DuPont de Nemours (NYSE:DD) reported second-quarter financial results on Tuesday. The transcript from the company's second-quarter earnings call has been provided below.
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Summary
DuPont de Nemours reported second-quarter financial results surpassing their guidance with 4% organic sales growth, 80 basis points of margin expansion, and double-digit adjusted EPS growth.
The company is raising its full-year 2026 guidance for organic sales growth, operating EBITDA, and adjusted EPS, and expects free cash flow conversion to exceed the 90% target.
A $250 million share repurchase is planned for the third quarter, and the company completed a reverse stock split, aligning its classification to 'Industrial' under GICS.
Strategic initiatives include focusing on organic growth, innovation in key sectors like healthcare and water, and leveraging AI for operational and commercial improvements.
Second-quarter net sales reached $1.8 billion, up 4% year-over-year, with significant contributions from healthcare, aerospace, industrial, water, and semiconductor markets.
Operating EBITDA for the second quarter was $448 million, marking an 8% increase from the prior year, with a margin of 24.6%.
The company continues to explore M&A opportunities, particularly in water and healthcare, while maintaining a disciplined capital allocation strategy.
DuPont de Nemours' operations are optimizing productivity and efficiency through strategic initiatives like the 80/20 rule, aiming for better yield and asset utilization.
Full Transcript
OPERATOR
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 slides. 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 excluding 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.
As a reminder, on the basis of presentation, our share and per-share information has been retroactively adjusted for the reverse stock split that was completed in June 2026. 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 second quarter financial results which again exceeded our previously communicated guidance. Through our ongoing focus on excellence and productivity, we delivered organic sales growth of 4%, 80 basis points of margin expansion, double-digit adjusted EPS growth and robust free cash flow conversion in the quarter. As a result of our second quarter performance, we are again raising our full year 2026 financial guidance for organic sales growth, operating EBITDA and adjusted EPS and we expect our free cash flow conversion to be ahead of our 90% target.
Antonella will provide further details shortly. Additionally, we announced that in the third quarter we expect to launch a $250 million share repurchase which highlights our continued focus on driving a disciplined capital allocation model. We also completed the previously communicated reverse stock split which aimed to align our key performance metrics with those of our industrials peer set. In addition, effective in July, our GICS code classification has been changed to Industrial, an important milestone that recognizes the significant transformation of DuPont de Nemours over the past several years.
This new classification better reflects our industrial portfolio and the long-term value creation opportunities we see ahead. Moving to slide four, we continue to make strong progress advancing our strategic priorities through a more robust and disciplined business system with a clear focus on organic growth, accountability, execution and continuous improvement across the company. The objective is straightforward: reinforce the operating culture required to deliver sustainable performance while building repeatable capabilities that drive growth, margin expansion and shareholder value over time.
What is important is that these are not isolated initiatives—innovation, commercial excellence, operational excellence and 80/20 are increasingly connected through one operating system that helps us prioritize the highest-value opportunities, execute with greater rigor and scale what works across the organization. Innovation excellence remains central to our value prop for both customers and shareholders. Our pipeline continues to deliver new wins across high growth and emerging applications through differentiated products and application development.
We are using the business system to sharpen the focus of our innovation pipeline, improve how we manage differentiated opportunities and support the continued expansion of our AI Ready Labs initiative leading to faster development cycles and a more robust front-end pipeline. You can see that in the quality and relevance of launches coming through the pipeline. In water we launched an integrated end-to-end solution for direct lithium extraction including membranes and ion exchange resins designed to improve lithium recovery and purity.
In healthcare, we continue the expansion of our Liveo portfolio to better serve the high growth biopharma market and in diversified industrials we are bringing forward new solutions for electric vehicles and battery energy storage systems. Commercially, we are putting more rigor and scale behind growth. We have continued to see improvement in overall order trend and we are rapidly scaling sales plays using AI to accelerate our impact. Here we are moving from process deployment to operating discipline and the early demand generation momentum is encouraging.
We have won about 150 opportunities which represents a nearly 30% win rate. This sits firmly ahead of our historical percentage as well as above industry benchmarks. Overall we are building a more systemic commercial engine—clear targeting, stronger data quality, accelerated demand generation and more disciplined execution from opportunity creation through conversion—leading to a strong pipeline. OPEX continues to be a key driver of value creation.
At DuPont de Nemours, we are building a more disciplined operating culture that is translating into measurable improvements across productivity, quality, customer delivery and cost. In the quarter we delivered a more than 100 basis point improvement in Otis and net productivity with a continued reduction in cost of poor quality. Looking ahead, we see additional opportunity through both AI and automation where early pilots in reliability, maintenance and quality are identifying significant improvement potential.
