Good day and welcome to the DuPont Second Quarter Earnings Call. Today’s conference is being recorded. And at this time, I would like to turn the conference over to Lori Koch. Please go ahead..

Good morning, everyone. Thank you for joining us for DowDuPont’s second quarter 2019 earnings conference call. We are making this call available to investors and media via webcast. We have prepared slides to supplement our comments during this conference call.

These slides are posted on the Investor Relations section of DowDuPont’s website, and through the link to our webcast. Joining me on the call today are Marc Doyle, Chief Executive Officer; Jean Desmond, our Chief Financial Officer; and Ed Breen, Executive Chair. Please read the forward-looking statements disclaimer contained in this slide.

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 risks and uncertainty our actual performance and results may differ materially from our forward-looking statements.

Our Form 10-K as modified by our first quarter Form 10-Q and current report include detailed discussion of principal risks and uncertainties, which may cause such differences. Unless otherwise specified, all historical financial measures presented today excludes significant items. We will also refer to non-GAAP measures.

A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our press release and in the appendix of our slides.

For your awareness, we have kept our prepared remarks to about 20 minutes in order to allow a full 30 minutes of Q&A and then end a little early, so that you can join the Corteva call, which starts at 9:00 a.m. I will now turn the call over to Marc..

Thanks, Lori, and good morning everyone. Before we get started, I’d like to acknowledge the incredible accomplishment achieved by the entire DuPont organization that enabled the successful separation of Dow on April 1 and Corteva on June 1.

I’d like to thank everyone for all they did over the past 3.5 years to execute our industry-defining transaction. I’d also like to specifically acknowledge Jim Fahey for his role in the integration of the Dow and DuPont electronics businesses and his more than 25 years of service.

As we announced this morning, Jon Kemp will succeed Jim as President of the E&I segment. Let’s get started on the quarter on Slide 2. We delivered a strong quarter and navigated dynamic market conditions in select end markets by staying dedicated to our core principles of innovation-led growth and disciplined cost control.

We significantly expanded both gross and operating EBITDA margins and grew pro forma adjusted EPS in the high single digits versus the year ago period. We also continued to drive returns on our innovation spend with key new wins across several high-growth trends, including auto electrification, 5G, health care, water and sustainable food sources.

Looking closely at the numbers, total sales of $5.5 billion were down 3% on an organic basis as continued strength in Safety & Construction was more than offset by the well-documented weakness we and others are seeing in electronics and automotive end markets. Organic sales in our core segments were down by 1.7%.

Regionally, organic sales were down 2% in the U.S. and Canada, down 3% in EMEA, down 4% in Asia Pacific and up 1% in Latin America. The organic sales decline in the U.S. and Canada was primarily driven by lower sales in the non-core segment from weak polysilicon pricing, impacting demand.

Weakened automotive and electronics end markets continued to drive the declines in both Asia Pacific and EMEA. However, we did see sequential improvement in our China results with sales down 3% versus prior year in the second quarter versus 10% in the first quarter. The increases were realized across all of our core segments.

One of the key bright spots in the quarter was the substantial improvement in gross margin, which was realized in all of our core segments. Gross margin improved more than 200 basis points as a result of our pricing discipline, plant productivity and cost control.

All in, swift action in light of prolonged market weakness led us to outperform from an operating EBITDA perspective versus expectations in spite of a weaker top line.

Operating EBITDA of $1.4 billion was essentially flat with the prior year period, resulting in strong operating leverage and demonstrates our ability to deliver pricing and drive operating efficiencies amid challenging market conditions. Excluding currency, operating EBITDA in our core segments was up 6% on a year-over-year basis.

We also delivered operating EBITDA margin improvement of 170 basis points versus the prior year and have delivered operating EBITDA margin improvement of greater than 300 basis points since the second quarter of 2017. Adjusted EPS, as shown on Slide 3, was up 9% on a pro forma basis versus prior year driven by lower depreciation and amortization.

