Chief Financial Officer at DuPont de Nemours
Thanks, Ed and good morning everyone. As Ed mentioned, we saw continued strong demand during the quarter in key end markets, with volumes higher than our expectations coming into the quarter. Cost inflation intensified further compared to previous estimates, but additional pricing actions are anticipated to fully offset these higher costs. These factors along with our team's continued strong execution focus contributed to those top and bottom line results well above expectations for the quarter. We also delivered a consistent operating EBITDA margin on both a year-over-year and sequential basis.
Focusing our financial highlights for the quarter on Slide 6. Net sales of $3.3 billion increased 7% as reported versus the second quarter of 2021 and increased 9% on an organic basis. The acquisition of Laird, partially offset by non-core divestitures provided a 1% net tailwind to net sales, while currency was a 3% headwind during the quarter, as the U.S. dollar strengthened against key currencies including the Euro and the Yen.
Organic sales growth included 8% pricing gains and 1% higher volume. Volume growth reflects continued strong demand in key end markets, mainly semiconductor, general industrial, water and construction, muted primarily by lower volumes for protective garments within Safety Solutions. These factors resulted in organic sales growth during the quarter at 9% for W&P, 8% for E&I and 15% for the retained businesses of the former M&M segment, they were report in corporate, which predominantly reflects our adhesives portfolio tied to next-generation auto.
On a regional basis, we delivered organic sales growth in all four regions globally including volume increases in Asia Pacific, North America and Latin America and China organic sales growth was up slightly versus the year-ago period and volumes in China were up low-single digits sequentially from first quarter, despite government mandated lockdowns and parts of the country into early June.
From an earnings perspective, operating EBITDA of $829 million was up 6% versus the year ago period and adjusted EPS of $0.88 per share increased 11%. The increase in operating EBITDA was driven by pricing actions, stronger earnings contribution from the Laird acquisition and volume gains, which more than offset higher inflationary cost pressures. Operating EBITDA margin of 25% were slightly better than our expectations that earlier this quarter and flat on both a year-over-year and sequential basis.
Our pricing actions have fully offset cost inflation on a dollar basis, but have impacted EBITDA margins. Our operating EBITDA margin adjusted to exclude price cost was 26.6% or 150 basis points higher than a year ago, driven by productivity and high higher volume. Our incremental margin was 22% on an as-reported basis, excluding the impact of price cost incremental margin for our core businesses was almost 60%, demonstrating strong cost discipline and operational productivity.
From a cash perspective, cash flow from operations during the quarter of $86 million and capital expenditures of $135 million resulted in free cash outflow of $49 million. Working capital was an additional headwind during the quarter and we continue to secure inventory given tight supply chains and incur higher inventory costs related to inflation. We expect improvement in free cash flow during the second half of the year, consistent with our typical pattern and factoring in a reduction of working capital level.
As we separate the M&M business, we continue to encourage transaction-related expenses with over $100 million of transaction costs incurred during the second quarter and about $700 million in costs related to the M&M separation is expected in full year 2022. These costs combined with higher working capital related to the M&M business that we are divesting are significant headwinds to our '22 cash flow.
Turning to Slide 7. Adjusted EPS of $0.88 per share increased 11% compared to $0.79 per share in the year ago period. Higher volumes and earnings from Laird provided a benefit to adjusted EPS in the quarter of $0.11 per share. These gains were partially offset by weaker mix in W&P related to lower garment production and capital on plant start-up costs totaling $0.03 per share. A lower share count from ongoing share repurchases provided a $0.04 benefit to adjusted EPS but over below the line items including a higher tax rate and exchange gain netted to a $0.03 headwind.
Our base tax rate for the quarter was 22.6%, up slightly from 21.8% in the first quarter and that notably from the year ago period, given certain discrete tax benefit recorded in the prior year resulting from tax law changes. We are maintaining an expected base tax rate range for the full year 2022 of 21% to 23%.
Turning to segment results, beginning with E&I on Slide 8. E&I delivered net sales growth of 16%, including 8% organic growth and 11% portfolio benefit from Laird, and a 3% headwind from currency. Organic growth for E&I included a 6% increase in volume and a 2% increase in price. From a line of business view, organic sales growth was led by Semiconductor Technologies, which increased mid-teens and strong demand continued led by the ongoing transition to more advanced new technologies and ongoing high semiconductor fab utilization along with growth in 5G communications and data centers.
Within Industrial Solutions, organic sales growth was up high single digits led by continued demand for OLED materials for displays, ongoing strength for Kalrez semi capex related product offerings, Vespel products serving recovering aerospace markets and for healthcare applications such as biopharma tubing.
