Dow Inc.

Greetings and welcome to the Dow third quarter 2025 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. And 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 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, Karen S. Carter, Chief Operating Officer, and Jeff Tate, Chief Financial Officer. Please note our comments contain forward-looking statements and are subject to the related cautionary statements 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. A reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in the earnings news release that is posted on our website. On slide two is our agenda for today's call. Jim and Karen will review our results and discuss how we are navigating current market conditions to restore our core earnings. Karen will also provide an overview of our operating segment performance. Jeff will share an update on our in-flight actions to provide near-term cash support, as well as some details on the macroeconomic environment and our modeling guidance for the fourth quarter. Jim and Karen will close the prepared remarks with Dow's view on current industry actions while demonstrating how Dow is well-positioned to win in a recovery. Following that, we will take your questions. Now, let me turn the call over to Jim.

Thank you, Andrew. Beginning on slide three, in the third quarter, we executed against Dow's strategic priorities to deliver sequential earnings and cash flow improvement despite continued pressure across the industry. These results reflect our focus on navigating the near term while positioning the company for profitable growth when our industry recovers. In the third quarter, we delivered net sales of $10 billion. Sequentially, gains in our industrial intermediates and infrastructure segment were more than offset by declines in packaging and specialty plastics and performance materials and coatings. EBITDA was $868 million, and while this is lower than the same period last year, our earnings reflect an improvement over second quarter. This was driven by volume gains stemming from our new growth investments in the U.S. Gulf Coast, lower planned maintenance activity, and the progress we're making on our cost reduction actions. Cash provided by operating activities was up $1.6 billion sequentially, primarily driven by working capital improvements and advance payments for low-carbon solutions and other long-term supply agreements. We also delivered $249 million of dividends, reflecting our commitment to competitive shareholder returns over the cycle. Next, Karen will provide some additional context around the more than $6.5 billion in actions that we have completed or currently have in flight.

Thank you, Jim. We advanced several strategic actions in the third quarter. We announced an expansion of our strategic agreement with ME Global to formalize the contractual offtake of an additional 100 kp of ethylene supply at attractive economics for both parties. we closed the second and final phase of our strategic infrastructure asset partnership in the U.S. Gulf Coast, delivering $3 billion in total proceeds for Dow this year. We completed the second of two previously announced non-core divestitures, delivering a total of approximately $250 million at attractive EBITDA multiples of around 10x. And we issued an additional $1.4 billion bond to take advantage of tight credit spreads providing added financial flexibility. We are progressing the delivery of at least $1 billion in targeted cost savings by the end of 2026. We are on track to deliver approximately $400 million of the cost savings this year, which was clearly visible in our third quarter performance. We have also lowered our CapEx spending in alignment with our $1 billion reduction target this year, compared to our original plan of $3.5 billion. This reduction is largely due to our decision to delay the Alberta project until market conditions improve. As we announced in April, this decision supports our near-term cash flow and adjusts our timing to align with the market recovery. We remain committed to the long-term strategic rationale of the Alberta project, which further improves our industry-leading cost position and the growth upside that it will enable in targeted applications like pressure pipe, wire and cable, and food packaging. However, our expectations for when this capacity will be needed have changed, given the prolonged down cycle our industry is facing. As we committed, we will provide an update on this during our fourth quarter earnings call in January. Any decisions related to the project timeline will remain centered on maximizing value. So taken altogether, these near-term strategic actions demonstrate TeamDAO's continued efforts to adjust our cost structure in response to the current operating environment. These actions also support our overarching goal to build a more simplified, modern DAO that consistently delivers strong performance, profitable growth, and lasting competitiveness. Next, I'll turn to our operating segment performance on slide four. In the third quarter, we continued to focus on margin improvement while prioritizing volume growth in attractive end markets such as food packaging, electronics, home care, and pharma. We also took decisive actions to lower our cost base and progress our cost savings action. So, starting with the results for our packaging and specialty plastics segment, net sales were down compared to the year-ago period. Higher demand for flexible packaging applications was more than offset by lower downstream polymer prices, lower merchant olefin sales, and lower licensing revenue. Sequentially, net sales declined, driven by lower prices for downstream polymers and olefins. Volume decreased 1% year-over-year and 2% sequentially. Notably, polyethylene volumes increased in both comparison periods, particularly in flexible packaging applications and as a result of our new polyethylene unit in the U.S. Gulf Coast. These items were more than offset by lower olefins volumes in Europe following our earlier decision to idle one of our crackers in Ternuzen. Operating EBIT was $199 million, reflecting a decrease compared to the year-ago period. This was primarily driven by lower integrated margins. Operating EBIT increased sequentially due to higher integrated margins and operating rates, lower fixed costs from our cost reduction actions, and the benefit of the startup of our new polyethylene unit in the U.S. Gulf Coast, which is helping Dow to realize the full benefit of our integration. Next, turning to our industrial intermediates and infrastructure segment on slide five. Net sales were down 4% year over year, driven by continued pricing pressures globally, resulting in an 8% impact on revenue. Sequentially, net sales increased, reflecting volume gains in both businesses and all regions. This was supported by lower planned maintenance activity and the startup of one of our near-term growth projects, which partly offset lower prices. Volume increased 2% compared to the year-ago period, driven by gains in the U.S. and Canada in both businesses, as well as in energy applications. Sequentially, volume increased 5% with improved supply availability following planned maintenance activities in both businesses, as well as additional volumes from our new alcoxylation unit in Seadrift, Texas. Operating EBIT for this segment increased versus the year-ago period, driven by higher volumes in operating rates, as well as lower fixed costs, which were partly offset by lower prices. operating even increased by $138 million. This was driven by lower planned maintenance activity and higher volume in both businesses. This volume growth was enabled by the startup of our new alcoxylation unit in the U.S. Gulf Coast, which serves more resilient home and personal care in markets. Moving to the performance materials and coding segment on slide six. Net sales in the quarter were $2.1 billion, down 6% versus the year-ago period and 2% sequentially, driven by pricing pressures on the upstream areas of the segment. In the third quarter, architectural coatings experienced normal seasonal patterns, but downstream silicones remained a bright spot, both compared to the year-ago period and prior quarter, particularly in high-value applications such as home care and electronics. operating EBIT decreased both year-over-year and sequentially, driven by upstream margin compression, partly offset by lower fixed costs from our cost reduction actions. To conclude, TeamDAO is focused on continuing to take actions to help navigate the challenges our industry is facing while driving a streamlined, more modern, and more simplified enterprise. We are protecting and growing our positions in high-value markets, while also realizing the benefits from our targeted and accelerated actions to deliver at least $1 billion in cost savings by 2026. We also continue to optimize our global manufacturing footprint, as evident last quarter when we announced the outcome of our strategic review in Europe, resulting in the shutdown of three upstream assets in the region. I will now turn the call over to Jeff who will share more on the actions we are taking to ensure Dow's financial flexibility, as well as some macroeconomic insights and our outlook for the fourth quarter.

