DuPont de Nemours Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2021

Key Takeaways

  • DuPont delivered Q3 results above the high end of its guidance range for sales, operating EBITDA and adjusted EPS, with price increases fully offsetting raw material inflation and strong supply chain execution driving high single to double digit organic growth across all segments.
  • The company generated $842 million in operating cash flow and $634 million in free cash flow in Q3, returned $657 million to shareholders via share repurchases, and expects to complete about $2 billion of buybacks in 2021.
  • DuPont lowered its full-year guidance due to semiconductor-driven auto production headwinds, cutting the midpoint of net sales to $16.37 billion and adjusted EPS to $4.20.
  • DuPont will acquire Rogers Corporation for $5.2 billion and divest a substantial portion of its Mobility & Materials segment to sharpen its focus on high-growth, high-margin markets in electronics, water, protection, industrial technologies and next-generation automotive.
  • The Rogers deal, expected to close in Q2 2022 at a 19× 2022 EBITDA multiple, carries about $115 million of cost synergies, is projected to be immediately accretive, and will be financed with prepayable debt to maintain investment-grade leverage.
AI Generated. May Contain Errors.
Earnings Conference Call
DuPont de Nemours Q3 2021
00:00 / 00:00

There are 16 speakers on the call.

Operator

And thank you for standing by, and welcome to the DuPont Third Quarter 2021 Earnings and Strategic Update Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer I would now like to hand the conference over to your first speaker today, Head of Investor Relations, Pat Fitzgerald. Thank you. Please go ahead.

Speaker 1

Good morning and thank you for joining us Thank you for DuPont's Q3 2021 earnings conference call. On today's call, we will also discuss 2 strategic actions that we announced this morning. We are making this call available to investors and media via webcast. We will extend today's call to approximately 90 minutes to allow for Q and A related to both earnings and the strategic announcements. We have prepared slides to supplement our comments During this conference call, these slides are posted on the Investor Relations section of DuPont's website and through the link to our webcast.

Speaker 1

Joining me on the call today Our Ed Breen, Chief Executive Officer and Lori Koch, Chief Financial Officer. John Kemp, President of Electronics and Sheryl will also join for the Q and A session. Please read the forward looking statement disclaimer contained in the slides. During our call, we will make forward looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risk and uncertainty, our actual performance and results differ materially from our forward looking statements.

Speaker 1

Our 2020 Form 10 ks, as updated by our current and periodic reports, Include detailed discussions of principal risks and uncertainties, which may cause such differences. Unless otherwise specified, All historical financial measures presented today exclude significant items. We will also refer to other non GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and posted to the Investor page of our website. I'll now turn the call over to Ed.

Speaker 2

Thanks, Pat, and good morning, everyone, and thank you for joining us. In addition to our excellent quarterly results, I am pleased by the opportunity today to talk about 2 significant strategic moves we are making to further strengthen our portfolio And deliver long term value for our shareholders. I will provide a brief overview of these announcements before Laurie walks you through earnings and then I'll be back to To go into more depth on our announcements today, our teams delivered outstanding results in the 3rd quarter Above the high end of our guidance range is for sales, operating EBITDA and adjusted EPS, highlighted by the actions we took To implement price increases to stay ahead of raw material inflation. In the quarter, we delivered a neutral price cost impact for the company, Which is a proof point in effectively managing the levers within our control to deliver strong results. Market demand in nearly every one of our end markets was strong and our supply chain organization executed well in a challenging environment to Deliver for our customers, organic growth was up high single to double digits in every segment in the quarter.

Speaker 2

I am pleased by the quick actions our teams took to position us to continue managing the supply chain challenges and raw material cost pressures effectively As we head into the Q4, as Laurie will cover in a few minutes, we expect to fully offset raw material price headwinds again in the 4th As I mentioned, we also announced 2 strategic transactions this morning, the acquisition of Rogers Corporation And our attempt to divest a substantial portion of our Mobility and Materials segment will significantly strengthen DuPont's position In our core high growth, high margin markets with a focus on electronics, water, protection, industrial technologies And next generation automotive. In addition to focusing the portfolio, these strategic actions will accelerate our top line growth, well against best in class multi industrial peers, thereby resulting in long term value creation. I will cover the details of the Rogers and M and M transactions in a moment. But first, let me turn it over to Lori to discuss the quarter as well as our outlook

Speaker 3

Thanks, Ed, and good morning, everyone. As Ed mentioned, customer demand across almost all of our end markets remained strong in the Q3. We saw continued improvement in many of the industrial end markets adversely impacted by the COVID-nineteen pandemic As global economies continue their recovery, organic growth in the quarter was up 16% versus 2020. We delivered net sales, operating EBITDA and adjusted EPS above the high end of our Q3 guidance. In addition, we had Strong cash flow generation and returned $657,000,000 of capital to shareholders during the quarter 1,000,000 in share repurchases remaining under our existing authorization, which expires next June, and we expect to complete the full year 2021 It's about $2,000,000,000 in share repurchases, which is at the high end of the range that we provided earlier this year.

Speaker 3

Net sales of $4,300,000,000 were up 18% versus the Q3 of 2020, up 16% on an organic basis. Organic sales growth consists of 10% volume improvement and 6% pricing gains, reflecting the continued actions we are taking to offset inflationary pressure. Excluding the impact of metals, price was up about 5% during the quarter. A 1 percent portfolio tailwind reflects the net impact of strong top line results related to our acquisition of Layered Performance Materials and headwinds from the non core divestiture. Currency provided a 1% tailwind in the quarter.

Speaker 3

Overall sales growth was broad based and reflects high single to low double digit volume growth in all three of our reporting segments. Double digit organic growth within Asia Pacific, Europe and North America reflects continued strong demand in our key end markets. From an earnings perspective, we delivered operating EBITDA of $1,090,000,000 and adjusted EPS of $1.15 per share, Up 20% and about 90% respectively versus the year ago period. The earnings improvement was driven by strong volumes The Swiss pricing actions that we implemented earlier this year in the face of raw material inflation continue to benefit our operating results. For the total company, our selling price increases during the quarter again offset raw material inflation.

Speaker 3

Gross margin was up about 60 basis points versus last year, reflecting increases in both M and M and E and I. Operating EBITDA margin 25.5% was in line with our Q3 guidance expectations and reflects 50 basis points of margin expansion versus the prior year. Incremental margins were about 28% during the Q3 versus last year. However, if you Excludes the impact of price and costs, our operating EBITDA margin for the quarter would have been nearly 27% And incremental margin would have been over 40%, reflecting very strong underlying operating performance. I have also mentioned previously that we track our Operating performance for our core results on an underlying basis versus 2019 given the unique nature of 2020 and certain discrete items that impacted our operating results in the prior year.

Speaker 3

In comparing our Q3 results to pre pandemic levels, sales for our core businesses were up 15% versus 2019 with operating EBITDA leverage at 1.4x on an underlying basis despite the global challenges around supply chain pressures and raw material inflation. From a segment earnings E and I delivered 13% operating EBITDA improvement on strong volume and better than expected results from Laird As we continue to integrate this business with our current electronics offerings. The year over year comparison includes a headwind resulting from a technology sale in prior year. Adjusting for this item, operating EBITDA was up about 20% with margins essentially flat between both periods. In W and P, operating EBITDA increased 12% versus the year ago period on volume growth, primarily reflecting recovery in industrial end market for Aramid Fibers and the absence of charges related to temporarily idle facilities in the prior year.

Speaker 3

We were proactive in implementing Pricing actions during the quarter in W and P. However, these actions were more than offset by raw material inflation and logistics costs, which resulted in headwinds to margin and operating leverage. We expect sequential price improvement as we continue to implement increases in response to raw material inflation. M and M delivered 75% improvement in operating EBITDA or about 2.5x operating leverage compared to the year ago period. The improvement reflects higher volumes across all end markets, net pricing gains in response to raw material inflation and the absence and charges related to temporarily idle facilities in the prior year.

