Dow Inc.

Good day and welcome to the Dow fourth quarter 2019 earnings call. You may signal to ask a question by pressing star 1 at any time during today's presentation. Also, today's call is being recorded. I would now like to turn the call over to Mr. Neal Charest. Please go ahead, sir.

Good morning, everyone. Thank you for joining us to discuss the fourth quarter financial results for Dow. We're making this call available via webcast, and we have prepared slides to supplement our comments during this conference call. They are posted on the investor relations section of Dow's website and through the link to our webcast. Speaking on the call today are Jim Fitterling, Dow's Chief Executive Officer, and Howard Ungerleider, President and Chief Financial Officer. Please read the forward-looking statement disclaimer contained in the earnings news release and slides. During our 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. DAOs forms 10Q and 10K include detailed discussions of principal risks and uncertainties which may cause such differences. Unless otherwise specified, all historical financial measures presented today are on a pro forma basis, and all financials, where applicable, exclude significant items. We'll also refer to non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures is contained in the DAO earnings release, in the slides that supplement our comments today, and on the DAO website. On slide two, you'll see our agenda for the call. Jim will start with an overview of Dow's fourth quarter and operating segment performance, as well as an update on Sedara. Howard will then move into a financial overview of the quarter, including details on our principal joint ventures, and will also provide some comments on modeling guidance for the first quarter and full year. And finally, Jim will provide a review of Dow's performance against our 2019 targets, and then close with our priorities for 2020. Following that, we will take your questions. With that, I'll turn the call over to Jim.

Thanks, Neil, and thanks, everyone, for joining us this morning. Starting on slide three, the Dow team once again executed against our operational and financial playbook to close a pivotal year in the company's history. We captured growth, achieved another year-over-year improvement in cash from operations, and delivered leading returns to shareholders. Our results showcased the resilience of our portfolio and our ability to leverage our core strengths and our focus on delivering value to our customers and owners. Here are some notable highlights from the quarter. First, we continued to capture demand in key end markets, particularly those closer to the consumer. The trends in the fourth quarter mirrored what we've seen all year, solid demand in consumer-driven staples, offset by lagging or contracting demand in industrial segments and in applications related to big-ticket items such as automobiles. Overall, excluding the hydrocarbons and energy business, we achieved volume growth of 2% in the quarter. Second, we continued to drive a lean cost structure. We removed more than $35 million of stranded costs in the quarter. And third, we remained focused on generating strong cash flow and utilizing our free cash flow in a balanced way, aligned with our capital allocation priorities. We generated $1.9 billion of cash flow from operations, up more than $500 million year over year. Our EBITDA to cash from operations conversion rose significantly to 110%, supported by the inflow of cash from the legal judgment with NOVA, as well as the release of cash from working capital. These factors enabled us to execute more than $1 billion in due leveraging, as well as return $600 million to our shareholders. I'm proud of the Dow team's performance in the face of challenging industrial market and trade dynamics. Once again, we demonstrated our ability to control the things that we can control while pursuing growth opportunities in our targeted end market. And equally importantly, these results represent solid progress against the priorities we laid out a year ago, which I will review later in the call. Moving on to our segment results in the quarter, on slide four, packaging and specialty plastics operating EBIT was $648 million. The benefits of stranded cost savings and volume gains in the packaging and specialty plastics business were more than offset by lower polyethylene prices and reduced equity earnings. The packaging and specialty plastics business delivered 4% volume growth, led by double-digit growth in Asia Pacific. We continued to see solid demand growth in our key packaging end market, including flexible food and specialty packaging, industrial and consumer packaging, and health and hygiene applications. Hydrocarbons and energy reported both lower volume and price. Volume declines were primarily due to planned turnaround activity in Europe, which led to reduced hydrocarbon coproduct sales. On slide five, industrial intermediates and infrastructure operating EBIT was $221 million, primarily reflecting margin compression in polyurethane components, as well as lower equity earnings, largely driven by margin compression in MEG at the Kuwait Joint Ventures and in glycol ethers at Sedara. Industrial Solutions reported lower net sales, primarily driven by lower prices for chemical intermediates. Volumes also declined modestly, primarily in ethylene glycols, which was partly offset by growth in heat transfer fluids and pharmaceutical applications. The polyurethanes and construction chemicals business reported modest volume growth, driven by gains in construction chemicals applications. and this was more than offset by local price declines for polyurethane intermediates. And finally, on slide six, performance materials and coatings operating EBIT was $233 million. EBIT rose year over year, in part due to lower costs in the coatings and performance monomers business, which was impacted by an extended turnaround in the fourth quarter of 2018. Sales declined as a result of weaker local prices in all regions, primarily due to lower siloxanes prices. Consumer Solutions delivered flat volume versus the year-ago period. Growth in high-performance infrastructure applications globally, as well as improved demand for suboxanes in Asia Pacific and the U.S. and Canada, was offset by demand contraction in automotive and consumer electronics and markets. Coatings and performance monomer sales declined due to lower local prices and volumes. On a regional basis, coding's volume was primarily impacted by lower demand in the U.S. and Canada and Europe. Before I turn it over to Howard, I want to give an update on our progress at SADARA. As we mentioned last year, we had one remaining logistic service agreement to get signed by parties in the kingdom in order to start the process of achieving project completion. I'm pleased to report that the parties have reached agreement in principle and the official signing is imminent. And as a result, the remaining steps to achieve project completion are underway. As we've discussed before, achieving project completion is an important milestone for several reasons. First, it formalizes SADARA as a fully operational venture. Second, it enables the parent guarantees that Dow has on SADARA's debt to be released. And third, SADARA will then move forward to reprofile its debt. The debt reprofiling is a critical next step for Sudara in providing the JV with enhanced financial flexibility. The JV expects these discussions to take place over the course of this year, and we will provide another update once they have more to share. Sudara offers an impressive suite of world-class assets, technologies, and products. Both Dow and Saudi Aramco remain aligned as shareholders in getting Sudara to a self-sustaining financial position as soon as possible. Finally, as you look through our fourth quarter results, you will see that we recorded a write-down of our equity investment in SADARA. I want to emphasize that this action does not detract from our belief in the JV's ability to enhance its financial strength and achieve independence. Rather, it is a reflection of our view of the latest financial projections for the JV relative to the book value of our investment. I'll now turn it over to Howard discuss our financial performance in the quarter, and modeling guidance.