Ultimately, OPEX is not simply a cost initiative, it's a growth enabler that improves customer experience, strengthens margins and enhances our competitive position over time. Lastly, our 80/20 work is increasing focus and simplifying complexity across the organization. We are developing a much clearer understanding of where value is created, concentrating resources behind those opportunities and simplifying activities that consume resources without generating comparable returns.
I noted earlier that we began by piloting the approach in four of our diversified industrials businesses. This work has identified meaningful opportunities to create value which we have already begun to execute. The examples are clear. The team identified an opportunity to reallocate commercial tech, service and marketing resources towards geographies and market segments with the greatest growth potential while simplifying the approach to smaller markets through stronger channel partnerships.
Additionally, the team identified productivity initiatives to reduce manufacturing complexity, better sequence production and focus on the highest-value product families to improve yields, asset utilization and capacity within the existing footprint. The common thread across all of this work is focused on discipline and repeatability. We are advancing innovation in the markets where application expertise is most differentiated, strengthening commercial execution with data, AI and more targeted sales plays, improving operational performance through Kaizen, productivity, quality and Otis and using 80/20 to simplify and concentrate resources where they create the most value. With that, I'll 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 execution and market-driven growth in the second quarter delivered results ahead of our financial guidance. Organic growth and a continued focus on productivity drove solid operating EBITDA leverage, meaningful margin expansion and robust free cash flow generation in the quarter. Consistent with our first quarter call, I 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. In addition, all share and per-share amounts have been retroactively adjusted as a result of the reverse stock split. Beginning with our second quarter financial highlights on slide 5, net sales of 1.8 billion were up 4% versus the year-ago period on 4% organic sales growth. Top line growth was broad based led by continued strength in health care, aerospace and industrial, water and semiconductor markets.
In addition, we saw year-over-year growth in our building technology business on strength in residential and non-residential end markets. From a segment view, during the quarter organic sales grew 4% in Healthcare and Water Technologies and 3% in Diversified Industrials. Second quarter operating EBITDA of 448 million increased 8% versus the year-ago period on organic sales growth and productivity. This resulted in operating EBITDA margin of 24.6% in the quarter, an increase of 80 basis points year over year including a 30 basis point headwind from price/cost dynamics.
Turning to cash flow, we delivered transaction-adjusted free cash flow of 326 million and related conversion of 127% underpinned by earnings growth and net working capital productivity. Given our strength in the quarter, we expect our full year free cash flow conversion to be ahead of our 90% target. Turning to slide 6, adjusted EPS for the quarter of $1.88 was up 21% versus the year-ago period. The increase was driven by stronger operations of 17 cents and a 15 cent benefit from below-the-line items.
Turning to our segment results on slide 7, Healthcare and Water Technologies second quarter net sales of 856 million were up 5% versus the year-ago period on 4% organic growth and a 1% benefit from currency. For the second quarter, healthcare sales were up mid-single-digits percent on an organic basis versus the year-ago period. Organic growth was broad based led by double-digit gains in personal protection and biopharma markets. Water sales were up low-single-digits percent on an organic basis on double-digit gains in industrial water and semiconductor markets partially offset by weakness in the Middle East.
Outside of the Middle East, organic sales increased mid-single-digits percent in the quarter. Operating EBITDA for the segment during the quarter of 258 million was up 4% versus the year-ago period on organic growth and productivity gains partially offset by growth investments. Operating EBITDA margin of 30.1% decreased 30 basis points year over year as organic growth and productivity were more than offset by less favorable mix and growth investments.
Turning to Diversified Industrials, second quarter net sales of 963 million increased 3% versus the year-ago period on 3% organic sales growth. At the line of business level, organic sales for Building Technologies were up low-single-digits percent on growth in residential and non-residential construction markets led by Asia Pacific Industrial Technologies. Organic sales were up mid single digits percent on double digit gains in aerospace and electric vehicle battery applications as well as mid single digits growth in printing applications. Operating EBITDA for diversified industrials of 213 million was up 7% versus the year ago period on organic growth, favorable mix and productivity. This translated to operating EBITDA margin in the quarter of 22.1%, an increase of 70 basis points versus the year ago period.
Turning to Slide 8, we are again raising our full year 2026 financial guidance given our outperformance in the quarter as well as benefits from capital deployment for the full year 2026. Our net sales guidance now assumes organic growth to be slightly ahead of 4% on continued strength across most of our key end markets. We have adjusted our midpoint to 7.175 billion due to a lower expected currency benefit as the US Dollar continues to strengthen.