Speaker 3

For the quarter, cash flow from operating activities $842,000,000 and capital expenditures of $208,000,000 resulted in free cash flow of 634,000,000 Free cash flow conversion of 112% was up significantly compared to the Q2. Turning to Slide Which provides more detail on the year over year changes in net sales for the quarter. Strong customer demand across organic sales growth of 60% during the Q3. In E and I, volume gains delivered 9% organic sales growth for the segment strong demand across all product lines, but most notably Enova displays for new phone and television launches, Medical Silicones and Healthcare and CalRes deals within Electronics, along with a continued recovery in Aerospace. Semiconductor Technologies continues to benefit from robust demand driven by the ongoing transition to more advanced new technology And growth in electronics megatrends, and we expect these strong demand trends to continue in the 4th quarter.

Speaker 3

Within interconnect solutions, organic sales declines in the mid single digit reflects the anticipated impact Of the shift in demand related to premium next generation smartphones to the first half of this year along with softness in automotive end market due to the semi chip shortage. We expect these headwinds to continue in the Q4. However, we do expect organic growth of ICS to be up mid single digits on a full year basis. For W and P, 11% organic sales growth during the quarter consisted of 9% volume And 2% pricing gain. Continued recovery in industrial end markets resulted in significant volume improvement for NYMEX and Kevlar Continued recovery in commercial construction led by demand for Coriant surfaces contribute to high single digit organic growth.

Speaker 3

In addition, we saw continued strength in North American residential construction market for products including styrofoam and TydecoStrap And the retail channel for do it yourself applications. Organic sales for water solutions were up low single digits during the quarter as global demand for clean water Technology remains strong. However, logistics challenges do remain and have impacted our ability to meet demand. Pricing gains for W and P during the quarter reflect actions taken to mitigate raw material inflation, mainly within shelter and safety. M and M top line results reflect another strong quarter with organic sales growth of 28% on a 16% price increase And 12% volume improvement and included double digit organic growth in each of Engineered Polymers, Performance Presence and Advanced Solutions.

Speaker 3

Throughout the year, our M and M segment has been the most significantly impacted by raw material inflation. As such, The 16% price increase reflects the continued actions we have been taking to offset these high raw material costs and also reflect higher metals pricing in our Advanced Excluding the metals impact, price was up about 12% during the quarter. Looking ahead, while our global supply Constraints of key raw materials have improved in M and M compared to earlier in the year and auto demand remains strong among consumers, We do expect softness in the Q4 as the global chip shortage continues. Turning to Slide 5, Adjusted EPS of $1.15 was up about 90% from $0.61 per share in the year ago period. Higher segment earnings resulted in a net benefit to EPS of about $0.20 per share driven by higher volumes and strong results from Laird.

Speaker 3

As I mentioned, we were price cost neutral during the quarter given the pricing actions we have been taking to offset raw material inflation. Our lower share count continues to provide a benefit to adjusted EPS, specifically a $0.33 benefit to the 3rd quarter. Benefits from lower interest expense in the current quarter from delevering actions earlier in the year was mostly offset by a higher base tax Great compared to the last year. For full year 2021, we expect our base tax rate to be about 21%. Turning to Slide 6, I'll discuss our outlook and guidance for the full year 2021.

Speaker 3

We expect strong underlying demand trends to continue in the 4th order and almost all of our end markets and have seen signs of these trends in the month of October. However, we are starting to see the ongoing semiconductor Ship shortage impacts our downstream customers' ability to produce, which is creating some deceleration in order patterns, primarily in automotive end market Where IHS audiovote estimates for the second half have been cut by 17%. Due primarily to the softness attributable to the semiconductor We are lowering the midpoint and narrowing the range of our full year guidance for net sales, operating EBITDA and adjusted EPS compared to our previous estimates. At the midpoint of the ranges provided, we now expect net sales for the year to be about $16,370,000,000 down from the midpoint of our previous estimate of $16,500,000,000 Similarly, we now expect operating EBITDA And adjusted EPS to be about $4,150,000,000 $4.20 per share, respectively. This is not a demand or market share issue or inability to continue to pass on prices or effectively manage our global supply chain.

Speaker 3

As our Q3 results demonstrate, we have successfully executed on each of these. This is purely a result of the global semiconductor shortage, which is impacting our customers' ability to produce and thereby pushing out demand. With that, let me turn it back over to Ed.

Speaker 2

Thanks, Laurie. I'm excited to share with you more detail on the 2 significant strategic moves we announced this morning, Which will further strengthen our portfolio and deliver long term value for our shareholders. The announcements of an agreement to acquire Rogers Corporation And our intent to divest a significant portion of our M and M segment are substantial moves, advancing our strategy to shift the portfolio Towards higher growth and higher margin businesses, while significantly enhancing the earnings stability of the company. The acquisition of Rogers will build on the Laird Performance Materials acquisition that we closed July 1, adding another high quality business expands our leading market position across highly attractive end markets. Rogers is a market leader in each of their primary product categories And brings a world class organization with differentiated technology, innovation capabilities, technical expertise and deep customer relationships, The same value proposition that differentiates our DuPont businesses.

Speaker 2

Rogers operates in end markets where we have already established leading positions Such as consumer and mobile electronics and in others that are adjacent to our businesses such as 5 gs infrastructure and electric vehicles, Enabling us to offer an even more attractive total value proposition to a broader base to customers and creating to meet a compound growth over time given complementary products and markets. While M and M has Being the market leader in high performance thermoplastic serving automotive, electronics, industrial and consumer markets, We believe DuPont is no longer the best owner for this asset. By separating M and M from the rest of the portfolio, We are better positioning the business to expand on its leadership position in these markets and continue to tackle some of the industry's most critical challenges Such as vehicle safety and fuel efficiency, we will leverage existing tax attributes to complete a highly efficient cash sale of the M and M business, providing ample funding to finance the Rogers acquisition As well as further M and A and share repurchases, while maintaining a strong investment grade credit rating. We have a few key targets, Which like Laird and Rogers, we have been studying for a few years that would be excellent additions to our portfolio.

Speaker 2

Following the completion of the intended Rogers acquisition and the planned divestiture of M and M, DuPont will focus on key emerging technologies And have enhanced top line growth. Our participation in the auto markets going forward is much more connected to high margin Advanced technologies enabling long term secular trends like hybrid and electric vehicles as well as advanced driver systems. A large portion of our order exposure will be aligned to EVs and ADAS, both of which are growing at a significant pace. This improved balance in our end markets will drive further consistency in our results and allow us to deliver best in class Results among our multi industrial peers, strengthening our position in clean energy and electric vehicles, Combined with our existing positions in water, safety and production technologies, we'll continue to advance our customer sustainability Priorities. Slide 8 shows the modeling we have done for the company assuming the completion of both the M and M divestiture And the Rogers acquisition, including full achievement of the planned cost synergies.

Speaker 2

As you can see, pro form a DuPont will benchmark well For example, the semiconductor materials market is expected to grow at 4% to 6% per year, which is evidenced by the significant investments in new fabs and materials for both wafer production and packaging is positioned to outgrow the market by 200 to 300 basis points. Likewise, our $1,400,000,000 water business operates in markets that are expected to grow high single digits, driven by the global response to Thermal substrates complement our existing materials such as gap fillers, adhesives and NOMix papers. In the new portfolio, the strength in these businesses will accelerate the performance. In 2020, our top line for the core business Declined about 5%, which was a solid result compared to our top multi industrial peers, which were down about 8%. Our new portfolio Would have declined less than 3% during the worst of the recession in recent years, a substantial differential versus the peer set.