The quarter also benefited from a $0.03 per share tailwind from a lower share count, in line with the share repurchases we did as part of DowDuPont and a priority that we will maintain as part of new DuPont evident in the $250 million in purchases that we have completed to date.

Before I turn the call over to Jean to discuss the quarter in full detail, I’ll provide an update to our full year guidance as well as our expectations for the third quarter on Slide 4. For the full year, we now expect organic sales to be slightly down versus the prior year.

This change in expectation is a reflection of the prolonged weakness in our short- cycle businesses, primarily automotive and semiconductors, causing both lower volumes and pricing headwinds as a result of the supply/demand imbalance. From an earnings perspective, we expect operating EBITDA to be on the low end of our previously stated range.

We are targeting $80 million in cost actions, in addition to the $30 million we took in the second quarter, to mitigate the macro headwind from both price and volume in the second half.

These new cost actions are biased towards the fourth quarter and include the benefit of a restructuring program authorized during the second quarter of up to $130 million.

All in versus our previous guidance, we lowered our organic sales by approximately 300 basis points versus the previous midpoint and lowered EBITDA by about 90 basis points versus the prior midpoint, which is a direct reflection of our ability to mitigate weak market conditions with levers that we can control.

We are raising our pro forma adjusted EPS guidance to $3.75 to $3.85 per share reflecting the strong second quarter results, the net impact of our second half segment earnings revision and updated D&A and tax rate assumptions, the latter of which is now expected to be at the high end of the range.

For the third quarter, we expect organic sales to be down low single digits. From an earnings perspective, we expect our tight management of spend and strong productivity actions will again enable us to deliver strong operating leverage despite a lower top line.

For the third quarter we expect pro forma adjusted EPS to be in the range of $0.94 to $0.99 per share. In the appendix we provide segment-level commentary, as well as some additional model and guidance.

Overall, I’m very pleased with our team continues to navigate the market uncertainty by capitalizing fully on our competitive strengths and focusing on the levers within our control to deliver strong bottom-line results. These actions will position us well as markets recover to capitalize on our improved cost structure and investments in innovation.

I’ll now turn the call over to Jean..

organic revenue growth and operating leverage. Return on invested capital is the third financial metric we have put in place and have stated a target of 100 basis point improvement annually. And since the beginning of 2017, we have driven well above a 200 basis point improvement.

This performance shows that we have taken actions necessary to make this a meaningful metric for DuPont, and ROIC is now an embedded mindset across the company, which will help drive sustainable earnings growth. I’ll now turn the call over to Ed..

Thanks, Jean. I’ll provide an update to our strategic priorities on Slide 11. We are committed to delivering best-in-class performance, and in the quarter, we continued to advance our performance towards these goals.

Our focus on innovation continues to accelerate growth from our robust R&D portfolio, as evidenced by our eighth consecutive quarter of pricing growth. We have and we’ll continue to invest in innovation even during the weakness we are experiencing in our short-cycle businesses.

In fact, our R&D spend as a percentage of sales was held steady at 4% for the quarter, in line with our targets. I am pleased with our cost productivity, including delivering over $100 million in cost synergies in the quarter, leading to 170 basis points of margin expansion.

We also continue to execute our portfolio actions and are actively engaged in discussions to sell the businesses within our Non-Core segment. We expect to have made meaningful progress on these divestitures within the calendar year. From a broader perspective, our portfolio presents potential for significant value creation over the long term.

I am pleased with the organization’s focus on driving free cash flow and improving ROIC. We recently issued a performance grant to members of our leadership teams, which has ROIC improvement as a key metric in the payout.

Integral to achieving this goal is effective capital allocation, and our commitment to this priority is evidenced by our completion year-to-date of $250 million of share repurchases under our $2 billion plan. I can assure you that the organization will stay focused on its top strategic priorities with the ultimate goal of creating shareholder value.

I’ll now turn it to Lori to open the Q&A..

Thank you, Ed. With that, let’s move on to your questions. First, I would like to remind you that our forward-looking statements apply to both our prepared remarks and the following Q&A. Please, provide the Q&A instruction..