Thank you, Karen. Good morning to everyone participating in today's call. Turning to slide seven, we continue to advance several strategic priorities to support Dow's near-term cash flow, further enhance our balance sheet, and deliver structural improvements. This positions the company for growth and better profitability in the recovery. For example, this quarter we completed the second phase of our strategic partnership with Macquarie for the sale of a 49% equity stake in select U.S. Gulf Coast infrastructure assets, receiving approximately $3 billion in total cash proceeds this year. And we're making solid progress on several additional actions that support our near-term cash generation. This includes optimizing working capital which we expect to be an approximately $200 to $300 million release of cash in the second half of the year compared to the first half. In addition to these items, we've completed two bond issuances at attractive spreads for a total of $2.4 billion this year. Doing so provides added flexibility and support while maintaining our commitment to investment-grade credit profile. and it extends our materials debt maturities out to 2029. As of the end of the third quarter, our cash and cash equivalents balance is above $4.5 billion. We have an additional approximately $10 billion of available liquidity, including a revolving credit facility that we recently renewed through 2030. With all these actions, we're building on our long history of navigating the cycles our industry faces. As we've demonstrated in the past, we will continue to take additional actions when and where warranted. With that, I'll share some of the key indicators we're continuing to track on slide eight. The broader macroeconomic landscape remains largely unchanged since our last update. As it relates to Dow's key market verticals, while we are seeing some pockets of stability, a broader recovery has yet to take hold. Based on the visibility we have through current customer orders, we continue to see a cautious operating environment. Business investments and consumer spending are subdued due to ongoing economic uncertainty and affordability challenges. These dynamics are impacting demand across several key and markets Dow serves. At the same time, recent monetary policy shifts and the beginning of a rate-cutting cycle could begin to more positively influence demand. And our packaging market vertical, global demand remains steady. Industry growth in North America was supported by record September domestic and export volumes. Manufacturing activity in China continues to be modest, while Europe contracted in September. In the infrastructure sector, market conditions remain soft across the United States, Europe, and China. In the U.S., 30-year mortgage rates have eased modestly but remain above 6% this month. Demand is unlikely to increase in the near term due to limited affordability, but lower mortgage rates could spur recovery in 2026 as conditions improve. Consumer spending has remained resilient, but with that, confidence is low, which has been driving value-seeking behaviors. In September, U.S. consumer confidence declined to its lowest level since April, and sentiment in the EU remains below historical averages. In China, retail sales grew year over year in August, but at its slowest pace since last November. And in mobility, we continue to see mixed demand signals across the industry and regions. In the U.S., auto sales rose in August as consumers moved ahead of the EV tax credit expiration. And in China, government incentives for EVs also continued to support higher auto sales and production. This strength except offset weakness in internal combustion vehicles, including in Europe, where new car registrations are down year to date. Given this backdrop, we will continue to focus on the actions within our control. Doing so helps us to navigate the complexities of this down cycle while strategically positioning the company to capitalize when the market conditions do improve. Next, I'll turn to our outlook for the fourth quarter on slide nine. The macroeconomic dynamics that I described continue to limit visibility into customer buying patterns, making projections challenging. As always, we're committed to maintaining transparency and will provide timely updates if they become available. Based on current indicators and normal seasonality, we anticipate our fourth quarter EBITDA to be approximately $725 million. Our disciplined and targeted cost actions and lower planned maintenance activities are expected to provide sequential tailwinds. Normal seasonality, especially in building and construction and markets, should be a headwind for our performance materials and coatings and industrial intermediates and infrastructure segments. Additionally, we anticipate some margin compression from our feedstock costs in the fourth quarter. In packaging and specialty plastics, lower planned maintenance in the U.S. Gulf Coast and Europe will provide a $25 million sequential tailwind. along with another approximately $25 million in support from our cost reduction actions. Higher feedstock and energy costs are expected to be a headwind for the fourth quarter, despite anticipating higher downstream volumes. Globally, we expect approximately one fib per pound of market contraction in the quarter. This will be partly offset by higher equity earnings following an unplanned outage at Sedara in July, at the impacted asset is now backed up and running. Additionally, following a fire at our Poly 6 polyethylene unit in Texas this month, we anticipate a $25 million unfavorable impact for the fourth quarter. Initially, the event required us to bring down three polyethylene units at the site. Two of those units have already resumed operations. However, we expect that Poly 6 will remain offline for the remainder of the year. We are leveraging our global flexible asset footprint to mitigate impacts and meet our customers' needs. In industrial intermediates and infrastructure, we expect fourth quarter EBITDA to be approximately $20 million lower than the third quarter. This is largely driven by seasonally lower demand in building and construction. Additionally, we anticipate margin compression from higher energy costs and pricing pressures. We'll see this primarily in Europe, the Middle East, Africa, and India as Asian exporters redirect volumes into the region from prior U.S. locations where those volumes would now be subject to dumping duties. Sequential tailwinds are expected to be provided by higher demand for deicing fluids, lower turnaround spending, and our cost reduction actions. And in performance materials and coatings, we expect lower sequential EBITDA of approximately $100 million. Normal seasonally driven decreases in demand for building and construction and infrastructure in markets reflect an approximately $100 million headwind in the quarter. We expect this to be partly offset by continued strength for downstream silicones applications in electronics and home care. Finally, the incremental tailwinds from our cost reduction actions will be partly offset by plant maintenance at our Deer Park, Texas site. So, in summary, as we look ahead, Dow remains committed to delivering accelerated cost savings actions across the enterprise, as we've demonstrated throughout the year. Doing so will help offset the impact of our feedstock costs and normal seasonality. Now, I'll turn the call back to Jim. Thank you, Jeff.