Speaker 2

We have taken several actions to drive top quartile EBITDA margins at DuPont. The M and M and Rogers transactions will deliver an additional The new portfolio is a collection of specialty businesses underpinned by innovation, customer relationships and manufacturing excellence, the combination that supports robust sustainable margins. I am also excited about the consistency these transactions will bring to our results. Strong ties to secular growth drivers will limit the earnings volatility of the company throughout the cycle. You can see the earnings volatility was significant from 2019 to 2020, primarily associated with the M and M segment.

Speaker 2

The same is true as we look back further where the cyclicality in the portfolio was driven by M and M. Looking forward, our portfolio have minimal exposure Commodity feedstocks and as a result, our cyclicality was significantly improved by 700 basis points to be in line with the top tiers. In addition to comparing to our top multi industrial peer set, we also looked at how the new portfolio will benchmark against the entire set of 20 For multi industrial companies, the results are the same. We will benchmark well above the median of the entire multi industrial group By improving the top line growth, EBITDA margins and cyclicality of the company to be well above our peer set, I am confident the quality of our businesses will be recognized, which will translate into a valuation comparable to top peers. Getting DuPont to this point It has been a multiyear journey with decisive news aligned with our value creation levers of active portfolio management, a best in class operating model And disciplined capital allocation.

Speaker 2

Slide 9 shows the actions we have taken to transform the DuPont portfolio to a combination of world class businesses centered in long term secular high growth areas. Our strategy was intentional and included strategic decisions to shift the company to higher growth, higher margin businesses with less cyclicality, while also pursuing acquisitions to strengthen our leadership position And innovation capabilities in the secular growth areas of electronics, water, protection, industrial technologies and next generation automotive. Our portfolio transformation started with the identification of non core businesses where our innovation, technical expertise and close customer relationships No longer drove a competitive advantage within the DuPont portfolio. We have been successful in identifying great owners for majority of these And our work continues. We expect to close the sale of the CleanTech business before the end of the year for around $510,000,000 Earlier this year, we finalized the separation of the N and B business in an R and D transaction with IFF, Creating a powerhouse in the food, beverage, health and biosciences markets.

Speaker 2

Separation of N and B provided a lift to the top line growth And operating EBITDA margins at the DuPont portfolio as N and B was at the low end of the portfolio on both measures. This was an unmatched opportunity to advance the DuPont strategy, including the receipt of $7,300,000,000 in tax 3 proceeds, which we redeployed to create shareholder value and position N and D and IFF for future success. Today's announcement of our intent to divest a significant portion of the M and M segment is the next step to advance our transformational strategy by increasing the resiliency and earning stability of our portfolio. Throughout, we have carefully assessed acquisition targets, Which can strengthen our leadership positions in the secular areas of electronics, water protection, industrial technologies and next generation automotive. As I have said before, we are strategic in our approach and only pursue targets that can be justified financially and then operate in our existing markets To minimize integration and execution risks, we prefer acquisitions that provide a significant synergy opportunity Similar to what we saw with the water acquisitions we completed in late 2019, the Laird acquisition earlier this year and the intended acquisition of We also only pursue targets where innovation and our technical capabilities set us apart, which is the case for both Laird and Rogers.

Speaker 2

Our transformation strategy has also been underpinned by operational improvements. We have made fundamental changes in the way DuPont is run. We have put full P and L accountability into the businesses by moving oversight of manufacturing operations and R and D under our business presence. We spend approximately 4% of sales on R and D and we no longer operate a central R and D function. Instead, we have empowered our businesses to allocate R and to the projects that are most critical to their growth and then hold them accountable for delivering results.

Speaker 2

The same is true for capital spending, The majority of which has been focused on capacity constrained areas. Throughout our transformation, the strength of our balance sheet has been and remains a priority. Following the N and B separation, we delivered our balance sheet to maintain a debt to EBITDA ratio and credit rating that provides us flexibility. We also continue to control our costs at both our manufacturing facilities as well as at our corporate functions. We have been prudent at taking costs out of our G and A line And today, I have a best in class cost structure.

Speaker 2

The work in our manufacturing facilities is ongoing through continuous productivity and asset reliability improvements Using new digital tools, which is an integral part of our operating plants today, the combination of focusing the portfolio And operational improvements have been part of our strategy to unlock shareholder value and strengthen the company. The M and M And Rogers' announcements are significant strategic steps in our transformation. I'll move to Slide 10 to provide more details on the Rogers agreement. Our modeling of Rogers is based on our 2022 estimated EBITDA of $270,000,000 which we are Highly confident the business will achieve based on a thorough diligence process, including a detailed review of their projections and assumptions. The purchase price of about $5,200,000,000 represents a 19x EBITDA multiple based on 2022 estimates We are highly confident in a synergy number of approximately $115,000,000 and our ability to achieve most of the forecasted synergies by the end of 2023 within 18 months of closing.

Speaker 2

We expect Rogers to be accretive to top line growth, operating EBITDA, free cash flow And adjusted EPS upon closing. We expect sizable revenue synergies from the combination of E and I, Laird and Rogers, but consistent with how We justify all deals. We have not assumed any revenue synergies in our model. And we expect closing to take approximately 6 months, Putting us in the Q2 of 2022. Because the Rogers transaction will close before we expect the M and M divestiture to close In funding the acquisition, we expect to prioritize prepayable debt, which can be retired upon receipt of the M and M proceeds to return our leverage to more normal levels.

Speaker 2

Slide 11 provides more detail on the synergy opportunities. DuPont is in a unique position to extract value from this combination due to the synergy opportunity that comes not only from having 1 of the largest Electronic Material Businesses in the industry, but also from the acquisition of Lair that we completed a few months ago. We looked across all three organizations to determine where there were synergy opportunities. As is the case in many of our transactions Where we combine businesses, we have complementary product offerings in similar segments. We expect significant synergies in procurement spend as As well as G and A costs.

Speaker 2

Because Rogers is a public company, we will also realize savings associated with folding them into our structure. Our anticipated Rogers cost synergies of $115,000,000 combined with the cost synergies we anticipate from the Laird acquisition Total approximately 6% of the combined revenue of our interconnect solutions business, Laird and Rogers, which is a very achievable synergy target. As I mentioned, we expect to achieve most of these synergies with 18 months of closing. Turning to Slide 12, I'll provide more detail on the business. Rogers Corporation is a $950,000,000 business with broad end market exposure.

Speaker 2

We expect Rogers top line to grow in the high single digits, accelerated by leading positions in the rapidly growing categories of electric vehicles and advanced The benefits of the planned synergies will deliver uplift to the EBITDA margins across all three businesses. Rogers has Two operating segments with leading positions in each. The first segment is Advanced Electronic Solutions, which includes the high frequency circuit board laminates business and the power electronics business. Rogers' 2nd segment is elastomericmaterialsolutions. The high frequency circuit board laminates business complements our existing printed circuit board business within interconnect solutions.

Speaker 2

This is approximately a $300,000,000 business that manufactures copper clad laminates for high frequency circuit Houston ADAS radars, 4 gs5 gs base stations and military communications. Also included in the Advanced Electronic Solutions such as electric motors for trains, ships, automobiles and wind turbines. Specialty busbars are used instead of cable hard systems and high power conversion applications when highly stable and reliable power conversion is critical. This is about a $250,000,000 business today, but poised for significant growth with exposure to next generation technologies, including re powdering applications for hybrid and electric vehicles. The second segment is the elastomeric Material Solutions segment approximately $400,000,000 business which manufactures precision foams and silicon materials with High reliability and high purity for cushioning, sealing, impact protection and vibration management across the number of growing end markets.

