DuPont de Nemours, Inc. (DD) Earnings Call Transcript & Summary

We're very pleased to start the day with DuPont. And we have CFO, Lori Koch; and CEO, Ed Breen. Guys, thanks for joining us.

And maybe just kick it off with a bit of a state of the union so far in the quarter as far as anything that you may have seen that's changed out there in kind of a bit of a volatile world.

Yes. Well, I'd certainly say it is a volatile world out there. But as far as the quarter goes, things are kind of playing out as we thought. But during the quarter, as we all know, we're seeing -- because of the Ukraine-Russia situation, we're seeing more inflation that's going to hit, probably see more of that as we enter the second quarter. So Steve, what we're doing is taking now additional price actions to cover the cost. So we've estimated about another $200 million of possible inflation that's going to hit us throughout the year, in addition, by the way to coming into the year where we had about $300 million of inflation, so $200 million now on top of that. And we're putting through price increases like as we speak to cover the $200 million. So I'd say that's the one thing that changed, but it doesn't change our outlook on the numbers for what we think for the quarter or the year because we'll cover that as we go through the year.

Is there any timing element in second quarter? Maybe as these price increases go through, they've got to layer in?

So we're -- we actually -- in our one division, we've put the price increase through with 1 week notice, and we instituted it 2 days ago on the 15th. And the other price increases are all pretty much going in on April 1.

And then what's the split of that between the business that's being sold and Remainco DuPont?

Yes. So the whole $200 million is in the Remainco DuPont. So a large portion of it is within W&P as they have natural gas challenges in Europe for some of their key plant sites.

So that -- the natural gas filtering through is what part of the -- is that part of the -- like the utilities?

Utilities. Yes.

Okay. Okay.

It's around the plant, yes.

Got it. It's part of the utilities. Okay. And when you think about -- you guys disclosed price/mix in your -- which is really helpful. You guys break it down in great detail. What is actually -- is most of that price -- like the vast majority of that is pure kind of year-over-year price?

Yes. Yes, yes.

Okay. On the supply chain side, somewhat related, anything that sticks out to you guys here? Is it any better, any worse on many of the key [ raws ]?

I thought it was getting better and I'd say over the last month or so now, it's probably gotten a little bit worse. We're not seeing any effect because of Russia and Ukraine on our ability to ship logistically and all. It's more challenging, but we're getting it out the door. We don't have any direct lines through those countries. We don't have any factories in either of those 2 countries. So it's just made the world a little crazier from a logistics standpoint. And obviously, the expense of oil and gas also is affecting the price of the -- of shipments pretty drastically. So obviously, that's part of the inflation that we'll also cover besides the natural gas running our factories over in Europe. So fine otherwise.

And which -- I mean you guys -- I don't want to use the term components because you're not like a discrete manufacturer, but what pieces of the bill of goods that you're buying do you see are most stretched as far as availability?

I mean as far as the majority of the tightness in force majeures were in the business that is now in discontinued operations that was going to Celanese and the M&M portfolio. Everything else generally is available. It's just a matter of getting it there from a delay perspective. So you can ultimately get it, but it might take 2 weeks instead of 1 week or something like that. So most of the supply constraints, though, from an input perspective, were in M&M.

Got it. So we'll let them worry about it when the time comes. Demand sounds like it's still pretty strong, but maybe take a walk around the businesses and what are you seeing on that front. Anything changed first half to second half seasonality?

Yes. I would -- well, from a seasonality standpoint, you'll see our residential construction business pick up just because it's more seasonal in the second half with the summer and the fall. And you'll also see the seasonality we have in smartphone market, more second half loaded versus first half loaded. But from a demand standpoint, Steve, everything still feels very good. Well, obviously, the IHS report came out. I'd say the only negative is a little bit of a downdraft, it looks like going unit production this year, again, because of what's going on in the Ukraine and Russia. So I think the number was called down. It's going to be mid-single-digit growth now instead of high single-digit growth. But besides that, all the end markets are seeing good demand even in the last couple of weeks looking at our order book. It's very strong.