Turning to slide 10, the prolonged down cycle continues to weigh on our entire industry, but we're starting to see some encouraging actions in response, most notably around addressing industry oversupply. Specifically, announcements today include significant rationalization of global ethylene, propylene oxide, and siloxane capacities, each of which will benefit Dow's diversified portfolio. The vast majority are occurring in Asia and Europe, targeting assets that sit high on the global cost curve. This includes Dow's decision to shut down three European assets across each of our operating segments in order to right size upstream regional capacity, reduce merchant sale exposure, and remove higher cost energy intensive parts of our portfolio. Dow's rationalization announcements and those from industry peers have exceeded the majority of consultant projections, paving the way for improved operating rates, which will also be supported by anticipated polyethylene demand growth remaining above GDP for the foreseeable future. As we have experienced through prior down cycles, we expect to see additional announcements and actions until more visible signs of recovery begin to materialize. As it relates to anti-competitive oversupply activities, Our teams continue to be actively engaged in conversations with governments around the world to mitigate impact, aggressively defend local production, and to ensure a fair trade environment remains. These discussions have led to various actions and duties to protect local industries, including MDI in the United States, polyols in Brazil, and more. Dow's global asset footprint and product portfolio position as well to win in the key markets that we serve, particularly as purchasing patterns trend for buying local products and materials to mitigate any potential tariff headwinds. Next, Karen is going to unpack some of these advantages in more detail.

Thank you, Jim. We are pleased to see several of the industry actions that you described beginning to unfold. We continue to monitor both supply and demand signals and we're staying close to our customers and key external stakeholders to understand their unique challenges while identifying opportunities to drive profitable growth. At the same time, our teams are working to lower Dow's cost structure, enhance our cash position, and strengthen our manufacturing footprint through the shutdown of higher-cost assets and the startup of our advantage growth investments serving high value and markets. And as the macroeconomic environment improves, our actions will ensure Dow is best positioned to beat our competition, capitalizing on our key advantages. First and foremost, we are committed to being a low cost producer. Currently, more than 75% of our global cracking capacity is in a top quartile cost position. This number will increase to approximately 80% once we complete the announced shutdown of our Bolin cracker. In addition, we continue to upgrade our world-class asset footprint by right-sizing higher cost capacity across a variety of value chains, including the shutdowns of 500 KT of PO capacity in North America, 150 KT of upstream siloxanes production in the UK, and one of our CAV units in Germany. Our downstream specialties capacity helps to differentiate and improve Dow's performance across the economic cycle, which will become more evident when our previously announced shutdowns are completed. And our innovation capabilities also enable strong earnings compared to our peers over the cycle, as evidenced in this year's annual benchmarking report. So, to summarize, with the addition of our U.S. Gulf Coast investments, broad product range, leading cost efficiency and global scale, Dow is set to gain share in premiums in markets that traditionally grow above GDP, like packaging, electronics, mobility, and consumer goods. And we are confident that Dow's differentiated portfolio, paired with our team's strong execution, will position us to outperform as the industry recovers.