Operating EBITDA at the midpoint is now increased to 1.760 billion reflecting our stronger second quarter results and more than offsetting headwinds from currency. Operating EBITDA margins of 24.5% include a 30 basis point headwind from oil and gas inflation. Our adjusted EPS at the midpoint of $7.24 is a $0.15 increase versus our prior guidance and represents an 18% increase compared to the prior year pro forma. For the second half at the midpoint, our estimated net sales of 3.675 billion assume organic growth of about 6% year over year driven by continued strength in health care, industrial, water and aerospace end markets as well as carry forward pricing from actions already taken. Operating EBITDA is expected to be 900 million resulting in operating EBITDA margin of 24.5% including a 50 basis point headwind from oil and gas inflation. Adjusted EPS at the midpoint is expected to be $3.73 per share. As a reminder, our third quarter 2025 benefited from a timing shift of approximately 30 million of sales due to system cutover activity in advance of the cunity separation which was a 2% organic growth shift from the fourth quarter to the third quarter.
Our third quarter expectations include a sequential $15 million sales lift from Q2 related to pricing actions already taken and operating EBITDA at the same level as the second quarter. Therefore, for the third quarter 2026 we estimate net sales of 1.835 billion, operating EBITDA of 448 million and operating EBITDA margins of 24.4% including a 50 basis point headwind from oil and gas inflation. Adjusted EPS is expected to be in the range of $1.80 to $1.90 per share.
Our third quarter net sales guidance assumes about 5% organic growth year over year when adjusted for the prior year timing shift and about 3% organic growth year over year as reported. Currency is expected to be about a 1% headwind in the quarter. For the healthcare and water segment we expect third quarter organic sales growth in the mid single digits percent range led by strength in medical device, biopharma and industrial water markets. For the diversified industrial segment, we expect third quarter organic sales growth in the low single digits percent range on continued strength in aerospace and electric vehicle battery applications.
Before I close, I want to take a moment to thank our teams around the world. The strong results we've delivered to date are a direct reflection of their hard work, dedication and focus on serving our customers every day. We're proud of what we've accomplished together and even more excited about the momentum we're carrying into the second half of the year with strong positions in attractive markets, a continued focus on execution and the talent of our people.
We have a lot to look forward to as we 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
OPERATOR
Q&A. At this time I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Please limit yourself to one question and one follow-up. Your first question comes from the line of Jeff Sprague with Vertical Research Partners. Please go ahead.
Jeff Sprague, Analyst at Vertical Research Partners
Hey, thank you. Good morning everyone. Hope you're well. Good morning. Hey, two unrelated questions from me. First, Lori, 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 thinking about, you know, contribution to sales or, you know, product vitality 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, you know, progression.
Lori Koch, Chief Executive Officer
Yeah, of course I can. So on the, on all of the fronts across the business system, I'm really, I'm really happy with the results that we've driven so far across all the different frameworks, whether it's innovation, commercial or operational excellence. But to your question on the innovation, we have a really strong foundation that we're starting from with a vitality index of about 35% and we'll continue to build on that. And our focus is on maintaining that strong balance as well as shifting the mix more towards growth versus replacement that comprise that 35% vitality index.
So, you know, we've seen benefits with respect to an improved front end pipeline on the innovation front, also a reduction in the cycle speed with respect to getting new products to market and generating in the front end pipeline. So while we are not quite sizing what the upside is with respect to innovation, we're firmly committed to the minimum 3 to 4% organic sales growth that we had put out at investor day, where in fact, if you look at our full year numbers running either in line or ahead on all of the metrics, whether it's organic growth, margin expansion or EPS growth with respect to those targets.
So really nice lift. And a lot of that's really coming from the implementation of the business system. On the one quick comment on the 80/20 work as well. So we've been engaged on a study with four of our businesses in the diversified industrials with respect to implementation of 80/20. We're through that initial exercise with respect to framing the opportunities and we're actually executing those opportunities now. We have a few million of benefit in the second half from an EBITDA perspective around just simplifying the portfolios, driving yield, optimizing mix, making sure that the resources are targeted the highest growth opportunity.
So nice performance there. On the cost of poor quality, to your question, with the improvement that we're seeing, we're below benchmark. I think benchmark is right around 5% of sales. We're at about 4% of sales with respect to cost of poor quality and we'd look to drive that lower as we implement the OPEX framework.