[Operator Instructions] And we will take our first question from Vincent Andrews of Morgan Stanley. Please go ahead..

This is Angel Castillo on for Vincent. Just a quick question around your back half expectations. So you guys had talked about the 3Q guidance but just looking at what that implies for 4Q.

It looks like it’s a pretty sharp improvement in E&I for the fourth quarter and then also some improving trend in T&I even though third – 3Q guidance seems to be getting worse sequentially. So just curious as to what’s actually embedded in the back half. How do you wish it is and just how – maybe how dependent it is on trade resolution..

Thanks for the question. Now let me give you a little bit of an overview and then let me turn it over to Marc for a little bit more detail. The difference by way just high level between the first half year and the sequencing through the year is the first half and second half sales are virtually flat in our planning. They’re up just very, very slightly.

And don’t forget the fourth quarter, we have an easier comp because our businesses dropped off last year. So we’ll have more positive organic growth in the fourth quarter. Still negative in the third, but that’s an easier comp. So they actually look at the sequence in what we’re saying.

We’re counting on the same soft – short-cycle markets staying down the rest of the year, which is basically the E&I plate businesses, the T&I stuff and, in E&I, the semiconductor businesses. So we’re not counting on any improvement happening from that standpoint, so we’re planning our cost structure and our business actions around that.

But Marc, why don’t you give a little more detail on that?.

Yes. Thanks, Ed. And yes, just to build on what Ed said, there is a couple of sequential changes, I mean, there’s a slight improvement in E&I that’s really driven by the premium smartphone market, as we said, last quarter. As launches happen in the second half, we’ll see some additional sales. We’re pretty confident with that.

The orders started to pick up in the second quarter, and some of that is leading to a slight improvement in the back half for E&I. And then you asked about the trade resolution. We’re not assuming that there’s any change in the trade environment. So for our second half outlook, we’re sort of staying the course here on the current situation. .

Great. That’s very helpful. And just the other question I had is with – on cost cutting. So you guys talked about the $18 million here in the second half.

How sustainable are these costs? Or if things improve, are these costs going to come back? Or how should we think about that?.

Yes. Probably a couple of comments on that. I think we’re looking at that these costs as more permanently out of the system. So we did $30 million in the second quarter, and Marc and the team are doing another $80 million in the second half, as I think Jean said, biased more – Marc said biased more towards the fourth quarter by the time they kick in.

I’d also like to highlight for you a comment that Jean did make. We are not touching R&D if we’re – just because we’re seeing a little short-term softness. We’re going to run the R&D around 4%, maybe just slightly above 4%, which is exactly aligned with all the detailed plans of the – that the team has. And I think that’s really important.

We’re not going to clip our future growth prospects just because of a little weakness on short-term. .

Very helpful. Thank you..

And our next question will come from Jeff Sprague with Vertical Research. Please go ahead. .

Thank you. Good morning, everyone. .

Good morning, Jeff..

Good morning. Two questions from me. I want to pick up on the margins and then also thinking about cash flow. So the gross margin performance was very solid, impressive. Just picking up on the prior point a little bit, Ed or Marc.

Just thinking about synergies versus kind of ongoing cost actions, how that mix might change or synergies kind of starting to run their course, tail off.

And we might – and might we see kind of more kind of restructuring actions at this – well, going forward even in the face of perhaps better macro trends, say, into 2020?.

Yes. Jeff, this is Marc. I’ll take that. I mean yes, what we’ll be seeing is – I mean, take 2Q as an example. We still delivered about $100 million in synergies. That will be happening through the end of the year here. But we also delivered productivity on top of that, as Ed said, about $30 million.

We’ll see more productivity and less synergy going into 2020. And we’ve already teed up a number of areas that we intend to focus on, and so you’ll see us talking more about that on a going-forward basis. The synergy program will end early next year. We’ll deliver the last portion of that..