What are you seeing on the electronics front?

Yes. It's still very strong. So obviously, Semi continues to post high single-digit growth. The smartphones, we've telegraphed the growth patterns will look different for this year just given the growth patterns were different last year with respect to when the large smartphone producers are placing their orders. So on a full year basis, it'll still be nice mid-single-digit growth, but the first half growth will look challenged because the first half of last year, more shipments were there. When we get to the second half it will look stronger because the second half of last year, the shipments were pulled into the first half. So it's more just a timing perspective, not an overall demand perspective. And then we just did our Industrial Solutions, our last teach-in last week within the E&I segment and highlighted really nice growth opportunities in that portfolio. So there's a nice Semi play, there's a nice Healthcare play and those markets continue to perform really well.

Yes, Steve, I think just on growth. I think the bigger picture for DuPont, and this has really been the shift of the portfolio where we're making our last big set of moves during this year and the beginning of next year. You have 45% of the portfolio now when you go through an end market by end market. And by the way, in the teach-ins, we will do every single one of our key end markets as we go through the next few months, but yes, 45% that's going to grow above GDP. That's how we've morphed the portfolio. So our growth rate is going to be higher than it used to be in DuPont, simply closing the mix of the end markets. So 45% will grow above GDP. And then you've got about 55% of the portfolio -- the new portfolio that will grow either GDP or industrial production, kind of depending on which of those end market's in. So it really works up our growth rate some more. It clearly moves up our EBITDA margin because M&M was the lowest part of our EBITDA profile. And our -- and by the way, totally changes the volatility of the portfolio and takes the up and downs kind of out of it as we move forward. So it really puts us best-in-class. If you look at us vis-a-vis any other multi-industrial company, we're top quartile on all 3 of those benchmarks with the moves we're making. But key to it is the stability of a higher growth rate.

So maybe digging into a couple of those because we always think of you as an easy one, auto production and electronics, and then we kind of go from there, maybe a little bit of housing. Maybe a couple of the other growth platforms like the Water business. First of all, what are you seeing there? Explain a bit about what you think is so good about the long term for that business.

Yes. So Water we see as a mid- to high single-digit grower. So it can be a little bit lumpy quarter-to-quarter depending on logistics challenges that we've been facing. But overall, last year, it was up 6%. We would expect a similar profile this year. So our Water play is more on the filtration side. We've got #1 positions within all the major technologies, the reverse osmosis, ion exchange and ultrafiltration. So as you see more of the world needing access to clean water and more of the industrial players working through desalination and other types of opportunities, that's where our portfolio is really well positioned. So we're actually in the midst of -- we're sold out within our reverse osmosis production facility. It's in Minnesota. So we're looking at green lighting an investment in Asia, which is where a lot of the volume -- the demand is to be able to keep up with capacity.

And then kind of moving down the list, some of these -- the 45%, if you will, on the EV side, just remind us how big your exposure there and what the play is for that business from a content perspective versus ICE.

Right. So I would -- for the Remainco portfolio, so obviously taking out the piece that's going to M&M and then considering the pieces coming in from Rogers. [ It was awesome ] when we closed that transaction. So in a typical ICE engine, I would say we have about $120 a car of opportunity kind of evenly split between the heritage DuPont portfolio and the incoming acquisitions, and that more than doubles as you look at the EV opportunity with similar contributions and growth from the heritage DuPont and the incoming acquisitions. And a lot of the ICE opportunity that we see in heritage DuPont acquisitions also is in EV. So for example, in Kevlar, we sell into the tires. And so obviously, you have tires on both an ICE and an EV car. So as the transition happens, it's not like you lose ground in ICE. Your ICE tires may become EV tires. And so there's not a growth headwind as the ICE engine goes away from that perspective because it's in both places.

And how much of that content -- still learning a bit about Rogers and I don't know how Laird fits into this either, but how much of that content uplift came from deals? How much is organic?

