DuPont de Nemours Q3 2026 Earnings Call Transcript

DuPont de Nemours (NYSE:DD) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

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View the webcast at https://events.q4inc.com/attendee/691321431

Summary

DuPont de Nemours reported strong third quarter 2026 results, exceeding previously communicated guidance with 5% organic growth, 90 basis points of margin expansion, and 31% adjusted EPS growth.

The company raised its full-year 2026 financial guidance for organic sales growth, operating EBITDA, and adjusted EPS, all at or above the high end of previous ranges.

Strategic initiatives included a focus on innovation excellence, operational productivity, and AI tool adoption, with improvements in sales plays and customer service.

Capital allocation priorities were highlighted with the completion of a $250 million accelerated share repurchase and additional open market purchases, reflecting confidence in long-term growth.

Management noted strong performance across key markets like healthcare, aerospace, and industrials, with significant customer wins and operational improvements driving growth and margin expansion.

Full Transcript

OPERATOR

Thank you for standing by and welcome to the DuPont Third Quarter 2026 Financial Results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. I would now like to turn the call over to Ann Giancristoforo, Vice President of Investor Relations.

Please go ahead.

Ann Giancristoforo (Vice President of Investor Relations & Treasurer)

Good morning and thank you for joining us for DuPont de Nemours’ third quarter 2026 financial results conference call. Joining me today are Lori Koch, Chief Executive Officer, and Antonella Franzen, Chief Financial Officer. We have prepared slides to supplement our remarks which are posted on DuPont de Nemours’ website under the Investor Relations tab and through the webcast link. Please read the forward-looking statement disclaimer contained in the slide.

During this 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 uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K as updated by our current and periodic reports includes detailed discussion of principal risks and uncertainties which may cause such differences.

Unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items. We will also refer to other non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials and has been posted to DuPont de Nemours’ investor relations website. Consistent with our prior earnings calls, we will provide comments on our results versus the prior year pro forma which adjusts for our post separation corporate costs, interest expense and income tax rate.

This is consistent with the methodology and financial metrics that we provided at our 2025 Investor Day. I’ll now turn the call over to Lori, who will begin on slide three.

Lori Koch (Chief Executive Officer)

Good morning and thanks everyone for joining our call. Earlier today we reported our third quarter financial results which again exceeded our previously communicated guidance, demonstrating the strength of our portfolio and the consistent execution of our team. Broad-based sales growth combined with a continued focus on productivity enabled organic growth of 5%, 90 basis points of margin expansion, 31% adjusted EPS growth and robust free cash flow conversion in the quarter.

As a result of our performance, we are again raising our full-year 2026 financial guidance for organic sales growth, operating EBITDA and adjusted EPS, all at or above the high end of our previously communicated range. Antonella will provide further details shortly. We also continue to execute our capital allocation priorities. We completed the previously announced 250 million ASR and substantially completed an additional 100 million of open market purchases in the quarter.

We also announced our intention to repurchase another 250 million of shares in the fourth quarter. This underscores our confidence in DuPont de Nemours’ long-term growth potential and reinforces our focus on allocating capital where we see compelling return opportunities, including investing in our own shares. Overall, this was another solid quarter of strong execution. We delivered strong organic growth, expanded margins, generated robust free cash flow and returned meaningful capital to shareholders, all while continuing to advance our strategic priorities.

Moving to our strategic priorities on slide 4, we continue to strengthen the operating framework that connects our culture, planning and execution. Our focus remains on accountability, productivity and performance excellence with the objective of building a more consistent and sustainable growth engine. Innovation excellence continues to strengthen DuPont de Nemours’ ability to turn differentiated technologies and application expertise into opportunities for sustainable growth.

We are enhancing the quality of our innovation portfolio through more rigorous portfolio management, stronger visibility to accretive growth opportunities and differential resource allocation. In the past quarter, we substantially increased our front-end innovation pipeline and increased the grow-versus-renew ratio of our innovation portfolio by about 5%, ensuring that our vitality index remains strong in the mid-30% range. The results are increasingly visible across our growth markets. In Water Technologies, we expanded our bioprocessing portfolio with a new purification technology aimed at the fast-growing peptide therapeutics market, including GLP-1 drugs. This product helps pharmaceutical manufacturers achieve the purity, yield and scale needed to meet rising demand for these therapies. In addition, we launched Tyvek with Renewable Attribution in the quarter, which provides customers with a solution that maintains the superior performance they know while supporting progress on sustainable material sourcing and carbon footprint reduction.

Commercially, we continue to see strong order patterns with the total company order book solidly up double digits year over year. In addition, we are strengthening the connection across innovation, marketing and sales into a more systemic growth engine, enabling better win rates, faster activation of sales plays, stronger launch readiness and more disciplined execution from opportunity creation through conversion. The focus on this connection is driving key customer wins.

Our adhesive business recently secured a customer win with Beta Tech, an advanced thermal material that maintains optimal battery temperatures and helps automakers enhance vehicle performance, reliability and circularity. Our Vespel custom-engineered seals were recently selected for their exceptional durability, wear resistance and thermal stability, enabling safe, reliable fuel transfer during launch operations and showcasing our ability to solve complex aerospace challenges.