One of the big areas that the team has focused on, to Marc’s point about going in the future, is we have, as you know, a factory efficiency program going on, productivity there, which is pretty big for DuPont with some of the large facilities we have. And a big part of that M&A is in our S&C business, which has our bigger, tougher facilities.

And as you can see, during this past year, the team has made really good progress in that business, and we were up almost 700 basis points in that business over the last year. And again, great progress in the quarter there. A lot of that is – we are getting pricing in that business, but we are seeing some volume growth.

But really underlying that is really tremendous progress on that productivity on the factory footprint. So that’s a big thing. And by the way, it’s just not that. This happens to be the biggest opportunity. Marc’s got a program with the team across all the businesses when it comes to that factory efficiency..

And we will take our next question from Steve Byrne of Bank of America. Please go ahead..

Hi, I wanted to ask you about where you’re seeing revenue synergies within your businesses.

And is there potential for any more tailwind from this as we move forward?.

Yes. Yes, Steve, let me take that. It’s Marc. Yes, what we’ve said from last year is that there are opportunities across the portfolio. The revenue synergies take a little bit longer to build due to qualification timing. There are some launches that have been happening this year.

For example, some of the plant-based meat offerings, cellulosics, things like that are coming out of the new cellulosics portfolio. That was the combination of Dow and FMC. We did a beta launch of a smart materials offering around smart conference tables. That was also a Dow plus DuPont integrated offering.

And so you’ll see more and more of those launches. We’ve sized the opportunity for revenue synergies at around about $400 million EBITDA, but we said it would be three to five years out. So the way I think of it is it’s a growth kicker but at just a portion of the three to five-year growth objective.

And it’s really localized to those overlaps that exist in each of the segments actually if you look at the way we’ve put Dow and DuPont together..

And we will take our next question from John McNulty of BMO Capital Markets. Please go ahead..

This is Bhavesh Lodaya for John.

As you think about the strategic opportunities to create value in the portfolio, do you think the macro weakness may facilitate even more options? Or does it potentially give you optionality if you choose to preserve your balance sheet?.

I think – this is Marc. I’ll kick it off and then I’m sure Ed will add something. I think current macro is probably not the biggest driver for the opportunity here.

I think if you look at the strength of each of these businesses in the portfolio and the opportunities to potentially look for either M&A or other transactions down the road, that we see plenty of opportunities across the board. Will the current macro drive more of that activity in the future? Hard to say..

Yes. I’m more – I don’t think the macro – or if it’s soft or not, I don’t think it has any bearing on the strategic moves we would make whatsoever. If you make the right strategic moves, you’re going to create value, so I don’t take into account.

I would say, as Jean mentioned, though, just to highlight on your portfolio comment, feel good about the progress we’re making on the Non-Core front, and that will be cash coming into the company that we can deploy in a very smart way.

And every metric practically improves as we exit the Non-Core businesses, whether it’s revenue growth rate, margins, ROIC. So we’ll really focused the team on really getting those transaction moving along quickly..

Yes. Let me just build on Ed’s comment. That’s a good point on Non-Core. We do get questions about whether market conditions and potentially softening would impact the value that we get for some of those divestitures, and I can tell you we’re obviously well into things here. We’re not seeing any issues there so far.

The assets that we’re putting up for sale are good products lines, businesses. They have strong interest in everything that we’re rolling with here. So we’re feeling pretty good about the cash generation potential..

And our next question will come from Jonas Oxgaard with Bernstein. Please go ahead..

Good morning, guys. I have a pretty high-level question, if you don’t mind. With the trade war, there seems to be some, I don’t know, idiosyncratic effect. Like maybe smarter people than me foresaw that the trade war lingering would cause automotive demand to drop, but I certainly didn’t see that happening.

And so as the trade war keeps going, are there other what I’ll call idiosyncratic effects that you’re seeing already or that you’re worrying about? Or conversely, are there effects that could actually be positive for you?.

Yes, good question, Jonas. I think it was hard to predict. And I wouldn’t say automotive demand weakening was all about the trade war, but clearly that’s a factor. There are multiple factors, I think, if you read some of the industry reports.

