Dow Inc.

Good day and welcome to Dow's third quarter 22 earnings call. Please note this call is being recorded and for the duration of the call your lines will be in listen only. You will have an opportunity to ask questions and this can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point please press star 0 and an operator will connect to you. I will now hand over to Pankaj Gupta, Investor Relations Vice President.

Good morning. Thank you for joining Dow's third 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'm Pankaj Gupta, Dow Investor Relations Vice President, and joining me today on the call 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. DAOs forms 10-Q and 10-K 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, as well as on the Dow website. On slide two, you will see our agenda for the fall. Jim will begin by reviewing our third quarter results and operating segment performance. Howard will then share our outlook and modeling guidance, and then to close, Jim will discuss how our actions and long-term strategic priorities enable us to deliver value growth in a dynamic environment. Following that, we will take your questions. Now, let me turn the call over to Jim.

Thank you, Pankaj. Beginning on slide three, in the third quarter, Team Dow continued to proactively navigate higher energy costs and geopolitical uncertainties that are impacting consumer demand, particularly in Europe. As macroeconomic conditions began to erode in the quarter, we responded quickly by implementing a set of actions to prioritize resources toward higher return products, align production rates to supply chain and logistics constraints as well as demand, and reduce operational costs across the enterprise. In addition, our advantage portfolio enabled us to capitalize on demand strength in higher-value functional polymers in packaging and specialty plastics and performance silicones in performance materials and coatings. Third quarter net sales were $14.1 billion, with sales declines of 5 percent year over year and 10 percent quarter over quarter. Local price increased 3 percent year over year, with gains in performance materials and coatings and industrial intermediates and infrastructure. Sequentially, price declined 6% and was down across all operating segments and regions. Volume was down 4% versus the year-ago period, as declines in Europe, the Middle East, Africa, and India, or EMEA, more than offset volume growth in the U.S. and Canada and Asia Pacific. Sequentially, volume was down 3% led by EMEA. Continued strength of the U.S. dollar also impacted net sales by 4% year over year and 1% sequentially. Operating EBIT for the quarter was $1.2 billion. Our consistent focus on cash flow generation and working capital management in the quarter supported cash flow from operations of $1.9 billion or a conversion of 104% of EBITDA and free cash flow of $1.5 billion. We returned $1.3 billion to shareholders in the quarter, including $800 million in share repurchases and $493 million in dividends. And our balance sheet continues to have no substantive long-term debt maturities due until 2027. Turning to our operating segment performance on slide four, in the packaging and specialty plastics segment, net sales were $7.3 billion, down 5% year-over-year as price gains and resilient demand in functional polymers were more than offset by lower polyethylene pricing. Sequentially, net sales were down 11%, also driven by lower polyethylene prices, with reduced volumes as we decreased operating rates in response to continued global marine pack cargo logistics constraints and lower demand in EMEA. Operating EBIT for the segment was $785 million compared to $2 billion in the year-ago period and $1.4 billion in the prior quarter. These results were impacted primarily by higher raw material and energy costs and lower local prices. Moving to the industrial intermediates and infrastructure segment, net sales were $4.1 billion, down 9% from the year-ago period with price gains in both businesses. Volume was down as strong demand for pharmaceutical, agricultural, and energy applications in industrial solutions were more than offset by declines in polyurethanes and construction chemicals due to inflationary pressures in EMEA, decreased consumer durable demand, and the slowing housing market. Sequentially, net sales were down 7% at stable volumes primarily in mobility and markets, were more than offset by lower local price in currency. Operating EBIT for the segment was $167 million compared to $713 million in the year-ago period and $426 million in the prior quarter, as lower EMEA demand and increased energy and raw material costs were partly offset by higher prices. Sequentially operating EBIT margins declined by 560 basis points on lower price and higher energy costs. And in the performance materials and coating segment, we reported net sales of $2.7 billion, up 5% year over year, with price gains in both businesses and all regions. Volume was down as resilient demand in mobility and home care and markets were more than offset by declines in building and construction. Sequentially, net sales were down 12 percent, driven primarily by lower demand and decreased local price for siloxanes due to supply additions in China as well as planned maintenance turnaround activity. Operating EBIT for the segment was $302 million compared to $284 million in the year-ago period, as margins expanded by 20 basis points due to price gains for both silicones and coating applications. Sequentially, operating EBIT declined $259 million, driven by lower prices for siloxanes and increased raw material and energy costs. I'll now turn it over to Howard to review our outlook and actions on slide five.