In addition, we were recently awarded the largest containerized desalination project in EMEA, where our ultrafiltration modules provide greater efficiencies from a cost and space perspective, increasing the amount of clean drinking water that can be produced in each container. Operational excellence continues to deliver measurable results. We completed more than 20 Kaizen events during the quarter across our businesses and functions with a continued focus on safety, quality, delivery, inventory and cost. We are seeing the results of this work in our key performance indicators, delivering over 2% net productivity in the quarter, which was also a key component of our margin expansion. Additionally, our OTIF improved by more than 100 basis points, marking the third consecutive quarter of improvement.

More broadly, the adoption of AI tools continues to accelerate as we work to connect our business system framework to AI-enabled tool sets. We are seeing faster and better decision making from our teams on the factory floor, where we are starting to realize material benefits in the areas of planning and quality. Our 2026 financial performance continues to demonstrate the strength and quality of our portfolio, positioning us above the high end of all of the medium-term targets we established at Investor Day. We have a strong foundation for consistent, profitable growth supported by attractive end-market exposure, continued operating leverage and robust cash generation. We will enter 2027 with confidence in our ability to execute and the significant opportunity we have to drive earnings growth and create long-term shareholder value.

With that, I will now turn the call over to Antonella to cover the financials and outlook in more detail.

Antonella Franzen (Chief Financial Officer)

Thanks Lori and good morning everyone. Strong operational execution and broad-based growth drove another quarter of results ahead of our financial guidance. Organic growth and disciplined productivity translated into strong operating leverage and meaningful margin expansion. Additionally, our businesses continue to convert earnings into cash at a high rate, giving us significant financial flexibility. Beginning with our third quarter financial highlights on slide 5, net sales of 1.9 billion were up 4% versus the year-ago period on 5% organic sales growth, partially offset by a 1% headwind from currency. Top-line growth was broad-based, led by continued strength in healthcare and aerospace, as well as year-over-year growth in building technologies on gains in North America and Asia. From a segment view during the quarter, organic sales grew 4% in healthcare and water technology and 5% in diversified industrials.

Third quarter operating EBITDA of 469 million increased 8% versus the year-ago period on organic sales growth and productivity. This resulted in operating EBITDA margin of 25.1% in the quarter, an increase of 90 basis points year over year. Turning to cash flow, we delivered transaction-adjusted free cash flow of 341 million and related conversion of 121%, underpinned by earnings growth and net working capital productivity. Based on our year-to-date results, we now expect our full-year free cash flow conversion to be approximately 100%, nicely ahead of our 90% target.

Turning to slide 6, adjusted EPS for the quarter of $2.09 was up 31% versus the year-ago period. Stronger operations, benefits from higher cash capital allocation, and actions taken to lower the tax rate drove 24% of the increase. Turning to our segment results on slide 7, Healthcare and Water Technologies third quarter net sales of 865 million were up 4% versus the year-ago period on 4% organic growth. Healthcare sales were up mid-single digits percent on an organic basis versus the year-ago period. Organic growth was led by double-digit gains in personal protection and medical packaging. Water sales were up low-single digits percent on an organic basis on strength in industrial water and double-digit gains in semiconductor and specialty markets, partially offset by continued disruptions in the Middle East.

Excluding the Middle East, organic sales increased mid-single digits percent in the quarter. Operating EBITDA for the segment during the quarter of 263 million was up 7% versus the year-ago period on organic growth and productivity gains. Strong operating leverage resulted in operating EBITDA margin of 30.4%, an increase of 80 basis points year over year. Turning to Diversified Industrials, third quarter net sales of 1 billion increased 4% versus the year-ago period on 5% organic sales growth, partially offset by a 1% headwind from currency. At the line-of-business level, organic sales for Building Technology were up mid-single digits percent on growth in North America and Asia. Growth in North America was broad-based, led by share gains in building envelopes for residential markets. Industrial Technologies organic sales were up mid-single digits percent on double-digit gains in aerospace and electric vehicle battery applications.

Operating EBITDA for Diversified Industrials of 242 million was up 11% versus the year-ago period on organic growth and productivity. This translated to operating EBITDA margin in the quarter of 24.1%, an increase of 140 basis points versus the year-ago period. Turning to slide 8, we are again raising our full year 2026 financial guidance with all metrics at or above the high end of our previously communicated range for the full year 2026. Our net sales guidance now assumes organic growth to be approximately 4.5%, reflecting our performance to date and continued strength across most of our key end markets. We now expect sales to be about 7.19 billion, an increase of 15 million from the midpoint of our prior guidance and at the top end of our prior guidance range.

While we have the orders in hand for our large water projects in the Middle East, given the continued disruptions, our guidance now assumes these projects will be pushed into 2027. Continued strength in our other end markets allowed us to raise our guidance to the high end of our previous range. Operating EBITDA is now expected to be 1.785 billion, an increase of 25 million from the midpoint of our prior guidance, reflecting our stronger third quarter results as well as increased productivity benefits. As we exit the year, our operating EBITDA growth represents about 40% incrementals and translates into margin of 24.8%, an 80 basis point improvement year over year. We continue to expect to fully offset higher input costs through pricing actions already taken.

Our adjusted EPS at the midpoint of $7.50 is a 25 cent increase versus our prior guidance and represents a 22% increase compared to the prior year. Pro forma underlying business performance, coupled with the benefits from capital deployment, are driving the year-over-year increase. For the fourth quarter, our estimated net sales of 1.825 billion assumes organic growth of about 8% year over year, driven by continued strength in healthcare, aerospace, and industrial water end markets, as well as pricing actions taken to offset higher input costs. As a reminder, our fourth quarter 2025 net sales included a headwind of 30 million, or 2%, from the order timing shift into the third quarter 2025 due to separation-related activities.