The other industry that clearly there are some interesting dynamics is around the electronics industry, a lot of the headlines you read about the Chinese semiconductor industry and Chinese OEMs and U.S. suppliers. And I think we’re relatively well positioned. We have a lot of our production local.

We’ve been positioned in Asia for quite some time, both in our automotive and our electronics product lines. But we have to continue to watch those dynamics in U.S.-China relationship and how those might affect the competitiveness of U.S. companies on the ground there..

And we will take our next question from Christopher Parkinson with Credit Suisse. Please go ahead..

Great. Thank you. So the N&B segment now can just be a bright spot with a few exceptions like bioactives, which was well expected.

Can you just walk us through the puts and takes that you saw for the quarter, including the capacity constraint issue in Pharma Solutions? And then also, just if you can walk us through your long-term thoughts on the potential mix benefits from growing probiotics, pharma and cultures at a faster clip than the rest of the portfolio.

Just any your comments on how that could affect your margin outlook for 2020 and 2021 would be appreciated. Thank you..

Yes. I’ll take your second part and Marc can also add on the first part. You’ve been watching for a good three years now margin expansion every single quarter in the – with what was N&H and now it’s N&B but generally those sets of businesses. We’ve had margin expansion every single quarter except one.

So there’s like 15 quarters in a row, one we had a little bit of a blip. So a pretty good track record. And when you really dig into the detail – by the way, obviously, we’ve had organic growth that’s helped us. Our team has been very cost conscious on the G&A side, so they’ve done a great job on that.

There was a fair amount of synergies in that business because of the Dow stuff and FMC coming in, so they’re doing a great job on that. But if you actually do the waterfall chart the biggest impact is actually your comment you’re making or your question. It’s been an enrichment story, and that should play out still next couple years.

So I mean, by the way, I think if you do a compare of our businesses to the core competitors, our margins are fairly best in class unless you take and isolate your probiotic player or something like that. But we still think we have room to drive them up more towards the company average and be consistently up there.

So – but the biggest part we’ll get as we go forward is that mix piece, as what you said. It’s pharma, it’s probiotics and a couple of those pieces.

But Marc, why don’t you get into the puts and takes and what can happen in the second half?.

Yes. Let me give you a little bit more on the first question. So the positive, the bright spots for N&B in the quarter clearly, as Ed mentioned, probiotics, back to double-digit growth.

We announced also some pretty significant investments, both in capacity and new product launches, during the quarter, some additional R&D partnerships with other companies. So we’re clearly doubling down to continue that long-term growth trajectory. And as Ed mentioned, that’s a great mix enricher for margins in the long run.

I’d mention also the microbial business was back up mid-single digits in the quarter. That was good to see. And obviously, the plant-based meat trend is a fantastic one, and I think we’re pretty well positioned in that market. We’re working hard to be the R&D partner of choice for the companies in that space. It’s a small business today.

It’s also a mix enricher. The margins in that space are higher than the average margins in the segment. So that’s going to be a good long-term growth driver. On the other side of the coin, I’d say clearly the industrial enzymes business continues to have some market struggles. Bioethanol continues to be a really tough market.

And so that’s one that we’re looking to, to hopefully get through during the course of the year and maybe see a recovery in 2020. Near term, we had some weakness in the quarter in pharma, which was really driven by capacity issues primarily.

And so we do expect in the second half we’ll see the pharma business back to the usual least low single-digit growth. The market demand there is strong. It’s a good long-term market. We also had a little bit of weakness in the system solutions business because of weather in the quarter, and we think that will pass.

We think Food & Beverage will be back up to low single digit in the second half. And so that’s kind of a rundown product-by-product..

And our next question will come from David Begleiter with Deutsche Bank. Please go ahead..

Good morning. Marc, just on Safety & Construction, a very strong first half, really good results. But you did call out maybe a weaker back half and you’re constrained in capacity in Tyvek and aramids. So given – I know you’re on capacity going forward.

