DOW INC. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Fourth Quarter Results: Net sales were $10.4 billion, down 2% versus the year-ago period. Operating EBITDA was $1.2 billion, approximately flat compared to the same period last year. Announced actions included sale of flexible packaging business, sale of minority stake in U.S. Gulf Coast assets, and strategic review of European assets.
• 2024 Highlights: Delivered net sales of $43 billion, operating EBIT of $2.6 billion, and 3% year-over-year volume growth (excluding merchant hydrocarbon sales). Started Path2Zero investment in Alberta and earned industry awards.
• Current Actions: Targeted $1 billion cost reduction and $300 million to $500 million CapEx reduction. Postponed European ethylene cracker maintenance. Sale of 40% equity stake in U.S. Gulf Coast infrastructure assets to Macquarie, expected to generate ~$2.4 billion initial cash proceeds.

Segment Performance

• Packaging & Specialty Plastics: Fourth quarter faced challenges with ample industry supply, high feedstock costs, and seasonal slowdown. Local price decreased year-over-year and sequentially. Volume was down 1% year-over-year due to lower third-party hydrocarbon sales and non-recurring licensing revenue. Operating EBIT was $447 million, a decrease of $217 million compared to the year-ago period.
• Industrial Intermediates & Infrastructure: Benefited from strong global energy and stable consumer/pharma demand. Local price declined 1% year-over-year, while volume was up 1% year-over-year. Driven by improved supply availability in the Industrial Solutions business. Operating EBIT for the segment increased $69 million versus the year-ago period.
• Performance Materials & Coating: Volume was up 5% with strong gains across both architectural coatings and downstream silicones. Operating EBIT increased $52 million compared to the year-ago period, driven by volume gains and lower fixed costs.

Guidance

• First Quarter 2025: Expected earnings ~$1 billion, down $200 million quarter-over-quarter due to higher feedstock costs and plant maintenance. Operational tax rate expected 25%-29%. Packaging & Specialty Plastics to face higher feedstocks outpacing price increases. Industrial Intermediates & Infrastructure to have lower margins in polyurethanes. Performance Materials & Coating to see seasonal tailwind but maintenance headwind.
• 2025 Outlook: $1 billion cost reductions to underpin EBITDA improvement. Volume growth and project startups to contribute. Focus on managing cash flow, CapEx, and dividend.

Risks

• Macroeconomic: Weak global manufacturing PMI, contractionary output/new orders, affordability challenges in housing/durable goods, geopolitical volatility (tariffs).
• Operational: Weather-related disruptions, supply chain issues, maintenance impacts, European market challenges (structural demand issues in polyurethanes).

Question and Answer

Q: Revisit the three bridge items from the last call on operating rate, year-over-year delta, and project startups for 2025 A: Jim Fitterling stated operating rates in the Americas are strong, Europe remains below pre-COVID levels. Turnarounds are expected to be flat year-over-year. Projects in polyethylene, Industrial Solutions are on track, and Path2Zero in Alberta is on schedule.

Q: EBITDA outlook for 2025 vs 2024 A: Jim Fitterling mentioned $1 billion cost actions to underpin EBITDA improvement. Volume growth and project startups will contribute, with focus on managing Europe and market demand.

Q: PNSP polyethylene pricing and ethane environment A: Karen S. Carter said low prices in Q4, with price increases planned but feedstock costs outpacing. Ethane frac spread is good, with propane naphtha in Europe needing balancing.

Q: Additions vs closures in polyethylene industry A: Jim Fitterling noted investments in cost-advantage regions like Alberta. Europe sees contraction due to high costs, with need to balance additions with closures in uncompetitive areas.

Q: Cost-savings permanence and role reductions A: Jim Fitterling said ~75% third-party cost savings, 25% direct. Role reductions are a combination of regions, functions, businesses, with structural cost reduction aimed for permanence.