In closing, on slide 11, our priorities are clear, and our teams remain focused on restoring core earnings, enhancing our long-term competitiveness, and delivering more than $6.5 billion in strategic actions and cash support items to position Dow well for profitable growth and value creation in the recovery. As a reminder, this includes the $3 billion we received for our strategic partnership with Macquarie, as well as accelerating our in-year savings from the $1 billion in cost actions that we announced in January. In addition, our diverse product portfolio, strategically advantaged asset footprint, and global scale will help Dow to capture demand in attractive end markets growing above GDP. And our new alkoxylation and polyethylene units in the US Gulf Coast are already delivering returns, providing further evidence of the value of our integration and low-cost asset footprint in the Americas. Importantly, We continue to engage in positive and productive conversations with several governments around the world as it relates to anti-competitive behaviors, as well as changing trade and tariff policies. We remain confident that we're in a strong position to mitigate the impact of tariff costs. In summary, we're focused, and we're taking strong actions to navigate the current environment while advancing our long-term strategic priorities. We remain committed to delivering strong performance profitable growth, and lasting competitiveness in key value chains. And as we have demonstrated in the past, we will continue to identify and implement the right actions that help us stay closer to our customers while outperforming the competition. With that, I'll turn it back to Andrew to get us started with the Q&A.

Thank you, Jim. Now let's move on to your questions. I would like to remind you that our forward-looking statements apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions.

Thank you. Ladies and gentlemen, we will now begin our Q&A session. If you have dialed in and would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star one again. We kindly ask that everyone limit themselves to one question. Your first question comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Thank you, and good morning, everyone. Wondering if we could just get a bit of a reconciliation about the third quarter. You know, ultimately, the results came in nicely ahead of what you expected when you gave the original guidance to 2Q. You know, obviously, about a month ago, you were anticipating things were going to fall short of that, particularly in packaging, especially plastics, but you wound up being able to exceed your original estimate there. Likewise in IIII. So just wondering what happened, you know, was it just that September came in better than expected, or were you better on costs, or just what allowed this outcome to take shape? Thank you.

Morning, Vincent. Let me ask Karen to walk through the business results, and then maybe Jeff to comment on how things came in on cost and cash.

Yeah, thank you for the question. There were really two areas that I would like to highlight in terms of the sequential improvement. Higher integrated margins in both PNSP and IINI. And that was in part driven by our new growth assets. So, volume did come in better than we expected. And then the second thing is really around our cost efforts. And of course, we committed to those earlier in the year, the billion dollars. Originally, we thought that 300 million would be the number in 2025. We've since accelerated that to 400 million and have clear line of sight to that. And that actually showed up in the bottom line in third quarter in a visible way. So I would say that those two things were really the difference in terms of how we not only exceeded expectations from the last guide, but also, you know, sequential improvements quarter over quarter.

And Vincent, good morning. This is Jeff. I'll just make a couple of additional comments here related to cash flow. And even on the cost reductions that Karen was just mentioning, you know, initially in our guide for 3Q, we expected it to be approximately $50 million. And it was actually better than that as September came in a little bit stronger on the cost reduction side at about $75 million. So about a $25 million improvement there. I do want to spend a second on the cash flow as well, though, because you'll notice that our cash from operations came in at $1.1 billion in third quarter, which is an improvement sequentially of $1.6 billion. And that was really driven by three different areas here, sizable improvement in our work a phenomenal job of continuing to really double down on the working capital improvement going into the second half of the year. In fact, as you heard in my prepared remarks, we're expecting in the second half of the year our working capital to deliver a release of cash of $200 to $300 million, and we saw $80 million of that working capital improvement in terms of a source of cash during the third quarter. We also had the two long-term strategic supply agreements that Karen mentioned in her prepared remarks. as well as the improved earnings that we had sequentially from second quarter to third quarter.

Your next question comes from the line of Hassan Hamad with Olympic Global Advisors. Please go ahead.