Currency is expected to be neutral in the quarter. Operating EBITDA is expected to be 455 million, resulting in operating EBITDA margin of 24.9%. Adjusted EPS is expected to be in the range of $1.90 to $1.95 per share, representing an increase of 17% to 19% compared to the prior year. Pro forma for the Healthcare and Water segment, we expect fourth quarter organic sales growth in the high-single digits percent range, led by strength in personal protection, medical devices, and industrial water markets. For the Diversified Industrial segment, we expect fourth quarter organic sales growth in the high-single digits percent range on continued strength in aerospace and electric vehicle battery applications.

Before I close, I want to recognize and thank our teams around the world. Our strong performance this year is a direct reflection of their dedication, exceptional execution, and commitment to our customers. We have built strong momentum through the first nine months, and we remain focused on carrying that momentum through the balance of the year. With leading positions in attractive markets, a strong execution mindset, and an exceptional team, I’m confident in our ability to finish the year strong.

With that, we are pleased to take your questions. And let me turn it back to the operator to open the Q&A.

OPERATOR

As a reminder, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one. Again, we kindly ask that you limit your questions to one and one follow-up for today’s call. We will pause for just a moment to compile the Q&A roster. And our first question comes from the line of Jeff Sprague with Vertical Research Partners. Your line is open.

Jeff Sprague (Analyst at Vertical Research Partners)

Hey, thank you. Good morning, everyone. Nice to see the volume and the internal initiatives all kind of coming together.

Antonella Franzen (Chief Financial Officer)

Hey, Jeff, it’s really hard to hear you.

Jeff Sprague (Analyst at Vertical Research Partners)

How about that? Any better?

Antonella Franzen (Chief Financial Officer)

Much better.

Jeff Sprague (Analyst at Vertical Research Partners)

Okay, sorry about that. Hey, I wanted to see if we could unpack a little bit just kind of the impact of the internal initiatives on what’s going on with margins relative to the volume lift you must be getting. And I’m sure you would view yourself as relatively early in these internal initiatives, but maybe you could just give us a little perspective on the runway you have there.

Antonella Franzen (Chief Financial Officer)

Yeah, thanks, Jeff. Yeah, we are seeing a lot of momentum on the productivity side. That was a big piece of the improvement that we saw in overall EBITDA margins in the quarter of about 90 basis points on a pro forma basis. So off to a really great start. We’ve mentioned that we’re targeting a net 3% productivity in COGS, meaning that we would drive a net 3% reduction there outside, obviously, volume increases. So we’re well on our way. In the quarter we were a little over 2% net productivity, which drove about 100 basis points of the EBITDA margin lift that we saw in the quarter, which was slightly offset by some growth investments that we continue to make within the organization.

So really nice improvement. It’s really coming from many different levers. Not only improvements in cost of poor quality and volume variance with being able to get more production off of a fixed asset base, but also on the procurement side, especially in a tough market where obviously there’s a lot of oil and gas headwinds, we are driving procurement savings as well. And then from a top-line perspective, really nice improvement in OTIF and defect rates.

So we made steady progress in OTIF. We target 95% as our ultimate target on a delivery-to-request date, not a delivery-to-promise, so even a higher bar for us. And we’re in the low 80s now, so lots of room for improvement, but we’ve also made a fair amount of improvement, so we’re really happy with the progress.

Jeff Sprague (Analyst at Vertical Research Partners)

Great. And then maybe just a more near-term question, just the water-related projects in the Middle East that were sort of a question mark. So how much revenue was that that you pushed out of your ’26 plan into next year? 25 million or so?

Antonella Franzen (Chief Financial Officer)

We actually pushed out about 15 million, Jeff.

Jeff Sprague (Analyst at Vertical Research Partners)

15 million. Great. Thank you.

Antonella Franzen (Chief Financial Officer)

Thanks, Jeff.

OPERATOR

Our next question comes from the line of Scott Davis with Melius Research. Your line is open.

Scott Davis (Analyst at Melius Research)

Good morning, Laurie and Antonelle and Ann.

Lori Koch (Chief Executive Officer)

Good morning, Scott.

Scott Davis (Analyst at Melius Research)

Congrats on a good couple, several quarters in a row here, improvement. But I wanted to move over a little bit on the innovation side. Jeff took my question on quality and delivery, which I think is really important for you guys. But on the innovation side, this seems like something that’s getting some sort of traction. Is it possible to kind of, you know, I don’t know, measure? I mean, I guess when you talk about Vitality Index, sometimes that can mean different things to different people because you could just be adjusting product a little bit.

But are you seeing more of an impact in your growth or your margins on the new product flow? And that sometimes can answer that question a bit?

Lori Koch (Chief Executive Officer)

Yeah, I would say it’s both. So on the growth side, you know, in our Vitality Index, which last year was about 35%, we’re targeting a similar number for this year. The current mix is about 60% replace, 40% growth. So to your point, we need to continue to drive improvement to be able to see more roundly a 50/50 mix between growth and replace. So in the quarter, as we mentioned on the call, we were able to move our R&D investment more into the growth space, ultimately then leading to more growth coming out of the innovation engine.