Jeff Sprague, Analyst at Vertical Research Partners
Great. And then maybe this for Antonella, on the oil and gas margin related headwinds you shared with us for the quarter, the outlook and the year, do those all roughly reflect price-cost dollar neutrality or are you kind of above, you know, ahead or behind? On an actual dollar versus cost basis,
Antonella Franzen, Chief Financial Officer
It's price-cost dollar neutrality. So as we said on the last call as well, there's about 90 million of pricing that's in there on a full year basis. We have a little bit of that in Q2. As you would expect, a majority of that is sitting in the second half of the year and that keeps us price-cost neutral from a dollar basis.
OPERATOR
Your next question comes from the line of Scott Davis with Melius Research. You may go ahead.
Scott Davis, Analyst at Melius Research
Hey, good morning, Lori and Antonella and Ann.
Lori Koch, Chief Executive Officer
Good morning, Scott.
Scott Davis, Analyst at Melius Research
I wanted to. Good morning. I wanted to follow up a little bit on Jeff's question. There's a lot of changes going on at DuPont de Nemours and net productivity goals is not something that we talked about in the old days. But can you talk about where you are today, kind of where you want to be and kind of a realistic timeframe of where you can get to kind of best in class levels?
Lori Koch, Chief Executive Officer
Yeah. So our target for net productivity is 3%. So 3% of COGS annual reduction on a net basis. So that's a sizable improvement from where we've been in the past where the number was kind of flat at best. So we're making nice progress. In the quarter, we saw about 200 basis points of a reduction on a COGS basis that contributed about 100 basis points of margin expansion as a percent of revenue. So nice improvement. I think to get to like the three, you know, the 3% net productivity kind of core curriculum that we're driving across the organization, that's probably within the next 18 months be able to get to that 3% run rate across the organization.
Scott Davis, Analyst at Melius Research
Okay, that's helpful. And then, you know, when you're making these kind of operational changes and obviously trying to drive cultural change, there's a certain component that you probably need to change compensation plans and such to recenter around these new targets and goals. Have you done that already or is that in process? Kind of. Where do we stand in that perspective?
Lori Koch, Chief Executive Officer
Yeah. So 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 year. So in the past it was done at the segment level. So it would have been healthcare and water or diversified. This year we're doing it at the line of business level. So there's six lines of businesses, three under each segment. And we're using that as the center point for the business performance to really drive enhanced accountability at that level. As we look into 2027, we are changing the compensation method for our sales force. And so we're in the midst of that. Right. Moving them to commission based. So today we've got small pockets of commission based sales across the organization.
But in general the sales force is paid on the same bonus structure as what the rest of the organization is. So in order to be able to really drive that growth and drive that hunter mindset and business development expertise across the organization, it's really important to then incent the salesforce to drive growth. So that change will be happening in 2027 for those, for those individuals.
OPERATOR
Your next question comes from the line of Joe Ritchie with Goldman Sachs. You may go ahead.
Joe Ritchie, Analyst at Goldman Sachs
Hi, good morning everyone.
Lori Koch, Chief Executive Officer
Morning, Joe.
Joe Ritchie, Analyst at Goldman Sachs
So I wanted to start with the Middle East. I think 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 on where this project stands and like whether you've seen any type of alleviation on the constraints that you saw last quarter?
Lori Koch, Chief Executive Officer
Yeah, so the 10 million shift that went from Q1 to Q2 happened. So that happened in April. It already kind of been behind us by the time we did the Q1 call. We're still in the same bucket with respect to expectations for Middle East in the second half. So we see improved performance in the Middle East in the second half versus the first half. Really driven by projects that are already on the books. And so we've got a few large projects in the Middle East and kind of in line with the expectations that we see for more global large projects, second half versus first half.
So we still got visibility to those, they're still on our books. We continue to expect that most of that revenue hits in the fourth quarter versus the third quarter. So if you look at kind of the trajectory of organic growth that Antonella called out 3Q, 4Q and you take out the timing shift with respect to last year, we'll see about 5% organic growth in Q3 and then 7% in Q4. Really, that step up is really around these projects across the globe beyond just the Middle East in the water business.
Joe Ritchie, Analyst at Goldman Sachs
Got it. That's helpful, Lori. And I guess just maybe on margins for a second. Your healthcare and water technology segment saw 30 basis points of margin contraction despite the solid growth. I know that you guys were expecting some type of mix normalization. I think you also called out growth investments. Can you just maybe unpack the specific mix dynamics as well as the investments that you're making in those segments? Thank you.
