Dow Inc.

Greetings and welcome to the Dow third quarter 2024 earnings conference call. At this time, all participants are in 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 number 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 Andrew Riker. Mr. Riker, you may now begin.

Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I'm Andrew Riker, Dow's Investor Relations Vice President. Leading today's call are Jim Fitterling, Chair and Chief Executive Officer, and Jeff Tate, Chief Financial Officer. Please note, our comments contain forward-looking statements and are subject to the related cautionary statement contained in the earnings news release and slides. Please refer to our public filings for further information about principal risk and uncertainties. Unless otherwise specified, all financials, where applicable, exclude significant items. We will also refer to non-GAAP measures. Reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in the earnings news release and slides that are posted on our website. On slide two is our agenda for today's call. Jim will review our third quarter results, operating segment performance, and some key updates regarding the strategic asset review we announced today. Jeff will then share an update on the macroeconomic environment and provide fourth quarter modeling guidance, followed by a discussion on our financial position and progress on Dow's growth investment. Jim will close the call, and following that, we will take your questions. Now, let me turn the call over to Jim.

Thank you, Andrew. Beginning on slide three, Our cost advantage footprint in the Americas continues to provide strong competitive edge, capturing demand growth in attractive markets and regions. In the third quarter, Team Dow delivered our fourth consecutive quarter of year-over-year volume growth. We delivered this despite a soft macroeconomic environment, primarily in Europe and China, as well as an unplanned cracker outage in Texas, which has been successfully restarted and is running well. Net sales in the third quarter were $10.9 billion. This is up 1% versus the year-ago period, led by higher demand and local prices in the United States and Canada. Volume increased 1% versus the year-ago period and prior periods. Sequentially, we saw gains in packaging and specialty plastics and industrial intermediates and infrastructure. Local price was flat year over year, as gains in packaging and specialty plastics were offset by decreases in performance materials and coatings. Sequentially, local price was down 1% due to minor declines across all segments. Operating EBIT was $641 million, up $15 million year over year, reflecting higher integrated margins in packaging and specialty plastics, which were partly offset by the impact of the unplanned cracker outage in Texas and higher planned maintenance activity. Cash flow from continuing operations was $800 million, down year over year, primarily due to higher inventories to support both sales growth and labor-related supply chain disruptions. Shareholder remuneration for the quarter was $584 million, including dividends and share repurchases. In addition, we progressed our long-term growth strategy, including signing a long-term agreement with Linde for the supply of clean hydrogen for our Path to Zero project in Port Saskatchewan. We also completed the acquisition of U.S.-based polyethylene recycler Circulus. This will add capacity of 50,000 metric tons of recycled materials annually to Dow's portfolio. Now turning to our operating segment performance on slide four. In the packaging and specialty plastics segment, local price increased year over year led by higher polyethylene prices in all regions except Latin America, which was flat. Volume was flat year over year, as higher demand for functional polymers in all regions was offset by lower polyethylene volumes. Operating EBIT was $618 million, an increase of $142 million year over year. This was primarily driven by higher integrated margins which were partly offset by the impact of the unplanned cracker outage I mentioned earlier. Moving to the industrial intermediates and infrastructure segment, local price was flat year over year. In addition, volume was down 2%. This was driven by lower volumes in polyurethanes and construction chemicals, which were primarily due to a force majeure in MDI following a third-party supplier outage. Operating EBIT decreased $74 million versus the year-ago period. Results were driven by higher planned maintenance activity and lower integrated margins, which were partly offset by improved equity earnings. And in the performance materials and coding segment, local price declined year over year, while volume was up 5% with gains in both businesses and across all geographic regions. Operating EBIT was $140 million, down 39 million compared to the year-ago period, driven by higher raw material costs, which were partly offset by higher volumes. Moving to slide five, the strength of Dow's differentiated portfolio is defined by our strategic and purpose-built asset footprint, which leverages low-cost feedstock positions, primarily in the Americas. Our growth investments are concentrated in higher value businesses and regions, particularly where demand is resilient and we have a competitive cost advantage. Over the past few years, we've demonstrated our commitment to operating with a best owner mindset by taking proactive actions with select higher cost assets aligned with the evolving market dynamics. Since 2023, we have undertaken more than 20 asset actions These include targeted rationalization of our global polyols capacity, shutting down our propylene oxide unit in Freeport, Texas in 2025 to reduce lower value merchant CO exposure, strengthening our coatings footprint with select asset closures, and announcing the sale of our laminating adhesives business for $150 million, including two manufacturing sites in Italy. which we expect to finalize in the fourth quarter of this year. Overall, these actions have been primarily focused on our industrial, intermediates, and infrastructure segment and in the EMEA region. On slide six, current market dynamics are impacting Europe, including continued soft demand coupled with a persistent lack of long-term regulatory policy. This ongoing absence of clear, consistent, and competitive regulatory policy in Europe has resulted in many challenges for our industry. These challenges have been acknowledged in statements by EU government leaders, top economists, and our peers. And while a demand recovery in other parts of the world is expected to provide swift upside across the markets we serve, this alone is unlikely to be enough in Europe. Given these dynamics, we've begun a strategic review of select European assets, primarily those in our polyurethanes business. This review includes all value-creating options for these assets and currently consists of approximately 20% of our sales in the EMEA region. We expect to complete this review by mid-2025. We continue to engage with governments both directly as well as through our leadership and trade associations to improve the industry's overall competitiveness in the region. Decisions regarding the strategic review, similar to our prior actions, will focus on strengthening Dow's global portfolio. This enables us to invest in the most attractive opportunities and create long-term value growth for our shareholders.