So we’re seeing nice progress. We have a lot of work going on in the front-end space to be able to continue to feed that improvement to get to a targeted 50/50. We’ve used a lot of AI tools. We have AI agents running in two of our businesses to be able to speed up the front end. So what used to take us about three months to move something from stage zero into stage one is now taking about five days because of the improvement that we’ve driven on using AI to be able to speed up that front end.

So it’s both a growth and a margin improvement story. On the last year’s basis, we saw about 150 basis points of margin lift from the investment that we’re making in replace. The replace is not only to keep our product relevant and differentiated in the market, it also helps us on the productivity side to be able to input lower raw material costs and be able to get those requalified. So that’s primarily what we see on the replace side. Yeah, so there’s no, there’s really no centralized R and D anymore. It all sits within the businesses and under the businesses’ P&L and responsibility. So that was one big change that we made several years ago that we’ve continued to keep in place because they obviously know what the customer wants, which feeds our innovation engine. So that’s been a nice piece of it.

Another piece is really just around the discipline that we’ve introduced into the system. So we’ve got all the data in one place where we can see where we’re making our investments and making sure that we’re differentially investing. You know, we spend about two and a half percent of sales in total on R and D. And that’s differentially applied to the different businesses to make sure that we’re investing more heavily in those that have higher growth entitlement.

So we’ve been able to look, see where we’re investing our resources, making sure that we’re investing them, you know, back to the 80/20 work. That applies to R and D investment as well. Making sure that the R and D is being vested into the 80 and making sure that we grow the 80 so that we can see overall lift improvement with respect to growth. Thank you. Thanks.

OPERATOR

Our next question comes from the line of Joe Richie with Goldman Sachs. Your line is open.

Joe Richie (Analyst at Goldman Sachs)

Hey guys, good morning. I just wanted to first touch on the revenue beat this quarter. I think it was a little over $30 million higher than what guide was for the, for the quarter. I’m just wondering how much of that came from additional price that you put through versus just the volume recovery that you’re seeing across some of the end markets that you highlighted earlier.

Antonella Franzen (Chief Financial Officer)

Hey Joe, it’s Antonella. So about, of the $30 million beat or so, about $10 million came from incremental price that got put into place in the quarter. And the other $20 million was more from volume.

Joe Richie (Analyst at Goldman Sachs)

Okay, got it. That’s, that’s helpful, Antonella. And then, and then just a quick question, obviously, nice to see, you know, how aggressive you guys are being from a share buyback perspective. As we kind of think out beyond the fourth quarter, I mean, should we start penciling in, you know, like a $250 million buyback? Just how are you guys thinking about that versus your other, you know, M and A priorities? Because I know you still want to change the mix of your business to be more healthcare and water focused.

Antonella Franzen (Chief Financial Officer)

So, Joe, I would say, you know, we do have a lot of financial flexibility given where we are. We have a nice position of cash on the balance sheet and our net debt to EBITDA is at like 1.1 times. So we have a lot of balance sheet flexibility as well. I view the buybacks as us being more opportunistic versus saying that we have an automatic 250 a quarter. So again, we have the flexibility. So given any timing of potential M and A will determine, you know, how much we are doing relative to share buybacks.

Joe Richie (Analyst at Goldman Sachs)

Helpful. Thanks, guys.

OPERATOR

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

John McNulty (Analyst at BMO Capital Markets)

Yeah, good morning. Thanks for taking my question. Had actually two for the DI side. So maybe the first one just on the construction piece. You seem to be doing a lot better than some of the other players in that end market, I guess. Can you speak to the drivers behind that? It sounds like some of it’s around kind of maybe a better approach from building envelope side. Just curious if that’s the heavier weighting or if it’s more about the specific end markets that you’re maybe having access to, whether it’s data centers or fabs or what have you.

I guess maybe just unpack some of the growth that you’re seeing in that business for us. That’d be great.

Lori Koch (Chief Executive Officer)

Sure. So let me—there’s a couple of things let me talk about here. So when you kind of take a look at our building technologies business, I would first say, you know, the team has done a really good job in what has been a relatively tough market, I would say, over the last five years at this point. So we are definitely outperforming the overall market based upon the weightings of where we play. Would suggest that the overall market is down low single digits and our business has performed really well.

I would bifurcate that between volume and price. So from a volume perspective, I would say, you know, we expect to be relatively flat and that’s compared to a down market. And then we are getting pricing as well, which is really helping to drive the organic growth up. But where that’s coming from, the outperformance relative to the market is really in two factors. We have some share gains and we also have some favorable mix as well. And just to unpack that a little bit more for you, when you think about the national builders and the large regional builders, we do see more conversions to our house wrap, to Tyvek.

That’s clearly benefiting us. And then also we’ve talked before that we do have a nice presence in the multifamily. So within multifamily, increased penetration in that area typically brings, I would say, a broader bundled sale as well. So that’s helping to drive the revenue as well.

John McNulty (Analyst at BMO Capital Markets)

Got it. No, that’s, that’s really helpful color on it. And then I guess the second piece would be more on the industrial side. You know, the last couple of quarters, you kind of highlighted aerospace as kind of a big kind of crown jewel, I guess. Can you help us to scale that business and maybe think about the backlog that you see and how that may be playing out as we look out, say, into 2027?