Antonella Franzen, Chief Financial Officer
Hey, Joe, it's Antonella. Yes, so what we talked about in our first quarter, we had a much heavier component related to our healthcare sales in Q1 relative to the second. So that was the mix shift that we had talked about last quarter. So we're just seeing the opposite side of that now. Overall underlying margins in the healthcare and water business are very strong. We are making investments there. We're seeing the impact of those investments in our top-line growth.
One of the areas that we'll highlight with respect to the return on the investments: we've invested in additional sales resources within our Tyvek business to be able to continue to fill up the assets. One of the large opportunities that we've seen is around sales plays in the garment space. So we introduced sales plays in the garment space towards the tail end of last year, called out nice performance in the prepared remarks with respect to building a robust pipeline, and we actually see about 5 or 6 million dollars of incremental garment sales in the full year 2026 expectations.
So, you know, really already seeing nice contribution from those additional resources that we added.
OPERATOR
Your next question comes from the line of John McNulty with BMO Capital Markets. Go ahead, please.
John McNulty, Analyst at BMO Capital Markets
Yeah, thanks for taking my question. Maybe the first one on the diversified side. So I guess when I look at the second half outlook for growth versus the second quarter, it looks like things accelerate a bit, I guess. Can you help unpack that? What may be driving that? And then also thoughts on the incremental operating leverage that you have, especially with some of the 8020 starting to kick in. How should we be thinking about that in the back half.
Antonella Franzen, Chief Financial Officer
So overall, when you take a look at things from the growth side, I would say when you look the first half versus the second half, what you're really seeing, if you kind of take Q2 as your starting point, is really just the incremental pricing that's in the second half of the year. So as I noted earlier, we do have a majority of the pricing related to the oil and gas headwinds in the second half of the year. That adds about 2 points of pricing in the second half.
So again, if you look where we landed in Q2 of around 4% organic growth, we have the extra two points of pricing that kind of gets you to the 6% organic growth that we see in the second half of the year. So no significant uplift needed there to achieve that target. When you look at the incrementals in the second half of the year, if you're kind of looking at things on a year-over-year basis and you adjust for the price-cost dynamic, our incrementals are around 40%.
John McNulty, Analyst at BMO Capital Markets
Got it. Okay, thanks very much. And then on the 8020 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 a little more robust than where you originally expected?
Antonella Franzen, Chief Financial Officer
Yeah, so we do see opportunities on both fronts. So the initial kind of few million dollars that I had mentioned that we expect in 2025, 2026 from the 8020 work is really going to be more around the margin side. So kind of relooking at our org design and our Op model and driving some yield improvement and making sure that we've got the resources focused on the 80% and moving away from 20% to be able to drive margin improvement. With respect to growth, there's also opportunities that we see around upgrading our market expertise, driving enhanced commercial excellence, as well as further business development work that should drive growth.
And so that will be a little bit longer in realization versus profitability work. But we don't see a material headwind to the top line. In fact, over time, ideally a benefit to the top line with respect to being able to really focus our resources on the value-creation opportunity that resides in the 80 and doubling down on that. But right now we don't see a material headwind to the top line. It's more of an improvement on the bottom line from the 80/20 work.
OPERATOR
Your next question comes from the line of Shiguso Kotoku with JP Morgan. Please go ahead.
Shiguso Kotoku, Analyst at JP Morgan
Hi, good morning. Thanks for taking my question. I just wanted to follow up a little bit on the water business. I think it came in at plus low single digit this quarter. 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 back half and mid single digit for the full year in water?
Antonella Franzen, Chief Financial Officer
Yeah. So our expectations now for the full year are more in the low- to mid-single-digit range, really with the slight revision being driven just by what's going on in the Middle East. Nothing structurally changing in the business in the long term. So we still do expect a ramp first half, second half. So for the second half we do see on average, you know, kind of that high single-digit growth leading to that low- to mid-single digit for the year.
I think it's important to note while we tempered down the water expectations, we tempered up the healthcare expectations and we still see the same growth profile for the overall healthcare and water segment. We actually slightly raised the organic growth for the full year for the company from, you know, we were at 4 heading into the quarter and now we're slightly above 4, really just dropping that outperformance that we saw in Q2 to the year.
Shiguso Kotoku, Analyst at JP Morgan
Okay, that's really helpful, thank you. And then just looking at the margins, I think historically your margins ramp in the second half versus the first half. Understanding this year you have the oil inflation impact. But is there anything else that's going into the deceleration in margins in the second half, mix or anything of that sort of. Thank you.