Morning, Jim. Jim, really appreciate the industry sort of outlook you guys provided in slide 10. So just a broader question, you know, around rationalization and New project cancellations. You know, on the rationalization side of things, obviously, you know, the South Korean side, the Japanese side, and the European side, you know, you can assign, you know, projects. You know, you can see which capacity is being shut down. What's less clear is the anti-involution side. You know, China in particular, what cancellations may transpire over there. So I'd really appreciate, you know, if you could sort of provide your thoughts around that. And part and parcel with that, you know, I keep hearing that, look, I mean, you know, once China announces new facilities, they never cancel those projects. I mean, they have a long track record of that. So is that also changing?

Good morning, Hassan. Thanks for the question. I would say a couple of things on the ethylene supply outlook, and I think most of your questions were geared toward that. You know, we've got right now line of sight to about 9,300 kilotons of global capacity, which is being rationalized. You've got about 4,400 kilotons in Europe, Middle East, and Africa. And those have been announced and I think are well documented. And that includes our Bolan asset. You've got 4,900 kilotons in Asia Pacific. That includes China, obviously, about Japan, China, Singapore, and about 1,000 kilotons across the rest of Asia. We've got speculation on closures of about 13 million metric tons from a combination of additional capacity in Asia, Japan, and Korea to the tune of about 5 million tons. and China from the anti-involution policies to the tune of about 7 million tons. So that's what's out there. Obviously, the 9,300 kilotons that I mentioned, I would say much more affirmed than the 13 million. But all of that together starts to bring you toward 10% of the global capacity. And when you get into Europe, it's probably bringing you more into the 20%. of European capacity range. And I think that's right in line with what the industry is saying. Your comment on China in terms of, you know, once announced, completed, I don't have any data to counter that. I would say, I think you might see some delays in some announced capacity in China, just from a standpoint that the market in China is slow. And for certain grades of product, we're not We're not as big in something like high-density polyethylene, for example. But for certain grades, they've reached self-sufficiency, and they really don't have the cost position to export them. And as the world pushes back with anti-dumping duties and other measures to keep trade fair, that's going to put pressure on them. And so I think they'll look at the timing on those.

Your next question comes from the line of Michael Sison with Wells Fargo. Please go ahead.

Hey, good morning. Nice quarter. In terms of PSP, I think you noted global integrated margins would be down a penny in the fourth quarter. Can you bifurcate that, you know, from whether pricing or cost in the U.S., Europe, and export? And then just a quick follow-up. You know, slide eight, the pretty colors really haven't changed. Well, they're not that pretty. But if the global demand backdrop stays similar in the first half of 26, does EBITDA improve? And I know you have more cost savings next year. Can you maybe just talk about what happens in the event that we have this same colors heading into next year?

Thanks, Michael. Karen, do you want to hit PNSP, and I'll try to cover slide eight?

Yeah. So, it's important to note that, first of all, in third quarter, you know, take a look at how we ended the quarter from an industry perspective. So, when we came into third quarter, we expected that prices would move up. And, of course, as you know, they settled flat, even though we thought the market fundamentals were there. And so, if you look at the ACC data in September, both domestic and export demand set record for the month, but then also industry inventories drew down. It was the second largest draw of the year. And so that's why, you know, we expect and we anticipate that prices should go up in October. We have $0.05 on the table, and that should continue to occur, even though it's a challenging market environment. So when you look at why our integrated margins are predicted to be down by a penny, it's really because of the higher feedstock costs. that are expected based on weather, frankly. So, natural gas and ethane are both expected to go up. At the beginning of the month, there was a spike on ethane. It has since come down. And so, we could get some relief on that. But right now, our view is that integrated margins, you know, will decline by about a penny globally. But that also should provide, you know, some support for prices going up in October. And again, we've got five cents per pound on the table.

And Michael, if I could touch on slide eight, I think the main reason for the no change that you see there is there's just a lot of uncertainty in the marketplace right now. And we don't have settlement yet on all of the trade deals that have been announced. And you see in the market, and I think everybody feels that every time there's a swing in an announcement from either side on one of the trade deals, there's uncertainty. usually a bit of a pullback and everybody's trying to figure out what the impact is going to be we've seen throughout the year our own supply chain team who's been doing a phenomenal job really shifting gears to try to make sure we don't get caught out and product keeps moving so that's the hardest part to project going forward the industries that are driving the demand are are still good if you if you look at electronics, if you look at data centers, tech, AI, and really in the construction side of things, that is what's driving the construction markets today. There's government spending on infrastructure. We've seen more government support for infrastructure projects that's helping to drive demand than we have seen, for example, in China, you see really no support for the housing industry there. So that's having a pretty heavy weight on the Chinese market. And here we've got You know, I would say some interest rate declines in housing, like Jeff mentioned, but nothing yet that has caused an uptick in new mortgages or, you know, existing home sales or anything that would drive demand. So we're optimistic that things are moving in the right direction. And I think if we can see some completion of some of these trade deals by the end of the year, that should bode well for next year. If this lingers into next year, then obviously we need some of that certainty to be able to have people make decisions, stop sitting on the sidelines, and move forward with investment plans. I think tech, AI, data centers, that, you know, utility construction for power, I think that's all going to continue because that's new capacity that's needed. Those are decisions that can be made right now, and people are ready to move fast in that space, and there's liquidity. And so there's good money to chase those projects. But I think when it comes to rebounds in some of the existing long-established global supply chains, we need to see some certainty.

