Dow Inc.

Good day and welcome to Dow's 2Q 2021 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 Pankaj Gupta. Please go ahead, sir.

Good morning. Thank you for joining Dow's second quarter earnings call. This call is available via webcast, and we have prepared slides to supplement our comments today. They are posted on the Investor Relations section of Dow's website and through the link to our webcast. I am Pankaj Gupta, Dow Investor Relations Vice President, and joining me on the call today are Jim Fidling, Dow's Chairman and Chief Executive Officer, and Howard Underlyer, 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 financials, where applicable, exclude significant items. We will also refer to non-GAAP measures. A reconciliation of 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 will see our agenda for the call. Jim will begin by reviewing our second quarter highlights and operating segment performance. Howard will share modeling guidance and outlook going forward and then Jim will close with an update on our earnings drivers. Following that, we will take your questions. Now, let me turn the call to Jim.

Thank you, Pankaj, and thanks to everyone for joining us today. Starting on slide three, Dow continued to capture strong demand across our value chains during the second quarter. Team Dow's focus on execution, cost discipline, and balanced capital allocation enabled us to deliver our strongest quarterly earnings performance in the company's history, both pre- and post-spin, with substantial growth in net sales and earnings year over year and sequentially. We achieved double-digit sales gains in all operating segments and businesses. A 66% increase in sales relative to the year-ago period was led by local price improvement of 53%, combined with a 9% volume increase. Robust demand and the recovery of the global economy continues from the onset of the COVID-19 pandemic. Sales increased 17% sequentially, underpinned by tight supply and demand fundamentals across all of our value chains. We delivered higher operating EBIT of $2.8 billion year over year and $1.3 billion sequentially, with improvements in all segments and businesses. These gains were fueled by strong top-line growth and margin expansion. We also benefited from increased equity earnings, up more than $370 million year-over-year, led by higher margins at Sedara and the Kuwait joint ventures. Sequentially, equity earnings were up $54 million, primarily from the Thai joint ventures. Cash flow from operations was $2 billion, and free cash flow was $1.7 billion, significantly both year-over-year and sequentially. This enabled a balanced execution of our capital allocation priorities. We continued our proactive liability management actions by reducing gross debt by more than $1 billion in the quarter and reducing our annual interest expense by $35 million. Today, Dow has no substantial long-term debt maturities due until the end of 2025. We also returned more than $700 million to shareholders in the quarter through our industry-leading dividend, and we resumed our share buyback program to cover dilution. Finally, we continued to advance Dow's ESG priorities by releasing our consolidated ESG report, Intersections, which provides enhanced transparency on our environmental, social, and governance priorities. The interactive digital report can be found at the top of our corporate website. In summary, Team Dow maintained a relentless focus on meeting increasing customer demand despite lingering supply impacts across many value chains and marking a strong rebound from winter storm Uri. We continue to execute on our operational and financial playbook, delivering another strong quarter and a solid first half performance. Turning to our segment performance on slide four, in the packaging and specialty plastic segment, operating EBIT was $2 billion, up nearly $1.7 billion year-over-year, and more than $780 million sequentially. Price gains in both businesses and in all regions led to integrated margin improvement and increased equity earnings. On a sequential basis, the segment expanded operating EBIT margins by 810 basis points on continued local price gains in olefins and in packaging applications. The packaging and specialty plastics business reported sales gains year-over-year driven by improvement in packaging applications for industrial and consumer packaging and flexible food and beverage packaging in markets. Volumes declined year-over-year and sequentially due to lower polyethylene supply from the lingering effects of winter storm Uri and our own planned maintenance turnarounds. Compared to the prior quarter, the business delivered local price gains in all regions. Moving to the industrial intermediates and infrastructure segment, operating EBIT was nearly 650 million, up more than 860 million year-over-year, primarily due to the pandemic recovery combined with tight supply and strong demand in both businesses. Sequentially, operating EBIT was up 320 million and operating EBIT margins expanded by 640 basis points, driven by margin improvement and offset somewhat by continued supply constraints from winter storm Uri. The polyurethanes and construction chemicals business increased net sales compared to the year-ago period on strong local price in all value chains. Demand recovery in durable goods and appliances and construction in markets and currency tailwinds. Despite industry supply chain challenges across a number of end markets, including mobility, the business delivered sequential sales growth on increased local price and volumes. The industrial solutions business delivered a net sales improvement compared to the year-ago period as a result of local price gains in offerings for coatings, industrial, and electronics end markets across all regions. Improved demand for materials used in industrial manufacturing increased coatings, and infrastructure were more than offset by planned maintenance turnarounds and some third-party supply limitations. Net sales also increased sequentially on local price gains in all regions. And finally, the performance materials and coating segment reported operating EBIT of $225 million, up nearly $200 million from the year-ago period. Operating EBIT margins increased 760 basis points, on price gains and strong consumer and industrial demand recovery. Sequentially, operating EBIT was up more than $160 million due to price momentum and lower planned maintenance costs. The consumer solutions business achieved higher net sales year over year as demand recovery for silicone's products led to local price and volume gains in all regions. Sequentially, the business achieved broad-based volume growth due to lower planned maintenance activity and strong demand in silicones applications, including personal care, as certain geographies began to experience an increase in travel and a return to workplace and social activities, with notable improvements in China. The coatings and performance monomers business delivered higher net sales year over year, driven by price gains in all regions. Increased demand for coatings applications was offset by lingering raw material and logistical constraints from winter storm Uri. Sequentially, the business achieved local price gains on tight supply and strong demand fundamentals and increased raw material costs, as well as increased volume from strong seasonal demand for industrial and architectural coatings. Now, I'll turn it over to Howard to review our outlook.