Speaker 2

This segment also has high exposure to electric vehicles for battery applications. On Slide 13, You can see the significant offerings in the combined entity through the examples of the electric vehicle, 5 gs infrastructure, consumer electronics and clean energy. The increased opportunity in electric and autonomous vehicles from the combination of Larry and Rogers adds to DuPont's existing material offense Into the electric vehicle. In a segment that has grown 30% per year, this is a tremendous opportunity to increase our share of wallet With offerings such as gap fillers, adhesives and Nomex paper from DuPont, high performance elastomers, Specialty busbars and thermal substrates from Rogers and electromagnetic shielding and thermal management solutions from Laird. Likewise, Laird and Rogers expand our offering in consumer electronics, where DuPont is already a leading materials supplier Through all three businesses within the E and I segment, Semiconductor Technologies, Interconnect Solutions and Industrial Solutions, EMI shielding, thermal interface materials and multifunctional solutions from Lair as well as high performance elastomers from Rogers Will make us an even more complete material supplier to leading OEMs.

Speaker 2

The combined application engineering and design expertise We are very excited about the technical skills that will transfer to DuPont through both of these acquisitions, Which will enable the businesses to continue working with customers, solve their most critical challenges using our combined portfolio of advanced technologies, A hallmark of all three companies, customers in these industries demand this level of sophisticated innovation and partnership. You can see how the acquisition of Laird and Rogers supports our strategy to expand our presence in high growth secular end markets And creates opportunity for compounding growth across related products and markets. Slide 14 Shows the combination of the Laird acquisition and the Rogers acquisition is highly complementary and can expand our markets within key electronics segments by 50%. The addition of Laird and Rogers provides an entryway into markets such as clean energy, Wireless infrastructure and defense electronics, where we previously had little exposure, but will now have distinct competitive advantages. We see further opportunities for growth by leveraging the DuPont Technologies across these additional electronics markets.

Speaker 2

The timing could not be better to enter these markets. The world is making significant investments in 5 gs infrastructure, clean energy And hybrid and electric vehicles to name a few. These investments are leading to rapid growth in these areas. Rogers has been making Significant investments in these areas and has a rich pipeline of offerings that will support the next generation technologies. The acquisition creates an exciting opportunity to capture this growth, which we think will be compounded by leverage of the combined E and I, Laird and Rogers Moving to the intended M and M divestiture on Slide 15.

Speaker 2

At DuPont, we have a proven history of Adapting the best owner mindset for each of our businesses. We constantly scrutinize our portfolio to ensure fit with our business objectives and Create as much long term value as possible for our shareholders, customers and employees. By announcing that we have initiated a process to divest a majority We have our M and M segment. We are committing to do just that, finding the right owner for a tremendous asset. The business to be sold Predominantly includes the engineered polymers and performance resins lines of business.

Speaker 2

Approximately $700,000,000 of current year revenue M and M segment is not Included in the scope of the divestiture and includes the automotive adhesives and multi based businesses, which align nicely with our offering for EVs, Industrial Technologies. The portfolio to be divested is expected to generate revenue this year Technology and application development, deep customer relationships, brands and manufacturing excellence. The business is well positioned to capitalize With a lean G and A structure, efficient manufacturing processes and a reliable supply chain of key raw materials, We expect that the divestiture process will move quickly. In fact, we will launch a marketing process in the coming days. We have considered multiple deal structures as part of the strategic review.

Speaker 2

We believe a transaction that maximizes the net cash Proceeds to DuPont will enable us to build on our core areas of strength like the Landon Rogers transaction and create significant value for our shareholders. I look forward to updating you as our process advances. I'll wrap up with a few comments on why I'm excited about Our future DuPont on Slide 16. With the completion of the Rogers acquisition and the M and M divestiture, DuPont will be building around our core foundational pillars, including electronics, water protection, industrial technologies and next generation automotive. Each of these areas is experiencing rapid growth as a result of significant secular tailwinds with long term growth drivers From high frequency connectivity in the most advanced technologies to water scarcity in some of the most remote parts of the world, The technical demands of our customers are high and we have a unique advanced technologies to partner with them to solve these global challenges.

Speaker 2

The actions we have already taken along with those we announced today enable us to strengthen our leadership position in each of the markets we serve. I I am confident this will lead to significant opportunities for employees and unmatched solutions for our customers. We are also creating an opportunity for significant value creation for our shareholders. As I mentioned previously, the combined transaction enhanced our financial profile Through higher growth, higher margins and significantly more stability, we will be positioned to outperform throughout the cycle. These are indicators of a strong, healthy and vibrant company and I am confident we will benchmark with the best of our multi industrial peers.

Speaker 2

Our capital allocation will remain balanced, returning value to our shareholders through a consistent dividend And we expect to grow with earnings and share repurchases as well as the strong balance sheet have been and will continue to be priorities for DuPont. We will also continue to invest in our business to grow organically and support their growth through select and targeted M and A. With that, Let me turn it to Pat to open the Q and A.

Speaker 1

Thanks, Ed. Before we move to the Q and A portion of our call, I would like to remind you that our forward looking statements Operator, please provide the Q and A instructions.

Operator

Please stand by while we compile the Q and A roster. Your first question comes from the line of Scott Davis from Melius Research. Your line is now open.

Speaker 4

Good morning, everybody. Good morning, Laurie and John. Good morning. Sounds like you guys have been busy. Kind of asking a kind of technical question here.

Speaker 4

I mean, the process that you're going to run on mobility, if it doesn't come out as you'd like, would you consider spinning the business? Spinning the business, is that one of the options that's in play here?

Speaker 2

Look, we're highly, highly confident There'll be a sale here. There's we already know people are interested in this asset. We've had many calls even in recent times About the assets, so it's going to sell. We're literally starting the process in the next few days. And one of the great things about the sale of this, it's really extremely tax which makes it very attractive that the tax leakage on this deal will be mid single digits to high single digits.

Speaker 2

So it's pretty incredible that We're able to accomplish that. So I'm highly confident it's going to sell. I would say and by the way, I would Say just targeting for your thinking that we close a deal like that around October of next year. By the way, I also am highly confident, which is kind of surprising, it's in everyone's sum of the parts of DuPont. M and M is by far the lowest multiple in the company, And yet, we will sell it for more than the multiple that DuPont trades at today.

Speaker 2

I would also say If you just benchmark, DSMs come in the market. I think a lot of you guys and analysts have it gone for at least 11 times. Our asset is a way better asset. It's better on growth. It's better on margins.

Speaker 2

It's much more global, bigger. And so I So I'm confident in itself for even more than the company literally currently trades at now.

Speaker 4

Good. And then Ed, as a follow on, can you talk through the synergies with Rogers? Is this standard kind of G and A stuff? Or is there something kind of more there that is That you can talk us through.

Speaker 5

Yes. It's pretty similar

Speaker 2

to our other deals, and by the way, it's a very Number 4, so as we said in our prepared remarks, we took ICS, which is one of our divisions this will be in the E and I segment. We used ICS, We used Laird and the Rogers deal and adding in the Laird synergies, by the way, it's 6% Revenue, so we're highly confident. We've been scoping this out for a long time. One of the nice things here, I guess I say nice, is it's a Public company, so all those costs go away, which are pretty significant, obviously, and that just happens. Then a big chunk of it is G and A and functional costs streamlining it into our structure.

Speaker 2

We get some procurement savings also and then we've got some facility consolidations. We've got sales offices all overlapping each other globally as an example. So we've scoped it out in a lot of detail. Obviously, we'll get more detail once we Sit down even more with the team. And I would also add, we had just closed on the Laird deal July 1, and we had announced $60,000,000 of synergies with Laird and the team is now at $63,000,000 and that's literally line by line who's doing it, When are we getting it?