Lori Koch (Chief Executive Officer)

Yeah, so aerospace has done quite well for us. It’s about $300 million, or 3% of revenue or so, but really growing in the double digit range. And the backlog that we have is quite sizable as well. So this is one of our businesses across the whole portfolio where we do have more visibility than others. So we generally can start each quarter with a full order book and start each year with a pretty good sign of where we’ll land. So, you know, we had highlighted on the call a nice win we had with our Vespel business. We’ve got really great relationships with all the large OEMs, and on the Tedlar side, the same thing. So Vespel is more within the engine; Tedlar is more within the body of the plane, and both of them are seeing a similar amount of kind of low double digit growth, and we continue to see that level of growth for the foreseeable future.

John McNulty (Analyst at BMO Capital Markets)

Great. Thanks very much for the color, congratulations.

Lori Koch (Chief Executive Officer)

Thank you.

OPERATOR

Our next question comes from the line of Chigusa Kotoku with JP Morgan. Your line is open.

Chigusa Kotoku (Analyst at JP Morgan)

Hi, good morning. Thanks for taking my question. So my first question—good morning. On the diversified industrial margins, I think they were actually stronger than what I had expected. Understanding you’re driving a lot of good productivity, just curious to know what drove the outperformance. And then I think it’s expected to step down sequentially in the fourth quarter. So what’s driving that too?

Lori Koch (Chief Executive Officer)

Yeah, we’ve seen really nice margin improvement within DI every quarter this year. So part of it is a little bit of favorable mix—obviously to the conversation we just had with the low double digit growth within aerospace, that does have a really nice margin portfolio for us to be able to drive improvement. And the other piece is just the focus on productivity in that we’re feeling within that business. And so we’ve called out a few times the opportunities that we have from an 80/20 perspective that we’ve been piloting within best businesses within DI.

So we continue to believe that we’ll see a few million dollars of benefit this year from the 80/20 work and then kind of a runway to tens of millions on the initial scope that we first put in place, which was about $700 million of revenue. We’ve since expanded that 80/20 work to the Molykote business, which is about a $200 million business. And we see a few million dollars of opportunity there on the pricing side where we put the 80/20 methodology to work. So just really nice improvement, really nice focus on productivity. We’ve had some businesses that have had assets that have run sold out. We’ve driven sizable improvement within capacity release. That helps the margin profile as well.

Chigusa Kotoku (Analyst at JP Morgan)

Okay. And then as a follow up on the pricing side, I think you just earlier mentioned about $10 million of incremental price this quarter. So I guess a few bips with pricing closer to maybe 3% this quarter. Are you offsetting inflation on a dollar-for-dollar basis or maybe better? And then how should we think about it heading into next quarter?

Antonella Franzen (Chief Financial Officer)

Yep. So we are offsetting inflation on a dollar basis, I would say for the full year. Versus the $90 million of pricing we had previously discussed, that’s now closer to $110 million. So you could expect that the fourth quarter pricing will be pretty similar to kind of the third quarter pricing that you’re seeing as well. And again, obviously the team continues and will continue to, if prices continue to move, to take action to make sure that we continue to offset any incremental costs.

Chigusa Kotoku (Analyst at JP Morgan)

Great, thank you.

OPERATOR

And our next question comes from the line of Chris Parkinson with Wolfe Research. Your line is open.

Chris Parkinson (Analyst at Wolfe Research)

Great. Thank you so much for asking my question. Just want to drill down a little bit more into healthcare tech. You’ve been consistently citing basically broad-based strengths across the portfolio, but intermediate to long term, do you see any kind of further divergence between kind of the personal protection market versus more of the med packaging? It seems like there are some newer products in there that could actually affect the growth rate. Just trying to get to the heart of the longer-term growth algo within that business by subsegment.

Thank you.

Lori Koch (Chief Executive Officer)

Yeah, so there is a bit of a bifurcation underneath its Tyvek business in general, which is what you’re referring to. So we’ve got, you know, and broadly in healthcare, there’s Tyvek, which is about a billion, and the remaining 800 or 900 million or so is the med device businesses, you know, with Liveo and Spectrum. So on the Tyvek side, the med packaging is about half of the revenue and the garments is about the other half. So garments will generally grow alongside industrial production, give or take, so in the, you know, 2 to 3% range.

And med packaging will more be along with surgical procedures, which are in the, you know, mid single digit range. And so we’ve got nice opportunity to continue to drive expansion in both. So we talked about Tyvek with renewable attribution on the call. It will give us a profile that is in line with the sustainability niches of our customers. And on the garment side we’ve talked in previous calls about the Apex garments which are coming out that provide more comfort and flexibility and breathability that will allow us to be competitive within the garment space.

But overall the net Tyvek should be butting up against 4% from a volume perspective. And then we obviously expect to drive above-market growth just based on the investments that we’re making in the business. But they’ll generally be about 2 to 3% alongside industrial production for garments, and then in the 5-ish percent range for the med packaging side. Yeah, so it has been a year, you know, November 1st and both of us are off to a really great start. So you know, Cunity continues to produce really, really strong top-line growth. They’re squarely in the AI data center trade and you know, they have a lot of runway on the multiple side, so there’s space. They should be up with Integris in my opinion. So they’ve got a lot of room for opportunity to drive growth.