Yes. Half and half, I would say.

Half and half?

Yes, yes. So Laird has opportunities in ADAS, and Rogers is EV. And so -- and we had our own applications in ADAS on a more minor scale. So we got a lot of capability additions from that acquisition.

So Water and EV are probably 2 of the more visible ones in that 45%. Any others that stand out? I think that's going to be kind of key for people to talk about you as a growth story. Those growth platforms are going to be very important to point out.

Yes. I would say the other piece is the electronics play. So we just completed the teach-ins in electronics. So we had noted from the Semi perspective that they will grow 200 to 300 basis points in excess of MSI. So if you think MSI is normally in the 4% to 5% range, they would be in the 6% to 7% range. And then within some of the other pockets within Interconnect Solutions, similar growth profile in the mid-single digits. And so those would be the pieces that would contribute to the 45%. So the growth within electronics, the next-gen automotive and then the Water.

And the teach-in we did -- whatever, I think it was last week, they were all nice growth rate businesses. I don't think people realized we had in there the Kalrez business because that's still in the biopharma tubing businesses. We have all great EBITDA businesses and really nice growth rates.

And how big are those?

So they probably would total $750 million between Kalrez, Vespel and biopharma.

That's a sizable base. What's competition like in these businesses? I mean it's kind of hard for us to see as multi-industry analysts. It's -- they're a little bit -- seems a little bit more global and maybe a bit more fragmented. I don't know who are the -- who do you bump up against in these businesses? And your market share seems very strong, and you're growing above market. But is there somebody that's growing below market?

Yes. I would say within the Kalrez and Vespel, it would be Victrex would be one of the players that we would look out for. So -- on the peak side. So it's another technology that would compete with ours. And on the biopharma side, it would be some of the silicon players that we would compete against.

Got it. Thinking about some of the -- maybe the 55%. Are there parts of that business that are in a bit of a decay or a secular decline that we have to keep in mind when they may offset that growth as this all unfolds?

Well, I'll just give you -- I mean a big part of that is, for instance, our Safety business. And the issue in our Safety businesses were fairly sold out. We're capacity constrained. So we're adding -- right now, in fact, our biggest capital program is the new Tyvek line over in Luxembourg, and we need to bring that online. So we're actually allocating between different end markets kind of mix enriching in that business because we have quite a few end markets. We sell Tyvek into -- by the way, Tyvek is one of our higher-margin businesses, even though that technology has been around for 50 years. So we need capacity there. And that's a big, profitable business for us. So there's nothing in decay and everything we didn't like, whether it was lower growth rate or we didn't like the profile moving forward or a little more commoditized, they're all businesses either we sold over the last year, 1.5 years. We sold 9 businesses that we have put in noncore. And we just didn't like that profile of the company moving forward. And so we've really cleaned all that up. And obviously, we're bringing in high-quality assets with the acquisitions we're doing.

Right. Not like you need more cash, so you're not desperate to sell.

Yes.

Yes.

No. It's going to be interesting for us because when we finish -- we should close Rogers in June. Probably about the end of the year or the first of next year, we'll close the divestiture of M&M. And then remember, we split that. So we have -- we took the Delrin business out of that perimeter of that sale, and we got $11 billion for what we did sell, and we still have about $200 million of EBITDA with Delrin to sell. So when we get all that done kind of entering 2023, we'll have $7 billion or $8 billion just from those transactions available in cash. By the way, we're underlevered to the target we want to be at. We want to be at 2.75x kind of run rate, and we're well below that right now. And then the cash we generate this year, kind of net-net, when you add it all up, we get $10 billion or $11 billion of cash available to us going into 2023. So it's a pretty nice spot to be in.

I was going to talk about the capital deployment later, but I guess we could talk about that now. I mean $11 billion for your market cap is a lot of cabbage, as Dave Cote used to say. What's the mindset around -- I mean are you going to buy back 20% of the company? Or do you continue to do these larger-sized bolt-ons? Like what's the mindset? You seem to have pretty good franchises that are going to be growing at an above average rate to begin with. So it's not like you have the need to buy up. So what's kind of the -- what will be the profile of that capital deployment?

