DOW INC. Q3 FY2024 earnings call

• In Q3, net sales were $10.9 billion, up 1% vs year ago led by US and Canada. Volume increased 1% vs year ago. Operating EBIT was $641 million, up $15 million year-over-year. Cash flow from continuing operations was $800 million down year-over-year. Progressed long-term growth strategy including signing hydrogen supply agreement and acquiring Circulus. - On operating segment performance, Packaging and Specialty Plastics had higher integrated margins. Industrial Intermediates and Infrastructure was impacted by lower volumes and higher maintenance. Performance Materials and Coatings had lower local price but higher volume. - Began strategic review of select European assets, primarily in polyurethane business, ~20% of EMEA sales, expect to complete by mid-2025.

In the Packaging and Specialty Plastics segment, local price increased year-over-year, operating EBIT was $618 million, an increase of $142 million year-over-year. In the Industrial Intermediates and Infrastructure segment, local price was flat year-over-year, volume was down 2%, operating EBIT decreased $74 million versus the year ago period. In the Performance Materials and Coatings segment, local price declined year-over-year, volume was up 5%, operating EBIT was $140 million, down $39 million compared to the year ago period.

• Expect fourth quarter earnings to be approximately $1.3 billion, up year-over-year and lower quarter-over-quarter. - Packaging and Specialty Plastics: lower integrated margins from higher feedstock costs and lower licensing revenue, but Texas-8 cracker restart will add ~$100 million in Q4, lower planned maintenance activity tailwind. - Industrial Intermediates and Infrastructure: seasonally lower demand in building and construction, but ramp of Louisiana plant and deicing fluid demand offset, lower planned maintenance activity tailwind of $50 million. - Performance Materials and Coatings: growth in downstream silicone applications offset by China property sector weakness and lower seasonal demand in building and construction, headwind of ~$125 million.

• Soft macroeconomic environment in Europe and China. - Unplanned cracker outage in Texas impacted results. - Ongoing absence of clear, consistent, and competitive regulatory policy in Europe challenging the industry. - Potential tariffs and trade policy uncertainties affecting exports and market competitiveness.

Q: Wondering if I could just ask about the outlook for Packaging & Specialty Plastics in terms of pricing. If I'm reading the guidance correctly, it looks like on a net basis, pricing should be flat for the fourth quarter? Is that correct? And is there sort of the cadence of pricing you're expecting maybe up in October and then give a little bit back traditional in November and December? How are you thinking about it?

A: Good morning, Vince, yes, I think you are reading it overall correctly. We've got an outlook for flat pricing for the quarter, where you have got some obviously expectations that we might see some higher feedstock costs, but still very competitive feedstocks here in the US Gulf Coast. I would think we've got moves out there announced for $0.03 in October and $0.03 in November. And I think our view is typically, that's when we tend to see the movement pricing up and then things soften towards the end of the year.

Q: Good morning Jim. Just a question around some of the sort of review work that you guys are doing in Europe. You guys specifically talked about polyurethanes. I'm just trying to sort of get a better sense of all the moving parts with regards to how you see the polyurethane cycle sort of panning out. Obviously, we've seen or about to see some assets change hands within the global polyurethane market. The destocking was particularly severe in polyurethanes, but the supply side seems a bit tepid. So as sort of you sift through all of these moving parts, how do you see the polyurethane market sort of coming out on the other side?

A: Good morning Hassan. Actually, we're still poised for a very good recovery in construction and durables markets, which really drive a lot of what's going on in polyurethanes. I’d add automotive on top of that because I think automotive has been under some pressure in Europe. So I agree with you, there is no signs that there's any stocking and destocking has run its course. But I think we are waiting for that obvious turn in the economy that gets people moving into those segments. And those assets in Europe is really a portfolio shift move. It really has nothing to do with the business. Polyurethanes is a good business, a pretty diverse downstream markets. We've got good positions there. And as I mentioned, we're thinking about 20 asset actions so far across the globe, mostly in II&I, which is really to tighten up the footprint and get our capacity focused on our lowest cost assets there. So I think it is strengthened, both polyurethane business and also the coatings business as well.