[Operator Instructions] Your first question comes from the line of Jeff Sprague with Vertical Research Partners.

Two unrelated questions for 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 contribution to sales or 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 progression.

Yes. Of course, I can. So on all of the fronts across the business system, 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 replace that comprise that 35% vitality index. So 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% or 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 4 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, and 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'll look to drive that lower as we implement the OpEx framework.

Great. And then maybe just for Antonella. On the oil and gas margin-related headwinds you shared with us for the quarter, the outlook in the year, do those all roughly reflect price/cost dollar neutrality? Or are you kind of above -- ahead or behind on an actual dollar versus cost basis?

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, the majority of that is sitting in the second half of the year, and that keeps us price/cost neutral from a dollar basis.

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

I wanted to follow up a little bit on Jeff's question and there's a lot of changes going on at DuPont 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 time frame of where you can get to kind of best-in-class levels?

Yes. 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 contribute about 100 basis points of margin expansion as a percent of revenue. So a nice improvement. I think to get to like the 3% net productivity kind of core curriculum that we're driving across the organization that's probably within the next 18 months to be able to get to that 3% run rate across the organization.

Okay. That's helpful. And then 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 re-center around these new targets and goals. Are you -- have you done that already? Or is that in process? Kind of where do we stand in that perspective?

Yes. 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 & Water or Diversified. But this year, we're doing it at the line of business level. So there are 6 lines of businesses, 3 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 now of 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 sales force to drive growth. So that change will be happening in 2027 for those individuals.

Your next question comes from the line of Joe Ritchie with 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 those projects stand and like whether you've seen any type of alleviation on the constraints that you saw last quarter?

Yes. So the $10 million shift that went from Q1 to Q2 happened. So that happened in April. It has 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've continued 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.

Got it. That's helpful, Lori. And I guess, just maybe on margins for a second. Your Healthcare & Water Technologies 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?

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 quarter. 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 & Water business are very strong. We are making investments there. We're seeing the impact of those investments in our top line growth.

Yes. 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 million or $6 million of incremental garment sales in the full year 2026 expectation. So really already seeing nice contributions from those additional resources that we added.

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

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 80/20 starting to kick in, how should we be thinking about that in the back half?

So overall, when you take a look at things from the growth side, I would say when you look at the first half versus the second half, what you're really seeing, if you kind of take Q2 as your starting point, it's 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 2 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%.

Got it. Okay. And then on the 80/20 program, I know it's a little bit on the early side. But I think the idea, at least when you set out, was to significantly improve the profitability, but there might be a bit of a drag on the top line over time. I guess, is that still how you're thinking about it? Or are you starting to see any potential positive offsets that may help that top line to maybe come in a little more robust than where you originally expected?

Yes. So we do see opportunities on both fronts. So the initial kind of few million dollars that I had mentioned that we expect in 2026 from the 80/20 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 80s and doubling down on that. But right now, we don't see a material impact to the top line. It's more of an improvement on the bottom line from the 80/20 work.

Your next question comes from the line of Chigusa Katoku with JPMorgan.

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 for the full year in Water?

Yes. So we've -- 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 to ramp first half, second half. So for the second half, we do see, on average, 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 & Water segment. We actually slightly raised the organic growth for the full year for the company from -- 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.

Okay. That's really helpful. 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?

Yes. 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, they're 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. 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.

Your next question comes from the line of Christopher Parkinson with Wolfe Research.

This is Harris Fein on for Chris. I guess for my first one, can you just give us an update on the M&A pipeline? It seems like you have capacity for both buybacks and midsize M&A. I guess what are you seeing out there in terms of CDMO opportunities?

Yes. 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 executed in the quarter. We still have sizable proceeds to be able to do M&A as well. So we still have well over $1 billion 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 say kind of on a gross basis in a mid-teen valuation and getting that down into a lower teens on a net basis post synergies. 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'll be prudent with respect to the returns that we expect on a deal.

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.

Yes. I mean we'll always look at our pricing opportunities and the elasticity within each one of the lines of businesses as we move forward. For this year, as we noted, pricing in totality related to oil and gas is about 1 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.

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

Congrats on the reclassification. Could you talk a little bit about the Middle East reverse osmosis headwinds? Is that primarily logistics constraints or has something structurally changed there?

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 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. Ex the Middle East in the second quarter, our organic growth was up in the mid-single-digit. So the rest of the world is performing quite well. And the Middle East is only about 10% of sales.