Yes. So first of all, I can't fully answer that until we get to kind of the end of the year. And one of the reasons I want to see where the DuPont stock is trading at, what our multiple is. But having said that, our intent -- we've been looking at some other acquisitions. I would put in the kind of between the Laird and Rogers type sizes of things that we think would be really interesting fit with us. Of course, the numbers would have to work to do it. So we've really been focusing. And by the way, these are assets we've been looking at for a long, long period of time. We're not just going to have $11 billion and decide to spend it. This is stuff we've looked at hard for at least a couple of years as was the case by the way with Laird and Rogers. So -- and we're not going to do one deal that's $10 billion either. So it could be a few acquisitions that fall in. If we do that, we still will continue in a share repurchase program. The other angle is if we're trading at 10.5x, which is where we've been recently, we'd probably be a little heavier on the share repurchase. So we'll just have to see when we get there.

And what is the hurdle or profile? What's the framework for acquisitions for you guys financially? I mean you've done a couple, but I'm not sure you've ever really said -- maybe you have, exactly what your kind of hurdle rates are and what your framework is for doing deals.

I mean from an ROIC perspective, we look for it to be at 10% by year 5. So that's one of the metrics that we'll consider.

But I think the bigger -- yes, we look at that, and we'll go through it. The key is we're buying things that strategically fit in the portfolio, make the whole portfolio stronger. They have high intellectual property, they're high R&D content and they're very high application engineering. One of the real heartbeats of DuPont is we have obviously great R&D, but we are at the design table. That's why we have 32% EBITDA margins in our electronics business. We are always doing the next cutting-edge technology to solve a customer problem. Laird does the same thing with electromagnetic shielding, thermal management. They're on the cutting edge of that. That's now in our toolkit. So we're looking at things like that. That's the profile we like as that's a business with a real moat around it.

And any integration of Laird, how is that going? And maybe just talk about some of the mechanics of how you can -- you bring value. Obviously, the product seem like they are nice, synergistic. But how does -- how do you -- how are you guys bringing kind of extra value there from a synergy perspective?

Yes. So synergies are pretty easy. We announced $60 million. We've identified $63 million. So -- and we're well into getting those synergies. They're all cost synergies because we are going to have -- mention this in a minute, revenue synergies here. But -- by the way, when we also do an acquisition back to the point of the hurdle rate and all that, we do not count revenue synergies. It's like we're going to make the numbers work on the cost synergies. When you look at Laird on a net basis, what we bought it for and the way it performed in its first year, we bought it for 10x. We bought a phenomenal electronics asset at 10x in today's world. That's pretty incredible. So -- and now by the way, it's interesting...

So what did they not know, the guys who sold it to you?

Well, I hope the same happens with Rogers, but...

Hasn't closed yet.

No, no.

I'm kidding.

Yes -- no, but it just grew -- the industry is growing at a [ fast ] rate. And private equity guys, they have their exit strategies. And I won't -- I'll tell you privately sometime the strategy behind that. But -- so anyway, I think that was a great deal. And by the way, we ended up buying Rogers for 19x, which was on the high end for us, but we had so many synergies on the cost side that we brought it down below 14 or like 13.6x. And hopefully, that outperforms for us. But the beauty -- like Laird is a great example. Before we even look at integrating product together per se, like to solve new customer issues, which we already are working on with Lori, and I heard one with a major auto manufacturer the other day in Europe where we're bringing some of our Kapton technology to bear on some wiring product that Laird has and looking at an opportunity, it could be around $60 million. So this is an example. We're starting to get to that point now with the acquisition. But it's interesting, Laird was much heavier with the OEMs, where we're much heavier with the tier players in the auto industry. So they're pulling us into some of these stickier relationships they had and vice versa. We're doing it and bringing each other's tools to the table. And that's where we're going to see real benefit, by the way, both Laird and Rogers.

