Dow Inc.

Stand by, we're about to begin. Today, and welcome to the Dow third quarter 2020 earnings call. You may signal to ask a question by pressing star one at any time during today's presentation. Also, today's call is being recorded. I would now like to turn the call over to Colleen Kay, Vice President, Investor Relations. Please go ahead, ma'am.

Good morning, everyone. Thank you for joining us to discuss the third quarter financial results for Dow. We're making this call available via webcast, and we've 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. I'm Colleen Kaye, Investor Relations Vice President for Dow, and joining me on the call today are Jim Fitterling, Dow's Chairman and Chief Executive Officer, and Howard Ungerleiter, 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. DOW's Forms 10Q and 10K include detailed discussions of principal risks and uncertainties which may cause such differences. Unless otherwise specified, 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 Dow earnings release, in the slides that supplement our comments today, and on the Dow website. On slide two, you'll see our agenda for the call. Jim will begin with the third quarter highlights and discuss the operating performance of the segments. Howard will share an update on our progress against the actions we are taking to further enhance our financial strength, and then provide our market outlook and modeling guidance. Jim will close with some remarks on Dow's progress towards our sustainability targets and our competitive position for growth. Following that, we will take your questions. With that, I'll turn the call over to Jim.

Thank you, Colleen, and thanks to everyone for joining us. On behalf of the Dow team, we hope that you and your families are healthy and safe. Starting on slide three, In the third quarter, the Dow team delivered strong operating cash flow in line with the year-ago period, despite lower earnings as a result of the pandemic. As the global economy began a gradual recovery, we captured demand growth from second quarter lows across all segments. Our polyethylene business achieved 3% volume growth year over year. And on a sequential basis, total company volume increased 9%, with all businesses and regions achieving demand gains. We saw strength across furniture and bedding, appliances, packaging, construction, and automotive end markets. These results enabled us to deliver revenue that exceeded our original guidance and a more than 700 basis point improvement in operating EBIT margin versus the prior quarter. Sequentially, every segment and business posted margin gains led by the polyurethanes business and the packaging and specialty plastics segment. Dow generated solid cash flow, delivering $1.8 billion in cash flow from continuing operations. Free cash flow was $1.5 billion, up more than $150 million versus the same quarter last year, continuing our track record of improvement every quarter since spin on a year-over-year basis. Our cash flow conversion was 119% versus 96% in the same period last year. We returned $518 million to shareholders through our industry-leading dividend and continued to reduce net debt by approximately $1.1 billion in the quarter, down a total of more than $1.8 billion year-to-date. These results were underpinned by the early actions we took at the beginning of the pandemic, which enabled us to benefit from the start of the recovery. Last month, we announced details on our restructuring program, which will deliver $300 million in annual structural cost improvements. We finalized the sale of our North American rail assets in September and announced a second infrastructure divestment for select U.S. Gulf Coast marine and terminal operations. Both actions are aligned with our best owner mindset and are expected to deliver total cash proceeds of nearly $1 billion by year end. We also enhanced our financial flexibility, increasing our cash and committed liquidity to greater than $13.5 billion and improving our liability profile with a $2 billion debt neutral bond issuance. We now have no substantial long-term debt maturities due until the second half of 2024. And we are on target to deliver on our previously committed 2020 operational expense reduction of $500 million. Finally, we advanced our efforts in sustainability to create new opportunities for growth, drive innovative solutions for our customers, and increase efficiencies throughout our operations. Dow's discipline and focus on capturing value from the unfolding recovery has positioned us to keep building on our strong performance, further enhancing our competitiveness and advancing our ambition. On slide four, I'll provide a review of our segment results. The improving economy, though uneven, allowed us to increase our operating rates across the enterprise, which are now approaching first quarter levels. Operating EBIT for the enterprise increased by $704 million sequentially. Volume in the packaging and specialty plastic segment rose 1% year over year, as plastics demand remained resilient, and our year-to-date polyethylene volumes exceeded the same period in 2019. While company net sales declined 10% versus the year-ago period, primarily driven by lower global energy prices, packaging and specialty plastic segment price increases supported a 14% improvement in sales versus the prior quarter. Operating EBIT was $647 million, down from the year-ago period, as targeted expense reductions and volume gains were more than offset by overall margin compression. However, on a sequential basis, The segment grew operating EBIT by 329 million and expanded operating EBIT margins by 630 basis points, driven by solid consumer and industrial sector rebounds. The packaging and specialty plastics business captured strong year-over-year demand growth in flexible food and specialty packaging, infrastructure consumer and transportation packaging, and health and hygiene applications. And compared to the prior quarter, the business delivered local price gains in all regions and double-digit gains in the United States, Canada, and Latin America. Moving to the industrial intermediates and infrastructure segment, operating EBIT was $104 million, down from the year-ago period due to weaker demand and margin compression. On a sequential basis, the segment grew operating EBIT by $324 million and expanded operating EBIT margins by more than 1,200 basis points driven by significant volume recovery in polyurethane applications as demand rose for durable goods and construction end markets. The polyurethanes and construction chemicals business reported a net sales decline year over year, despite benefiting from demand growth in furniture, bedding, and appliances. Compared to the prior quarter, the business delivered double-digit volume growth in nearly all regions with particular strength in consumer durables, construction, and automotive end markets. As a result of rising demand, we increased operating rates by approximately 20% over the second quarter. The industrial solutions business reported lower net sales versus the year-ago period, driven by decreased local prices and volume. Sequentially, the business captured increased demand primarily from solvents and intermediates as industrial markets began to recover. And finally, the performance materials and coating segment reported operating EBIT of $75 million down year-over-year, primarily driven by margin compression in merchant siloxanes and reduced demand due to the pandemic. However, sequentially, the segment grew operating EBIT by $48 million and expanded margins by 220 basis points, led by demand recovery and formulated silicones products and coatings. The consumer solutions business reported a decrease in net sales versus the year-ago period. Continued resilient demand in home care applications was more than offset by weaker demand year-over-year in automotive construction and high-end personal care as a result of the pandemic. Compared to the prior quarter, the business delivered volume gains as industrial manufacturing activity, high-rise building projects, and mobility and transportation began to improve. The coatings and performance monomers business achieved volume growth in all regions except the United States and Canada, which were flat versus the year-ago period. Demand increased in architectural coatings as residential construction market dynamics strengthened and consumers continued do-it-yourself projects. As a result, the business captured sequential double-digit gains in nearly all regions. Turning to slide five, our feedstock flexibility was again a key enabler of margin expansion, contributing to sequential operating EBIT margin improvement in the quarter. Feedstock costs were higher than anticipated entering the quarter. However, our flexibility and agility to optimize feeds in real time, asset by asset, and furnace by furnace allowed us to capitalize on our cost curve advantage and drive incremental margins. We purposely built this capability, both people and assets, around the world over many decades to take advantage of raw material and coproduct market dynamics. On the U.S. Gulf Coast, ethane and propane have been the cost advantage feed for more than 90% of the time over the past decade. Dow's leading ethane and propane flex capabilities and our ability to reduce NAFTA to zero have given us a competitive advantage. This is especially true in these volatile derivative markets, which have constrained operators who are more reliant on NAFTA. Altogether, this will continue to drive substantial value for Dow, not just in North America, but also in Europe, where Dow's LPG range is four times greater than the industry's. And these advantages extend to Dow sites in Argentina, Canada, and at our joint ventures in Asia Pacific and the Middle East. where we have optimized mixed feed cracker capabilities. Now, feedstock flexibility advantage is reflected in the strength of our margins as showcased in our annual benchmarking results. And with that, let me hand it over to Howard for more color on our financial results.