But given those dynamics, how should we think about safety in 2020? Maybe a little bit slower growth and slashed margins? Or can you drive price to drive higher results? Thank you..

Yes. Thanks, David. It’s a great question. FMC is obviously firing on all cylinders. As we said, the margin expansion, which the team has been working on for several years, is coming through. We’re seeing great demand in the water business, great demand in the safety business.

The only weakness is residential construction in the U.S., and we do expect at some point that’s going to come back. And so we’re really bullish here. The second half, a bit of a sequential softening. The primary factor there, I’d say, is that we’ve got some PMMAs, which are the big plant turnarounds.

The Safety & Construction business has some sizable sites, and so when those come up for the once shutdowns, that lead to a slug of cost. I’d say we’re also being a little bit cautious in the outlook. Demand has been booming. Pricing is strong right now. We just don’t want to assume that that’s going to continue forever.

But as we look to 2020, I think we’re real positive on the continued growth in that business. The market drivers there, which are clean water, which are worker safety, good exposure to markets like aerospace and defense, I mean, those are all real strong spaces globally right now. So the exposure there on the market side is definitely a positive..

And our next question will come from Bob Koort with Goldman Sachs. Please go ahead..

Good morning. This is Dylan Campbell on for Bob. Last quarter, you guys kind of broke out your key planning assumptions assuming global automobiles were up 4% in the second half, smartphone deliveries were up 2% in the second half.

With the new guidance today, I mean, do you guys see any changes to those assumptions? And kind of what do you have embedded in your guidance?.

Yes. Just – by the way, just hit that, Marc; or Jean, jump in also. So the areas we talked about before, the three soft areas I just – there’s – obviously, residential construction is down. But putting those piece aside, it’s really the semi business is a little soft. The auto business is soft. And E&I business was soft, because of smartphones.

So the planning is that autos are still down globally 5%, and we’re saying no improvement in the second half of the year. By the way, it really looks like inventories in autos around the world, including China, are pretty much getting back to about normal levels. So that’s finished goods inventory.

But we still think the supply chain, as Jean mentioned, does still have some months to go to make sure that gets cleaned up. And then on the smartphone side, as Marc had commented on, we actually saw the improvement or see an improvement in the orders, we think, but it’s not because global demand is up in smartphones. It’s actually down.

It’s that we’re driving extra content. And we are seeing those orders – we did see those orders begin in the second quarter mostly for the content we put in on the 5G side. So that’s kind of the planning assumption on those two big areas. And we’re expecting no improvement in the soft conditions on the semi inside kind of for the rest of the year.

Therefore, by – back to my comment a few questions ago, we’re planning kind of revenue flat, first half and second half, in the company. I think that’s a good planning assumption. So we don’t overspend. We watch our cost controls and all that..

Yes. Let me just build on Ed’s comment. Ed mentioned auto, smartphones. Semiconductor, we have revised the full year planning assumptions. So we were saying early this year that it would be sort of low single-digit MSI growth. We’re now expecting that that’s going to be down a bit.

And that’s just consistent with what we’re seeing in the market, particularly in memory. Memory prices are way down. Volumes are down. The Korean semiconductor market has been really soft here in the second quarter, and that’s impacting our materials sales.

Even as we’re investing in next-gen qualifications aggressively in semi for advanced node products, the total volume is just down by a few percent, which is different than we expected starting the year. And so those are really the primary areas that we’ve revised our full year expectations..

And our next question will come from will come from Josh Spector with UBS. Please go ahead..

Hey guys. Just a clarification around free cash flow when you guys gave prior guidance, you were talking about pension costs around $200 million in cash, restructuring around $1,300 million, I guess Slide 10 has a couple buckets kind of similar size, adding $500 million.

Is that incremental to what you were thinking before? So more cash use? Or is that the same numbers that you were expecting?.

Yes. No, those are actually the same numbers we were expecting. That’s just pointing to the outflow in the second half of the year.