Right. And how is Rogers kind of different than Laird? Or is it somewhat of the same playbook?

Very similar playbook. High R&D, high application engineering. So when we go after, Steve, the cost synergies, we do not touch the R&D. We do not touch the application engineering. We touch very little with sales. We go very heavy on the footprint. We go very heavy on the G&A expense of the business. And we leave intact, that's the heartbeat of those companies.

And then when it comes to the bottom line and margins, how do we think about these businesses going forward from an incremental margin perspective? Is there opportunity to continue to expand? They're already pretty strong margins. Maybe you're investing a little bit in this growth. What's kind of the bottom line algorithm? And maybe for the 2 segments, are there -- are they any different from that perspective?

Yes. I would say as far as margin opportunity is concerned, we'll continue to eke out a little bit more within E&I, but they're already pretty well positioned. And so those should be in the low 30s. And any future margin opportunity with them probably would come more from the mix enrichment side. So as we grow Semi, which is the top of the house of the margin, that would overall bring up the overall segment average. Within W&P, our entitlement should be more up in the higher 20s, and so the 27average percent range. And so we've got opportunity there that really comes from asset utilization and asset reliability. So ensuring the assets are running well. It's a heavy asset business. And so the opportunity comes from that side. So overall, those 2 combined should put the total remaining company up in the high 20s as well as you average out W&P, E&I and the piece that's left in corporate temporarily, which will ultimately find a new home once we have our acquisitions complete. So as we look at the overall company, we've got about $1 billion in corporate today that was held back from the M&M transaction. We've obviously got a lot of capital to deploy. Wherever we deploy that capital influence then what our future state structure looks like. And so when we know what that looks like, we'll move those businesses out of corporate. They have a lower margin profile, and they will have opportunity. They were in the low teens last year. They should be closer to the high teens. And so that's opportunity there as well for us.

So I guess mixing that all in, is it kind of like a 50 bps a year type of outlook for the total company? Or is that too punchy?

I think that's -- yes. We had -- I mean 1.5x leverage is what we would look forward to. So that usually translates to about the 50 basis points a year. So if we grow the top line 5%, we would look for 7.5% bottom line growth.

Right. 5% though seems -- you seem to kind of discuss more of a mid- to high single digit. Or is the 5% the mixture of the 45% at the mid- to high singles? Now you've got some stuff that's growing GDP?

Yes.

Right, right.

So -- got it. So roughly 8% kind of profit growth algorithm. And then I mean you have enough capital, whether it's acquisitions or buybacks, certainly gets you -- should get you comfortably above 10%, maybe 12% to 15% of an EPS algorithm on a 3-year basis. Are you guys planning on -- you've done these great teach-ins for the various businesses? Are you guys planning on doing something more comprehensive at Investor Day? I mean I feel like every company has done an Investor Day, and 3% growth has become somehow 6% to 8% as the entitlement. So you guys got to get to 6% to 8% or else, it's going to be disappointing. But what's the -- any visibility on kind of putting it all together for the new DuPont? Or do we have to wait for these deals to close?

Go ahead, Lori.

Go ahead. Yes.

Yes. We haven't determined that yet. In fact, we have our new Head of Investor Relations here with us, Chris Mecray. We'll talk about that. We will do something, and we're debating based on exactly what you said that we wait until we're closer. We're going to have Rogers done in June. Maybe we wait until in the fall, somewhere in there, and we'll look at doing something. But no, we want to do it.

Yes. We'll hopefully be off restriction when Rogers closes. So can you wait for July 1 or something?

That's right, yes.

So in the flip side of it, when -- the flip side of it, which is how -- we talked about growth, but how defensive -- how much more defensive is this portfolio versus the prior portfolio in a recessionary environment? I'm sure you guys have looked at that, but that also determines how people are going to look out and think about a 3- to 5-year, 10-year DCF. So maybe what are the key differences? And what would you expect in a normal recession, whatever that is? What would you expect this business to do?