Antonella Franzen, Chief Financial Officer
Yeah, actually if you kind of take a look at our margin profile and you put the price cost aside, if you look at our business segment margins are actually increasing an incremental like 50 basis points in the second half of the year versus the first half of the year. So we still have very nice margin momentum going into the year. And quite honestly we had really strong margins last year second half as well. So I think that that shows the continued margin expansion profile that we have.
The team is continuing to do a really good job related to that and, to some of the points that Lori made, it's really being driven by our productivity as well as nice leverage on the growth.
OPERATOR
Your next question comes from the line of Christopher Parkinson with Wolfe Research. Please go ahead.
Harris, Analyst at Wolfe Research
Hey, thank you, this is Harris, signing on for Chris. Just for my first one, can you just give us an update on the M&A pipeline? 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?
Antonella Franzen, Chief Financial Officer
Yeah, so we continue to have a nice M&A pipeline and we're also taking a nice balanced approach to capital allocation. So to your point, we announced the $250 million share repurchase that we'll execute in the quarter. We still have sizable proceeds to be able to do M&A as well. So we still have, you know, well over a billion dollars to be able to go out and do some M&A. So we continue to see a robust pipeline on both the water side and the healthcare side.
On the healthcare side, the opportunities span both the packaging front as well as the CDMO front, to your point. So we continue to do the work. We're going to be diligent about the returns that we expect with respect to the valuation, so we'll look to stay kind of on a gross basis in a mid-teens valuation and getting that down into a lower teens on a net basis post-synergy. So we've got an expectation as well that whatever asset that we acquire would be incremental to our overall growth algorithm as well.
So I'm optimistic. We're doing a lot of work but we're being, you know, prudent with respect to the returns that we expect on a deal.
Harris, Analyst at Wolfe Research
Got it. And for my second one, just on pricing with the ramp that you're seeing in the second half, just any thoughts on how sticky that might be depending obviously on how the situation in the Middle East plays out as we look ahead to 27. Thank you.
Antonella Franzen, Chief Financial Officer
Yeah, I mean we'll always look at, you know, our pricing opportunities and the elasticity within each one of the lines of businesses as we move forward. For this year, as we noted, you know, pricing in totality related to oil and gas is about a point for the full year. It's about 2 percentage points in the second half of the year. There is some other pricing that we also have that's in the top line as well, that's outside of oil and gas, and we'll clearly continue to look at that as we move forward going into 27 and beyond.
OPERATOR
Your next question comes from the line of John Roberts with Mizuho. Please go ahead.
John Roberts, Analyst at Mizuho
Thank you. And congrats on the reclassification. Could you talk a little bit about the Middle East reverse osmosis headwinds? Is that primarily logistic constraints or has something structurally changed there?
Antonella Franzen, Chief Financial Officer
No, there's no structural change. It's primarily just the conflict that's happening in the Middle East. And so a lot of the desalination volumes that are a big chunk of RO are obviously in the Middle East. And those projects are moving around a bit. They're not getting pulled; they're just moving around a bit with respect to when we expect those to hit. So structurally no change in our expectations for nice mid-single-digit growth out of the water business.
There's just a little noise this year, ideally some resolution coming with respect to, you know, what's going on in the Middle East so that we can return to a more normal growth profile. I think it's important to note though that the water business continues to perform very well outside the Middle East conflict. And so we've seen really nice robust growth. You know, ex-Middle East in the second quarter our organic growth was up in the mid-single digits.
So the rest of the world is performing quite well. In the Middle East it's only about 10% of sales.
John Roberts, Analyst at Mizuho
And then the new lithium water opportunity, does that require incremental capex here to build out that business or are these existing products and services that you can actually just grow within your existing footprint?
Antonella Franzen, Chief Financial Officer
Yeah, no capital required. We introduced a new suite of products recently that we announced, and so we had to do some application development enhancement within an existing product portfolio across both RO and ion exchange. So nice opportunity for us. We size the DLE market around 200 million and we're well positioned to be able to take advantage of the growth in that space.
OPERATOR
Your next question comes from the line of Josh Spector with UBS. Please go ahead.
Josh Spector, Analyst at 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. Thanks.
Antonella Franzen, Chief Financial Officer
Yes, as Lori mentioned earlier, health care is driving that and you did see really nice growth in diversified industrials as well, which we've also added that to the full year as well. So both of those two areas are helping to offset, you know, the little bit of weakness that we're seeing in water related to the Middle East. Yeah, I mean, in DI, you know, we have a very strong order book on the industrial side within DI, so we cited that kind of all year and it continues to drive kind of low double-digit order gains across that portfolio.
