Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dow Inc (DOW, Financial) delivered sequential top and bottom-line growth and the third consecutive quarter of year-over-year volume growth.
- Net sales were $10.9 billion, with gains in Packaging and Specialty Plastics and Performance Materials and Coatings.
- Cash flow from operations was $832 million, resulting in an 85% cash flow conversion on a trailing 12-month basis.
- Dow Inc (DOW) returned $691 million to shareholders, including $491 million through dividends and $200 million in share repurchases.
- The company is advancing multiple downstream silicones de-bottlenecking projects and progressing on its Path2Zero project, expected to deliver significant EBITDA growth by 2030.
Negative Points
- Net sales were down 4% year over year, reflecting a slower than expected global macroeconomic recovery.
- Local price decreased 4% year over year, indicating pricing pressures.
- Operating EBIT in the Packaging & Specialty Plastics segment was down $215 million year over year due to lower integrated margins and higher planned maintenance activity.
- The Industrial Intermediates & Infrastructure segment saw a sequential decrease in operating EBIT by $80 million due to higher planned maintenance activity and higher equity losses.
- The macroeconomic environment remains challenging with mixed demand conditions and geopolitical tensions impacting global interest rates and consumer confidence.
Q & A Highlights
Q: Jim and Jeff, can you provide more details on the Q3 sequential guidance for Packaging & Specialty Plastics (P&SP)? What are the underlying fundamentals beyond planned maintenance?
A: (James Fitterling, CEO) In Europe, we still have positive propane cracking margins, though slightly less than in Q2. Derivative demand remains strong, and we expect continued robust export environment from the US Gulf Coast. Inventory levels are low, supporting pricing in Q3. We anticipate slight improvement in Q3 despite planned maintenance.
Q: How do you see the impact of potential interest rate cuts and geopolitical tariffs on Dow's business in 2025?
A: (James Fitterling, CEO) Interest rate cuts are expected to positively impact the housing market and durable goods, benefiting our business. However, geopolitical tariffs could introduce uncertainties. We are closely monitoring these dynamics and planning accordingly.
Q: Can you elaborate on the EBITDA expectations for the Fort Saskatchewan project and the waste transformation initiative?
A: (James Fitterling, CEO) The Fort Saskatchewan project is expected to deliver $1 billion in EBITDA annually by 2030, comparable to mid-cycle EBITDA per pound for existing assets. The waste transformation initiative aims for $500 million in incremental EBITDA by 2030, with profitability varying based on the type of recycling process used.
Q: What factors will drive the expected earnings ramp from $6 billion to $7.3 billion in 2025?
A: (James Fitterling, CEO) The primary drivers will be the recovery in the durable goods market and housing. Plastics, silicones, and coatings have a good line of sight for growth. The key uncertainty is the pace of recovery in polyurethanes, which depends on interest rates and construction activity.
Q: Why is the corporate expense forecast higher for Q3 compared to Q2? What criteria do you use for share repurchases?
A: (Jeffrey Tate, CFO) Q2 corporate expenses were lower due to gains from insurance operations and lower environmental costs. For Q3, we expect expenses to normalize to $60-$65 million. Share repurchases are evaluated based on their return relative to other capital allocation priorities, aiming to cover dilution and deliver shareholder value.
Q: Can you provide an outlook on free cash flow generation for the second half of the year?
A: (Jeffrey Tate, CFO) We expect positive cash flow trends to continue, with working capital use in the range of $600-$800 million. We aim to generate over $1.5 billion from unique cash levers in 2024, supported by strong liquidity and no significant debt maturities until 2027.
Q: How did Hurricane Beryl impact your operations and market dynamics?
A: (James Fitterling, CEO) Freeport operations were minimally disrupted, with most facilities back up within a week. The hurricane has firmed up market sentiment, supporting price increases. We are working to replenish customer inventories and prepare for potential future disruptions.
Q: What are your early thoughts on Q4 performance, considering potential seasonal impacts?
A: (James Fitterling, CEO) We expect continued strength in Plastics and Silicones, with Glycol-2 providing a tailwind. Coatings may see typical seasonal softness, but overall, we anticipate solid performance across most segments, with potential improvements in polyurethanes if interest rates are cut.
Q: Can you clarify the outlook for polyethylene pricing and margins in Q3?
A: (James Fitterling, CEO) We have price increases out globally, with expectations for margin improvement of $0.02 per pound in North America. Inventory levels are low, supporting these price increases. Glycol-2's ramp-up is expected to contribute $75 million in Q3 and potentially more in Q4.
Q: How do you view the potential impact of new tariffs on industry dynamics and customer behavior?
A: (James Fitterling, CEO) Currently, there is no significant restocking in anticipation of tariffs due to election uncertainties. We are conducting scenario planning to understand potential impacts and will have a clearer picture by year-end.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
