement. Critical to our success is ensuring that we have the right talent in place to take us to the next level, and I couldn't be happier with who we have on the field today. Soon, you'll get to meet 2 of our newer members, Jeroen and Beth. I'm confident that their excellent history with driving growth and transformation, coupled with great experiences at very well-run companies will enable us to achieve our goals. I'm also really excited about the addition of Dave Koch, no relation, by the way. As we progress on our journey to build a robust business system, his experience from spending 15 years at Danaher in both the business system office as well as ops leadership roles will prove invaluable.

The team has really gelled and I look forward to helping each leader enable their organizations to reach their full potential. Putting this all together, I am confident in our ability to deliver a 3% to 4% organic growth CAGR and drive margin improvement, leading to margin expansion of 150 to 200 basis points by 2028 and grow our EPS by 8% to 10%. Driving a culture that puts this as the expectation is the centerpiece of our new leadership team. Over the next 3 years, consistent delivery of these targets will enable a top line of about $8 billion and an EBITDA margin profile of 25% to 25.5%. Altogether, this will yield an attractive 8% to 10% EPS growth CAGR. And it's important to note that all of these targets are without the additional upside from capital deployment.

I'll wrap up on this slide as it summarizes well the key value drivers of the new DuPont. We have successfully repositioned ourselves and have a streamlined portfolio of leading businesses. We have opportunities for margin improvement and much of our portfolio is aligned to secular end markets, which will drive strong organic growth. A strong foundation in OpEx, implementation of a business system and a refreshed culture will enable us to realize our full potential. We will continue to enhance shareholder value through disciplined capital decisions and, of course, consistent delivery of growth and margin expansion. We are a leading advanced solutions provider, and our commitment to excellence will continue to drive value for our employees, our customers and you, our investors.

So now we're going to transition to the business reviews, and we'll get started with a quick video on Healthcare & Water Technologies.

[Presentation]

Please help me welcome Jeroen Bloemhard, President of the Healthcare & Water Technologies business.

Good morning, everybody, and thank you for joining us here today. I'm excited to speak about the Healthcare & Water Technologies segment. A segment that is truly at the forefront of solving some of the world's most pressing challenges.

Maybe as a brief background to myself, I joined DuPont in 2018 coming from Dow Corning, the global silicon technology leader. And while I was at Dow Corning, I led specialty growth businesses where innovation at the intersection of material science and application engineering created competitive advantage. And that's exactly what we're doing in the Healthcare & Water segment as well. Our intent for this segment is very clear, capitalize on the growth that the health care and water industries offer through both organic and inorganic opportunities. And having recently led the Water business myself, I'm extremely excited about the position that we have in the industry today and the growth that is still in front of us. And now also more deeply looking into the health care business, I'm excited about the position that we have already built for the business, how much we can still expand upon it and then the growth that, that will deliver for the company.

In Healthcare & Water, we hold leadership positions as trusted partners of choice for our customers, delivering solutions that are critical to the growth of our customers. And let me highlight why we are so excited to be in this space and more importantly, why we think we are uniquely positioned to deliver on those challenges our customers have. First of all, the Water and Healthcare industries are very large and very attractive from an opportunity size perspective, but also from a market growth rate perspective. And the megatrends that we see in these industries align very well with the portfolio of offerings that we have for these industries.

Second, our innovation leadership is central. Our ability to create differentiated technology to meet today's and tomorrow's performance requirements, coupled with in-depth application expertise makes our customers choose us to develop their next-generation products with. And third, we have a very strong global presence, being able to serve our customers wherever they are. We have people and development centers on the ground to work side-by-side with our customers and help them be successful in their technology advancements. So these 3 elements together create our winning formula for the Healthcare & Water Technologies segment. [Audio Gap] The operating EBITDA margin is very healthy, expected to come in at about 30% for the year.

Overall, we are expecting the Healthcare & Water segment to grow above market in the mid-single-digit range. The Healthcare business offers specialized materials, product design, prototyping and manufacturing services for high-growth markets where continuously advancing technology matters and where quality and performance can never be questioned. And those are the 2 things that we excel at. The Water business is a pure-play filtration and separation provider with strong secular growth drivers, a best-in-class portfolio [Audio Gap].

So let's dive a little deeper into these businesses, starting with the Healthcare business. This is a $1.7 billion business with a strong presence in medical devices, biopharma and pharma through our Spectrum, Donatelle and Liveo businesses and in sterile packaging and PPE through our Tyvek business. Our broad set of offerings, including design, specialty materials, application expertise and precision manufacturing capabilities set us up extremely well to deliver value to our customers. Leading medical device OEMs choose to work with us for exactly those reasons, allowing us to capture that innovation-driven growth. More and more OEMs are looking for suppliers who can provide end-to-end services covering design, material selection, rapid prototyping and manufacturing scale-up, and our portfolio is unique in that respect. Whether that is through our Spectrum and Donatelle CDMO offering, our Tyvek medical packaging offering or our Liveo silicones and elastomers, our expertise is deep, and that's why we are the partner of choice for these OEMs.

And let me focus on 2 examples from this slide here. The design, material selection, prototyping and precision molding and assembly capabilities of our Spectrum and Donatelle businesses are at the heart of why medical device OEMs want to work side-by-side with us because they know that we are uniquely capable to cover that end-to-end process entirely with them. Our Tyvek technology as a second example, is extremely well known for the protection and sterility requirements necessary for the packaging of medical devices. In fact, Tyvek is used in packaging market [indiscernible] and are excited about high-growth therapeutics like electrophysiology, neurovascular and structural heart. And with minimal invasive surgery procedures on the rise, these medical devices are becoming smaller and smaller and becoming more and more complex.

And that trend towards miniaturization and the use of higher performance materials create a sweet spot for our offering in the health care business. And in addition, the aging global population and the rising prevalence of chronic disease, coupled with the increased penetration of single-use systems, create an exciting opportunity for us in the biopharma and pharma space, where we have recently increased our relevance by combining the Spectrum CDMO and our Liveo Materials business, focusing on the development of custom tubing opportunities that is contributing already now to the growth of our Liveo business.

In Healthcare, we are experiencing consistent mid-single-digit growth driven by increasing demand for advanced medical devices and through our increased penetration in biopharma markets with single-use systems. We have made strategic investments in this space already by acquiring Spectrum and acquiring Donatelle as well as making selective investment in expanding capacity in our network. These investments have significantly broadened our offering to the industry and will help us deliver on the opportunities of growth that we see in front of us. And to give you another example of that, we've been able to leverage Spectrum's injection molding and tooling expertise to accelerate the development of our innovative ultra-low temperature over mold assemblies in the Liveo business. And these over mold assemblies are used in cold storage single-use systems.

Our ongoing commitment to developing new technology, along with a focus on application development will ensure our above-market mid-single-digit organic growth rate. Here's a great example of how this in-depth customer collaboration leads to new growth [indiscernible] their partner of choice to help them overcome these challenges. And so we were able to come in and to rapidly design and scale a manufacturing process, triple the throughput and improve final yield quality by 55%, enabling cost savings for the customer as well as allowing them to meet their global demand. This strong customer collaboration led us to being awarded a next-generation program and also earned us the recognition of one of their top suppliers. We were able to accomplish this because we have the strength of capability. We have an in-house design team. We have rapid prototyping capabilities, and we have the manufacturing expertise to scale quickly from small trial volumes into large commercial volumes without jeopardizing quality. And this is why customers select to work with us, and it's key to our leadership position in the industry.

We are broadly recognized for our differentiated technology, and we are deeply embedded in our customers' growth and innovation cycles. Our best-in-class material science and device manufacturing know-how allow us to meet stringent customer specifications and enable us to provide full-service solutions to our customers. We are deeply committed to customer collaboration. Top medical device OEMs and leading biopharma companies want to partner with us because they know together, we can effectively link their development needs with our expertise in product and applications. And our own R&D and manufacturing footprint is carefully designed to be near the R&D and manufacturing hubs of our customers. This local presence ensures that we can deliver our innovative solutions wherever our customers need them to be.

Lastly, our commitment to innovation and quality has made us a recognized leader in the design, manufacturing and protection of complex medical devices. It has earned us the trust of our customers and makes them come back to work with us on their next-generation opportunities. So by leveraging these strengths and with continued focus on innovation, we are uniquely positioned to deliver long-term value for our customers and for our investors.

Now let's transition to Water. We are the clear leader focused on the most attractive part of the industry with technology and capabilities that we have built over the last 80 years. This is now a $1.5 billion filtration and separation business, primarily focused on the industrial, municipal and life sciences markets. Our multi-technology portfolio is the broadest in the industry and includes reverse osmosis, ultrafiltration and ion exchange resins as our key pillars. We have industry-leading brands with best-in-class technology and deep application expertise. And our innovations have had real impact solving the world's most pressing water challenges already for decades and decades. And the great part of this business is that it has a very large portion of recurring revenue through the replacement of our current installations.

I will discuss the breadth of our technology participation in this slide as it enables our position being the partner of choice for our customers. And having access to a broad technology portfolio matters because most water plants use a variety of filtration techniques as part of their total water management system. And our ability to participate in more than one step is an advantage to our customers as they specify and design their plants. In fact, more than 60% of our revenue comes from customers who buy 2 or more of our technologies for their projects. So first of all, our MABR and MBR technologies are at the forefront of biological processes and are critical in the wastewater management space. We've been in the MBR space for more than 40 years.

Next, our ultrafiltration systems are designed to filter particles and macro molecules, and these systems are crucial for a variety of industrial and municipal applications. We have a leading position in the UF market. Our nanofiltration and reverse osmosis technology is the most effective in removing organic and inorganic molecules as well as bacteria and viruses. This technology is widely used in desalination and in industrial applications where high-purity water is required. We are the clear leaders in the RO industry, and we have 60 years of experience advancing RO performance.

Lastly, our ion exchange resins are designed for the most advanced purification steps, and we can selectively remove metals and ions amongst other contaminants. Same as for RO, we are the technology leader in IER, and we participated in this space for 80 years. So this portfolio is the broadest in the industry, and our products are known to be the premium offering that our customers select not only for their performance benefits, but also for their durability in use. In Water, we are leaders in a $7 billion addressable market where global water demand is rising, driven by industrial needs, aging infrastructure and a growing population.

Water scarcity and the increasing regulatory requirements governing wastewater present the most -- the 2 most favorable macro trends in the industry, and our portfolio lines up perfectly to serve those. And these trends play out in both the industrial and in municipal markets. And without our specialized high-performance filtration solutions, these trends cannot be met. But also an aging population and a desire for healthier lifestyles create growth opportunities in our life science and specialty segment of the business. Think about healthy sugars or drug delivery carriers that are enabled through our IAR technology. And there's more to come. The increasing demand for lithium driven by the growth in electric vehicles opens up an exciting opportunity in direct lithium extraction for us. Our NF membranes are designed to prefilter and to concentrate the brine that contains the lithium and our ion exchange resins selectively extract that lithium from that brine. So we are extremely well positioned to capitalize on that DLE opportunity.

Today, our water business is driving consistent mid-single-digit growth, enabled by a large replacement business, contributing over 70% of our revenue annually. Continued constraints on water availability and increasing regulatory requirements drive the need for more and higher performance filtration and drive our inherent growth. We are investing in advancing membrane technology for even higher performance -- even higher filtration performance at lower energy consumption, creating clear performance differentiation from competition and offering new benefits to our customers.