Yes. So we went back and looked at how the E&I and W&P segments performed during the pandemic for the second quarter of 2020. And in total, the top line was down 7% and the bottom line was down 7%. So we really held a tight range on decremental margins. And our decremental margin was 31%. So definitely, I think one of the better performers. So we -- I think that came through the benefit of removing the M&M business, which is a great business, but cyclical, right? So that cyclicality taken out of the portfolio really enables us to maintain top and bottom line performance in a pretty steep downturn like the pandemic was. So our overall cyclicality with M&M in the portfolio was 17%, and it's more like 10% if you look back historically. So we're in a, I think, best-in-class position from that perspective on those metrics.

Right. And certainly, if something happened in the intermediate term, you could probably buy back enough stock to hold things back.

Yes. Keep the growth...

But you'd probably welcome that, welcome a bit of a hiccup here at some stage of the game. And anything as these businesses get pulled apart that we should think about in the next couple of quarters? You mentioned the stranded costs, but anything else you want people to be aware of in the financials? Sometimes things pop out of nowhere. And all of a sudden, you just have a lower base of earnings than you expected, corporate or whatever. Or should it be pretty clean?

It should be clean, yes. So we put a press release that night with -- last night with how the restatements will work from our previous guidance, taking out what's going to Celanese and then the Delrin financials and then the stranded cost component. So on a full year basis, it's $50 million. It's a number that we can get after and manage, but there's no other surprises as far as any large one-timers that were in last year's results that would create headwinds.

Maybe turning a bit more of a debate. I think a lot of these growth forecasts in the balance sheet are obviously big positives. Free cash, I think, is going to be maybe a bit of a hurdle for you guys to make your way into the upper echelon of multi-industry companies. Most companies converted 100% plus, have high teens free cash flow margins. Understandably, You guys are a legacy material technology company, so there's a little bit of a different CapEx profile. Talk about free cash conversion, what you would expect and any levers to improve that and migrate that to 100% or higher margin going forward.

Right. Yes. We'll maintain our free cash flow conversion target of greater than 90% with the one caveat about how we treat amortization expense. And so given we have large amortization expense from the DowDuPont step-up, we removed all amortizations expense from our calculations when we look at free cash flow conversion. And so we have a headwind, I think, that others don't because they do leave a portion in. It's a few hundred million. It's not insignificant that we take out. And so I think that's one reason why we'll probably maintain the 90% target versus something of 100% or greater and why our number would probably be in that lower range. But as far as business opportunities to improve free cash flow and free cash flow conversion, the single largest line items are, one, continued improvement in working capital. So we've made decisions last year and as we go through the beginning of this year to hold more working capital to navigate the supply chain challenges that those do create cash headwinds. And the second piece is capital expenditures. And so in the interim, as we execute some of the high-return capacity expansions, we are spending at higher than D&A levels, which creates a headwind to free cash flow conversion. That'll stay with us for a couple of years. And when we get on the other side of these large expansions, we'll look to maintain CapEx closer to depreciation. So those are 2 pieces that would hold us back maybe the peer set that's closer to the 100% plus range.

Yes. On the -- a little bit of a balance sheet item, but somewhat related, the environmental liability side, PFAS. What's the latest update there? Anything to report? What's the visibility on maybe the next couple of trials coming up? Just a bit of an update on PFAS.

Yes. Well, most of the PFAS, as you know, is all consolidated down in MDL in South Carolina. So look, I've been very public about the fact that we would probably go down the route of doing a settlement to get out of it. I break it into 2 categories, though. One category is there is -- I think it's 5 states now that have natural resource claims. So we'll settle those kind of one by one as we have conversations with the states. We -- just as a benchmark, we settled with Delaware a few months ago, and the payment from DuPont was $12.5 million. So we have those 5 to clean up, and then we have what are the water district cases. And that is all consolidated, which is a good thing because you're not dealing with it individually. And we've been more in the camp of don't let it play out for a few years in the court system, but maybe there's a possibility of a settlement there, Steve. So that's the route we would look to go.

