Dow Inc.

Greetings and welcome to the Dow First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If you would like to ask a question at that time, please press star followed by one on your telephone keypad. As a reminder, this conference is being recorded. I will now turn it over to Dow Investor Relations Vice President, Pankaj Gupta. Mr. Gupta, you may begin.

Good morning. Thank you for joining Dow's first quarter earnings call. This call is available via webcast, and we have prepared slides to supplement your 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 today on the call are Jim Fideling, Dow's chairman and 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 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 the agenda for our call. Jim will begin by reviewing our first quarter results and operating segment performance. Howard will then share our outlook and modeling guidance. To close, Jim will outline how our decarbonizing growth and transform the waste strategies enable continued value creation. 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 first quarter, Team Dow demonstrated its agility, delivering sequential earnings improvement in what continues to be a challenging environment. These results reflect our competitive advantages and operating discipline. As we leveraged our structurally advantaged feedstock positions, proactively aligned our operating rates with market demand, and focused on higher value products where pockets of demand remained resilient, such as pharmaceutical applications, energy, commercial building and construction, and mobility and markets. Additionally, our actions to deliver $1 billion in cost savings in 2023 are progressing, with 100 million achieved in the first quarter. These actions will ensure we continue to focus on cash flow generation through our low cost to serve operating model. Turning to the details of the quarter, net sales were $11.9 billion, down 22% year over year. Declines in all operating segments were driven by continued soft global macroeconomic activity. Sales were flat sequentially as gains in performance materials and coatings and packaging and specialty plastics offset declines in industrial intermediates and infrastructure. Volume decreased 11% year over year, led by declines in Europe, the Middle East, Africa, and India, or EMEA. However, volumes increased 2% sequentially on gains in performance materials and coatings and packaging and specialty plastics. Local price declined 10% year-over-year and 4% quarter-over-quarter due to industry supply additions in some businesses amidst soft global economic conditions. Operating EBIT for the quarter was $708 million down year-over-year due to lower local prices and volumes. Sequentially, operating EBIT improved by $107 million with gains primarily driven by performance materials and coatings. Cash flow from operations was $531 million in the quarter. On a trailing 12-month basis, cash flow conversion was 85%. With ample financial flexibility and a strong balance sheet, we are continuing to execute on our strategy as we advance our discipline and balance capital allocation priorities for long-term value creation. We returned $621 million to shareholders through dividends and share repurchases during the quarter. And our balance sheet continues to have no substantive long-term debt maturities until 2027. Now turning to our operating segment performance on slide four. In the packaging and specialty plastic segment, operating EBIT was 642 million, compared to 1.2 billion in the year-ago period, primarily due to lower integrated polyethylene margins. Continued margin resilience in functional polymers was more than offset by lower polyethylene and olefins margins. Volume declines were primarily driven by lower consumer demand in EMEA. SADARA also had lower export volumes due to planned maintenance activity. Sequentially, operating EBIT was down by 13 million. Improved input costs and higher operating rates in our most cost-advantaged assets were more than offset by lower sales from non-recurring licensing activity and lower equity earnings. Moving to the industrial intermediates and infrastructure segment, Operating EBIT for the segment was 123 million compared to 661 million in the year-ago period. Results were driven by lower pricing and demand, as well as higher energy costs, particularly in EMEA. Sequentially, operating EBIT was down 41 million. Lower energy costs were more than offset by decreased demand and pricing for propylene oxide, its derivatives, and in isocyanates and polyurethanes and construction chemicals. Industrial Solutions experienced lower volumes due to weather-related impacts and a third-party supply outage combined with lower demand in industrial and markets. And in the performance materials and coating segment, operating EBIT for the segment was $35 million compared to $595 million in the year-ago period. Local price declines for siloxanes were driven by competitive pricing pressure from supply additions in China. Volume was down as resilient demand for commercial building and construction, mobility, and industrial coatings was more than offset by volume declines in siloxanes and architectural coatings. Sequentially, operating EBIT increased 165 million, driven by improved supply availability, seasonally higher volumes, and reduced value chain destocking. Next, I'll turn it over to Howard to review our outlooks and actions on slide five.