We also invest in continued capacity expansion for our ion exchange resins that are used to create ultrapure water used in the semiconductor fabrication process. And as the semiconductor industry grows, the demand for our ion exchange resins will grow as well. And as I said earlier, our filtration technologies are also being used to address challenges in food and beverage, dairy, pharma and bioprocessing, adding to our opportunity for above-market growth.

Here's an example of how increased regulatory requirements drive new opportunities of growth for us. Industrial customers face increasingly stringent regulations on the amount of [Audio Gap] in RO performance has allowed us to introduce 15 new products since 2017, specifically designed to meet these challenges of minimal liquid discharge. Our reputation for durability in use and for continuous innovation has been a key differentiator in the market and has earned us the recognition of the market's total solution provider. And between 2017 and 2024, the revenue from these MLD products has grown by approximately 10x underscoring the broad customer adoption of these technologies, and we continuously innovate for this application on an ongoing basis.

So let me recap why we are the partners of choice for our customers and why we are so well positioned to win in the water industry. We are known to have the highest performance products in the industry and have thousands of touch points across the value chain that give us early access to new projects and allow us to understand the diverse needs of our customers. Our application expertise is based on decades of participation in the industry and exceptional testing capabilities. This ensures that we can provide high reliable and high-quality solutions that we know will work for our customers because we have pretested them. Our long-term and deep customer relationships are a clear testament to our commitment to the water industry, and we are able to serve our customers wherever they are located in the world.

Our trusted reputation in the industry is built around category-leading technologies and brands, our thought leadership in the industry and our continued external recognition that we are receiving for our technologies and the inventions that we bring forward to the market. We are very well positioned to grow above market rates. We have the leading position today. We have the required capabilities and most importantly, the critical customer relationships to win, and I'm excited to continue to deliver that growth for us.

Thank you for your attention.

[Presentation]

Hey everyone. I'm thrilled to be here to showcase the Diversified Industrial segment. Perhaps a little bit about me to start. I've had the privilege of leading businesses and some great companies. Most recently at IMI, I led a customer first transformation to unlock growth. At ITW, either in the power of 80/20 and simplification. And at Belden, I manage businesses in a really strong lean framework. And I also currently serve on the Board of SKF.

These experiences have taught me how to unlock speed, drive accountability and improve margins across a quite diverse mix of businesses. I joined DuPont just 12 weeks ago, and I've spent that time immersing myself in the diversified industrials businesses, listening, learning and walking the floor with the teams who know it best. What I've discovered is a great portfolio of products that are all around us. They are found in the walls of our homes in our cars and even the engines of planes, all playing essential parts in our daily lives. And today, I'll show you how we're delivering value in diversified industrials and why this strong foundation and our renewed focus on execution gives me confidence in our ability to deliver value for DuPont. So we're well positioned to succeed. Our brands are trusted. Our technologies are proven, and our teams are deeply committed. You can see our leadership in the way we work across our different sectors.

Our commitment to innovation means that we're often the first to bring new energy-saving solutions to the table. And we'll enhance these efforts with rigor and operational excellence and simplification and commercial discipline to ensure margin expansion. These are key principles that have guided the businesses that I've led in the past, and I think it's a great opportunity for this business. So I'll give you a snapshot. Diversified Industrials is a $3.6 billion business with 22% operating margin. We operate in 2 main sectors, building technologies and industrial technology. We're leaders in construction, and we're deeply embedded with OEMs across automotive, aerospace, industrials and printing and packaging. We work side-by-side with customers to solve their toughest challenges from delivering fast and easy-to-install construction solutions to assisting in the development of next-gen EV batteries. I'll share more on these shortly.

So today, I'll show you that the underlying drivers in our markets are solid. We're positioned to drive margin expansion through disciplined execution and a focus on what we can control. I bring a new perspective into DuPont built around my experience deploying performance models like 80/20 and lean. And by streamlining the way we work, we can cut complexity and give our teams the ability to make decisions and drive outcomes because I've seen firsthand that these principles consistently deliver real measurable results. This is the opportunity for Diversified Industrials. With our market leadership and customer-driven innovation, together with simplification and rigorous application of the excellence frameworks that Lori outlined, we can assure growth and more importantly, expand margins.

Our approach isn't about waiting for the market to improve. It's about sharpening our edge and delivering consistent performance. I'm really excited to work with our team on this because I believe that combining these proven principles with our disciplined strategy will really generate value for DuPont. So our Building Technologies business has about $1.6 billion in sales, and we serve all aspects of construction, nonresidential, residential and repair and remodel. Our integrated systems improve energy efficiency, durability and comfort. What really sets us apart and positions us to win is the trust that we've built with our customers, along with our focus on performance and technical expertise. We're confident that our scale and strong relationships with our customers will position us well for future growth.

So imagine a contractor walking on to a job site with fewer skilled workers than expected, rising material costs and a tight deadline. That's the reality for many of our customers. In fact, 80% of construction firms in the U.S. report difficulty filling open roles. In this environment, builders are seeking products that make installation faster and less complex. And at the same time, the housing supply gap continues to widen. New inventory isn't keeping pace with demand. So the need to upgrade and improve existing buildings is only accelerating.

I actually got to experience some of these challenges personally in my family's recent move back to the U.S. with DuPont. Not only did I see the lack of available housing, but I'm seeing firsthand how sharply costs have risen as we to renovate our home. At DuPont, we're responding with solutions that meet these converging needs, making construction simpler, more cost effective, safer and more attractive, all while helping our customers succeed in this challenging and changing market. So across Building Technologies, we continue to lead with solutions that [indiscernible] in their category.

On this slide, you can see examples of where we participate in the nonresidential space. Our products are designed to endure the full life of the structure. Continuous insulation helps cut thermal leaks, wall systems reduce mold risk and our interior finishes are ultra hygienic and flexible, perfect for health care and high-traffic spaces. You would see a similar view to this in houses as well. On the residential side, our insulation and air sealing solutions are powerful tools that can reduce heating and cooling costs by an impressive 30%. We really stand out with our expertise in sustainability.

Our insulation and weatherization systems are recognized in customers' sustainability reports, including Builders FirstSource and White Cap. That kind of visibility reinforces our relevance and shows that our leadership in the market is not just legacy, it's active and its value. At the heart of our approach is a deep commitment to understanding and solving our customers' problems, and this is a great example. Insulation pros told us that they wanted the coverage of 2-component foam with the simplicity of our great stuff product. So we listened. We integrated their feedback into our innovation process using lean innovation techniques and 3D printed prototypes. And this effort led to the creation of a fast portable spray foam that exceeds their expectations.

Our product launched successfully at Lowe's, selling 25,000 units in just 2 months, and now we're expanding into Home Depot. What's more, a spray foam is fire-rated, it cures in just 24 hours and is easily painted or sanded, providing practical solutions for professionals. By addressing real issues, we're not only enhancing the efficiency of their work, but we're also fostering long-term loyalty and driving repeat business. Now let's shift into Industrial Technologies with about $2 billion in revenues. We serve a diverse set of industries with core strengths in automotive and aerospace, alongside established leadership in printing, packaging and other industrial markets.

Our segmentation reflects where our technologies deliver the most impact from enabling lighter, safer, more energy-efficient vehicles to supporting next-gen aircraft performance and reliability. We have over $100,000 of opportunity per commercial aircraft with Vespel, Tedlar and Molykote offerings. For example, Vespel is featured in critical applications and engines that power planes such as the Airbus A320neo, the Boeing 737 and China's COMAC C919.

In automotive, our adhesives and thermal management solutions are critical to electrification from hybrids to full battery electric. So in today's industrial landscape, megatrends like electrification, automation and sustainability are transforming our end markets. In the automotive sector, the transition to electric vehicles is significant. OEMs need to stay competitive in performance, safety and cost, and our Battery Adhesives like BETAFORCE can help improve battery performance and reduce cost by simplifying EV battery design.

Our Battery Adhesive offerings are 100% incremental to our base automotive business, and they've grown at a 65% CAGR over the last 5 years.

Aerospace is also evolving with a focus on high-performance durable materials. Our offerings improve engine efficiency and enhanced safety and air travel by reducing friction, wear and the risk of component failure.

In packaging, our Cyrel FAST technology has achieved a 98% reduction in emissions and our Artistri water-based inks enable customers to reach their sustainability goals while maintaining quality and vibrancy.

As these trends evolve, they drive growth and innovation in our end markets, and we are at the forefront of this change. As the auto industry shifts toward electrification, we're really well positioned to grow. Our technology span the vehicle from body and interior to battery systems. These solutions help OEMs meet the needs for lightweighting, durability, safety and range, all critical factors for the modern vehicle. We're focused on making cars easier to assemble and longer lasting. That's not just good engineering. It's our strategic advantage.

Our adhesive simplified battery integration, controlled battery temperature and improve crash safety. Our wear and abrasion solutions support thermal management and reduce friction. And the growth opportunity is clear. Our content opportunity per vehicle nearly doubles from $50 to $100 in electric vehicles. And the demand for adhesive is triple that of a traditional car.

As a reminder, our non-battery products are powertrain-agnostic. So even as the market shifts from ICE vehicles to EVs, they'll remain unaffected. We're well embedded in this industry, and we're already spec-ed in across many global OEMs and Tier 1s, giving us a strong foundation to expand as electrification scales. Now I'd like to focus on where we're really leaning in across diversify [indiscernible] it's durable value. Using this framework, we expect to drive continued margin improvement and unlock growth opportunities.

Let's take each one in turn. First, operational excellence. We're embedding discipline, standardizing best practices, focusing on waste reduction and using daily management routines and KPIs to keep performance visible and accountable. We already see some great examples of operations excellence within our organization. For instance, our Parlin, New Jersey manufacturing team increased uptime by 17% over the last 2 years through Kaizen efforts like SMED. This allowed the plant to meet increasing market demand without the need for additional capacity investments.

Likewise, our adhesives plant in China increased its overall equipment effectiveness or OEE by 10% and this year by reducing waste through value stream mapping and 5S. And as you'll see in the story that I'll tell in a moment, the integration of automation can further enhance these improvements, driving even greater efficiency and productivity. This rigor and discipline and OpEx sets us up for strong results in safety, quality, delivery and cost.

For innovation excellence, we're accelerating product development by embedding customer feedback earlier and using digital tools for rapid prototyping and simulation. This means faster cycles, better alignment and more breakthrough solutions. And in commercial excellence, we're sharpening our market approach with strategic marketing, stronger sales enablement and better tools. Our teams will be equipped to deliver tailored solutions, respond faster and deepen relationships, driving growth and margin expansion.

Together, these frameworks are how we will outperform, not just compete. They're how we will scale excellence and deliver consistent high-quality results across the portfolio. And here's a great example of how we're unifying these excellence frameworks to unlock new growth opportunities. Vespel has been pivotal in aerospace and defense since the Apollo missions. Renowned for its ability to withstand extreme heat and pressure without failure. Unlike metals that corrode or plastics that deform, we provide longer-lasting parts, exactly what OEMs require in demanding aerospace environments.

Today, we leverage our advanced material expertise to expand high-performance solutions into higher-volume transportation and industrial applications. Our new resin ring exemplifies this innovation. It's a versatile component that meets stringent requirements. But now thanks to innovation in our operations process, it can be produced on a larger scale, in this case, 80 million pieces. By adapting technology initially developed for space, we're unlocking new growth opportunities while still preserving the quality and reliability synonymous with Vespel. So we have the right formula to win. We're trusted by our customers. Our products lead their categories. We combine global scale with local agility. And across our portfolio, you can see that we're a leader in sustainability and innovation.