And that could be a near-term event?

I would hope in the next -- during this calendar year.

Okay. And does that consume -- I mean I would assume the way you're talking about the $11 billion is that doesn't take up a meaningful amount of that $11 billion or whatever...

That's correct.

Okay. You need to have some cash left on the sidelines.

Lots of cash.

Okay. Got it. Any questions out there? Okay. We talked a little bit about ERP last night. Maybe just the status of what you're doing there that kind of helps you -- that can help you going forward.

Yes. So we'll take that we have been and we'll continue to take a modular approach to our ERP updates. We're not going to do one big bang system replacement. So what we are currently undertaking is a module of SAP called central finance, which basically is a tool that sits on top of all of your legacy systems and hooks in the data into one central chart of accounts. And what that allows us to do is be more flexible with respect to the ins and outs in the portfolio, which we're very active at. And so as you bring in acquisitions, you can plug them into your overall system. As you divest, you can pull them out of the overall system. So that'll be our first foray, and then we'll look to see where we go next with respect to future ERP upgrades. But another thing that we're making large use of are just all of the digital tools that are out there that enable enhancements across the business, and they're inexpensive and quick wins for us. And so we've been investing. Last year, we did about $30 million in digital tools. And this year, we'll do about $45 million in digital tools. They're usually 3 to 6 months between start and implementation when you can see the benefit in your financials. And so we're finding a lot of nice opportunities there.

So there's still some opportunity for simplification and some margin from that perspective?

Correct.

Yes. A big part of that, a lot -- not all because we're doing some of it on the business process side with digital tools, but a fair amount of it is at the factory floor. And we're instituting a lot of digital tools across there to help us on forecast accuracy, supply chain accuracy. And by the way, it's a lot of AI-driven algorithms. And we're also putting sensors with digital technology on a lot of our high-throughput machines that really help with capacity release, which in our business and especially W&P, capacity release is huge. So we're sold out on Tyvek. If we can have Tyvek on our lines run a couple more days, a month, within hours over time, it's huge to the profitability of the business. So we're really focused with a lot of it there.

And are the partners you're working with there -- are the suppliers, are those like traditional automation guys? Or are those new...

These are all...

Kind of like start-up companies that have a certain software that's interesting that you can plug into your system...

A lot of new that will -- it literally was not around 3, 4 years ago. We'd be glad to share some of them with you. It's really fascinating, the companies out there. There's -- I don't want to mention another company here, but there's one that we've been -- we just started working with. And by the way, they have a heck of a market cap really quick, but they've got some real diagnostics to dig into your -- all your kind of business systems and can really show you where you have your inefficiencies, by the way, to show you why were all these price changes made after you took the order. They just -- it's fascinating what you can get out this.

So this is not just a factory, take those [ MDS-type ] kind of...

No, no. This is more, all your business processes.

Overlays on the ERP and...

It's data mining, yes. It goes in, that's all your data and mindset for changes and price increases, like, for example, Ed shows, it'll say you changed your price 15x, when I looked at this parameter, like maybe it was relevant, maybe it wasn't. And so...

It's interesting. Right here. [ Silke ]?

It doesn't seem like it's on.

It is on? Okay. When you look at your capacity constraints, can you quantify in any way like which sales you might not be able to do this year with Tyvek and Kevlar that you might be able to -- during 2023 if you have more capacity? And maybe also for M&M. I know you're selling the business, but there's probably some constraints there as well. And secondly, I was just wondering whether you could talk about your regional growth. Like which regions are growing faster and which are growing slower?