On the DuPont de Nemours side, I’m super proud of what we’ve driven out of the gate as well. So we are at the top end or above our medium-term targets that we set a year ago on all metrics, on growth, on margin expansion, on EPS and on free cash flow generation. So off to a really great start. And what makes me the most proud is a nice mix of both the top and the bottom line. So it’s driving growth, it’s really focusing in on our innovation excellence and in our growth rooms and our commercial excellence opportunities that you’re seeing play out, especially in a pretty choppy market. So when you consider that we’ve got four and a half percent organic growth this year, we still have about 40% of our portfolio that’s down on the construction side and the automotive side.

So when you look at those two markets, you know, low single-digit declines in both and we’re still posting four and a half percent growth kind of speaks to the quality of our portfolio on the growth side. And then on the productivity perspective, I would say we’re a little ahead of where I would have expected to be. So we said 50 to 70 basis points or so a year of annual lift and we’re sitting at 80 with a headwind of about 40 from price/cost. So really nice, strong performance out of the gate. So I’m just really proud of the team. I see a lot of momentum going forward. We’ve got a very energized, quite young team to be honest. So I’m really happy with where we’re sitting.

Thank you.

OPERATOR

Our next question comes from the line of John Roberts with Mizuho. Your line is open.

John Roberts (Analyst at Mizuho)

Thank you. Nice quarter and nice guidance. How does the bolt-on pipeline look in both the water and healthcare areas? Is the increased buyback a sign that it’s kind of thin right now? And are higher interest rates affecting deal activity?

Lori Koch (Chief Executive Officer)

No, I mean the pipeline remains robust and so we’ve got enough cash to be able to do both. So you know, since we came out of the gate we’ve announced the intent to buy back about 7% of our shares. So a nice improvement there and it still leaves us with about a billion and a half of firepower to be able to do some accretive growth M&A. So we’ve just been really diligent about what we’re going after. We’ve got a defined set of financial parameters that we’re operating within and we have assets that can check those boxes.

We’re just being prudent and playing the process along the way. So I still am looking for some M&A opportunities. But you know, we’re not going to make a hasty decision and do a deal just to do a deal. So we’re going to make one that’s right down the middle of the fairway and you can see really good returns on our end. And in the meantime, trading below 12 for the high-quality portfolio that we have tells me I should be buying back my shares whenever I can.

John Roberts (Analyst at Mizuho)

Okay. And then back to building solutions. Have raw materials stabilized in that segment now?

Antonella Franzen (Chief Financial Officer)

Yeah, I mean overall, obviously we continue to look at both where the price of oil is as well as the price of natural gas as we have some production in Europe as well. And as you saw in our results this quarter, as things move, we will act and we will move as well. And we have clearly offset all of our inflationary costs. Thank you.

OPERATOR

Our next question comes from the line of Josh Specter with UBS. Your line is open.

Josh Specter (Analyst at UBS)

Yeah, hi, good morning. I wanted to follow up on some of the productivity comments. So I think you said 2% net productivity achieved in the quarter that delivered something like 90 basis points margin improvement, maybe more. What does the 3% net productivity mean as it relates to your algo? Does that mean you should be delivered greater than 50 to 70 basis points of margin improvement as you look over the next couple years, or are you reinvesting that someplace within the business that we should see that offset?

Antonella Franzen (Chief Financial Officer)

Yeah, I think you guys got to make sure you don’t double count because we’re talking about net productivity within COGS. So we will take those costs out. Some of those costs help to offset, you know, inflationary pressures in other areas of the P&L because that 3% is net in COGS. So it’ll take care of inflation in that space. But you obviously have some inflation in SG&A. And then to your point, there are some investments as well. So for example, if you look at our third quarter performance and our overall 90 basis points of margin expansion, we had about 120 basis points of that was driven by the combination of growth and productivity benefits offset by oil and gas inflation. And then we had a little other positives from some FX moves in there that got us to the 90 basis points overall. So just to keep in mind, as Laurie mentioned earlier, that net productivity target does include the benefit of volume.

So you just got to put that into the equation as well.

Lori Koch (Chief Executive Officer)

Yeah, and the oil and gas inflation was just a margin headwind, so we were full on a cost-dollar basis. It’s just the math suggests the margin headwind.

Josh Specter (Analyst at UBS)

Okay, no, I appreciate that. That’s very helpful. I did want to follow up quickly just on water organic. Kind of looking at your reporting this year, you know, the Middle East, each quarter has been like a low single-digit headwind. If things stay as they are, is the base business growing enough that we could see mid single-digit growth return next year assuming the Middle East stays as it is? Understanding that’s a pretty big assumption.

Antonella Franzen (Chief Financial Officer)

Yeah. So I mean if you look at our full-year expectations for water right now there’s about 1% organic growth baked into our guide with the push that we made on the Middle East projects. And if you take out the Middle East from those numbers, we would be up more in the mid single-digit range alongside where the GWI, the Global Water Index, sits. And so assuming no material improvement or deceleration in the Middle East for next year, then you would expect us to again be in line with where the Global Water Index is, which has generally been in the four to four and a half percent range.

So we’ve got really nice performance outside the Middle East that’s been able to give us overall low single-digit growth. But obviously we’ve been impacted by that. But we haven’t lost the business. I mean it’s one business and so it’s just a matter of when the stabilization happens in the region so that we can ship the materials, but the business is not lost. Okay, thank you.