So where are we headed? We'll continue to lead in our markets. We'll grow by solving real problems, and we have a renewed focus on excellence to drive value creation. We'll apply the business model excellence and frameworks that we've discussed today, decentralizing for accountability, simplifying for agility and operating with excellence and rigor. With these principles and intentional focus on what drives value, we're not only poised to grow with GDP, but also expand margins, ensuring consistent performance for DuPont. We're building a portfolio that performs today and is positioned to continue to lead tomorrow.

Thank you again for your time. I'm really excited to keep building with this incredible team at DuPont.

Please welcome Antonella Franzen, Chief Financial Officer.

Thank you, everyone, for joining us. Both here in person, it's really nice to see some familiar faces and via webcast. I'm excited to be here with you today to walk you through our financial overview and outlook as we enter into the next chapter of DuPont. So you may ask, what does this next chapter bring? First, our top line growth is accelerating. We now have a streamlined portfolio with about 50% of our revenue in high-growth markets.

Our leadership positions, our long-standing relationships with customers that make us the partner of choice, our history of innovation and the value that our products and solutions provide will deliver an above-market 3% to 4% revenue CAGR over the next 3 years. Second, we will build upon our consistent execution. Operational excellence, coupled with a continuous improvement mindset, will deliver 150 to 200 basis points of margin expansion, bringing our EBITDA margin in 2028 to 25% plus. Our expected revenue growth, coupled with our margin expansion, will deliver an 8% to 10% EPS CAGR. Next, our bottom line results will convert to cash at greater than 90%, generating $2.7 billion to $2.8 billion of free cash flow by the end of 2028.

Lastly, our disciplined capital allocation allows flexibility in managing organic investments with targeted M&A and returning cash to shareholders via increasing dividends and share repurchases. Together, these elements maximize long-term shareholder value by maintaining a strong financial profile and disciplined execution. Before we get into the details of our future financials, I want to take a couple of minutes to level set everyone on how we will report our results for the remainder of the year as well as the basis for our pro formas. First, let me be very clear. There are no changes to our underlying guidance assumptions. We are simply recasting guidance to show the impact of discontinued operations.

Our Q3 results, which will be reported in early November, will include the Electronics business given the intended November 1 separation date, but will exclude Aramids, which will be classified as a discontinued operation. We have included our recasted third quarter guidance in the appendix to the slides. From a full year perspective, we have recast our guidance to reflect the impact of both Electronics and Aramids being reported as discontinued operations. So starting on the left-hand side of the slide, you can see our previous full year revenue guidance, and that is being adjusted to remove $4.6 billion of sales related to electronics and about $1.4 billion of sales related to Aramids. Bringing our recasted New DuPont sales guidance for the full year to $6.865 billion. On the right-hand side, you can see our previous EBITDA guidance, which includes business results, partially offset by corporate expense. We are adjusting our EBITDA guidance to remove the business results of Electronics and Aramids as you would currently recognize them, meaning these amounts include function costs that are allocated to Electronics and Aramids to support the business.

From a reporting perspective, allocated costs that are not specifically going with the transaction or divestiture are not reported as discontinued operations and are commonly known as dis-synergies or stranded costs. These costs are included in the net disc ops adjustment of $15 million. Recasting for these reporting adjustments, we now expect 2025 operating EBITDA for the New DuPont of $1.575 billion. You're all still with me. The following slide transitions from our revised guidance to our pro forma, which adjusts corporate expense from $140 million down to $95 million.

Over the past 6 months, we have been actively preparing for day 1, implementing measures to effectively rightsize our public company costs. All right. Now that we're grounded in the financials, let's take a quick look at the New DuPont. $6.9 billion in sales, $1.6 billion in operating EBITDA and a 23.6% margin. Our high-growth, high-margin Healthcare & Water segment makes up about 50% of the portfolio with the remainder in Diversified Industrials, predominantly with exposure in our auto and construction end markets. We also have a very attractive geographic mix with about half of our sales in North America and the remainder predominantly in EMEA and Asia. We're entering into this next chapter from a position of strength. Our financial profile is compelling with a strong balance sheet that gives us flexibility. We're increasing exposure to secular high-growth markets, generating solid cash flow and maintaining ample liquidity.

Our balanced debt maturity, coupled with our strong investment-grade credit rating, support our growth ambitions. Our track record of consistent financial performance is a solid foundation for continued value creation. Taking a quick look back during the period of 2019 to 2025, this portfolio has delivered an organic revenue growth CAGR of 2.4%, in line with our multi-industrial peers. Our operating EBITDA has grown nearly 2x our revenue growth and our operating margin has expanded 200 basis points. These metrics set a solid trajectory for future growth. We also have a strong history of returning cash to shareholders. This chart speaks for itself. I would simply call out that we expect the metrics on this chart to continue to grow as return of capital to shareholders will remain central to New DuPont's model. I will talk more about our expected dividends and share repurchases in a few minutes.

As we look forward, we're accelerating our top line growth and margin expansion. As I mentioned previously, we expect a 3-year organic revenue CAGR of 3% to 4% and 150 to 200 basis points of EBITDA margin expansion. This will result in an 8% to 10% EPS CAGR. I want to be clear that excess free cash flow deployment, whether into M&A or share repurchase, will be incremental to the 8% to 10% EPS CAGR, reinforcing our commitment to value creation. Now let's double-click into what is driving each one of these metrics. You heard from Jeroen and Beth about the specific market trends in each of our businesses and how we're positioned to win. In Healthcare & Water, these secular markets have favorable megatrends that are fueling growth, and we should grow nicely above GDP. Our Diversified Industrial segment, which includes building and industrial, should grow generally in line with GDP.

Overall, we expect above GDP growth driven by growth premiums in Healthcare & Water. Moving to margin improvement. Starting with our 2025 pro forma EBITDA margin of 23.6%, we expect 110 basis point margin increase driven by 35% incrementals on revenue growth. From a stranded cost perspective, as we've been preparing for the separation, we've spent quite a bit of time benchmarking cost structures by function and designing an organization that's fit for purpose. The result of $30 million [indiscernible] expected to contribute up to 50 basis points of incremental margin expansion. The overall target is an improvement of 150 to 200 basis points by the end of 2028, resulting in an EBITDA margin between 25% and 25.5%. From an operating leverage perspective, this is a healthy 1.7x our revenue growth.

Let's take a quick look at the EPS algorithm. Each percentage point of revenue growth will equate to 2% EPS growth. As a result, our 3% to 4% revenue CAGR is projected to result in a 7% EPS CAGR at the midpoint. The elimination of stranded costs is expected to add an additional percentage point of EPS growth and productivity gains above the rate of inflation may add another point, resulting in a projected overall 8% to 10% EPS CAGR. We have high confidence in our ability to deliver on this framework.

Moving to cash flow. [indiscernible] billion from 2026 to 2028, representing a conversion rate above 90%, underscoring our ability to generate cash efficiently and fund growth initiatives, dividends and shareholder returns.

Over the next 3 years, the cumulative cash outlay related to dividends and offsetting share dilution is about $1.3 billion, leaving about $1.5 billion to put to work in bolt-on M&A and share repurchases, which again is incremental to the 8% to 10% EPS CAGR we discussed earlier. Disciplined capital allocation. Lori mentioned this earlier, and I just want to highlight 4 key areas. Organic growth. We are differentially investing in the businesses to drive the top line. Dividend payments. As the New DuPont, we will have a healthy dividend payout ratio in the 35% to 45% range. And as our earnings grow, our dividend will also grow. M&A. We will pursue strategic bolt-on acquisitions to enhance our capabilities and market position.

And lastly, share repurchases. We will continue to return capital to shareholders to drive accelerated returns. And as always, we will allocate capital through the lens of a shareholder to maximize value. The foundation of our capital allocation approach is a strong balance sheet and low leverage, which provides liquidity and financial flexibility. We expect to maintain about $1 billion of cash on the balance sheet and approximately $3.25 billion in pro forma debt. We're committed to maintaining our BBB+ credit rating and target a net debt-to-EBITDA ratio of less than 2x, which compares very favorably to our multi-industrial peers.

Bringing all that you've heard together, I will leave you with 4 final thoughts. First, we are executing on a culture of continuous improvement. Second, we are well positioned to accelerate organic growth. Third, we are converting earnings to cash and generating strong free cash flow. And fourth, we are disciplined, disciplined in allocating capital, disciplined in driving consistent results and disciplined in delivering shareholder value.

I will now turn it back over to Lori to wrap things up before Q&A.

Please welcome Lori Koch back to the stage.

Thanks, Antonella. As we look ahead, I want to be clear on why now is the right time to invest in our company and why I believe the future holds significant value for our shareholders. We are a leading advanced solutions provider built on a foundation of specialized technologies that set us apart. Our innovations solve complex challenges and our customers rely on us to power their most advanced innovations and grow their businesses. Over the past few years, we've taken bold steps to simplify our portfolio, strategically focusing on higher-growth markets. We are building a culture of performance and accountability and have the right team to deliver. We remain committed to a disciplined capital allocation model.

Since 2019, we've returned over $14 billion to shareholders and closed $5 billion in high-return acquisitions. Both of these are a testament to our financial strength and our dedication to delivering value. Looking forward, we have a clear path to our 2028 targets and we'll deliver 8% to 10% EPS growth, and I'll say it one more time without the benefit of additional capital deployment. In closing, we are positioned for growth and are committed to continue to drive value for our shareholders. So we're going to take a quick break to turn over for Q&A, and then we'll join you on stage soon. And Dave Koch will join us for Q&A as well. So thank you very much.

Thank you, everyone. We will now take a 10-minute break as we set up for the Q&A session. We'll have a timer on the screen, so be aware of it, and please be back at 10:30. Thank you.

[Break]

Ladies and gentlemen, please welcome our DuPont leaders back to the stage for the Q&A session. In addition to Lori, Jeroen and Beth, we will also have Dave Koch, who leads our operations teams join us. We have -- and Antonella. We have team members positioned around the room with microphones, so please raise your hand, and we will come to you.

It's Jeff Sprague from Vertical Research. Good to see all of you. . Maybe I'll just start with a couple on capital deployment and I hand the mic off to someone else. But first, just tactically, when you think about the separation, if there's any dislocation in the shares, what is your capacity or comfort level to step in sort of immediately with some contemporaneous share repurchase as opposed to sort of the multiyear view you gave us?

Yes. So we've proven over time that we've been very shareholder-friendly, especially when it comes to buying back our shares with proceeds from divestitures as well as using the cash that we generate to show that you kind of put our money where our mouth is and invest in our business. So we have a Board meeting coming up. We don't have an open authorization right now. We have a Board meeting in a couple of weeks where it will be a key topic around what level of authorization we get. We are very aware of the valuation disconnect that exists between where we trade today. Obviously, we don't know where we'll trade coming out and where our peer set sits. So I think with our past history, you can be confident that we're not going to be shy about taking the right steps to be able to take advantage of a dislocation.

Yes. The only thing I would add, Jeff, is given where our balance sheet is, the cash flow we expect to generate and also the proceeds related to the Aramids transaction that Lori mentioned earlier, I think we're in a really good position to do both share repurchases as well as M&A.

Yes. Then maybe just on M&A. So clearly, you made a very clear water and healthcare is the focus. Do you see those sort of deals sort of playing in the TAM as you define it for us today and strengthening that position? Or is there sort of a TAM expansion play through bolt-ons also?