Speaker 2

What's the payback? So we have line of sight, and hopefully we're being conservative here on the combo at $115,000,000 of

Operator

Okay. Your next question comes from the line of Steve Dusa from JPMorgan. Your line is now open.

Speaker 6

Hey, guys. Good morning.

Speaker 1

Good morning.

Speaker 6

So just quickly on the results, it sounds like kind of the majority of the 4Q cut is really kind of auto production related? And then I have

Speaker 7

Follow-up on the strategic stuff.

Speaker 2

Yes. Look, it's Steve. It's all auto. It's all centered on the semiconductor. We did not see it in the Q3.

Speaker 2

As you could tell by Laurie's prepared remarks, we had a very robust third quarter Still going along. We're seeing a little bit of order pattern on the auto end go down. We're just expecting it has through the rest of the quarter because auto builds are down 17% in the second half of the year. So that's pretty much how we modeled it out and So we'll probably see it here in the Q4. And look, you all know, it's consumer demand's there.

Speaker 2

Auto bills are supposed to be up 11% next year, so we should be in good shape in 2022, but I think we'll probably take a little bit of a hit here 4th quarter and that's what we guided to. There's no softness anywhere else in the portfolio. As you can tell, every one of our sub segments is up nicely Except for 1. So out of 9 segments, 8 of them were up nicely, and the only one that wasn't was related to the smartphone market, and we knew that we already highlighted that Because the demand came earlier in the year to tee up for the production of the phones, and we knew the second half of the year would be softer and it'll be fine again next year. So Demand is perfect everywhere else.

Speaker 2

By the way, our supply issues with force majeurs have cleaned up substantially, So we're not dealing with that. We're really dealing with just the semi thing and of course everyone's dealing with logistics and shipping and all that.

Speaker 6

Right. And then just lastly, I'm kind of like looking over the cash you're bringing in or you expect to bring in From these sales, and I mean, it's a pretty big number, well in excess of like the 5,000,000,000 That you're spending, you still have a couple of $1,000,000,000 of cash generation, some divestitures that are bringing in some cash Here in the Q4, I'm kind of getting to a pro form a year end 'twenty two cash number that's like, I don't know, like $6,000,000,000 $7,000,000,000 something in that range. Is that like is that math off? Maybe it's $5,000,000 I don't know, but it seems like you guys have like A ridiculous amount of excess cash after the dust settles on all this stuff. Am I off

Speaker 4

on my math somewhere there?

Speaker 8

So I think the only thing you're off is on the timing of the receipt of the cash from the divestiture. So we ended the Q3 with about $1,700,000,000 in cash. We generated $600,000,000 in change in free cash flow in the Q3 and we'll expect a similar posting in the 4th quarter. And we'll also continue to be active in the market with our share repurchases, probably about $500,000,000 incremental in the Q4. That will put you about maybe just shy of $2,000,000,000 at the end of the year and then you'll get next year the increment From the M and M proceeds from the divestiture and then paying for the Cardinal acquisition, we already have the funding in place for that.

Speaker 8

The one item outside of free cash flow that we will get in the Q4, as Ed had mentioned, is the proceeds from the CleanTech divestiture. So that should be about $470,000,000 after tax that will be incremental to the roughly $2,000,000,000 that I had previously mentioned for ending the year.

Speaker 2

Yes. So Steve, at the end of the day, if you go to the end of 2022, your numbers are clearly in the zip code there. And as we highlighted in our remarks, There are a couple of M and A targets we love. We've been looking at for literally 2 to 3 years, and we also are going to stay very balanced with share repurchase, but we don't Need to make any of those decisions now. We won't get the cash for the M and M business until about October 1 of Next year, we'll see where things are at that point in time.

Operator

Your next question comes from the line of John Walsh from Credit Suisse. Your line is now open.

Speaker 9

Hi, good morning, everyone.

Speaker 2

Good morning, John.

Speaker 9

Hi. I wanted to know if we can keep that train of thought going. You talked about wanting to maintain a healthy balance sheet, a lot of stuff going on, moving parts, several Company is also reporting today. Can you just kind of help us, what's the zip code you think you'll have your net leverage at When you kind of pro form a for all the divestitures and also for the acquisitions, where do you have it shaken out?

Speaker 8

Yes. So we still target to be around that 2.75 times by the close of the completion of both of the M and M business, payment for the acquisition of Rogers and then ideally another acquisition post We're receiving the proceeds from the M and M transaction, which would have us back to that 2.75 times around mid to end of 2023.

Speaker 9

Got you. Thank you. And then maybe just another question around So just the organizational capacity to kind of continue to do M and A, you talked about a couple of deals, Some assets you were excited about. Do you have the bandwidth to kind of do all this at the same time? Or should we think that any kind of Larger addition is, as you kind of talked about post kind of the M and M divestiture?

Speaker 2

Yes. If there was anything of this size, like a Rogers or Just to give you a feel it would be at least around the time or after the proceeds for M and M. So we're going to put this pre payable debt in place here just in the interim period. We can pay that off when we get the proceeds as Laurie said. And then we'll have as Steve Tusa was alluding to there, some 1,000,000,000 of dollars available at that point in time.

Speaker 2

So we'll really be Looking hard, is it share repurchases or an M and A opportunity and one of the sweet spots for us and we'll make that decision then. But I wouldn't expect that you would Just do anything before we are close to or around the time of getting those proceeds in the fall. By the way, the team is very capable. It's a separate Team that's doing a lot of the work on the separation of M and M. And we can get a transaction placed for M and M in the next three We have kind of 5 month timeframe to have a closed deal, but then we can't spin it until we do all the separation work, which is why I say October Of 2022 to get all that done where the cars are done, the separations are all done, the tax work is all done, where we can separate it.

Speaker 2

So that team did extremely good at doing it. You've watched us do the RMT and all that. And John's team is very Very quickly into the integration of Laird and this will just overlay you on to that. So I don't see any issues from a bandwidth standpoint of the company.

Operator

Your next question comes from the line of Steve Byron from Bank of America. Your line is now open.

Speaker 10

Yes. Thank you. When I look at the Rogers products, They're generally derived from either fluorinated polymers or polyurethanes or silicones. And just had a couple of questions on those. On that first bucket, These laminates that are chlorinated polymers, do they source any material That is aqueous and thus could have a PFAS wastewater issue.

Speaker 10

And then maybe overall, do you see raw material cost Pressures in this basket of products that is consistent with your inter Connect Solutions business or would you say it could be a little more like M and M?

Speaker 5

Steve, this is John. Thanks for the question. Rogers market leading high frequency laminates, as you alluded to, They do use some floral products, some floral polymers in order to help achieve some of that performance. It's a world class supplier. They've Got a diversified supply base of blue chip companies, globally recognized suppliers of that Who are actively involved in all of the regulatory and other Industry activity, they're sort of leading the way on that in terms of how we address some of the floral materials.

Speaker 5

Our teams have done a detailed diligence on the and S, the environmental, the product stewardship components of that. And we're comfortable with what that product line It is doing how it's performing right now and the supplier base for those materials. As it relates To kind of the inflationary pressures of the raw material flash pressures, it's very consistent with our electronics Business or like E and I business today in the sense that you don't see a lot of the run ups and that we And some of the big commodity moves, these are value based materials and you've got some exposure to Hopper used in laminates and silicone, but not any different than what we have in the rest of the portfolio. And it's been the team's fairly comfortable with our ability to manage that proactively.

Speaker 2

Steve, I'd Is that overall for DuPont to your line of question? We've highlighted to you that we've had over $400,000,000 of raw material inflation this year. $300,000,000 of the $400,000,000 is in the M and M division from the feedstocks there. And that Again, it's a great business, but that's what jerks the results around. Most of our pricing, by the way, was in the M and M division because we needed it to That's a pretty nice place to get to from that angle also.

