DuPont de Nemours' Middle East Logistics, Residential Growth Outlook Clash in 2026 Q2 Earnings Call

Date of Call: Aug 4, 2026

Financials Results

• Revenue: $1.8B, up 4% YOY on 4% organic sales growth
• EPS: $1.88 per diluted share, up 21% YOY
• Operating Margin: 24.6%, an increase of 80 basis points YOY

Guidance:

• Full year 2026 net sales guidance raised to $7.175B midpoint, assuming organic growth slightly ahead of 4%.
• Full year operating EBITDA at midpoint increased to $1.76B, margin of 24.5% including 30 bps headwind from oil & gas inflation.
• Full year adjusted EPS at midpoint raised to $7.24, representing $0.15 per share increase and 18% growth YOY.
• Q3 2026 net sales expected in range of $1.80B to $1.00B, assuming about 5% organic growth YOY, margin of 24.4% including 50 bps headwind from oil & gas inflation, adjusted EPS of $0.90 per share.

Business Commentary:

Exceeding Financial Guidance and Margin Expansion:

• DuPont reported organic sales growth of 4%, 80 basis points of margin expansion, and double-digit adjusted EPS growth for the second quarter of 2026.
• The company raised its full-year 2026 financial guidance and expects free cash flow conversion to exceed 90%.
• These results were driven by a focus on excellence and productivity, leading to robust free cash flow conversion and outperformance in key segments like healthcare and industrial water.

Strategic Priorities and Innovation:

• DuPont continues to advance its strategic priorities with a focus on organic growth and innovation, leading to new product launches such as an integrated solution for direct lithium extraction.
• The company's pipeline is delivering new wins in high-growth areas, supported by AI-ready labs and faster development cycles.
• The strategic focus is on building a disciplined business system that enhances growth, margin expansion, and shareholder value.

Operational Excellence and Cost Management:

• DuPont achieved a more than 100 basis point improvement in OTIF and productivity, identifying significant improvement potential.
• Operational excellence is driven by a disciplined operating culture focused on productivity, quality, and cost management.
• The use of AI and automation is expected to further enhance operational performance, reliability, and maintenance efficiency.

Strong Performance in Healthcare and Water Technologies:

• Healthcare and water technologies segment sales were $856 million, up 5% year-over-year, with healthcare sales growing mid-single digits and water sales low single digits.
• The growth was broad-based, supported by double-digit gains in personal protection and biopharma markets and strong demand in industrial water and semiconductor markets.
• Investments in sales resources and new solutions are contributing to the segment's growth and market expansion.

Diversified Industrials and Electric Vehicle Growth:

• The diversified industrials segment saw 3% organic sales growth, with notable increases in aerospace and electric vehicle battery applications.
• The company's electric vehicle battery business is expected to reach triple-digit revenue in 2026 and 2027, driven by strong order books and new wins.
• Growth in this segment is supported by new sales plays and commercial excellence initiatives, enhancing market position and profitability.

Sentiment Analysis:

Overall Tone: Positive

• Management stated results 'exceeded our previously communicated guidance' and 'again raising our full year 2026 financial guide and adjusted EPS.' They highlighted 'strong execution and market-driven growth,' 'solid operating EBITDA leverage, meaningful margin expansion, and robust free cash flow generation.' The tone emphasized 'continued strength across most of our key end markets' and 'expect our full year free cash flow conversion to be ahead of our 90% target.'

Q&A:

• Question from Jeff Sprague (Vertical Research Partners): First, Laurie, where you kind of began today with the innovation and commercial and the like, can you just give us something to anchor on in terms of contribution and on the cost of poor quality and OTIF also? I'm just wondering if you could kind of anchor us on kind of your start point there where you're at on that progression. Yeah. To sales or, you know, product vitality.
  Response: Product vitality index is about 35%, innovation pipeline benefits with faster cycle speed, committed to 3-4% net productivity target; cost of poor quality is ~4% of sales, below benchmark of 5%, and improving via OPEX framework.

• Question from Jeff Sprague (Vertical Research Partners): on the oil and gas margin related headwinds you shared with us for the great. And then maybe this for Antonella.
  Response: Oil & gas headwinds are ~$90M in Q2, majority in second half, but pricing actions are price-cost neutral on a full-year dollar basis.