Yes, I'll open it up, and I'll turn it over to Jeroen to provide more color. I would say it's both. On the healthcare side, I would say it's within the existing TAM. So we've been scouting opportunities that are similar to what we did with Spectrum and Jeroen in the CDMO space. It's very fragmented. So there's a lot of opportunities for us to continue to build on to the base that we've built as well as a lot of the assets are owned by private equity. So obviously, at some point, they have to be actionable. So it makes it a little bit easier for hill to climb.

And on the med packaging side, we've also been looking to expand there as well to see what opportunities that there are for us to move beyond our flexible barrier application today into other applications. For water, it's probably more of a TAM expansion. So we obviously are key players in the water filtration space today, market leaders across the end markets that we participate in. So it could be a little bit more limiting if you're going for a technology play in the water filtration space. So we'll look to expand the remit a bit on both the filtration side as well as potentially going into other areas of water. But I'll let Jeroen fill in additional details.

Yes. So I think on the healthcare side, the CDMO space, as Lori said, is very, very fragmented. And the way that we would be looking at it is to say, what's the type of capability that we can build upon next to what we offer today. So our SAM is defined by the capabilities that we have today. So when we look at the next CDMO type of offering, we look at new capabilities in line with these 3 markets I talked about, electrophysiology, neurovascular and structural heart capabilities that we don't have today, which therefore means we're going to be able to participate in different spaces that we are not participating in. So that's where that SAM expansion will come from, right?

I think on the water side, we're really going to take a very strong end market focus. So looking at markets like industrial wastewater, looking at microelectronics, looking at desalination and also looking at food and beverage, the first 3 markets obviously being very much water focused and where we think we have still opportunity for broadening our existing portfolio. But then looking at food and beverage, you start immediately looking at beyond water and what does that mean for the filtration opportunities that are participating there.

Chris Parkinson, Wolfe Research. When you take a step back and you look at your projected CAGRs for healthcare and water, what substrates within each of those businesses offer the most confidence in terms of your ability to not only grow a GDP plus rate but also your peers?

Yes. So I'll start. I think in my opening comments, I had mentioned that in the markets that are growing above GDP, so Healthcare & Water, we expect to outperform versus market. And a portion of that is gaining share and a portion of it is just being favorably positioned in subsegments that are growing above the average. So to your question within med device, the critical care components, so anything related to the heart are growing above the average, which will enable us to be able to continue to grow. And in the water space in some of the life sciences and the microelectronics space for semiconductor that we are favorably positioned there to be able to shore up the top line expectations that we have.

John McNulty, BMO. Maybe a question for Beth. You're relatively new in the seat, but you've had a little bit of chance to kind of dig through things, I guess. Can you speak to where you see some of the bigger opportunities maybe relative to your past firms, your past roles? Is it on the efficiency side? Is it on the commercialization side? How should we be thinking about that?

Yes. It's been really interesting getting to know the businesses. And I think the foundational part is that I think we have some really nice pockets for growth either with some nice growth opportunities there [Audio Gap] some of those growth opportunities there. And then to your question about kind of past experience and the opportunities for margin expansion, I definitely think that the -- we've made big steps on the decentralization. And I think that's relatively new in terms of moving operations into the businesses and getting that agility and real ownership in the businesses. And I think that will drive quite a bit along with the excellence frameworks around operations, getting that more standardized and getting the KPIs brought to the [Audio Gap] pieces around the way we work and also around the portfolio are some great opportunities for us, product portfolio. I think it will be tremendous.

James Cannon, UBS. I think if I think about the way you describe both of those segments, you talked a lot about margin improvement in the Industrial side. Do you see any opportunities to do that on the Healthcare & Water side? Or is that primarily a sales growth story?

Why don't I just start for a little bit. So just in terms of our margin expansion and where that's coming from. So as we talked about, I mean, each segment will have its own remit in terms of revenue growth and margin expansion. But I want to be clear that the margin expansion is coming from both segments as well as from corporate expense as we shed some of our stranded costs. So when you think about Healthcare & Water, that's expected to grow at the 5% growth rate. It will have a little bit of a lower leverage point. And the opposite will hold true in Diversified Industrial. It will grow at a lower rate, but have a higher leverage in terms of the margin expansion related to that.

Yes. I mean we have productivity across the portfolio. And so I'll turn it over to Dave. Obviously, as we drive a more enhanced business system and a focus on continuous improvement, it's not going to be just pointed in one direction versus the other. And so really driving all of the key components of a really robust business system. And when we were searching for new leaders, we were targeting companies specifically to be able to bring in what we knew were best practices that existed across the industry and did a really nice job of getting that with Beth and Dave's background. So obviously, the value creation lever for Diversified is going to be more on the margin side versus health care and water on the growth side that they both should see nice lift in margins.

So maybe, Dave, do you want to comment just about what you've seen and how well it can work?

Yes. I mean I think the opportunity is across the board. I mean I've seen this work very well. The equation is people process performance. I think we're in a very good position at DuPont in that equation, and it's across the board. I think if we -- we've talked about it a couple of times today, but you'll keep hearing us talk about refreshed management standards, updated rigor around those management standards, core KPIs, those create a common language for us internally in a decentralized environment. That's very important. We've got a strong tool set. We're starting from a strong excellence framework, building that out more in innovation and commercial. But I think it's really about creating the need in the business to leverage those tools and build more of a pull system around that. I think we're in a really strong position to do that, and we've got the culture to back it up.

Jacob Levinson from Melius Research. There's a pretty clear emphasis on driving lean transformation and continuous improvement, but maybe you can help level set us and some of those core metrics that you talked about, product quality, on-time delivery, where you can contextualize where are we today? And what are you driving towards?

Yes. We have our 8 core KPIs identified. So they're focused across both kind of financial shareholder-driven, customer-driven and then employee-driven. And so they're a bit of a balance. There's like 4, 2 and 2. So there's 4 in the shareholder financial range and then 2 each both the employee as well as growth. So we're identifying them, and we're building the processes around them with respect to the standards that will guide the internal reviews around consistency. And it's really driving that continuous loop of where are you? What are you doing to improve it? You've improved it, all right? How are you keeping it in place and how are you starting over again.

So we talked about this continuous flywheel of improvement that we need to build across the businesses. So we're really excited about it. It's obviously in the early phases. We've just completed the identification of the core KPIs and are rolling them out across the organization. But there's a lot of opportunity to be had for us. I mean we have a great company, as Antonella has shown, we have a strong foundation to build from. So our performance has been in line with the multis, and we look to step change it a bit going from where we've been in the past 5 years at about 2.5% growth and 23.5% margins to consistent 3.5% growth and then north of 25% margins, and this is a big piece of that.

That's helpful. And just maybe as a related follow-up, is there scope over time for that R&D and CapEx spend, call it, 5.5% of sales, like as refining opportunities, is there a scope for that to actually come down?

Yes. So let me start with that. So Lori mentioned in terms of the R&D spend, like right now, we're around 2.5% and our intent is to keep it at that level. But clearly, when there's opportunities to invest, we have the capacity to do that, and we will. From a CapEx perspective, we did talk about -- you may have seen on Lori's slide that our goal is to get to about 3% of CapEx as a percent of sales for our business CapEx. We're currently sitting at about 4%. We're at 4% for '25. We'll probably be close to 4% in '26 and then be making our way down to the 3%. And a couple of things that are driving that is, one, we're kind of looking at more of a capital-light structure.

So using more contract manufacturing versus creating additional capacity in terms of as our sales grow from an internal basis, also just looking at where our cost structure is today and do we have options to go more towards contract manufacturing to reduce our cost structure. I think also when you look at our CapEx, we're about 40% growth, 60% maintenance, the more utilization of AI tools in terms of how you do your maintenance and more predictive maintenance, not necessarily having things set on a set schedule. And the last thing I would point out is really the business system. So CapEx is one of the areas where I would say we can very much lean in and have a more disciplined approach around it to help kind of bring that level down.

Yes. I mean you kind of just answered what I was going to ask, but I guess a little bit incremental to that. As we look at the growth trajectory in some of these markets, I was going to say, do you have the capacity to actually service what you're looking for in the case of like medical packaging and something like Tyvek, is that something where you'll be transitioning from [Audio Gap]

Completed the expansion of Tyvek, right? So a couple of years ago, we did Line 8. So we've got ample room to continue without having to like short the construction side to enable growth in the packaging side. So we're in good shape there. And generally, across the portfolio, there's not any large capital investments that we've had in the past, like a couple of hundred billion. Everything is more incremental, well under $75 million either. So there's not a big slug that's going to cause us a hiccup around a nice glide to path that 3%.

Edlain Rodriguez, Mizuho. So when you look at the portfolio right now, it's about even the split between higher growth and lower growth businesses. So as we go over the next couple of years, how do you see that split developing? And what's going to drive that? Is it going to be pruning of Diversified Industrials? Or how you see that growing over time?

Yes. So we've made a nice move with the Aramids divestiture. So before we did Aramids, we were roundly 40-60 between high growth and then growing alongside GDP. And so when we did Aramids, that moved us pretty quickly to 50-50 where we are today. And we've mentioned that we would like to be able to get to more like a 2/3, 1/3 split. So enablement of that from 50% up to 2/3 is a combination of both some M&A activities. So we had mentioned that we were going to target our acquisitions at the Healthcare & Water space to enable continued shifts in that exposure as well as just mix enrichment.

So the health care and water business is consistently growing at 5% versus the diversified at 2% will lead to outgrowth and then a bigger portion of our portfolio as well. And we did mention that we have further opportunity to optimize with the businesses that we have. So we are always looking at our businesses through a shareholders' lens and determining do they fit and do we get the right value for them.

Vincent Andrews with Morgan Stanley. I just wanted to ask about your Building Products segment and the 2% revenue CAGR you're projecting. Obviously, we're kind of at the bottom of the cycle for the resi part in particular, but also non-resi. Are you just being conservative in the outlook because it's been so tricky the last few years. Obviously, we had a Fed meeting yesterday, rates are starting to come down. But I just -- how would you assess if we have a recovery in starts and renovation activity picks up, how much torque is there in that business, both in terms of what the top line could do? And what would the incrementals on that be if it winds up being a bit better than you think?

Yes. Why don't I start with that? So to your point, like we have used kind of what the current outlooks are in determining what our 3-year targets would be. But from a Buildings perspective, I would tell you that what we are using is only a 2% growth. So to your point, if there is a significant recovery or a V-shaped recovery, that would clearly be incremental to the plan that we currently have. So I would say it is relatively conservative assumptions that are built into that.

I think most importantly, we are very well positioned. So when that recovery does come back to take advantage of that from both a growth perspective and then have pretty nice incrementals that would drop from that as well. But it is, again, a much more, I would say, conservative approach because I think we've all been dealing with that second half recovery probably for the last 3 to 4 years. But to your point, I mean, as we move forward, clearly, there'll be some improvement from where we're at today.

Arun Viswanathan, RBC. I guess I just had a question about the capital deployment. How do you balance the fact that you do feel that you're undervalued versus potentially going out there and doing M&A of maybe higher multiple businesses that would increase your growth profile? Said differently, would it be valuable to maybe put in maybe a couple of percent of EPS growth contribution from buybacks at this point? Why is that just more of a discretionary item?