So I wouldn’t say we’ve had any substantial change to our view of free cash flow for the year, which, as we’ve noted before, is primarily a lot of our free cash flow for 2019 is – was setting up the capital structures for the three new companies. So just providing color on the second half. .

And our next question will come from Arun Viswanathan with RBC Capital Markets. Please go ahead..

Great. Thanks for taking my question. Just curious on the pricing momentum, I guess. Do you expect those gains to kind of continue? You mentioned lapping prior year price increases. How should we think about pricing going forward? And maybe if you can just describe that by segment. Thanks.

Why don’t I take that? This is Marc. So it’s different segment to segment, clearly. We are assuming that we’re starting to lap some of the significant price actions in the T&I segment. And we’re assuming also in the S&C business we’ll start to see a little bit less price in the back half.

And so as it nets out, we’ve been running about plus two per quarter, the first half of the year, on price. We think in the second half on a year-over-year basis we’ll get down closer to being flat by the end of the year. Now these are planning assumptions clearly it depends very much on the demand environment, and it depends on supply situation.

So these things can change relatively quickly. One of the drivers for pricing for us in T&I has been not just the strong demand but also our very stable, predictable supply situation, particularly in the nylon product lines. And so we’ve been one of the producers that customers can really count on to continue to deliver.

So we’ll take advantage of that strong supply capability if there’s any further disruptions in supply in the industry and continue to try to drive pricing..

And we will take our next question from Frank Mitsch from Fermium Research. Please go ahead..

Good morning, folks. I was intrigued by the comment regarding China in terms of the declines getting – the year-over-year declines getting better Q2 versus 1Q, so just curious as to what you’re seeing now that the month of July is behind us and what your expectations are in that part of the world.

Then also, speaking about the quarter, you called out a customer settlement in Non-Core.

What was the order of magnitude to that? Is that included in $0.94 to $0.99 guidance?.

Yes, Frank. Let me take the first question then I’ll hand the second question over to Jean. It’s – I was laughing a little bit because it’s rare that we would be bragging about minus 3% growth in China. I can’t remember that happening in a long, long time. But it was a sequential improvement, and it is a little bit of a sign of life.

The strength there has been across several of our segments. Most notably, I’d say that E&I was up. Also, S&C continues to be very strong in China. The E&I growth is a statement around the China semi market, which is a bright spot for semi. Also, those orders starting for premium phones and the displays market growth is largely happening in China.

On the S&C side, the water business just continues to be booming there, and the team is doing a great job of capturing growth there. That water growth is both in industrial –sort of water cleanup for industrial operations as well as residential water market in China is really booming.

And we’ve put out a couple of new products in the quarter and have some notable share gains that are continuing that double-digit growth for us. So that’s kind of the positive side of the China story right now..

And in terms of your question around non-core and the guidance for the third quarter, we do have an equity affiliate in non-core that has a history of settlements. They’re always hard to call when those settlements are going to hit. But you are right; we are thinking that there could be one.

There would be one in the third quarter as part of our guidance..

And our final question will come from Duffy Fischer from Barclays. Please go ahead..

Yes, good morning. Just want to go back to S&C, if we could. Your guidance in May was kind of up low teens. You ended up high-20s on EBITDA. And at that time, you were thinking you were going to get decent pricing. So I’m just trying to understand what changed from May to the final number that it ended up so much better..

Yes, good question, Duffy. I mean, the bottom-line is the two biggest segments there, water and safety, both over-delivered in terms of cost actions, productivity actions and pricing came in a little stronger than expected. So I would say the demand environment was notably different. We knew it will be a strong environment.

But the team really executed well around controlling what we could control, driving productivity and then continuing to deliver on the pricing side of the equation. And so it’s a good story for the quarter, good execution.

Again, second half, we’re being a little cautious on some of the things that are a little bit less in our control like the demand and pricing side. But I’m expecting that we’re going to keep delivering in S&C, and it’ll be a good driver during the second half too..

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

And this concludes today’s conference. Thank you for your participation and you may now disconnect..