OPERATOR

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

David Begleiter (Analyst at Deutsche Bank)

Thank you. Good morning, Laurie. A little bit more on that question. Looking into 2027, early look, what’s in your control, what’s not in your control and what could that mean for EBITDA growth? I see consensus up 5% year over year. I think you can punch above that. But any early thoughts on 2027? Thank you.

Lori Koch (Chief Executive Officer)

Yeah, so we’ll give full color on 2027 on the next call. But as of right now, if we look at it kind of strictly from an end market perspective, let’s leave the Middle East conversation that we just had to the side. We kind of see a similar end market performance with a slight improvement in automotive. So, you know, this year automotive is down one and a half to 2%. I think the initial expectation for next year is to be up slightly. But every other end market we’re generally thinking would be consistent.

So you know, nice mid single-digit growth in healthcare markets, nice mid single-digit growth in water ex the Middle East situation. Kind of a similar environment within the construction space and generally similar environment in the, you know, in the 3 to 4% range for industrial production. So given that top-line algorithm and the productivity initiatives that we still have in place, then you would continue to expect us to be able to compound some margin expansion on top of a top-line opportunity that’s pretty similar to this year.

But we’ll give full color as we get into 27.

David Begleiter (Analyst at Deutsche Bank)

Very helpful. And just on pricing, how much pricing is being carried over to next year? I know most of this is surcharges, but how much pricing, how long could you get the benefit from 2027?

Antonella Franzen (Chief Financial Officer)

So we started predominantly our pricing actions in May of this year. So it was kind of in the middle of the second quarter. So clearly you’ll have a full carryover effect into Q1 and part of that into the second quarter as well.

David Begleiter (Analyst at Deutsche Bank)

Thank you.

OPERATOR

Our next question comes from the line of Matthew Dayo with Bank of America. Your line is open.

Matthew Dayo (Analyst at Bank of America)

Good morning everyone. Kind of building a little bit on Dave’s question. Are there any opportunities to move some of these price surcharges to more structural price increases as inflation stays, you know, probably stickier for longer than maybe we had been thinking about? And I might have missed this, so I apologize. But on the net productivity benefits of 2%, I think that was consolidated. Do you know how much of this went into D&I versus healthcare and water?

Lori Koch (Chief Executive Officer)

Yeah. So I mean maybe to your first question first on the pricing side. So we’ll obviously look to see how the market plays out and that we can remain competitive and kind of favor volume. But we have a really good track record of maintaining price whenever there’s been, you know, increases and then we’ve been able to hold the increases. So we’ll have to see what the competitive landscape looks like. As of right now, as Antonella had mentioned, we would expect kind of the flip of the second half price improvement that we saw from the oil and gas perspective to be in the first half of this year and then we’ll see how the remaining half plays out assuming kind of the Middle East and oil and gas stay generally where they are today. To your second question.

Antonella Franzen (Chief Financial Officer)

So related to the productivity and kind of where it went in the quarter, I would say both businesses had net productivity above the 2% mark in the quarter.

Matthew Dayo (Analyst at Bank of America)

Thank you, I appreciate it.

OPERATOR

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

Turner Hendricks (Analyst at Morgan Stanley)

Hi, this is Turner Hendricks on for Vincent. Do you mind giving us a little early color about how you’re thinking about 2027 relative to the algorithm? What might take us to the higher or low end of 3 to 4% organic growth and any puts or takes on margins in particular?

Lori Koch (Chief Executive Officer)

Yeah, so I mean, I think if we look at strictly an end market perspective, generally 2027 feels similar to 2026, with the exception of we’re not quite sure obviously what the Middle East does. So we’re making the assumption that it kind of stays the way it is today from both the pricing stays in place and the, you know, the water impact kind of doesn’t improve. We don’t see a big bump coming back next year with respect to the projects that pushed, but we also don’t see the growth headwind that existed as well.

So we’ll see like the only material change we see in end markets is maybe a slight improvement in auto builds from being down 1.5% or 2% this year to being slightly up. But where we see the outperformance this year, we expect to see it next year. With the EV battery side within automotive, aerospace continuing to do quite well, healthcare continuing to do quite well. And on the productivity side, we still have runway to the targets that we set with respect to net 3%.

So we did, we did a little over 2% this year. So really nice improvement. But we’ve got runway to continue to see improvement in that area.

OPERATOR

And our next question comes from the line of Patrick Cunningham with Citigroup. Your line is open.

Patrick Cunningham (Analyst at Citigroup)

Hi, good morning. Thanks for taking my question. I was hoping you could provide an update on the water side. In terms of what you’re seeing in terms of semiconductors, what are you seeing in terms of growth from that business and what are your expectations for volume and mix lift into 2027?

Lori Koch (Chief Executive Officer)

Yeah, so we saw really nice performance on the semiconductor side in the water business. So it’s about 20% of the ion exchange, which is about half of the portfolio. And we saw it up in kind of in the 20% range in the quarter. So obviously driven by the AI data center lift that’s going on. So really nice performance there. In general, you know, outside the desalination situation in the Middle East, all of our end markets are doing quite well in water, so you’ve got the wastewater treatment side doing quite well. You’ve got the specialty side and food and beverage and biopharma filtration doing quite well. And then obviously the piece that we mentioned kind of at the top end would be on the microelectronics side.

Patrick Cunningham (Analyst at Citigroup)

Great. And you know, you talked a little bit about this on the call, but I was hoping you could elaborate and provide some examples of some of the AI-enabled tool sets both in terms of manufacturing productivity and on the commercial side and where you’re already seeing returns. How much do you expect to do in terms of further technology investment there?