Yes. So we obviously will continue to be balanced in our approach, and we're not going to sit on cash. We never have and we never will. So we've got the proceeds coming from the Aramids divestiture at some point in Q2 of about $1.2 billion. We'll look to put that to work. And then we've got, as Antonella had pointed over the next 3 years, around $1.5 billion of excess cash that we'll generate after we pay the dividend and invest in our businesses, and we'll put that to work as well. So we were just -- the cleanest way was to commit to the 8% to 10% and then provide upside opportunity if there's M&A activity or if there's share repurchases that could drive outperformance there.

So just not knowing exactly what the pace of that looks like, not having an open authorization right now, not knowing what the share price would be. So we don't know what the share price is going to be to able to commit to a number of shares to come out through a share repurchase program. So we may have been on the conservative side, but I think we've shown time and time again our willingness to invest either in M&A or in share buybacks and not have the cash sit idly around.

Thanks. On the legal front, it seems like with some potential trials ongoing, is there a sense for the company wanting to maintain a slightly larger cash balance to be able to deal with any of those payments that might be needed or settlement payments? Obviously, this is relevant to other parts of the DuPont Dow complex. But specifically for you, do you think the $1 billion in cash that you guys are outlining embed some of that? Or would it be in surplus of that?

Do you want me to take that?

Yes.

So the $1 billion that we hold as our operating cash would not be a fund to then fund future litigation. So we're confident that we've got more than enough capacity to fund whatever future settlements may occur. We have 2 of the larger ones behind us with the state of New Jersey and the water districts. I would say, ahead of us, we've got the state of North Carolina and to a lesser extent, West Virginia and then the personal injuries and the state AGs. We've set a precedent around a couple of things that prove really well for us as we go forward. One is when it relates to firefighting foam, which is the bulk of the future settlements to be had, we're 3% to 7% as a complex of DuPont, Chemours and Corteva. And so when you break our piece down, it's even smaller. And we've seen that precedent play out in both the water district cases as well as the New Jersey settlement. And so we're confident that, that would be a marker as we go forward.

Also, we set a precedent as well as 3M about putting payments over a 25-year period. So it really reduces the amount of CapEx or amount of cash that you have upfront. So those dynamics give us confidence that we will be the cash required. In fact, next year, even with the insurance settlement that we would pay as part of the Corteva agreement that we did with Chemours, we're under $200 million next year for the New Jersey piece. And then in 2026, that drops to like $30-ish million. So it gets to be a pretty small number when you can stretch it out over 25 years.

Frank Mitsch, Fermium Research. When you took this opportunity to recast the New DuPont, I'm just curious as to why you decided to keep Healthcare & water together. What are the linkages there? Why did you decide not to split those into -- and so have 3 reporting segments. And then as I think about the Healthcare & Water businesses, I mean, very strong positions, very good brands. How has your market shares been trending over the past 3 to 5 years? And what is your thoughts on gaining market share in the future in those businesses?

Yes. I'll open with the decision on why the segment structure is 2 versus 3, and then I can turn it to you, Jeroen, for the market share. So for us, it was the cleanest way to report. So the high-growth businesses, they have similar growth profiles. They have similar margin profiles. So it made sense to report them together. You'll see the revenue for each when we disaggregate revenue. So you'll see the revenue that healthcare generates and the revenue that water generates. And so we thought that was a nice way to merge the growth businesses together and then diversify the ones that were more alongside GEP. So it wasn't anything more than that with respect to just simplification of how we report. On the share.

Yes, sure on the share. So on the -- I would say on the health care side, of course, when you look at the space where we are with Spectrum and Donatelle, we've essentially acquired market share, right? We weren't there before. And so that is still all part of the integration we're doing right now. And so we see clear opportunities to expand on that share. But clearly, it's a space that we probably had recent participation in.

On medical packaging, I think our share has been very strong and it's continuously strong as well, certainly now with the expansion of our Line 8 where we can actually much more Tyvek medical material packaging -- packaging materials, I think we have a lot more opportunity to expand that share even beyond where we are today because previously, we were not able to serve demand that was out there, right? So I think that's there on the healthcare side. On the water side, I think we have always been a very significant participant in the space. Certainly, if you look at RO, if you look at ion exchange, I think we have a very strong market share position there. Are there pockets where we continuously can expand share? For sure, there are. And certainly, if you look at some of the growth areas that I talked about in terms of DLE, PFAS removal and green hydrogen, these are all spaces that are very much IER oriented. And so therefore, creating new opportunity of markets for us that we can expand our total share within the IER space from as well.

Alexksey Yefremov from of KeyBanc. Wondering if you have a pace of bolt-on acquisitions in mind, like one deal every year, 2, 3 years for sort of mid- to large-sized bolt-ons?

Yes. I wouldn't say we have a numbers target. We have a dollar amount that we know we have available. We don't see right now any need to take on additional debt to do a large acquisition. We think with the proceeds that we have from the Aramids divestiture as well as the excess cash that we generate, that would be more than efficient to fund the M&A opportunities that we see in the pipeline. If we were to find an opportunity that was really high return for us and met all of our thresholds was accretive to growth, low cyclicality, low capital intensity, if we did decide we were going to take on some debt, we would be back within our normal debt range within 18 to 24 months. That would be a commitment. But for us, right now, it's more the bolt-on size. So think the size of where we were with Spectrum or layered a few years ago, really adding to our toolkit. We're not going to be adding a leg to the stool.

Maybe we'll take a quick question from the folks online. So Lori, we've obviously talked a lot about transformation today. So how do you view the New DuPont going forward? And where are you most excited about the opportunities ahead of us?

Yes. I mentioned in my opening comments, what excites me the most is just the opportunity to drive growth. And so we have a nice line of sight that Antonella nicely detailed with respect to how we'll get to the 3% to 4%. And if there's end market cooperation that's beyond that, we'll take it. But we did not assume any recovery in construction or even automotive, which is kind of in stock for the last couple of years well. So that growth piece is very exciting. And the building of the business system is the other piece that personally energizes me. So really having that discipline around driving our excellence models and coupling them with a really robust business system is going to influence not only the culture, we have a great culture at DuPont.

Dave had made a cool comment to me that he was visiting the sites pretty rigorously over the last couple of weeks, and he could have mentioned what the core values were without them ever saying what they were because he felt them at the sites. And so I would -- I'm going to really build on that strong foundation with the great people and the great businesses that we have and just enhance it with a focus on growth and improvement.

Mike Sison, Wells Fargo. Lori, 3% to 4% organic sales growth would be exceptional, particularly in chemicals. Hopefully, you're not with us. But even in industrials, I think that would be a really nice achievement over the next couple of years. Just curious, if you were not to achieve that goal, why do you think that would be? Would it be macro? Would housing stay weak or with some investments, regulation competition? What would cause you potentially to miss that goal? And then if you do achieve it over the next 2 to 3 years and you don't get the multiple that you want, do we get 3 new mini DuPonts after that? Or how do you sort of get that value over time?

Yes. I mean I think with respect to the first part of your question about what would enable us to achieve the 3% to 4%, it would primarily be if the end markets don't cooperate. So if we head into some type of recession or there's further malaise in the construction and automotive spaces that would cause us to not even see just not be able to get to that 2%, that would be. There's also another small piece that we are excited about within Beth's portfolio. So she obviously brings a key competency in 80/20 work that she had when she was at ITW.

And as you apply the 80/20 framework, sometimes it will come at the expense of some volume as you take complexity out that drive really nice margin growth. And so that we're ferreting out that opportunity to see where that sits, but that could be one piece that I wouldn't say it would cause us to miss the 3% to 4%, but it could factor in as a piece that we don't have in the 3 to 4 basis now. But I'm confident, assuming end market cooperation that we'll be good with the 3% to 4%. And as far as the creation of 3 mini DuPonts, right now, we're committed on running the company. We've got really great businesses, really great people, really great teams. But we are always looking for valuation and seeing where we are versus where we think we could be.

Thanks. Just a couple of other things. Maybe just touch on your businesses as it relates to China. My impression, perhaps incorrect, but correct me. So it looks like you're overrepresented in China on water and filtration I'm not sure if you're over or underrepresented in China as it relates to the Chinese EVs, which are becoming a bit of a juggernaut. This might tie a little bit into the share question as it relates to water and your geographic mix. But can you just give us your assessment of China versus DuPont and your relative position in water versus the Chinese EVs?

Yes. So we're 10%, so much more in line with the peer set with respect to total company China exposure as a percent of sales. So we went from around 20% with total DuPont down to 10% with the New DuPont. So that was nice to see. I would say I'll let Jeroen cover the water side and maybe Beth cover the EV side in more detail. With water, we are -- that is where a big chunk of our 10% exposure for total DuPont comes with roundly not quite 1/3 anymore of the China being the RO business.

And then with the OEMs in China on the automotive side, our exposure -- we have nice exposure in China outside of BYD. So BYD just either uses their own adhesives or they use really low-cost models. And so if that dynamic persists with respect to BYD being the large player in the space, then we wouldn't have the opportunity to participate with them. But the majority of all the other Chinese OEMs, we are well entrenched with. In fact, some of them, we have 100% of their business and some of the -- in the higher-end models. And so we're watching closely what the BYD situation looks like to make sure that we're aware of the dynamic there. It feels like it might be flattening out a bit and others are starting to gain some traction, but I'll let Jeroen and Beth add some incremental comments.

Yes. So sure, maybe start with water. So if I look at the total water business globally, the portion that the China business has actually reduced over time. And we've seen that reduction because other regions like the PAC region [Audio Gap] and I think our market share position there has been very stable actually. And so we have not seen any major deviations there at all. So -- and so if I look then further at where the majority of the growth opportunities will play out for us looking forward, it really is going to continue to be in the Middle East because of desalination in the PAC region because of the microelectronics business, some of the microelectronics business is now emerging here in North America as well. So we're going to see that benefit there. So I think over time, we'll see actually faster growth in the other regions that will sort of reduce our further dependence on China even in water as well.

Yes. And in terms of the EV space in China, Lori is right. With BYD, we've actually not had such a strong position because they handle it a different way, but we are well positioned with others like Xiaomi and some of [Audio Gap] so it's a good opportunity. And as I mentioned earlier, we're really well positioned across EVs globally in adhesives in terms of being, I think, all the top 10 global automakers where we actually have products in their vehicles. So I'm looking forward to that in terms of the expansion in EMEA, particularly of EVs, I think we'll be really well positioned to support that as well. And then China, maybe just one other thing outside of adhesives, we're really well positioned with Molykote on all the local -- local for local Chinese auto space as well. So -- but again, that tends to be quite regional, and we support well in each of the regions.

And just one little data point. We said a couple of times that Water has high recurring revenue, but I never heard a percentage. Could you frame that for us?

70% of our annual revenue is coming from replacement cycle of existing installation.

Patrick Cunningham with Citi. Can you talk a little bit more about the opportunity for portfolio optimization within Diversified Industrials. You've obviously sold off the Aramids business here. On the one hand, it looks pretty compelling in terms of latent growth and operating leverage. Do you want to prove that out over multiple years? Or do you think there'll be opportunities to get rid of some more cyclical businesses, higher capital intensity businesses?

Yes. I mean I don't want to comment in any specificity. So we had mentioned that we have a strategic intent to continue to morph towards the higher growth spaces. There are high-growth spaces in diversified today. So we've got a really nice position in aerospace, a really nice position in EV. So I think we're just constantly assessing our perspective from a shareholders' lens and determining does it add incremental value for our shareholders and for ourselves. And so as we play out that analysis is usually what leads us to decide whether or not it fits in our portfolio.