Interconnect Solutions sales decreased low single digits on an organic basis as expected due to a slight volume decline. Volume gains for films and laminates in certain industrial end markets were more than offset by lower smartphone volumes due to the anticipated return to more normal seasonal order pattern compared to last year and the including softness in China smartphones. The business was also impacted somewhat by lower global PC and tablet demand and continued constraints in automotive production.
Looking forward, we expect similar growth patterns for Semiconductor Technologies and Industrial Solutions to continue into the second half of 2022. Within Interconnect, we expect to return to positive organic growth in the second half given seasonal strength and added capacity from our Kapton expansion. For the full year, we expect Interconnect Solutions to be up low to mid-single digits on an organic basis. This reflects a slight decline from our previous expectations as supply chain constraints and softer consumer demand are expected to mute volumes for smartphones, PCs and tablets.
Operating EBITDA for E&I of $480 million, increased 13% as strong earnings from Laird, volume gains and pricing actions were partially offset by higher raw material and logistics costs. Operating EBITDA margin of 31.4% reflects sequential improvement of 40 basis points. On a year-over-year basis, operating EBITDA margin was down 70 basis points due primarily to a 100 basis point headwind from price cost.
Turning to Slide 9. W&P delivered net sales growth of 6% as organic sales growth of 9% was partially offset by a 3% headwind from currency. Organic growth for W&P reflects a 12% increase in price and a 3% volume headwind. Pricing gains reflect broad-based actions across the segment, most notably in Shelter and Safety Solutions. Volume declines were driven by Safety Solutions.
From a line of business view, organic sales growth was led by Shelter Solutions, which increased high teens, driven by pricing actions and continued robust demand in North America residential construction as well as ongoing growth in commercial construction and strength in repair and remodel related demand during the quarter.
Within Safety Solutions, sales were up mid-single digits on an organic basis as pricing actions were partially offset by lower Tyvek volumes, given the shift from garments to other end market applications and the resulting negative impact of increased manufacturing line changeovers on overall production.
Sales for Water Solutions were up mid-single digits on an organic basis on pricing gains and continued steady demand for water filtration technologies, muted by supply chain constraints in Asia Pacific due to COVID lockdowns in China and an earthquake in Japan impacting our production.
Operating EBITDA for W&P of $348 million declined 1% versus last year as pricing actions taken to offset higher costs are more than offset by volume declines. Operating EBITDA margin of 23.2% was 170 basis points below the year ago period as the impact of price/cost was an approximate 200 basis point headwind to margins. Excluding the price cost impact, operating EBITDA margin was over 25%.
I'll close with a few comments on our financial outlook on Slide 10. We are still seeing solid demand, and our order book is sound in most of our end markets. However, future uncertainties continue to exist in the macro environment driven by inflationary pressure, challenging supply chain and U.S. dollar strength. Our teams remain focused keenly on execution, and we are concentrated on a leverage within our control in order to continue to drive value for our shareholders.
For the full year 2022, we are narrowing our adjusted EPS range while maintaining the midpoint of our previous range. We now expect full year adjusted EPS in the range of $3.27 to $3.43 per share versus our previous range of $3.20 to $3.50 per share.
We are updating our full year '22 net sales guidance range to be between $13 billion and $13.4 billion, reflecting a $200 million of incremental foreign currency headwinds, along with the removal of about $120 million in net sales related to the Biomaterials business, given its divestiture at the end of May. We continue to expect organic sales growth for the year to be up high single digits.
After adjusting the high end of our operating EBITDA guidance primarily for incremental currency headwinds and the removal of the Biomaterials business, we now expect full year 2022 operating EBITDA to be between $3.25 billion and $3.35 billion.
For third quarter 2022, we expect net sales to be between $3.17 billion and $3.37 billion and operating EBITDA to be about $810 million. We expect third quarter net sales and operating EBITDA to be slightly weaker than the second quarter as sequential volume increases are expected to be offset by further foreign currency headwinds and the absence of the Biomaterials business.
We are also expecting impact during the third quarter on operating EBITDA of approximately $15 million from unplanned downtime at our W&P screw-in site in Virginia associated with an unforeseen utility disruption from a third-party supplier.
On a year-over-year basis, we expect third quarter net sales to be up 2% at the midpoint and up high single digits on an organic basis. We expect third quarter 2022 adjusted EPS of approximately $0.81 per share.
With that, we are pleased to take your questions, and let me turn it back to the operator to open the Q&A.