Your next question comes from the line of Josh Spector with UBS. Please go ahead.

Yeah, hey, good morning. I was wondering if you could talk a little bit more about kind of the range of CapEx as you think about 2026. I think you made the comment that you're not going to make a decision on Alberta, or at least you're not going to announce it until the January or February call. But can you help us think about maybe a low-end range if you decide that you're not going to do it and bring basically everything down versus the high-end range if you say we are going to kind of continue what that ramp-up would look like?

Yeah, I think the simple answer, Josh, is if we continued the way we are, you could see another $2.5 billion next year. And we can manage that. And within that, you've got about a billion of maintenance capex. We've obviously got less. We just started up a unit down in Texas and a coxalation unit as well. So, those come off the docket going into next year. We have some downstream silicones projects that are very good that will be on the docket. But we're not starting anything else right now until we get a little bit better line of sight to demand and the question that Michael raised just previously. So, I think we could land it in that range. And we will come back in January. I think we've got teams working really hard on the triggers and what would, you know, cause us to, declare when the start of construction would be on path to zero.

Your next question comes from the line of Jeff Zakowskis with Morgan Stanley. Please go ahead.

Hi, good morning. One of the things that Dow hasn't really talked about is joint venturing, the Alberta cracker. Why wouldn't that make sense and take pressure off the cash flows of the company and then is that something that you're considering or why wouldn't you consider it and then secondly what's polyethylene demand been like for you um in the third quarter and year to date morning jeff um let me ask karen to talk about polyethylene demand and then i'll come back and talk about alberta

Good morning, Jeff. You know, for us, polyethylene demand has been stable. I mean, if you look at the market segments that we play into, packaging has remained relatively stable. I know there's been discussion around the consumer, and although consumer sentiment, you know, is weaker, you know, what we are hearing from both brands and our customers is that they are actually shifting down. So, shifting from, you know, of course, the consumer branded labels down to private labels, but that's still good for us. We fell into all of those segments. So, packaging has been stable. Personal care for us is another space that's been stable for us in packaging as well. You heard me say earlier that the industry set a quarter, a record in September, both for domestic sales as well as exports. And so, we continue to see those exports flow. And we grew in the third quarter. So, we expect that packaging demand for us will continue to be stable to relatively strong depending on the segment. The other thing I would just highlight again is Poly 7. So, we brought up Poly 7. early in the quarter and third quarter, and it's already sold out. And we expect that to continue to occur.

And on Alberta, Jeff, I don't have anything specific to say, and I don't have a pushback on your question on joint venturing. If you look back at Texas 9 at the time when we did it, you know, our partners from Kuwait, ME Global came in, and made an investment to consume up to 30% of that cracker, and that's worked extremely well. In fact, we just contractualized the last increment of that in the third quarter. So that's worked extremely well. So we have experience to do something like that. I think a couple of things I would say about Alberta, still a delay, not a cancellation. It's still an asset from an investor standpoint that you want in the fleet longer term. It has the scale. It has the cost position. And you're bringing an additional, you know, asset cracker and derivatives up into that pocket in Alberta, which has really a cost advantage on ethane over a long period of time, you know, decades, that you can lock in where the Gulf Coast is a little more exposed to market swings. And so I think that's a big advantage. So we're looking at how to time it. We're looking at, obviously, the best value creation for it. We don't want to bring it on well ahead of demand. We want to bring it on with the market. Those are some of the things that we're factoring in. And don't have anything to talk about in terms of the JV, but certainly, all possibilities are things that we would consider.

Your next question comes from the line of Matthew Blair with TPH. Please go ahead.

Thank you, and good morning. I was hoping you could talk a little bit more about some of the moving parts in your polyurethane business. Are you seeing any benefits to U.S. MDI margins from tariff impacts that have reduced imports from places like China? Also, just on the construction and market side, I think you mentioned that rates are coming lower, but is it fair to say that's not really coming through in the market yet? And then finally, do you have any sort of commentary you can provide on The relative strength with your polyols business versus your Isis-IMH business is one holding up a little bit better than the other. Thank you.

Thanks, Matthew. Karen, you want to tackle that?

Sure. So, let me start, you know, just with the building and construction market, because you're right. You know, we did see rates come down, but we definitely believe that they need to come down further for us to see really a recovery in that space. They're currently sitting. in the mid 6% range, we believe they'll probably need to have a five handle on them before we see any reasonable recovery in that segment. And of course, as we said before, about 40% of our products are aligned to infrastructure across our entire portfolio. So, you know, it's a good start, but it's not good enough for us to see a recovery. Let me answer your second question, or maybe it was your first on MPI, because we are encouraged by some of the recent rulings that we've seen around anti-dumping. And so, in September, the U.S. Department of Commerce made a preliminary finding concluding that MDI dumping was occurring by Chinese producers in the United States. Chinese imports account for about 20% of the MDI market here. And so, you know, industry imports are reporting that on top of the pre-existing duties that were already there, that the market for Chinese imports is dissipating quite quickly. And so, you know, we are seeing some starts of additional volume. Not yet a lot of pricing there, but we are seeing some additional volume, and again, have been encouraged by those initial findings.