So I mean, I think to the Aramids question, that was a business that was the lowest margin profile in the company. And so that was a big factor when we were looking at the decision to divest Aramids and it was challenged, especially on the Kevlar side from a competitive perspective. We don't have any of that left. So the decisions that we make in the future with respect to portfolio optionality are going to be really more around how do we shore up that growth percentage of our portfolio.

Vincent Andrews from Morgan Stanley again. I wanted to tie together a couple of things, Antonella, on the financial forecast. We have the CAGR of the 3% to 4%. You have the margin expansion 150 to 200 over that time frame. There was a little conversation before about, hey, maybe we're going to prune some volume initially. So when we think about those CAGRs, are they linear? Or is it a little bit more loaded to the back half of that period because you've got a little work to do initially? How should we just be thinking about that starting in '26?

Yes. I think you'll start to see nice performance out of the gates. It's not expected to be all back-end loaded in the 3-year plan. And quite honestly, even from a margin perspective, you'll probably have a little bit more of a benefit in the first 2 years as that's the time period in which we will take out the stranded costs. So you'll see pretty even performance and from a margin perspective, a little more built upfront.

So maybe for our final question, we've heard from Lori about what she's excited about going forward, maybe for the rest of the leadership team, can you share your perspective about what you're excited for the New DuPont going forward?

I'll start. I think I'm really excited about the timing now with where the company is headed and the direction that we can go in. So I think the timing is fantastic along those [Audio Gap] growth opportunities with that segmentation and focus there, too. So I'm really excited about the business. And like we said, even the building space, the market needs to turn at some point. The underlying fundamentals are there. The challenges are there, and we're really well positioned for those. So beyond the EV and the aerospace [Audio Gap]

Healthcare & water industries, these are great spaces to be in, right? I think both from a size of the market are $13 billion for health care, $7 billion for water. If you look at the growth rates that come with these, very exciting spaces to be in. And certainly, if I then think about the position that we have already built for ourselves today as well as what we can still do beyond that. I think that ability -- the growth trajectory that I can see in front of us, again, both organically from what the market can do and how we participate from an innovation perspective as well as the inorganic opportunity that we have. I think that's a great opportunity, and I'm very excited to be able to deliver that growth contribution to the company.

Thanks. I would say, listen, DuPont is a great organization with a great culture, and I've had a really great experience over the last 3 years. And again, I would say the benefit of both. We have a long-standing history as DuPont, but yet a significant amount of change that allows this leadership team really the opportunity to write the next chapter of the story.

Yes. And for me, you've heard it a couple of times today. The people and the culture at DuPont are just different. When I think about what I've seen so far and I think about when we take a practical tool set, rigorous management standards and a common language, we put that together with the talent that we have on the field and the culture that already exists in this organization, I keep saying the sky is the limit. I mean we're going to be in for a really exciting couple of years here because we've got a lot of work in front of us, but we're poised to deliver on that.

Great. Maybe Lori can say final remarks.

So our goal for today was to build momentum for the New DuPont and prove to you that we have the right team, the right vision and the right strategy to drive value. So ideally, we achieved that. So thanks to everyone for your time. I'm also equally excited about the afternoon. So for those of you that are hanging around for the [ community ] session, they've got an equally impressive story. So they are the leader in the semiconductor space. They've got 2/3 of their business exposed to semiconductors, and they've got the broadest portfolio to address it. So I'm super excited to participate in that, too. So thanks, everybody.

Thank you. That concludes our morning programming. Thank you for joining us, and have a great rest of your day.

Good morning, ladies and gentlemen, and thank you for standing by. My name is Chris, and I will be a conference operator for today. At this time, I would like to welcome everyone to the DuPont Second Quarter 2025 Earnings Conference Call. [Operator Instructions] And I would now like to turn the conference over to VP for Investor Relations and Chris Mecray. You may begin.

Good morning, and thank you for joining us for DuPont's Second Quarter 2025 Financial Results Conference Call. Joining me today are Ed Breen, Executive Chairman; Lori Koch, Chief Executive Officer; Jon Kemp, Karen Electronics Business President and CEO-Elect of the Future Qnity Electronics Company; 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 will make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements.

Our Form 10-K, as updated by our current and periodic reports, includes detailed discussion of principal risks and uncertainties, which may cause such differences. Unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items.

We will also refer to other non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials and have been posted to DuPont's Investor Relations website.

I'll now turn the call over to Lori, who will begin on Slide 3.

Good morning, and thanks, everyone, for joining our second quarter call. Earlier today, we reported another solid quarter ahead of our previously communicated guidance. Second quarter sales of $3.3 billion grew 2% on an organic basis. Operating EBITDA of $859 million increased 8% year-over-year, resulting in operating EBITDA margin of 26.4%, an increase of 120 basis points from the prior year. Adjusted EPS of $1.12 was up 15% year-over-year. As a result of our strong second quarter financial performance, we are raising our full year earnings guidance. Antonella will provide further details shortly.

Second quarter saw continued strength in Electronics, driven by AI technology demand in both Interconnect Solutions and semi and strong volume growth in Healthcare & Water. This momentum is continuing into the third quarter with order patterns remaining strong through July. Weakness in construction continued to impact our diversified industrials business during the quarter.

I also wanted to highlight that yesterday, join me with Chemours and Corteva, we announced a settlement with the state of New Jersey to comprehensively resolve all current and future environmental claims, including PFAS across the four current and former operating sites and statewide for PFAS claim. The settlement will be payable over a 25-year period, and our portion of the total settlement is $177 million on an NPV basis. Importantly, this settlement also includes [ ALS ], which was less than 1% of the total settlement amount. The settlement is subject to final court approval.

Regarding our separation milestone, progress on the intended spin-off of Electronics continues, and we remain on track for a November 1 separation date. In June, we completed the composition of the Qnity Board adding two new members that bring a depth of experience and knowledge of the semiconductor sector that complements the existing diverse set of skills. The Qnity Board will be comprised of 10 members, including Jon Kemp. We filed a first amendment to the Form 10 registration statement with the SEC in June, which included additional pro forma financial information. This will continue to be an process with the SEC as we progress towards separation.

Turning to Slide 4. We are pleased to announce that we will be holding an Investor Day on September 18 for DuPont and Qnity focused on introducing both portfolios and their respective strategies for driving value creation. I continue to be excited about what lies ahead for both future independent companies and the investment potential for each. For the New DuPont as a leading advanced solutions provider, and Qnity as a pure-play technology solutions leader within the semiconductor value chain.

As we look forward to the New DuPont, we've assembled a highly experienced senior leadership team consisting of a healthy mix between in-house and external talent who bring great experience in driving growth and margin expansion. To highlight a few of our new leaders, Jeroen Bloemhard, currently leads our Healthcare and Water Technologies business. Jeroen has both internal and external experience in complex global markets with a strong focus on commercial excellence as well as a growth mindset. Beth Ferreira recently joined our team to lead our diversified industrials business. Beth brings deep experience and global perspective and in the industrial space with key roles at ITW and IMI, where she successfully led transformation efforts, drove operational efficiencies and fostered a customer-centric culture. David Cook just recently joined us from Danaher and will be our Chief Operations and Engineering Officer. Dave brings extensive knowledge and operational excellence with a proven track record of driving performance improvement and implementing business systems. The New DuPont will have a more focused portfolio, highlighted by high-growth healthcare and water end markets. With the continued emphasis on innovation and customer relationships. We are well positioned to accelerate growth through a more agile and focused organization. With that, I'll now turn the call over to Jon.

Thanks, Lori, and good morning, everyone. As we approach our November 1 spin-off, Qnity is poised to emerge as a premier pure-play technology solutions partner to the semiconductor value chain, with a leading portfolio, a focused business model and global and local scale, I could not be more excited about Qnity's future. established with decades of innovation, quality, consistency and technical know-how, we are a trusted partner to the world's leading semiconductor customers and electronics industry OEMs. Our broad and uniquely positioned portfolio brings end-to-end solutions and competitive advantages that span the entire electronics value chain, enabling AI applications as well as high-performance computing and advanced connectivity. Qnity is well positioned for growth, powered by a large and expanding addressable market and multiple industry tailwinds. .

I am equally excited about our upcoming Investor Day. At that event, I will share more about our portfolio and strategy, unique competitive advantages and innovation engine to drive long-term growth. I will now turn the call over to Antonella to cover the financials and outlook.

Thanks, Jon, and good morning, everyone. I am pleased with another quarter of organic growth and margin improvement as continued volume growth across many key end markets and operational focus by our team drove strong financial performance in the quarter, including solid cash conversion. Beginning with second quarter financial highlights on Slide 5. Net sales of $3.3 billion increased 3% versus the year ago period on 2% organic sales growth. Organic sales growth consisted of a 4% increase in volume, partially offset by a 2% decline in pricing. Currency was a 1% benefit in the quarter.

From a segment view, both segments saw organic sales growth with ElectronicsCo and IndustrialsCo, up 6% and 1%, respectively. Organic growth during the quarter was led by high single-digit growth in Interconnect Solutions and Healthcare & Water technologies along with mid-single-digit strength in semi.

From a regional perspective, Asia Pacific delivered 4% organic sales growth year-over-year. Organic sales were up 2% in Europe and 1% in North America. Second quarter operating EBITDA of $859 million increased 8% versus the year ago period as organic growth and productivity benefits were partially offset by growth investments.

Operating EBITDA margin during the quarter of 26.4% increased 120 basis points year-over-year.

Turning to free cash flow. We delivered transaction-adjusted free cash flow of $433 million and related conversion of 93% in the quarter. This was in line with our expected acceleration.

Turning to Slide 6. Adjusted EPS for the quarter of $1.12 per share increased 15% from $0.97 in the year ago period. Higher segment earnings of $0.11 drove the year-over-year increase, along with a lower tax rate, which resulted in a $0.04 benefit.

Turning to segment results, beginning with ElectronicsCo on Slide 7. Second quarter net sales of $1.2 billion increased 6% versus the year ago period on both a reported and organic basis due to an 8% increase in volume, partially offset by a 2% decrease in price. Currency was about flat during the quarter. At the line of business level, organic sales for semiconductor technologies were up mid-single digits on continued strong end market demand driven by advanced nodes and AI technology applications. Semi demand was better than expected, driven by timing shifts of about $15 million from the third quarter into the second quarter, primarily in China.

Interconnect Solutions also posted another strong quarter with organic sales up high single digits, reflecting continued demand from AI-driven technology ramps and benefits from content and share gains across advanced packaging and thermal management solutions. Operating EBITDA for ElectronicsCo of $373 million was up 14% versus the year ago period as organic growth and lower legal costs were partially offset by growth investments to support advanced node transitions and AI technology ramps. Operating EBITDA margin during the quarter was 31.9%, up 220 basis points versus the year ago period.

Turning to Slide 8. IndustrialsCo's second quarter net sales of $2.1 billion were up 1% versus the year ago period on both a reported and organic basis as 2% volume growth was partially offset by a 1% decline in price. Currency was about flat during the quarter. For the second quarter, Healthcare & Water sales were up high single digits on an organic basis versus the year ago period, with strong growth in both businesses. Diversified Industrial sales were down low single digits on an organic basis due primarily to softness in construction markets. Operating EBITDA for IndustrialsCo during the quarter of $509 million was up 3% versus the year ago period on organic growth and productivity gains. Operating EBITDA margin during the quarter was 24.4%, up 50 basis points from the year ago period.