Yes. I mean I would say we look to get at least 2% to 3% capacity release off of our constrained assets to be able to keep up with demand. So I wouldn't say backlog is massive, but capacity release is important for us to be able to keep up. We do -- our backlog is probably most prevalent within Water. So we have 5 to 6 months of backlog, and we're starting to see some backlog in healthcare applications in Tyvek. And M&M doesn't have -- they do have -- their assets are butting up against capacity, but I'm not aware of anyone that's like completely capacity constrained. So -- but it's imperative that we get the capacity release every year to be able to keep up. And then obviously, we've got the -- caps online was another one that was capacity constrained. That is in qualification now. We should see that volume start to come online in the second half of this year, which will solve some challenges that we've had. And then we have the Tyvek line, obviously, that continues to be underway. We would look to wrap that up more around the end of next year. So it still has some time between now and then.

So that sounds like a bit more normal course, if you will. Like there's not -- like some companies are missing because of supply chain to have something that's 98% finished, and they don't have that 2%. And so they've called out 3% to 4% of sales that they're missing. But this sounds like for you guys, it's a little bit more normal course. You always have to kind of debottleneck a bit.

Correct. Yes.

Yes. Okay. And then the regional color? Second question.

Yes. Regionally, we see probably continued strength within Asia Pacific and North America and maybe some weakness in Europe on a comparative basis. And so we'll continue to work through and get the signals from the regions. But I would say that's about where we sit right now.

And what are you seeing in China? I mean what's the -- it's a little bit tough to read. You hear about things shutting down, but then companies this week said it's episodic, and it's not really impacting them. What are you hearing from your guys on the ground in China?

Yes. So we missed 1 or 2 days of production at 4 facilities because of the COVID lockdowns, but we were -- we talked to the local government officials. We're back up and running at all of them. It was either 1 or 2 days, depending on which facility. And by the way, if it's one of our bigger facilities, I think you probably saw this announcement from a really big manufacturer in China, we have on-site dormitory living. So as long as you're in a closed-loop environment, they'll let you keep running your production facility. So I mean will it impact us by a few million dollars? Yes. But it's nothing significant at this point in time. And then as far as growth in China goes, we're counting on literally 4% to 5% growth rate out of China, thinking it's going to be a little bit softer. So that was kind of in our modeling this year. I know -- I think they're officially saying GDP will be 5.5%, but we're kind of pinning it right in that range.

Yes. I think the tone is that they're going to -- management teams think they're going to hit that target. I think our guy just kind of like lowered that a bit this morning here at JPMorgan. So I mean it makes sense there's a lot of noise for sure. Add it to the list of -- in your experience, have you -- the last 3 years -- somebody yesterday in the meeting talked about what -- in an apocalyptic scenario, what would your business do? And it's like I feel like we've been in 2 or 3 close to apocalyptic scenarios here. What -- on a scale of what you've experienced, I mean it seems like DuPont is the best position it's ever been, but this environment is really tough. How would you kind of compare this operating environment to things over the last 20 years? You've seen some interesting environments.

Yes. No, I would say with -- my first year at Tyco was way more volatile than anything I'm living through right now. So I always have to keep things in perspective. This is like a cake walk. But no, in all seriousness, no, I've never seen anything like this. It's just -- it's crazy. It's -- the economies are so hot. The demand is there so far still. Yet we're just like -- it's like a fire drill every day to get product out and ship it. Never saw anything like it. Then our guys call yesterday with the earthquake over in Asia, and we had some facilities near there. They're all fine. But it's like, what else could hit here? But by the way, DuPont's in a -- we're in an interesting spot. We got a deal done. We're have $11 billion. We're not paying much tax at all. So if there's some volatility out there, we're an interesting company with where we're going to be from that cash position we talked about earlier. And by the way, we trade at 10.5x when our peers have trades between 15 and 17x. So therein lies a big opportunity for us.

And one more question for you. At what stage do you think we start to see demand destruction from all this inflation, if you put on your economist hat for a moment? Are you concerned about that at all in '22 from what you're seeing? Or '23 is...

Yes. No, it does concern me. And I think a lot of economists have said is 2023 going to be a dip year? You can't have the middle class and then kind of lower middle class spend at these rates on heating their house, buying food, putting gas in their car and not affect the economy. So it could.

Yes. All right. Thank you very much. Really appreciate the time.

Great. Thanks for having us.