Your next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please go ahead.

Yes, thank you, and good morning. Jim, I was wondering if you could comment or elaborate a little bit more on the here and now in terms of the demand function. How are your October and November order books shaping up relative to normal seasonal patterns? Just trying to get a sense for your fourth quarter guide of $9.4 billion in sales, $7.25 on EBITDA, how conservative or not you think those levels are. relative to the normal seasonal year-end movements.

Good morning, Kevin. I'd say a couple of things, and then I'll get into the order pattern stuff here in a second. GDP, there's a report out. I think Harvard put a report out recently that if you looked at the U.S. economy and you backed out the growth from data centers and all of the related investments that are going into that space, the rest of the economy grew at about 0.1% GDP for the year. So I think that tells you that in some manufacturing sectors, what you're up against, and we know China's domestic, gross domestic product has been under pressure as well, because their domestic economy hasn't shown the kind of resilience that they saw. Karen just mentioned, you know, what's going on with MBI. anti-dumping duties here. And while that means that, you know, MDI coming into the U.S. is down about 80%, the product's going somewhere, right? It's showing up in Europe, it's showing up in other areas, and it's probably more than likely being dumped there. And so we have to pursue those same kind of cases around the world. And so that's the thing that we've got to look at is How does the rest of the GDP recover? When do we start to see durable goods move? When do we see automobiles move again, appliances move again? Some of the other things that are really going to drive some of this economy. September was a strong month, and I think October order books look good. A little bit early to call November. Usually, when we get to the beginning of the month, we have a really good line of sight to the order books, and way too early to call December. But so far, so good on the order books. I don't think – I wouldn't lean into too conservative or too optimistic. I'd say kind of right down the middle with our experience here today.

Your next question comes from the line of Chris Perkinson with Wolf Research. Please go ahead.

Great. Thank you so much. On slide 10, we can all see that the cost curve is pretty steep when it gets to the third and the fourth quartiles. And, you know, we continue to see some of the rationalization asset footprint, presumably in the fourth quartile on an ongoing basis. You know, but at the same time, that means certain third quartile assets become the operational fourth quartile assets. And the cost curve, the perceived cost curve could actually be a little bit flatter than, you know, previous estimates. How, if any way whatsoever, does that filter in to your return assumptions, your longer-term return assumptions on, you know, Alberta? And how does that help, you know, help you triangulate your decision-making process over the next, you know, six to 12 months? Or is it simply just too early to tell?

Yeah, Chris, it's a good question. I mean, you know these curves change over time. They get steep and they flatten out at different periods of time. I'd say it's been pretty steady in this kind of range. Just recently, I think you've seen some moves in NAFTA that have brought some things down. But at the same time, you know, propane's come down as well. And so, you know, that gives us a little bit of pro-NAF advantage in Europe. So, things move around. What I would say is that in any scenario, that Canadian asset will be a low-cost asset and it'll be a first quartile asset. So, I think we look at it that way. And then we look at the rest of the footprint. And through the cycle, peak to peak, trough to trough, you want to try to make sure you're in a position to maximize the next peak for the shareholders. And when you get to the next trough, you've got your high-cost assets out of there. And at the next trough, you have more assets to the left of the center point of that line. And so, that's our decision-making right now. The focus in Europe has been right-sizing it to the European market. And I think the big question mark is going to be how long will the European market continue to stay at that size? Will it continue to, will it stop or continue to shrink? And then, you know, China, I think the other factor that comes in is the trade and how trade is going to be regulated. Because a lot of capacity that's been built there is not low cost. countries around the world are trying to keep their manufacturing industries, they're going to have to put up some protection barriers to keep products from being dumped. And we're starting to see that happen now as a result. Those are the big factors, and I think we try to factor in that and then the timing of the demand to come back. So, if you think about what we were talking about on supply-demand rationalization before, You've got 10% of global capacity either announced or talked about in terms of coming out. That would be a significant bump up in ethylene operating rate. Karen mentioned polyethylene demand, which has been, for a slow growth economy, has been pretty good volume. We haven't seen the pricing power yet. But I do think the world's not going to sit at this slow growth. So that capacity comes out, that demand rate kicks up, pretty quickly you get yourself into that 85 plus percent operating rate. And then you start to see price power and you start to see move up that's going to really benefit the investors.

Your next question comes from the line of Duffy Fisher with Goldman Sachs. Please go ahead.