• Question from Scott Davis (Milius Research): I wanted to... Good morning. Change is going on at DuPont and... net product. I wanted to follow up a little bit on Jeff's question. It's a lot of activity goals is not something that we talked about in the old days, be in kind of a realistic timeframe of where you can get to. But can you talk about where you are today, kind of where you want to be?
  Response: Target for net productivity is 3% of COGS annual reduction, best-in-class; achieved ~200 bps reduction in quarter, expecting to drive that across organization within next 18 months.

• Question from Scott Davis (Milius Research): And then, you know, when you're making these kind of operational... recenter around these new targets and goals are you a component that you probably need to change compensation plans and such to have you done that already or is that in process kind of where do we stand uh in that on our compensation we've changed this year with respect to the level at which we compensate for the short-term incentive or the cash bonus for every perspective
  Response: Compensation now at line-of-business level for segment performance; sales force commission-based changes will happen in 2027 to drive growth and business development.

• Question from Joe Ritchie (Goldman Sachs): Hi, good morning, everyone. Last quarter, you guys were calling out some logistics constraints and then some delayed shipments also in project timing that was supposed to come through in the second half of the year. Can you just give us an update? So I wanted to start with the Middle East, I think, on the constraints that you saw last quarter. on where this project stands and, like, whether you've seen any type of alleviation?
  Response: Middle East project delays still in line with expectations, mostly second-half timing; water business performing well ex-Middle East, with Q3 organic growth ~5% and Q4 ~7% driven by project ramp.

• Question from Joe Ritchie (Goldman Sachs): That's helpful, Laurie. And I guess just maybe on margins for a second, your healthcare and water technology segments saw 30 basis points of margin contraction despite the solid growth. I know that you guys were expecting some type of mixed normalization. I think you also called out growth investments. Can you just maybe unpack the specific mixed dynamics as well as the investments that you're making in those segments?
  Response: Margin contraction due to mix shift (stronger Q2 vs. Q1) and strategic growth investments in sales resources (e.g., Tyvek, garment sales plays) to drive future growth and fill assets.

• Question from John McNulty (Growth): I guess, can you diversify the size? So I guess when I look at the second half outlook on the incremental operating leverage that you have, especially with some of the 80-20 starting to kick in, how should we be thinking about that in the back half?
  Response: Second-half organic growth ~6% (including ~2 pts from pricing), incrementals ~40% YOY excluding price-cost dynamics; oil & gas headwinds largely in second half, adding pricing pressure.

• Question from John McNulty (Growth): And then on the 80-20 program, I know it's a little bit on the early side, but I think the idea, at least when you set out, was to significantly improve the profitability, but there might be a bit of a drag on the top line over time. I guess, is that still how you're thinking about it, or are you starting to see any potential positive offsets that may help that top line to maybe come in Yeah,
  Response: 80-20 driving margin benefits (few million EBITDA in 2026) via org design, yield, and cost improvements; growth opportunities from enhanced commercial excellence and business development, no material top-line headwind.

• Question from Shiguso Kotoku (J.P. Morgan): I think it came in at plus low single digit this quarter. I just wanted to follow up a little bit on the water business. Just curious, specifically in water, how you expect it to phase in the third and fourth quarter, and do you still expect high single digit in the third quarter?
  Response: Water full-year organic growth outlook revised to low-to-mid single digits from prior high single digits, due to Middle East; still expects ramp in second half with high single-digit growth.

• Question from Shiguso Kotoku (J.P. Morgan): And then just looking at the margins, I think historically your margins ramp in the second half versus the first half that we saw in Q2 to the year.
  Response: Business segment margins expected to increase ~50 bps in second half versus first half, excluding price-cost, showing continued margin expansion momentum.

• Question from Questioner (Wolf Research): your next question ahead hey thank you this is harris sign on for chris um just for my first one can you can you just give us an update on the m a pipeline um you know it seems like you have capacity for both buybacks and mid-sized m a i guess what are you seeing out there in terms of cdmo opportunities we're also taking a nice balanced approach to capital allocation so to
  Response: M&A pipeline robust, with $250M share repurchase announced; health care and water are focus areas, targeting mid-teens incremental revenue growth and prudent valuations.