And we're seeing nice positions within Shelter as well. So, you know, while Shelter still continues to be about net neutral on a full year basis, from an end market perspective, you see outperformance in the space on the resi side. So even though it's a little tempered, we're seeing outperformance there. And so incrementally optimistic on the Shelter business. And maybe just one more comment on the diversified side, optimistic on the EV battery space.
And so we saw really nice growth in the EV battery space in 2Q, especially in the European markets. We're really seeing that pipeline come to fruition there and driving nice results for us. Yeah, it's primarily adhesive. So the EV battery space alone today is around 70 million of revenue. We see it going nicely into the triple digits in '26 and '27. And broadly the whole EV opportunity for us is a few hundred million. So, you know, of our whole $900 million automotive portfolio, that EV portion is nicely butting up to almost 50% of it. And so we had a lot of wins in the pipeline on the battery space across all the regions. And we're seeing those come to realization as those automotive OEMs start to introduce the newer models.
OPERATOR
Your next question comes from the line of David Begleiter with Deutsche Bank. Please go ahead.
David Begleiter, Analyst at Deutsche Bank
Thank you. Good morning. Laurie, just on construction noted some improvement in those markets. Is that mainly data centers? Data centers or other areas are expanding as well. Thank you.
Lori Koch, Chief Executive Officer
No, not data centers. It's more on the H-E-R, so kind of the healthcare, education, retail markets. And so there's a lot of growth in the health space with respect to new hospital builds. I think in the education space there's a lot of investment still going on at the university level that's driving our optimism there. So we've got a tiny little bit in data centers that we're looking hard to be able to see how we can continue to grow that. But a lot of our growth is outside data centers in the non-res space.
David Begleiter, Analyst at Deutsche Bank
Very good. And just back on pricing of the $90 million you're targeting for this year. If we do see raws go back to pre-conflict levels, how much of that should you or could you retain?
Antonella Franzen, Chief Financial Officer
So obviously, you know, we'll take a look at that if, if and when it happens. I know there was a period of time like earlier in the quarter where everybody saw kind of that was behind us, but it quickly all came back. So obviously we're watching it closely on, you know, day by day and week by week basis and we'll stay close with our customers relative to that. As I mentioned earlier, you know that 90 million of pricing is related to the oil and gas headwinds. We clearly do have pricing in other areas of our portfolio as well. That's really related to the value of our products, which clearly we will continue to look at and continue to have the ability to have pricing be part of our growth as we move forward.
OPERATOR
Your next question comes from the line of Matthew Diope with Bank of America. Please go ahead.
Matthew Diope, Analyst at Bank of America
Morning everyone. R&D expense continues to be managed lower. Like where's the right landing zone and how have you shifted the framework for R&D spend and hurdle rates? Maybe, I don't know, Laurie, if you want to tap on your experience here at the DuPont, but maybe comparing where you are now to the DuPont of old.
Lori Koch, Chief Executive Officer
Yeah, so we target R&D expense at about two and a half percent of sales. I think we're still generally in that ballpark. So anything that you're seeing with respect to moves are really more around changes in how we allocate the space the R&D labs operate in versus any kind of fundamental change in our level of investment in R&D and application development across the organization. My focus now is making sure that that 2.5% is spread in a differential manner across the businesses.
And so we've got opportunity to better do differential management with respect to R&D and making sure that we're getting more of the R&D into the areas that drive the outsized growth. And so that's where we're focused now with respect to the portfolio. Making sure that we're driving really robust front-end work to be able to speed up the development cycle and get those new introductions to market more quickly. I would say with respect to the DuPont of the past, materially different with respect to where we're placing our bets.
And so all of our bets are primarily within the application development space. They are working with our customers, understanding their key technological challenges and making sure that we're addressing those. They're not kind of presupposing large opportunities that don't exist today and doubling down on that. So all of the investment is really aimed at customer pipeline and working side by side with our customers to be able to solve their challenges.
Matthew Diope, Analyst at Bank of America
Thanks, Laurie. And then just quickly for the second quarter, can you give us a quick little breakdown on where price versus volumes fell across the two segments?
Antonella Franzen, Chief Financial Officer
So overall, I would say of our 4% organic growth, there was about a point of price and I would say that was pretty equally split between the two segments.
OPERATOR
Our next question comes from the line of Vincent Andrews with Morgan Stanley. Please go ahead.
Vincent Andrews, Analyst at Morgan Stanley
Thank you and good morning. 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 into the back half of the year. Is there any reversal of that or where you think overall conversion might be for the full year?