Turning to Slide 9, which outlines our latest view on 2025 financial guidance. From a top line perspective, the midpoint of our full year total company net sales guidance of $12.85 billion remains unchanged as currency benefits are offset by volume softness, primarily due to a delayed recovery in construction end markets. We are raising the midpoint of our full year operating EBITDA and adjusted EPS guidance to $3.36 billion and $4.40 per share, respectively, driven by our stronger second quarter performance, which more than offset the net impact of tariffs now incorporated into the outlook. The net tariff impact assumed in the second half of 2025 is currently estimated as a $20 million headwind or $0.04 per share, equally split between the third and fourth quarter. Our updated guidance assumes no earnings benefit related to currency fluctuations versus the prior guide given our geographic cost base.

For the third quarter, we estimate net sales of about $3.32 billion, operating EBITDA of about $875 million and adjusted EPS of $1.15 per share, which includes a $0.02 headwind related to tariffs and a $0.05 year-over-year headwind related to tax. Our third quarter guidance assumes about 3% organic sales growth versus the prior year led by continued growth in healthcare, water and electronics end markets, partially offset by continued weakness in construction end markets.

Overall, another solid quarter and strong first half of the year. I want to thank our employees for delivering these results and for their ongoing support of the separation process. With that, we are pleased to take your questions, and let me turn it back to the operator to open the Q&A.

With that ladies and gentlemen, we'll take our first question from Scott Davis of Melius Research.

I just wanted to drill in a little bit on industrials because in 3 months, it's going to be a stand-alone. The 1% price, would I assume that's mostly just due to the tieback weakness and some price you have to kind of give up in that business when material costs are down.

No, it's more related to the price that we took through the inflationary period and having to get back a little bit as the raw material environment resolved. So it really was more in the diversified industrial space, there really wasn't anything in that tieback or healthcare space. So we look to reduce that price headwind as we go through this year just as we lap some of the concessions that started in 2024.

Okay. And will there be an effort to capture price to offset the tariff impacts then as well, Lori?

We do have some, but the majority of the reduction is related to supply chain moves. So we're able to move product around to avoid the tariffs. There is a little bit of surcharges that we put in to offset, but the majority of the benefit reducing the gross headwind down to the $20 million net headwind from supply chain base.

Next up, we have Jack Sprague of Vertical Research Partners.

On the settlement, obviously, nice to see that done. Very interesting comment, right, that was 1% of the settlement amount you've made a long-time argument, right, that you shouldn't really be embroiled in a to a significant degree. But I just wonder how we should read that across. One could maybe guess that New Jersey was so big and complicated and there was so much going on that AFFF considerations were really way down the pecking order. But perhaps not. I would just -- I'd love your thoughts on how to read that 1% across the other outstanding AFFF kind of open issues that you're dealing with?

Yes, we were definitely happy to announce the settlement and get another one behind us. And the real important piece for us was it's paid over a 25-year period. So the cash flow is related to the settlement will be material to the overall DuPont cash flows at any period. So -- but to your question, the settlement amount that was related to AFFF is in line with where we said the original water district settlement case would be with about 3% to 7% of the total headwind belonging to DuPont. So if you take -- our portion is related to AFFF and compare it to the 3M announcement earlier in New Jersey in that the 5% range, so right in the middle of that 3% to 7%. So that was really important for us to get out there to kind of give an indication of where future settlements and states where we didn't have a site could land with respect to the overall landscape.

And Jeff, we have one more state where we have a site where we've done significant remediation and we continue to. So at some point, you'll probably see something there that will be North Carolina, but every other state is AFFF and should fall, as Laurie said, and as this 1 did in between that 3% to 7%. And then remember that 3 to 7 were 1/3 of the 3% to 7% at DuPont. And one of the other things we liked about this what Lori mentioned, it was over 25 years. So I think there's opportunities to structure things like that for the others.

Yes, that's great to hear. And then just back to the brighter side of IndustrialsCo. Just looking at Healthcare & Water were they up collectively high single digits or both individually were up high single digits. But really, my real question is just I would assume we're kind of through the inventory liquidations that have been weighing on those end markets. But can you give some color on that? Have we recoupled the end demand? Anything else going on in the channel there? And just how you see the back half playing out in those businesses?

Yes. No, they were both up nicely. So healthcare was a little bit ahead of water with respect to growth, but both up nicely. And as you had mentioned, they're decoupling from the lapping of the destock that happened in both on the water side and then in medical packaging on the tieback side. So really starting to get to a nice position. As we look to the back half of the year, we'll continue to expect outsized growth versus the rest of the portfolio in Healthcare & Water are really a lot of opportunities on the water side, just given the secular trends around access to clean water and desalination and on the healthcare side, just with the aging population. And we've also been pretty clear that we'll look to add to those pieces of the portfolio as we go forward from an M&A perspective. So really starting to try to bolster that piece today. It's about 40% of the portfolio, we'll look to increase that as we can advance some of our M&A activity.

We've had some people play in health care mentioned uncertainty about Medicaid, Medicare reimbursements and the like. You're not seeing any of that sort of pressure in your business? .

No.

All right. Next up, we have Steve Tusa of JPMorgan. .

Just on the electronics trends that are going on there, there's just a lot of mixed messages. How do you see this cycle in totality? Are you guys at kind of like a normalized run rate of growth? Are we still like are we at a bottom in some of the consumer markets and therefore, things can accelerate? Like what is the -- do you think the broad messaging on the Electronic side?

Thanks, Steve. Great question. And I know there's been a lot of discussion already over the last couple of weeks. There's lots of industry players have reported already. What I would say is that we continue to be in a fairly mixed environment really, all of the growth so far for the last several quarters is really coming from AI-driven applications across advanced nodes, advanced packaging and data center. Most of the rest of the electronics economy kind of remains relatively weak. I think we're starting to see the green shoots of stabilization and recovery on the lagging edge parts of the market. And we expect kind of slow improvement as we move through the back half of the year for the more industrial-focused lagging edge semiconductor nodes. And then we still have a relatively weak consumer environment where consumer devices are expected to be up kind of low single digit. So we're really happy with the growth that we've seen and the position of our portfolio with advanced technologies and data centers and advanced packaging. But as we go forward and we start to see a broader recovery, I think there's plenty of opportunity to see continued improvement.

And then just one follow-up to that. If you -- I guess there were some news around some changes in the way that they're assembling and manufacturing some of these chips with, I guess, direct to the Board type of process, I'm certainly not an expert on this. I'm not sure if you guys have heard about that or looked at it and what that would mean for kind of your content in general on some of these new chips if they change that process?

Steve, look, I think that those -- we've said for a long time that we see convergence across the technology road maps between the chip fabrication and the semi road maps as well as the printed circuit board road maps, and that kind of converges mostly in the advanced packaging space. But because we have a really nice position kind of on both ends of that spectrum, we're able to sit down at the table with our customers and understand their end-to-end manufacturing process, their system integration and really work with them to solve problems. And to your point, we're seeing an increased number of engagements broadly with all of the industry leaders to help solve those challenges across both sides of our portfolio.

Next up, we have Chris Parkinson of Wolf Research. .

Jon, if I could just ask that question slightly differently. When I take a step back and I look at the environment heading into 2026, I think most people are aware of the kind of the node transitions. But when you think about your portfolio and where you stand and what you're seeing in terms of second half growth rates and where you think you could ultimately be, could you just quickly comment on what you're seeing across semi advanced packaging and ICS in terms of data center HPC and hyperscalers. It seems like there's some diverging growth rates, but things should ultimately be moving in the right direction over the next 12 months. So I'd love to hear your thoughts on that.

Yes, Chris, thanks for the question. I think you're absolutely right. The hyperscalers for the most part, seem to continue to be very robust in their investments and continuing to put in capacity. And we see ongoing node migrations to support those investments from our customers. We're really excited as we get into the second half of the year on the node migrations, particularly at N2 as well as some of the HBM, whether that's 3E or 4 on the DRAM side. We're really well positioned with content gains on both N2 and on the HPM side. So we see that as a net positive as those more advanced nodes start to scale. And then to the comment I made earlier, as we start to see a broader market recovery, both in the more industrial parts of the market and the consumer parts of the market as we start to see some of those refresh cycles tick up. Obviously, that will be a nice plug as well. And as it gets into more of 2026, stay tuned for that. As we mentioned, we'll be doing Investor Day in mid-September, and we'll provide a lot more color on on the trends that we're seeing kind of in the second half of the year and heading into next year. .

Next up, we have Jon McNulty of BMO Capital Markets.

I wanted to dig into Healthcare & Water a little bit more. The high single-digit growth, certainly looks like it did better than what we saw from most in Water and actually most in Healthcare as well. I guess can you speak to the drivers that you're seeing there, which of them are kind of industry or end market driven and which ones are maybe some of your own initiatives that may be helping to accelerate the growth?

So a little bit was the recovery. So this was probably the last quarter that we would see the outsized number because of the lapping of the destock last year on the RO side and on the medical packaging side and then also on the Liveo side. So on the biopharma side, we're seeing nice growth there. But underlying it really just goes back to the megatrends, and we're really well positioned to take advantage of those. So we've got really great customer relationships. We're leading positions in really all the end markets that we compete in. We've done a really nice job on the water side to really shore up our position in China. So we had mentioned that last year, we saw a bit of a destock, especially within the distributor channel that led to negative growth in 2024, and we quickly corrected that and got us back on track to see really nice share regain within the China on the RO side. So it's really just being well positioned in a nicely growing market. And as I had mentioned, we'll continue to try to add to that portfolio so that we can continue to drive outsized growth for the New DuPont.

Got it. Okay. And then maybe just the second question, just, look, splitting up a company has a lot of things to do, as I'm sure you're all seeing. I guess where does M&A and building up a list of assets for potential acquisition and the team to evaluate them? Where does that fit kind of in your to-do list? And how should we be thinking about that? And how are the Boards thinking about that when the assets actually do split come November?

Yes. So obviously, the first priority for us is getting Qnity separated. So we're well on track with that separation. We have the go live internally on October 1 and then obviously, the formal separation on November 1. But our strategy organization and a lot of my time and Antonella time is spent looking at making sure we've got the right pipeline from an M&A perspective to be proactive when we have the opportunity. So we spend a lot of time discussing this with the Board around where the key components are. There's a lot of fragmentation left within the healthcare space that we'll look to continue to take advantage of. Obviously, we completed Spectrum and Donatelle the past couple of years that really gave us nice positions in the med device space, and we'll look to add on there and the same in water. So making the decision earlier this year to keep water in the portfolio was the right one, and we'll continue to add to it. So it's a key focus of our strategy team. They're not really involved in the separation work that goes on, so they can obviously dedicate their full time to looking and out new opportunities for us.

So next up, we have David Begleiter of Deutsche Bank.

Jon, just Interconnect Solutions, sorry, organic sales growth did slow versus Q1 or the rate of growth is slow. Can you talk to why that occurred?

Yes. I think it's really just the year-over-year comp. So first quarter of 2024, we were still kind of in the midst. The recovery hadn't really started yet. And so first quarter of 2024 was a pretty easy comp. And we started to see acceleration in growth in the recovery, especially on the AI and advanced packaging side. Really starting in the second quarter and then continuing through the back half of 2024. So the ICS has now posted several really strong quarters on the back of some great wins and share gains in both advanced packaging and data centers, and we expect that momentum to continue into the back half of the year.

Perfect. And Lori, in the PFAS does yesterday, you're agreeing to buy rights and insurance proceeds from Chemours. Can you discuss why you're doing that and what that means for potential future support from DuPont to Chemours?