• Question from Questioner (Wolf Research): it. From the ramp that you're seeing in the second half, just any thoughts on how sticky that might be, depending obviously on how this situation in the Middle East plays out as we look ahead to 27. Thank you. My second one, just on pricing.
  Response: Pricing impact from oil & gas is ~2 pts in second half; other pricing opportunities exist beyond oil & gas. No structural change in water business, just Middle East timing noise.

• Question from John Roberts (Mizuho): could you talk a little bit about the middle east reverse osmosis from the line of john roberts with mizuho please go ahead um thank you and congrats on the reclassification moses headwinds is that primarily logistic constraints or something structurally changed there
  Response: Middle East delays due to conflict-related project timing shifts, not structural change; water business ex-Middle East performing well, with global growth expected to resume.

• Question from John Roberts (Mizuho): And then the new lithium water opportunity, does that require incremental CapEx here versus that you can actually just grow in your exit where to build out that business or are these existing products and serve in your existing footprint?
  Response: No incremental CapEx; leverages existing product portfolio (RO and DLE), application development enhancements, and is well-positioned to scale without new build-out.

• Question from Josh Spector (UBS): Yeah, hi, good morning. I just wanted to ask on the updated organic growth outlook. I mean, it's a small tweak up, but it's still a tweak up. Your comments on pricing sound exactly the same as last quarter. So does that mean volumes are coming in a little bit better overall? And just curious where you'd attribute that to. It sounds like healthcare, but I don't know if diversified industrials is playing a role in that at all or not.
  Response: Organic growth raised due to strong healthcare and diversified industrials (especially EV battery and water related to Middle East), with nice order book growth in NDI and shelter.

• Question from Josh Spector (UBS): yeah thanks let me follow up on that specifically then and just I mean how big is that EV battery and is that primarily adhesives are there other separator or thermal materials that you guys are selling
  Response: EV battery revenue ~$70M, targeting triple digits by 2026-2027; primarily adhesives, part of broader EV opportunity a few hundred million across automotive portfolio.

• Question from David Begleiter (Deutsche Bank): Is that mainly data centers or other areas are expanding as well?
  Response: Growth in healthcare, education, retail, and hospitals; data centers have some growth but not main driver. Non-RED (residential) investments are key.

• Question from David Begleiter (Deutsche Bank): Verger, if we do see ROAS go back to pre-conflict levels, and just back on pricing of the $90 million you're targeting for this year, how much of that should you or could you retain?
  Response: Pricing related to oil & gas is ~$90M for the year; if Middle East volumes normalize, will monitor and retain pricing as appropriate; other pricing areas exist beyond oil & gas.

• Question from Matthew DeYogues (Bank of America): Good morning, everyone. R&D expense, where's the right landing zone? And how have you shifted the framework for continues to be managed lower, like R&D spend and hurdle rates? Maybe, I don't know, Laura, if you want, where you are now to the depositables? tap on your experience here at the pump, but maybe comparing where...
  Response: R&D target ~2.5% of sales; focus on differential allocation to high-growth areas and customer-driven application development, not large speculative bets.

• Question from Matthew DeYogues (Bank of America): For the second quarter, can you give us a quick little breakdown on where price versus volumes fell across the two segments?
  Response: Approximately 1 point from price, split equally between segments; the rest from volume growth.

• Question from Vincent Andrews (Morgan Stanley): Wanted to ask on the cash flow, obviously very strong performance, looked across all the buckets of working capital, looked like it was very, very well done. So just curious, you know, how you're thinking about that, where you think overall conversion might be for the full year? Yeah. Into the back half of the year. Is there any reversal of that?
  Response: Full-year free cash flow conversion expected closer to 100% due to working capital focus; typical seasonality with Q2 strong and H2 better than H1.

• Question from Vincent Andrews (Morgan Stanley): Commercial bucket there with the AI initiatives. Certainly looks like it. As a follow-up on slide four and win rates, I guess my question would just be, is AI making that win rate? You talked about the 50 sales plays, 150 opportunities, and the 30%, I mean, clearly you were going out on commercial exercise. What are you seeing there? So the win rate is in the past, but is the win rate now higher with AI or is it about the same?
  Response: AI improved speed to market (e.g., garment sales plays launched faster), but win rate of ~30% driven by enhanced commercial organization and sales performance, not AI alone.