Speaker 10

Okay. Very good. And The divestiture of the M and M businesses, do you have a level of confidence you can share about getting that 10x multiple and if you can't get it, is it a keeper?

Speaker 2

No. First of all, I would be very disappointed if we Sold M and M for a 10x multiple. By the way, when I was comparing to us, I'm using us at an 11 multiple. By the way, there's been assets out there not as good as this one that have sold for 12 and a little above 12 times So we're going to get a good number for this one. I will stress again, I have personally I have phone calls from people that have interest in this asset.

Speaker 2

I think the private equity world is going to be extremely interested in this asset. By the way, I think there's a very interesting opportunity out there because as publicly noted, DSM is going to market with an asset that would fit beautifully with This decree is an unbelievable company. So I think you're going to see a lot of interest around this and it's going to garner a nice Multiple, which by way back to my point, it's the lowest multiple in some of the parts in our company, and we'll get more forth than DuPont trades at.

Operator

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

Speaker 11

Thank you. Good morning. Ed, why not spin out E and I and keep M and M and avoid any possible If that's overhang on the high multiple E and high businesses.

Speaker 2

Yes, David. Well, first of all, look, I'm not Worried about PFOS. Look, you know I want to get it resolved. I know there's a little bit of a cloud still lingering out there. We will get it resolved.

Speaker 2

The last announcement we did was a settlement that cost us $12,500,000 in the state of Delaware. We're actively working it. I'm comfortable we're going to get there, and we'll clean that issue up So that's number 1. Number 2, spinning E and I out, you really got to go through the analysis of what that Trade for and I agree with trade higher, but what will New DuPont trade at on a bigger EBITDA base With what we put together here and we're taking up our top line growth rate, we're taking up our EBITDA margins, we're taking out cyclicality in the portfolio, there's no way that doesn't benchmark well against some of these premier companies that we've used. So if you get Some multiple uplift in DuPont.

Speaker 2

It kind of negates the multiple uplift from E and I, which is a smaller EBITDA base. I'd also I get asked a lot about because I've done a fair amount of RMT stuff. I always get asked that. There is no partner for Eni. It's the business.

Speaker 2

There's nothing that matches up In size, even pre Valere deal by the way, that makes sense and it would be pieces of E and I, which would leave Yes, just a partial business in DuPont and take the rest of it out. And then by the way, the beauty here, again, remember, The tax leakage is literally mid single digits to high single digits depending on what price we get for it. That's a rare situation to be in. So It makes a lot of sense for us to do M and M.

Speaker 11

Got it. Makes sense as well. And just lastly, Ed, what's the Talk about the growth synergies and the organic growth of the new enhanced E and I business?

Speaker 2

Yes. I'll let John cover that. We're excited about it, but let me We did not put it in our analysis of the deal, but the combo of the 3, E and I, Laird and Rogers It's really exciting. I think we had a pretty neat chart. And Doctor.

Speaker 2

Do you want to go back and look at it, but Don, why don't you talk to it a little bit?

Speaker 5

Yes. David, maybe I'll give you kind of 2 quick Examples here, when you look at it, Rogers really adds complementary materials and components that really build on DuPont's position in The industry today, if you use just a if you pull out kind of 2 specific application areas Around 5 gs and applications in smartphones, wireless infrastructure, military and defense electronics and automotive radar system, DuPont is the leader in flexible laminates and Laird has the EMI shielding and the thermal management And solutions, Roger is the market leader in rigid PCB substrates. And so with that enhanced offering, not only can you cross So customers and expand your share of wallet with a global customer base. But one of the things we're really excited about and we're already starting to

Speaker 2

see this with the layered integration process,

Speaker 5

by the way, is engaging with customers, The integration process, by the way, is engaging with customers to co design and help address Some of their most challenging needs. To give you one specific example there, everybody is trying to make electronic devices smaller, and one of the ways you get smaller You used hybrid rigid flex constructions on the Circa board, and now we've got a market leading flex Circa Business, a market leading rigid business and those complex hybrid rigid flex substrates It's become a lot easier to work with our customers and they're already asking for it. If you switch over to the electric vehicle space, we've got quite a bit of content And automotive electronics today, but we really didn't have a lot of exposure prior to Laird or Rogers Into things like the automotive the ADAS systems or the battery. And Laird brought with the EMI shielding With some of the absorbers, a great position in ADAS systems, Rogers built on that with their high And then what we're really excited about is the opportunity that they have with the specialty bus bars and the specialty foams, performance foams to really Some of the critical needs in the battery packs and power assembly, power electronics parts of the electric vehicles.

Speaker 5

So you put all that together with our Keith's business with the rest of our automotive electronics and will really be a preferred partner with both the Tier 1 Auto OEMs as well as the OEMs themselves to design the hybrid and electric vehicles of the future.

Speaker 8

Yes. And David, I think the chart that Ed was referring to in the backup is the pie chart on our end market exposure. And if you look at that, over half of our portfolio between electronics, Next gen auto, which we define as battery and ADAS applications and water, where that portfolio is mid single digits and then some from a

Operator

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

Speaker 12

Thank you and good morning everyone. Ed, could you talk a little bit more about the tax strategy on M and M? And I guess what I'm asking is sort of What are the mechanisms that limit the tax leakage? And is this an opportunity for tax savings that you can only really harvest Because of the sale of the asset or these tax opportunities that would accrue to the overall DuPont enterprise In the absence of an M and M sale, but might have taken more time to realize over any number of years.

Speaker 2

Yes, Vincent. I'll Let Laurie come. Laurie, why don't you comment on it? Yes.

Speaker 8

It really comes from going back to the DowDuPont transaction when we were able to step up the basis of the heritage DuPont assets of which are all going as part of the M and M transaction. So all those businesses that are in perimeter for M and M are from Heritage DuPont and therefore have the benefit of the stepped up basis from the DowDuPont trend. Okay.

Speaker 12

And just as a follow-up, When you think about in M and M, obviously, the Q4 is going to see some issues with the chip issue and auto build. How confident are you that that trues up in 4Q versus potentially lingers into 1Q or the first half of next year? And maybe you could Give us an assessment of what you think auto builds are going to look like into 2022 and that would be helpful. Thank you.

Speaker 8

Yes. The current estimates as you head into 2022, it's really just shifting out. And so the IHS is 11% growth in auto builds next year. And that still doesn't get you back to where we were Kind of pre trade war, pre pandemic at an $88,000,000 or $89,000,000 auto build number. So we're confident that growth is just getting pushed out.

Speaker 8

The demand is definitely there. You couldn't get a car now if you tried. And so I think there's definitely still a lot of pent up demand for us to serve. We have confidence it's really just a timing issue. It's not a share issue.

Speaker 8

It's not an underlying issue from a consumer It's really just when they're able to automakers are able to get the chips to complete the production of the cars.

Speaker 2

Yes. And by the way, just on the M and M front going into next year, we've continued during the Q4 and implemented some price increase actions to make sure we keep Covering the raw materials. So I think 2022 will be seem to be a solid year for the business.

Operator

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

Speaker 13

So on the acquisition, can you speak to the competitive landscape in terms of the businesses and how the growth rate for the And how the growth rate for the business has been over the last say 3 to 5 years First, the broader market, has it outpaced it? Are you gaining share in that area? Can you give us a little bit of color on that?

Speaker 5

Yes. Sure, John. When you look at it, it's really kind of different based on the individual product lines and the different divisions of the business. When you look at the high The primary competitors there are companies like SAHE Glass AGC, who did a couple of acquisitions in the last couple of years To build up their portfolio in that space, you've got some Panasonic is there, so primarily Japan based And then you've got some local folks in China who are doing some of that as well, largely because of some of the geopolitical situation. All of that is Outside and we're kind of back in the rearview mirror now and the company is really well positioned in continuing to grow that.