Antonella Franzen, Chief Financial Officer
Yeah. So starting with the second part of your question first. So I would clearly expect that on a full year basis, we're much closer to 100% than we are to the 90% in terms of conversion. To your point, a lot of that is working capital. We have a large focus on that in the organization, whether that's in our DSO, our DPO, or our inventory days. That's what helped drive the Q2 free cash flow conversion. I mean, typically when you look at our free cash flow, you know, the first quarter is usually the lowest quarter.
Things typically get better in the second quarter. We also have our interest payment in the second quarter and typically the second half is better than the first half. Sometimes there's some timing of, you know, certain tax payments and things like that that skew it. But that's the overall kind of, I would call it, seasonality of our cash flow. So we expect to have like a really strong cash flow year.
Vincent Andrews, Analyst at Morgan Stanley
Certainly looks like it. As a follow up, on slide 4 in the commercial bucket there with the AI initiatives, you talk about the 50 sales plays, 150 opportunities, and the 30% win rate. I guess my question would just be, is AI making that win rate? I mean, clearly you were going out on commercial exercises in the past, but is the win rate now higher with AI or is it about the same or what are you seeing there?
Lori Koch, Chief Executive Officer
So the win rate of the 30% that we mentioned on the AI sales plays, those were primarily in the garments business. Our typical win rate's more in the high teens. So you can see kind of performance. I wouldn't say the win rate was driven by the AI work. The AI work really just helped our speed to market. And so in the past when we would run a sales play, it could take a couple of months to be able to get ready to launch. Now we did it in four weeks.
And so the AI is really helping on the pace. I would say the win rate piece is enabled by the enhanced commercial organization we're putting in place across the garment business. So really more of a mindset about hunter mentality and being able to go out and get a better sales performance. You know, I had mentioned we got about 5 or 6 million in incremental garment sales alone from the sales plays that we launched.
OPERATOR
Your next question comes from the line of Patrick Cunningham with Citi. Please go ahead.
Rachel, Analyst at Citi
Hi, good morning, this is Rachel for Patrick. On the industrial technology side, can you just expand maybe on which parts of the portfolio is maybe accelerating higher than others and what sort of order book visibility you have there?
Antonella Franzen, Chief Financial Officer
Yeah, I'd say we saw a really nice performance from an organic growth perspective on both the building technology side as well as the industrial technology side. So in building technologies we were up low single digits. That's, you know, our construction type business. We did see growth across residential and non-residential is really what drove it. To one of the points that Laurie had mentioned earlier, I would say we're clearly outperforming in the residential space given the market I would say would be down and, you know, we had some growth in that area; we're, you know, a bit more in line, I would say, on the non-residential as well as the repair and remodel side of the house. And then when you look at industrial technologies, we had a really nice quarter, organic growth in the mid single digits. The order book is doing well. We're seeing the nice inflection there. We're starting to see that short cycle come back and we do expect to continue to see the growth that we saw in the second quarter kind of progress into the second half of the year.
Rachel, Analyst at Citi
Got it. That's very helpful. And could you just talk about the level of semi-driven demand in water and just expand on whether that growth profile has changed over the last year given the acceleration in AI and advanced nodes? Thank you.
Antonella Franzen, Chief Financial Officer
Yeah, so on the water side it's really providing ultrapure water to the chip manufacturers. So that's where we saw the nice growth. I would say, you know, it was kind of up in the 20% plus range where we've kind of seen the past several quarters and where we expect it to continue to grow. So, as you know, obviously the AI revolution continues to take hold. We've got participation in the water business with respect to the ultrapure water opportunity.
OPERATOR
Your final question comes from the line of Abigail Ebert with Wells Fargo. Please go ahead.
Abigail Ebert, Analyst at Wells Fargo
Hi there. Thanks for taking my question. One more on residential construction. Can you just speak to what drove that above market growth there? Thanks.
Antonella Franzen, Chief Financial Officer
Yes, for us, it was predominantly in the multifamily space that we have a nice position in. We saw some nice growth there within the quarter. I would say single family homes continues to be, you know, I would say, you know, very, very soft in the space. But we did see some really good activity in the multifamily that was driving our residential space.
Abigail Ebert, Analyst at Wells Fargo
Got it. Thank you.
OPERATOR
That will conclude our question and answer session. I will now turn the call back over to Ann Gianna Cristoforo for closing remarks.
Ann Gianna Cristoforo, Investor Relations
Great. Thank you everyone for joining our call today. For your reference, a copy of our transcript will be posted on DuPont de Nemours' website. This concludes today's call.
OPERATOR
Ladies and gentlemen, thank you all for joining. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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