• Question from Rachel (Citi): good morning this is rachel for patrick and maybe on which parts of the portfolio is maybe accelerating higher than others and what sort of order books is the lady has a growth perspective on both the building technology side as well as Yeah,
  Response: Building technologies up low single digits (residential outperforming), industrial technologies mid-single digits with strong order book; EV battery and data center growth areas.

• Question from Rachel (Citi): Talk about the level of semi-driven demand in water and just expand on whether that growth profile has changed.
  Response: Semi-driven demand in water (ultra-pure water for chip manufacturers) up ~20%, consistent with recent quarters; growth expected to continue with AI-driven semiconductor expansion.

• Question from Rachel (Citi): One more on residential construction. Can you just speak to what drove that above market growth there?
  Response: Above-market growth in residential driven by multi-family segment; single-family remains stable.

Contradiction Point 1

Middle East Logistics Impact and Water Business Outlook

Contradiction on the financial impact and business performance implications of Middle East project timing.

Joe Ritchie (Goldman Sachs) - Joe Ritchie (Goldman Sachs)

2026Q2: Middle East project timing remains, with improved performance expected in the second half. Organic growth is projected at 5% in Q3 and 7% in Q4. - Lori Koch(CFO)

Could you provide an update on logistics constraints and delayed shipments in the Middle East, as well as explain the margin contraction in the healthcare and water technology segments? - John McNulty (BMO Capital Markets Equity Research)

2026Q1: In Q1, $10 million in sales were delayed due to Middle East logistics. Excluding this, water sales would have been flat to slightly down... water is expected to be up mid-single digits for the full year. - Lori Koch(CFO)

Contradiction Point 2

Healthcare Segment Margin and Growth Drivers

Contradiction on the primary drivers of healthcare sales growth and associated margin pressures.

What was Joe Ritchie's (Goldman Sachs) key question during the earnings call? - Joe Ritchie (Goldman Sachs)

2026Q2: Healthcare and water segment margin contraction was due to mix normalization and growth investments, such as additional sales resources in Tyvek for garment sales. - Antonella Franzen(CFO)

Can you provide an update on logistics constraints and delayed shipments in the Middle East and explain the margin contraction in the healthcare and water technology segments? - Matthew DeYoe (BofA Securities, Research Division)

2026Q1: Health care sales were up high single digits organically in Q1 and are expected to be up mid-single digits for the full year. - Lori Koch(CFO)

Contradiction Point 3

M&A Deployment Strategy and Capital Allocation

Contradiction on whether proceeds from asset sales are specifically earmarked for M&A.

Wolf Research (for Chris) - Wolf Research (for Chris)

2026Q2: M&A pipeline remains robust... Focus on healthcare CDMO expansion... - Lori Koch(CEO)

What is the M&A pipeline and the outlook for pricing stickiness through 2027? - Vincent Andrews (Morgan Stanley)

2025Q4: No strict earmarking; capital will be deployed in the best interest of shareholders, balancing M&A and share repurchases. - Antonella Franzen(CFO)

Contradiction Point 4

Outlook for Residential Construction Growth

Contradiction on the expected performance of the residential construction segment.

Rachel (Citi for Patrick) - Rachel (Citi for Patrick)

2026Q2: Building technologies grew low single digits, driven by residential and non-residential. - Antonella Franzen(CFO)

What parts of the portfolio are accelerating and what is driving residential construction growth? - Michael Sison (Wells Fargo)

2025Q4: low-to-mid single-digit decline in residential - Antonella Franzen(CFO)

Contradiction Point 5

M&A Pipeline Description and Outlook

The description of the M&A pipeline's robustness and strategic focus appears inconsistent.

Wolf Research (for Chris) - Wolf Research (for Chris)

2026Q2: M&A pipeline remains robust, with over $1 billion capacity. Focus on healthcare CDMO expansion, targeting mid-tier valuations and incremental growth. - Lori Koch(CEO)

What is the M&A pipeline and pricing stickiness outlook into 2027? - John McNulty (BMO Capital Markets)

2025Q3: A robust M&A pipeline exists in healthcare (fragmented CDMO space) than in water (more consolidated). The company is actively reviewing targets, often owned by private equity, aligning with its strategy. - Lori Koch(CEO)