Speaker 5

On the ceramic busbars and ceramic substrates and specialty busbars, that's a pretty Fragmented business, you've got companies out there like Denka, Ferrotech, Heraeus and multiple others. It's a fairly fragmented landscape. What differentiates this technology is really the quality of the ceramic thermal substrates and the synergy that's With silicon carbide power modules, especially for electric vehicles. And so when you combine that with similarly with the specialty bus bars, It's going to replace things like the wire harness that's in a power system. As Ed alluded to in his prepared remarks, the quality there is really what allows the Yes, up in the growth acceleration really driven by electric vehicles.

Speaker 5

On the elastomer side, it's companies like Saint Gobain, who are really Woodbridge, Nida Danko are kind of a few names there. Across the board in each of these kind of three businesses, Rogers, it has a leading market share. They're among the leaders. They're winning in the market. They've got a great line of opportunities, especially on the automotive, the advanced mobility side with EV and ADAS.

Speaker 5

They're working with all the power electronic OEMs. And a lot of those, by the way, are E and I customers as well. So we'll have Great relationships across the industry to be able to deliver some of those growth synergies and the upside on a historical growth rate. They've kind of been growing mid single digits and with the step up from automotive opportunities in electric Vehicles which are markets that are growing anywhere from mid teens in ADAS systems to 30% on the EV side, they'll I'll see a nice growth acceleration as those start to scale over the next few years.

Speaker 2

John, they have very nice wins. We did a lot of we've been hearing it in the marketplace And obviously studying them for a few years, but we've done a lot of due diligence around the pipeline and the wins and they're very well positioned as John said on ADAS, EB with wins and a lot of design opportunities that they're working on. So we're we feel Very good about a high single digit growth rate going forward for the business.

Speaker 7

Got it. Hugely helpful.

Speaker 13

And then just as a follow-up, On the mobility asset sale or divestiture, however it ends up going, can you speak to how we should think about any stranded costs? How quickly you may be able to exit those If there's much in the way of anything that would be left anyway. Yes.

Speaker 8

I mean, we're very good at getting at stranded It costs quickly. So if there's any to be had, we'll get at it. I mean, we'll look at the transaction holistically. So you'll have the M and M Portfolio going out, Rogers coming in and then another transaction coming in sometime later in the fall once we have line of sight for Proceeds from the M and M divestiture. So we benchmark best in class from a G and A perspective.

Speaker 8

We'll continue to benchmark best in class post the transaction.

Operator

Okay. Your next question comes from the line of Chris It's Parkinson from Mizuho. Your line is now open.

Speaker 7

Great. Thank you very much. Just regarding Slide 11, you do have a history of exceeding expectations on cost synergies And clearly, you're already embracing the potential for revenue synergies as well. So just taking that 14 times post synergy multiple and integrating how you're assessing The long term aggregate synergy potential based on your various buckets, can you simply just discuss the potential to further reduce the price paid and what the investment community Should be monitoring during the 1st, let's say, 18 months just given your progress, which you've just highlighted on Layered? Thank you.

Speaker 2

Yes. Look, when we talk about rep cost synergies, hopefully, we'd be conservative and we can beat those numbers And we already are on layered by the way. So we'll keep updating you as the year goes on. By the way, the multiples actually, I hate to get right to a decimal, but it's 13.6 times. And if we find additional synergies, We've reduced it from there and we'll just keep updating now that we can sit down and actually with the teams in more detail that's usually where we So highly confident we'll get that amount and we'll yes, we believe we've beat it in the past, let me just say that.

Speaker 7

Understood. And just as a quick follow-up, just shifting to the macro, your team has done a fairly good job just driving pricing, controlling the raw As you highlighted, at least $100,000,000 ex M and M, but also transportation logistics headwinds. So based on what you're seeing right here, right now, As we're already in the Q4, just what should we think about the pricing algorithm versus raws as well as transportation logistics Heading into 2022 and 2023, I mean, is there any expectation if we get if we do in fact receive relief, you will get a structural margin uplift in certain businesses? Thank you.

Speaker 2

Well, most of that would be in the M and M business. So you try to hold price as long as you can, right, when rolls come down. So you might get Some benefit there, but I would say over a more intermediate time, they would track each other. So you wouldn't have a margin problem, but If all did come down significantly, you could give up some price, but you hold it as long as you could. I mean, the logistics issues, I don't think are getting any better out there.

Speaker 2

I think all the force majeures did get better as we said. So the raw material supplies into M and M is substantially improved, which is great. And we're able to A little bit last quarter with our customers in orders we couldn't ship in the 1st and second quarter. But we're looking right now at additional sur The charges on freight because that has continued to go up, especially ocean freight and all that. So I don't think we'll probably do some here.

Speaker 2

We're actually have a meeting in the next couple of days where we're going to do a surcharge instead of a price increase on the actual product itself. So people know, look, we're on the actual product itself. So people look, we're just passing this on to you because of the freight increases. So we want to be positioned well going into 2022.

Operator

Your next question comes from the line of John Roberts from UBS. Your line is now open.

Speaker 10

Thank you. I have two questions. Your 2022 Rogers EBITDA estimate is 10% above consensus. Is there any significant new product or development that you uncovered in your due diligence?

Speaker 8

Yes. So we estimated $270,000,000 for next year. So the largest incremental growth really is Coming from the top line. So you've got the benefit from they had made a small acquisition of Silicone Engineering that they just announced recently. So you have the benefit of that As well as about mid teens growth from an organic perspective really coming from the strength in the pipeline that John had highlighted So about 30% of their revenue is in advanced mobility, which is ADAS, which is growing kind of in the mid teens and then battery, which gets Upwards of 20% plus.

Speaker 8

And then finally, they did have a fire at one of their facilities in Asia. So we're expecting recovery there, Incremental 2022 over 2021. So those are really the key drivers with the top line that are dropping to

Speaker 10

And then Don't take this the wrong way, Ed, but this seems to set up an end game for DuPont and you step back once from the CEO role. Do these transactions focus DuPont enough that you might consider stepping back again?

Speaker 2

Not now.

Speaker 10

Thanks.

Operator

Your next question comes from the line of P. J. Juvekar from Citi. Your line is now open.

Speaker 14

Yes. Hi. Good morning, Ed and Laurie.

Speaker 2

Hi, good morning. Good morning.

Speaker 14

Yes, wondering if you can talk about your volume growth in China And wondering if you've seen any weakness related to housing and construction activities as we've been reading some headlines here. Can you just talk about the big picture there?

Speaker 8

Yes. So really the only pullback that we potentially will see in China in the Q4. So in the 3rd quarter organic growth in China was about 11%. That put us in the low 20% year to date. And in the Q4 right now, we're expecting high single digit growth In China organically.

Speaker 8

So the sequential deceleration is really just a reflection of the semiconductor shortage We have highlighted earlier impacting primarily our auto sales, less so our electronic sales. And then that timing shift That we've been highlighting around the timing of the smartphone deliveries that favor the first half. So I would say no Overall structural change, our expectations of being up organically 7% in the 4th quarter is ahead of where GDP is

Speaker 2

And our exposure in kind of the housing commercial sector in China is Minimal. That's a bigger business for us on the residential side in North America. So really no impact there.

Speaker 14

Okay. Thank you. And then clearly Rogers is a high growth company in areas such as EVs and wireless infrastructure. Ed, I know you're frustrated with your own multiple. I can hear that in your voice.

Speaker 14

But maybe you can talk about your thoughts And how did you triangulate on the multiple of 19 times 2022 EBITDA for Rogers and just your overall thoughts there? Thank you.