Yeah, good morning. Well, two questions maybe. So one, just to be explicit, your guide for Q4, what are you baking in for ethane pricing doing in the U.S.? How much of that $0.05 do you have baked in? And then your sequential operating rates, do they stay flat, would be question one just around the fourth quarter. And then second question is, have you guys done work or do you have a view on what you think happens with natural gas pricing? in the U.S. as we start to export more natural gas. So, you know, a view on where 26 natural gas price goes.

Good morning, Duffy. On ethane, we got four cents on the ethane in the quarter. Ethane's moving, as you see, but I mean, natural gas production is good. The U.S. has plenty of natural gas liquids. So it's all going to be a function of operating rates. Our view on operating rates is the assets are going to run hard in the Americas. So I think that'll come through. Natural gas, weather is going to be a big factor, always is this time of year. And you've seen it. It has come off, you know, where the strip was for the beginning of the quarter. It's come off because we're still producing, products still going into inventory. There hasn't been as much demand for heating. You know, we've had this, you know, kind of warmer September, October, I think, which has helped into this strip starting to cool off a little bit now. So, we'll watch the inventory levels. That'll be the biggest factor there. But the near-term moves on gas have been positive. And as gas moves down, you'll probably see the frack spreads will stay about the same. So, that may bring ethane down. The other wild card to watch is does ethane get in the middle of a trade negotiation between U.S. and China? It did. in the previous round, and so what happens with ethane exports, you know, I'm not advocating for anything here. I'm just saying that, you know, China's a big receiver of ethane exports, and, you know, so it got treated a little bit like rare earths in the last discussion, and we have to watch that.

Your next question comes from the line of Patrick Cunningham with Citi. Please go ahead.

Hi, good morning. You talked quite a bit about volume gains from new investments in the U.S. Gulf Coast and referenced picking up share in better markets. I guess first, can you help quantify the run rate earnings contribution from some of these growth investments? And are there any other incremental investments or tailwinds we should be aware of that give additional uplift next year?

Maybe ask Karen to make a few comments on the run rate investments.

Yeah, absolutely. Thanks for the question. So, just to clarify, the two growth assets that are now up and running are the Poly 7 unit down in the U.S. Gulf Coast, and then the out-calculation capacity that's also down in the U.S. Gulf Coast. So, you know, we expect that from a full run rate perspective on an annualized basis, that that will deliver $100 to $200 million. And so far this year, and so I'll talk about third quarter in particular, it's around $40 million in the quarter. And we expect that continue into fourth quarter.

And the other factor, Patrick, that I would just add in is, you know, we're balanced now on ethylene in the marketplace. And so what that allows us to do is capture the full integrated margin on that ethylene versus selling merchant ethylene.

Yes. Your next question comes from the line of Matthew Dio. with Bank of America. Please go ahead.

Morning. I appreciate the view that PE demand is going to grow in excess of GDP, but as we look across, sorry, a lot of the chemical chain and trends you're seeing in China, is it possible the multiplier has been diluted because domestic sales year-to-date are up 1%, which is below GDP, but it's I know there's a lot of noise. And just to put in context, I guess, a higher level, right? Inventories are down in September for polyethylene, but that's because the industry took rates down. But how do I rationalize? Is the plan or the expectation for that to keep going at lower rates? Because I know there's also the view that the U.S. will run harder. And I guess I ask this because it reflects a larger question that we have. It's like, if we're still going to be adding capacity in things like MDI and polyethylene, is it possible that U.S. assets just have to de-rate if we can't take capacity out in Europe anymore?

Yeah, there's a lot there, Matthew. Let me take a couple of stabs at it. So domestic sales and production are two different things. And I think, you know, as I mentioned before, the U.S. GDP, data centers than that has been relatively low. So, I think the multiplier is still there. It's been in around the 1.4x GDP multiplier. Feels like it's still there. I mean, at the heyday of the big ramp up in plastics, it was probably in the 1.5 range. I've seen estimates from third parties that could go as low as 1.2. That wouldn't be surprising as the industry matures. And then I think product mix is the other thing that factors in. You know, we're geared more towards elastomers, about 30% of the capacity being in functional polymers. And then obviously a lot in flexible packaging, linear low density is a big part of what we do. Low density is a big part of what we do. I think we're pushing for a lot of capacity ads in isocyanates here. I think the world has enough isocyanates capacity. So I don't think you're seeing that coming on. I think it's more a question of rebalancing of the trade and then taking people off the sidelines because there's a lot of people on the sidelines right now. I'd say the supply chain is more hand-to-mouth. You know, there's not a lot of inventory build anywhere. Maybe in the year we've seen a little bit of early moves on imports and exports because people are trying to get ahead of, Tariff dates like the 1st of October, you know, you see that drive certain shifts. We saw it in China with their production rates and exports. But those are the things. But at the high level, I don't think the GDP multiplier has shifted.

This concludes our Q&A session. I will now turn the conference back over to Andrew Riker for closing remarks.

Thank you, everyone, for joining our call, and we appreciate your interest in Dow. For your reference, a copy of our transcript will be posted on Dow's website within 48 hours, which concludes our call.

This concludes today's conference call. You may now disconnect.