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?

Yes, 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 a nice opportunity for us. We saw the DLE market around $200 million, and we're well positioned to be able to take advantage of the growth in that space.

Your next question comes from the line of Josh Spector with UBS.

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?

Yes. As Lori mentioned earlier, Healthcare 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 2 areas are helping to offset the little bit of weakness that we're seeing in Water related to the Middle East.

Yes. I mean in DI, 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 while shelter still continues to be about net neutral on a full year basis from an end market perspective, we see outperformance in the space on the resi side. So even though it's a little bit tempered, but 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 a 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.

Let me follow up on that specifically then. And just -- I mean, how big is that EV battery? And is that primarily adhesives? Are there other separator or thermal materials that you guys are selling?

Yes, it's primarily adhesives. 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 more broadly, the whole EV opportunity for us is a few hundred million. So of our whole $900 million automotive portfolio, that EV portion is nicely getting 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.

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

Lori, just on construction, you noted some improvement in those markets. Is that mainly data centers or other areas are expanding as well?

No, not data centers. It's more on the [ HHEP ], so kind of the healthcare, education, retail market. And so there's a lot of growth in the healthcare space with respect to new hospital builds. I think in the education space, there's a lot of investments 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.

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?

So obviously, we'll take a look at that if and when it happens. I know there was a period of time like earlier in the quarter where everybody thought kind of that was behind us, but it quickly all came back. So obviously, we're watching it closely on a day-by-day and week-by-week basis, and we'll stay close with our customers relative to that. As I mentioned earlier, 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 to be part of our growth as we move forward.

Your next question comes from the line of Matthew DeYoe with Bank of America.

R&D expense continues to be managed lower. Like where is the right landing zone? And how have you shifted the framework for R&D spend and hurdle rates? Maybe -- I don't know, Lori, if you want to tap on your experience here at DuPont or maybe comparing where you are now to the DuPont of old.

Yes. So we target R&D expense at about 2.5% 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 investments 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 a 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, we're 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 those challenges.

And then just quickly for the second quarter, can you give us a quick breakdown on where price versus volumes fell across the 2 segments?

Yes. So overall, I would say, of our 4% organic growth, there was about 1 point of price, and I would say that was pretty equally split between the 2 segments.

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

I wanted to ask on the cash flow. Obviously, very strong performance, looked across all the buckets of working capital, looked like it was very well done. So just curious 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?

Yes. 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 or 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, 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 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 a really strong cash flow year.

Certainly looks like it. As a follow-up, on Slide 4 in the commercial bucket there, with the AI initiatives, you talked 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?

So the win rate of the 30% that we mentioned on the AI sales plays, those were primarily in the garment business. Our typical win rate is more in the high teens. So you can see kind of the outperformance. I wouldn't say the win rate was driven by the AI work. It was -- the AI work really just helped our speed to market. And so in the past, when we would run a sales play, it would take a couple of months to be able to get ready to launch. Now we did it in 4 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 that we're putting in place across the garment business. So really more of the mindset of a hunter mentality and being able to go out and get a better sales performance. I had mentioned we got about $5 million or $6 million in incremental garment sales alone from the sales plays that we launched.

Your next question comes from the line of Patrick Cunningham with Citi.

This is [ Rachel ] on 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?

Yes, 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 our construction-type business. We did see growth across residential and nonresidential is really what drove it; to one of the points that Lori had mentioned earlier, I would say we're clearly outperforming in the residential space, given the market, I would say, would be down, and we had some growth in that area. We're a bit more in line, I would say, on the nonresidential 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 see -- to continue to see the growth that we saw in the second quarter kind of progress into the second half of the year.

Got it. That's very helpful. And could you just talk about the level of spending-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?

Yes. So on the water side, it's really providing ultra-pure water to the chip manufacturers. So that's where we saw the nice growth. I would say it was kind of up in the 20%-plus range where we've kind of seen it for 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 ultra-pure water opportunity.

Your final question comes from the line of Abigail Eberts with Wells Fargo.

One more on residential construction. Can you just speak to what drove that above-market growth there?

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, I would say, very soft in the space, but we did see some really good activity in the multifamily that was driving our residential space.

That will conclude our question-and-answer session. I will now turn the call back over to Ann Giancristoforo for closing remarks.

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

Ladies and gentlemen, thank you all for joining. You may now disconnect.