Yes. So together with Corteva, we did that to ensure that Chemours had the ample liquidity to be able to make the payments over the next 5 years, and I think they Dave, we're making statements that it covered them through 2030. So they should be in a really nice position to be able to make those payments as they come to, and I think, reiterating what we had said earlier, just the 25-year payment schedule was really key to that announcement and such a precedent, hopefully for future announcements. So that was really the reason behind it. We obviously had the MOU broadly governing the payments between the three parties, and I think it's been working really well for us.

And we're also highly confident we're going to recover the insurance money. So it's not a freebie. We'll get paid back on that.

Next up, we have Josh Spector of UBS.

I wanted to ask a question for Jon about the mix in electronics. I think 1 of the learnings from us from the Form 10 filings was the greater share of China exposure within Qnity, it's about 34% almost double where some of the peers are. And I think some of the commentary in the industry is higher exposure to leading edge nodes, which helps drive above-average growth. Can you just square that view versus higher exposure in China? And why that is, I guess, good exposure in your opinion?

Yes. Thanks, Josh. So when you look about China for Qnity, last year, and I think this is what's in the Form 10, we had about $1.4 billion. It's just over 30 -- it's about 1/3 of our total sales. When you look at that, -- more than half of that is really coming from the ICS part of the portfolio and the PCB and assembly. And that's just a function of where that part of the market is and the preponderance of printed circle board and assembly manufacturing in the world is taking place in China. And so it's somewhat natural that our position in -- with the technology leaders in that space would give us some outside sales in China. And then on the semi side, it's about -- nominally, it's about $650 million. A part of that is going to multinational companies who are manufacturing in China, and then we've seen the start-up of a lot of new fabs in China over the last couple of years. And we're well positioned in the start-up environment because of the quality and the reputation of our materials. So that's what's fueled a lot of the growth that we've seen specifically in China. As we look forward, we've said over the last couple of quarters, we said we expect a normalization of growth in China. I would expect that to come down to be kind of -- if you take kind of 2024 and the acceleration out, typically, we would expect to be about 30% of sales in China, and I think that's kind of where we'll normalize too. That's 30% consistent with others in the industry. And I think China is a large and growing market in electronics, and we're well positioned to win in China. And particularly in -- like I said, in some of the circuit board and assembly technologies where we've got local teams on the ground there, and we're doing a lot of local-for-local type strategies. As supply chain shift based on kind of geopolitical or other requirements, we've got a really good global position, and we'll shift with our customers as those supply chains evolve over time.

That's very helpful. I wanted to ask separately just if you can comment at all on if there is a process on divestments? And if so, I guess, how you're thinking about in the context of an Investor Day in 1.5 months, is there a goal to maybe have a firm view of if that's in or not the portfolio before that happens to make an easier communication story for you on the Remainco DuPont? Or is this just ongoing and we'll see where it ends up?

I mean no comment. Our focus right now, obviously, as I mentioned, is getting Qnity out the door on November 1. So no comment on the speculation. We have been pretty clear, though, that we'll look to shift the focus of the portfolio towards the healthcare and the water and that we had incremental portfolio work that we would probably be doing for New DuPont. So I'll kind of leave it at that. So no incremental comments to the news out there.

Next up, we have Jon Roberts of Mizuho.

Let me ask this maybe a different way. The agreement with Chemours and Corteva has a minimum EBITDA requirements. So if you do decide to further focus remains ours, how much EBITDA would you divest about going below the minimum requirement? Or does the lower leverage that you're going to have to RemainCo signal that you're going to do acquisitions for us that I see you so here...

Yes. So we'll reset the minimum EBITDA between Qnity and New DuPont at separation, and that will kind of set the new minimum floor for each of those entities. So there will be a cushion in each side if there wanted to be incremental divestments to be made to be able to work the portfolio. So there is room there at the outset. Obviously, the intent, I think, on both organizations, if there were divestments would be to redeploy the proceeds in M&A to continue to grow. So you don't run into problems with the Corteva side of the agreement, but there will be some cushion at the outset. So today, our combined EBITDA is over. So each of them will have an.

Next up, we have Aleksey Yefremov with KeyBanc Capital Markets.

I think we can just move to the next question.

Patrick Cunningham of Citi.

You had pretty robust margin performance in Industrials and posting pretty strong incremental margins despite price down. Can you help us think about the margin progression for the second half given you've lapped the bulk of destocking and maybe have some additional mix normalization there?

Yes. We have had very strong margin performance, and I would say, better margin performance than we initially anticipated at the beginning of the year. And quite honestly, when you look at our updated guidance and you kind of take a look at where we're at, I would say, on an overall basis, although we expect about 70 basis points of margin expansion from an underlying basis. So when you kind of put to the side the impact of tariffs and the impact of FX, it's actually more of a 100 basis points of margin expansion. So we're definitely doing better than we had originally anticipated. And to your point, focusing on IndustrialsCo explicitly, although our organic growth has been relatively low, the team is very focused on productivity, which is clearly helping drive the incremental margins. And particularly in the second quarter, I would say, very strong incrementals in that 70% range, and we'll continue to post nice margins on the industrial side.

Got it. That's helpful. And then just a follow-up on Industrial on pricing. Just to clarify, we should expect less of a drag from price in the second half? And now that this will be a stand-alone business, how should we think about pricing across the businesses in a more normalized environment?

Yes. So as Lori mentioned earlier, so one, yes, we will continue to see pricing be less of component of that in terms of price going down. As Lori mentioned earlier, where we have been seeing some of the pricing is on the diversified industrial side. Because when you take a look back at the last couple of years, we had some really strong pricing that clearly more than offset the impacts of some of the increased costs that we have. So we always take a look at the trade-off between volume and price, and you always got to look at each business individually when you're doing that from a line of business level. And what's most important at the end is that we continue to grow the business from an organic perspective and continue to have healthy margins.

Next up, we have Michael Sison of Wells Fargo.

Just for IndustrialsCo, volumes and EBITDA performance this year has been much more stable than my traditional chemical coverage. Anything else to point out to folks as you look to maybe shift that SIC code to industrials or or manufacturing versus chemicals that you might highlight at your Analyst Day, but just give us maybe your preview of the case there, given the results this year.

Yes. I think when you kind of take a look at our portfolio, it's pretty clear that IndustrialsCo is an industrial company and not a chemical company, and I think that kind of shows through clearly within our performance. So when you take a look at kind of the composition of industrials Co and 40% of it being in healthcare and water. And then even when you look at the diversified side, although there are a couple of different components within that piece of the portfolio, it's clearly much more akin to an industrial portfolio. And I think that, that's very clear. We are continuing to progress down the path relative to the GICS code. It will be looked at, and we'll see ultimately where we land, but I think that there's no question that we're an industrial company.

Great. And a quick follow-up for ElectronicsCo. Can you remind us kind of where we're at in terms of how much the portfolio is in advanced nodes and how much AI will continue to drive the growth there down the road?

Yes, Michael. So for advanced nodes, we have about 35% of our semiconductor exposure is in advanced nodes, which compares to about kind of 20% of the total industry. So nice outsized outperformance there, which is kind of contributing to us growing better than the market. On the AI side, what we've said before is AI, high-performance computing and data center is about 15% of our portfolio, and it's growing nicely. In the second quarter, for example, we saw growth rates above 20% and in that AI data center space. So really pleased by the performance there.

We have Frank Mitsch of Fermium Research. .

So the Chinese investigation into Tyvek was dismissed. I was curious if you have any further dialogue with the Chinese? And are there any other investigations that they may or may not be undertaking?

No. So we were happy to see it suspended and closed. And so it was -- when it first came out news that we quickly said was related to Tyvek and Tyvek only, and now it's been suspended. So we were happy with that conclusion.

All right. Terrific. And then the adjustment downward of the tariff impact from $60 million to $20 million, can you provide any more context on the $20 million? And could that -- obviously, things are changing on a daily basis, but any context you can provide around that the expectations for the $20 million?

Yes. So to your point, it does tend to change on a day-to-day basis. But based upon where we're at, I would tell you that what we included in our guidance is based on the 90-day that went into effect in May, and we are assuming that, that kind of holds through, through the remainder of the year. There have been a couple of other changes, particularly related to tariffs on the EU and India that we've put into our number. I think the latest news that potentially came out Sunday night into Monday is not necessarily included in the $20 million. We continue to watch it closely as do all other companies, and continue to work our mitigating actions as we move forward.

Next up, we have Vincent Andrews of Morgan Stanley.

Just wanted to revisit ElectronicsCo and the margins and maybe some thoughts into the 3Q on the margins. You had volume up 8%. It sounds like that had some favorable mix to it as well, but price was down 2 and you still got EBITDA margins up 220 basis points, which is obviously a robust increase. There was also a call out of lower legal costs. So could you just help us understand which parts of that are sustainable into where the margin in 3Q should be -- and how you're able to offset that negative price.

Thanks, Now the price decline that we saw, it's really more of a mix issue with the strong growth that we had in ICS, typically has a slightly lower margin than our semi business. So as the ICS business as a percentage of the sales is a little bit higher. It brings the margin down just a little bit, but not too much, still pretty healthy levels. As it relates to the overall margin potential, very similar to what Antonella commented on earlier. The teams do -- continue to do a really nice job of balancing the volume and price equation and then driving underlying productivity. Obviously, as we get more volume, we do see nice incrementals as we put more volume through the plant sites and then the teams continue to drive additional productivity on top of that, giving us opportunities to continue to invest in our technology road maps to really sustain and fuel the organic growth of the business. So I feel good about kind of where margins are at, and I think they're in a quite healthy place for us as we look to the second half of the year.

And then if I could ask you on sundry expense. There's been a pretty big swing in it year-to-date of about $137 million. How much of that is stuff that sort of was onetime items and was it excluded versus stuff that is actually in the numbers? And where do you think they will wind up being for the full year? Is it just sort of self out through the course of the year? And is there some way we can tease it out of the the guidance that's on, I think, it's Slide 14 that you have the below-the-line stuff.

Yes. So when you look at our thunder expense, one of the big things in there is the market-to-market on the swap. So that's really what's driving the number within that line item, and that is excluded from our underlying results that we support.

All right. And with that, our final question for today will come from Arun Viswanathan of RBC Capital Markets.

This is Arun on for Congratulations on a great quarter. You guys have already spoken at length about the reasons for the cancellation of the water spin previously. But looking past the Qnity spin in November, are you looking at the water business as core to the New DuPont? Or do you think you could potentially revisit that in the future?

No, thanks for the question. Yes. We definitely see it as core to the New DuPont. So the decision to keep and shore up the growth portfolio in the New DuPont was the right one. So we've got roundly 40% of our revenue today in Healthcare & Water and we'll look to add to that to bolster it and get it increase in the future. So no intent to do anything but grow and invest in the business.

Great. And if I could slip in one more. Just to dig a little bit more into the tariff comments. You mentioned that you're taking a lot of mitigating factors. Is that mostly from moving volumes around your network, changes in procurement. I think you also mentioned local for local strategy, or is it a combination of all that? Any additional color on that would be helpful.

Yes. So I would say about more than 90% of it is really related to supply chain movements. And then as Lori mentioned earlier, there is a small piece related to surcharges.

And with that, ladies and gentlemen, this does conclude our Q&A session. So I'll turn things back over to Anne for concluding remarks.

Great. Thank you, everyone, for joining our call. For your reference, a copy of our transcript will be posted to DuPont's website. This officially concludes today's call. Thank you.

All right. Ladies and gentlemen, this does conclude your call. You may now disconnect your lines, and thank you again for joining us today.