Lori Koch (Chief Executive Officer)

Yeah, so if I think about it, in the three main buckets of kind of innovation, commercial and productivity, we’ve got really nice opportunities to drive really strong returns in all three. So on the innovation side, we talked about the focus right now being on improving the front end. So not only improving the dollar amount that sits in the front end, but significantly reducing the time to be able to advance projects into stage one. So we’ve taken two businesses where we piloted AI agents that we’ve created that have improved what used to be a front-end process of about three months to about five days.

So really nice improvement there and being able to speed the speed at which we go to market. On the commercial side, we’ve been using sales plays that are enabled by AI tools to be able to shorten the development of the sales play opportunity. And we first piloted it in garments and we saw five or six million dollars of lift on the top line within the Tyvek garment space from the AI-enabled sales opportunity. We’re also using it on the customer service side to be able to create a much broader portfolio of kind of touchless order opportunities on the customer service side, so driving productivity.

And then finally kind of at the plant level, we’ve been investing on the reliability and maintenance side in tools that allow us to be able to assign the right level of resources to the different maintenance opportunities that exist so that we can see overall lower maintenance costs. And we’ve also been implementing some AI tools on the visual management side, especially within the Tyvek business from an inspection perspective. So taking what used to be a visual inspection process done by an operator and moving that to a digital tool so that we can reduce our labor costs.

So nice lift across all three phases of kind of our overall business system when you think about the frameworks of operations, commercial and innovation. So I’m really excited about the opportunity. Every exempt worker within the company has access to Copilot and the usage is really, really high. We’ve been piloting some cowork opportunities within some spaces in the business and we’ve also implemented kind of the Copilot for the sales force to be able to drive productivity there.

Patrick Cunningham (Analyst at Citigroup)

Great, thank you so much.

OPERATOR

Our next question comes from the line of Abigail Ebertz with Wells Fargo. Your line is open.

Abigail Ebertz (Analyst at Wells Fargo)

Morning. Thanks for taking my question and congrats on the quarter. Just a question on your geographic distribution for your auto business. I know you mentioned you expect very modest growth next year. S&P has global builds up less than 1% but that isn’t unanimous across regions. They are expecting some declines in certain areas. So just wondering where your exposure lies. Thanks.

Lori Koch (Chief Executive Officer)

Yeah, it’s not materially different from kind of the global auto builds, with the one exception that within China our presence right now is more with the multinational players than it is with the local players from a China perspective. So we’re more exposed to North America and the Western OEMs than we are within China to like the BYDs and the Geelys and the others. But on the EV battery side, which is where a lot of our opportunity is sitting, that is pretty broad based.

And so we’ve seen about a 60% lift in our EV battery sales this year, which is driving really nice performance for us and we would expect to continue to see really nice growth there, like sizably outpacing the EV battery car build numbers as well.

Abigail Ebertz (Analyst at Wells Fargo)

Okay, thank you for the color.

OPERATOR

Our next question comes from the line of Arun Viswanathan with RBC Capital. Your line is open.

Arun Viswanathan (Analyst at RBC Capital)

Great, thanks for taking my question. I hope you guys are well. I just wanted to get maybe some initial thoughts on 27 if possible. Got a pretty good 26 on both pricing and volume growth in the mid single digit range. I know you’ve highlighted a lot of those reasons on the call already and objectives, but just wondering, you know, if given kind of the backdrop and uncertainty and recent inflation, do you still see mid single digit growth across both verticals likely or how should that kind of play out as you move through 27?

Lori Koch (Chief Executive Officer)

So I would say, you know, I think we’ve talked about the end market expectations into 27 a couple times on the call. So just to reiterate, we’ll give our formal guidance on our Q4 earnings call. When you look at things from a market perspective going into 2027 and you put aside the Middle East, we expect the underlying markets to perform similarly to what we saw this year, with the only exception really being auto builds that were down this year that are expected to have a little bit of growth next year.

So we will provide explicit commentary by each of the businesses as we get into the next quarter call.

OPERATOR

Thanks. Our final question comes from the line of Alexei Yepremov with Barclays. Your line is open.

Alexei Yepremov (Analyst at Barclays)

Good morning, everyone. I seem to recall you changed your sales incentives to commission-based pay. I wonder how that is going.

Lori Koch (Chief Executive Officer)

Yeah, so it’s changing in January. So we’ve been putting the process in place and communicating with the sales organization about the change throughout 2026. And we piloted it a little bit on the variable compensation side. So we gave them targets that will determine their individual performance factor on the variable compensation side today, which is kind of a STIP that everybody gets within the organization. So we will officially move January 1, with a few exceptions in Europe, where we have to wait a year just given the works council requirements.

But the initial feedback is a lot of excitement around the opportunity for the sales force to be able to have more control over their overall compensation, which ultimately would lead to higher growth for us when those two kind of pan out together. So we’re excited about the change and the opportunity that it will bring.

Alexei Yepremov (Analyst at Barclays)

Thank you. And a follow up on health care. Just wonder how your medical device end market is doing relative to packaging and protection.

Lori Koch (Chief Executive Officer)

Yeah, they’re all nicely growing in the same general vicinity. So we saw really nice performance in 2026 across the healthcare space.

Alexei Yepremov (Analyst at Barclays)