Speaker 2

Yes, sure. So look, the 19 times, I would never do if it was standalone in 19 times, I could tell you that. We comfortably have it down to 13.6 times with the synergies we know we can get. And As I said a minute ago, hopefully, we can get some upside to that. So anyway, I feel very comfortable why.

Speaker 2

This is a very high quality company and one of the things John and I, Lori, we love about it, it really is High in technology expertise, they're scientists. The products they develop are on the cutting edge. It's exactly what DuPont does. So the barriers around that that we like, and it's all it's to our existing end customers, and it also expands some markets where we think we can leverage our products, As John said, into these other markets, so it's a very high quality asset. Again, we've watched it for years and seriously for 3 years.

Speaker 2

And the beauty about this, it's a 13.6x. We feel like they with the funnel they have, They're on the cusp of some real secular growth areas that we're getting in on early with them. By the way, we feel like we did that with Laird and we're already seeing it in the performance of Laird. They're nicely out What we said we would do is that we have literally bought Lair now. If you just use the numbers they're running at this year, we bought Lair at 10 times.

Speaker 2

I think when we announced it, we said it was 11 times. And the performance we're going to end the year at on Laird has already brought that down 10 times. So and again, a very high quality asset. We got it at great price. We think we're right at that point With Rogers, with the secular growth areas, ADAS is growing 15%, EVs are growing 30%, just to name the auto industry, and Rogers is very well positioned there.

Speaker 2

And these things are just beginning to And Rogers is very well positioned there and these things are just beginning to really ramp.

Operator

Your next question comes from the line of Alex Yefremov from KeyBanc. Your line is now open.

Speaker 10

Thank you. Good morning, everyone. To add to Laurie, I would agree that end markets are very attractive for Rogers and the products Look, strong, but margins are lower than DuPont's legacy electronics business. In your due diligence, how did you think about that In terms of maybe technological differentiation, barriers to entry or opportunities for improvement?

Speaker 5

Yes, Alex. I'll go ahead and take that one. You've got kind of the way to think about it is you've got 2 thirds of the portfolio with established products that Have very attractive margin profiles that closely match the types of things that we have in the rest of the portfolio. And then you've got kind of 1 third That is in that power electronics space that is really just starting to scale up based on the EV. It's Yes, great technology with a differentiated position.

Speaker 5

It has a slightly smaller margin profile today As the volumes are starting to scale up for those applications, as we add the volume in, the margins drift up nicely and then you on top of that and you'll have a really solid, very attractive margin profile for the overall business.

Speaker 10

Thank you. And a quick follow-up on supply constraints in mobility supply For raw materials, if 100% is completely normal supply and maybe 0% is The worst point of the shortages, where do you think you would be in Q4 and first half of twenty twenty two?

Speaker 8

Yes. So the raw material constraints have really basically alleviated. So compared to where we were in the first half with the freeze in Texas, we're light years beyond that. So everything is generally back to normal with respect to raw material supply. What we're facing right now is really just the semiconductor shortage impacting the OEMs That are pushing lower demand back to us.

Speaker 8

And so once we can resolve the semiconductor shortage challenge probably in Sometime into the next year, you'll get back to a more normal environment. So it's really not broad. It's really just the semi shortage.

Operator

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

Speaker 15

Hey, good morning. Nice transaction, a couple of transactions, I guess. But it might be a little bit early, but when I about 2023 EBITDA, you take what you're going to do this year in 2021 minuteus the $1,000,000,000 for M and M, plus Rogers, plus Synergy. And I assume we get pretty good growth, right, over the next couple of years. Is kind of the base case for 'twenty three to look like 'twenty one, if not a lot Higher, well, maybe not a lot higher, but certainly the possibility of 2023 EBITDA could be higher than 20 21?

Speaker 2

Yes. I don't know that I want to Something out of 'twenty three, but look, I think we've teed up a portfolio. As we said, it's going to be higher growth And very little volatility in itself. And it also depends if we do another acquisition or we do more share repurchase, It depends on that also because I think it's back to Steve Duce's comments. There's some 1,000,000,000 of dollars Sitting here at the end of 2022.

Speaker 2

So it depends how we redeploy that to create shareholder value also. So there's still some big moving pieces. But And we expect nice growth in 'twenty two in the core new portfolio and we expect nice growth in 2023. As Laurie had mentioned, 40% of the portfolio is clearly nicely growing Way nicer than GDP because there are any secular growth areas. Take our water business, you take pretty much the whole EI sector Into account there, just to name 2 of them.

Speaker 2

And with the Lair now in there and the Rodgers in there, you get a nice part of our

Speaker 15

Got it. And as a quick follow-up, I understand the potential To be compared to the multi industrial folks, portfolio is going to be a little more simplistic to major businesses, but DuPont Tends to be put into chemical indexes for the major funds. So will these transactions allow you to move From SIC code or something like that to an industrial code where I think you can get a little bit more attention For the comps that you want to be compared to?

Speaker 2

Well, first of all, the comps by the way, They really are good comps because if you take the broad bucket of multi industrials, the end markets we're in are all the Key end markets, a lot of the other multi industrial, so we're not drifting off of something else here that's different. In fact, I would say the one thing that was different actually From the Compare Group was more evident. That was probably most people were leading more towards The chemical industry and not the multi industrial, but the portfolio now lines up end market very, very well. So So look, we'll work that issue on the multi industrial over time. We kind of put an action plan together on it.

Speaker 2

We need our There's the focus on that. We need to talk to the right people at the right funds within the big companies that invest in us. And we'll work that issue, but I think over time we will get compared. I mean we benchmarked really nice against that group.

Operator

Your final question comes from the line of Arun Viswanathan from RBC Capital Markets. Your line is now open.

Speaker 4

Great. Thanks for taking my question. I guess, two questions. So first off, On the Q222 expected close, is that a little bit later than you expect? Is there any regulatory issues that you You expect through this process and similarly for October 2022 for the divestitures, that also seems like a ways away.

Speaker 4

Are you just building in some extra cushion there?

Speaker 2

The 2020 so the closing the Rogers deal, I don't see any issues. We've obviously studied the antitrust extremely deeply. So don't see any issues there. Could that close a little bit We're just targeting the 2nd quarter to be safe. It could be a little faster.

Speaker 2

I don't think M and M will be than October 1 because the long pole in the tent is more the work we have to do internally to do pot to separate it. So we'll announce a sale To somebody way sooner than October 1, but we won't be able to actually separate it out of

Speaker 4

Okay, thanks. And as a follow-up, you've clearly been on a path To move towards higher growth, higher margin businesses in the hopes of getting some multiple uplift, What can you do to accelerate that if that's not shown in the market? Will you continue to march down this path of separation and streamlining? Is there looks like there's more announcements coming maybe potentially in water. Is that the next area of growth that we should think about?

Speaker 2

Well, by the way, we're down to these flat 5 platforms that we mentioned. So it could come really at any of those, but we really just highlight we would love That's in our ticker water space. We love that it's heightened in this growth range. I think it's a secular trend that's going on for many, many years and it's a global issue, which we can help solve for people. So we do like that space.

Speaker 2

Let's see how this Here it goes. I'm highly confident people will recognize what's in this portfolio. I also had, I think, which would Very helpful for everybody. We started doing the teach ins. John did one on semiconductor a month or so ago.

Speaker 2

We have one coming up here shortly, And we're going to walk you through every key piece of the portfolio, and I think it will really highlight the value. I've already internally here, like I just I'll use 2 companies we have, We have VESPEL and CalRes, and I don't think anyone has a clue what those businesses are like and how awesome they are and how good and the growth trends Those businesses are just to name 2 that we didn't even talk about today. So I think the teach ins will be very, very How powerful people to see what we have and the value of the technology that we have in the company, and I think that's going to be helpful also.

Speaker 1

Thanks, Ed. Thanks, everyone, for joining our call.

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