Q1 2023 Dow Inc Earnings Call
Speaker 1: 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.
Speaker 1: 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.
Speaker 2: 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 our 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 Fitterling.
Speaker 2: Dallas Chairman and Chief Executive Officer, and Howard Underlighter, President and Chief Financial Officer.
Speaker 2: 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.
Speaker 2: A reconciliation of the most directly comparable GAAP financial measure and other associated disclosures is contained in the DAO earnings release in the slides that supplement our comments today as well as on the DAO website.
Speaker 2: On slide 2, 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 decarbonize and grow and transform the waste strategies, enable continued value creation.
Speaker 2: Following that, we will take your questions. Now let me turn the call over to Jim.
Speaker 3: 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.
Speaker 3: These results reflect our competitive advantages and operating discipline. As we leveraged our structurally advantage feedstock positions, practically 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,
Speaker 3: and mobility and markets.
Speaker 3: 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. Ours is yours.
Speaker 3: 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.
Speaker 3: Sales were flat sequentially as gains in performance materials and coatings and packaging in specialty plastics offset declines in industrial intermediates and infrastructure.
Speaker 3: Volume decreased 11% year over year, led by declines in Europe , the Middle East, Africa, and India, or EMEA.
Speaker 3: However, volumes increased 2% sequentially on gains in performance materials and coatings and packaging in specialty plastics.
Speaker 3: local price decline 10% year over year and 4% quarter over quarter due to industry supply additions and some businesses amidst soft global economic conditions.
Speaker 3: Operating EBITS for the quarter was $708 million, down year over year due to lower local prices and volumes.
Speaker 3: Sequentially, operating EBIT improved by $107 million, with gains primarily driven by performance materials and coatings.
Speaker 3: Cash flow from operations was $531 million in the quarter. On a trade-lead 12-month basis, cash flow conversion was 85%.
Speaker 3: With ample financial flexibility and a strong balance sheet, we are continuing to execute on our strategy as we advance our disciplined and balanced capital allocation priorities for long-term value creation.
Speaker 3: 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.
Speaker 3: Now, turning to our operating segment performance on slide 4. In the packaging and specialty plastic segment, operating EBIT with 642 million compared to 1.2 billion in the year ago period. Primarily due to lower integrated polyethylene margins.
Speaker 3: Continuous margin resilience in functional polymers was more than offset by lower polyethylene and olefin margins.
Speaker 3: Volume declines were primarily driven by lower consumer demand in EMEA.
Speaker 3: SIDARA also had lower export volumes due to planned maintenance activity.
Speaker 3: 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.
Speaker 3: Moving to the industrial intermediates and infrastructure segment, operating in EBIT for the segment was 123 million compared to 661 million in the year ago period.
Speaker 3: Results were driven by lower pricing and demand, as well as higher energy costs, particularly in EMEA.
Speaker 3: To quaintly operate an EBIT was down 41 million. Lower energy costs were more than offset by decreased demand and pricing for probaline oxide. It's derivatives and an isocyanate to impala earthings and construction chemicals. driving into accidents our
Speaker 3: Industrial solutions experience 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 coding segment, operating EBIT for the segment was 35 million compared to 595 million in the year ago period.
Speaker 3: Local price declines for siloxane were driven by competitive pricing pressure from supply editions in China.
Speaker 3: Volume was down as resilient demand for commercial building and construction, mobility, and industrial coatings was more than offset by volume declines and siloxins and architectural coatings.
Speaker 3: Sequentially, operating EBIT increased $165 million, driven by improved supply availability, reasonably higher volumes, and reduced value chain destocking.
Speaker 3: Next, I'll turn it over to Howard to review our Outlooks and actions on slide 5.
Speaker 3: Thank you, Jim, and good morning, everyone. In the second quarter, we expect to continue navigating challenging macro conditions around the world.
Speaker 3: While the pace of inflation has slowed, elevated levels continue to pressure both input costs and demand, particularly in industrials, durable goods, and housing.
Speaker 3: On the bright side, demand in agriculture and energy markets remains resilient, as does consumer demand for personal care and household items. In the U.S., consumer spending continues to moderate while retail sales were up 2.9 percent year over year in March.
Speaker 4: After contracting for five straight months, normalizing values in inventories are driving improvements in manufacturing PMI, which reached 50.4 in April .
Speaker 4: Residential building and construction markets remain under pressure, with housing starts and building permits down around 20% year-over-year in March. However, builder confidence increased for the fourth straight month in April on growing demand in the new home market due to limited resale inventory. In Europe , while energy prices have remained lower than previous...
Speaker 4: covering gradually with manufacturing PMI now at 50.
Speaker 4: March retail sales also rose 10.6% year-over-year at their fastest pace since July 2021. The recovery following the pandemic lockdown has been slow. We continue to expect growth over the medium term.
Speaker 4: Again, this backdrop, we continue to take discipline to actions to manage our costs and deliver our target of $1 billion in cost savings in 2023.
Speaker 4: We're implementing our Global Workforce Reduction Program of approximately 2000 roles.
Speaker 4: Notifications have begun and 75% of the impacted roles will exit by the end of the second quarter.
Speaker 4: We're also continuing to review our global asset footprint on a business by business and region by region approach. Rationalizing select higher cost lower return assets in line with market fundamentals.
Speaker 4: Additionally, we're executing opportunities to reduce operating costs. This includes decreasing maintenance turnaround spending by $300 million a year over a year, and driving efficiencies through the value chain including streamlining our logistics networks, and reducing our spend of purchased raw materials and contract services.
Speaker 4: All in, we expected to deliver approximately 35% of our cost savings in the first half of the year, and the remaining 65% in the second half of the year.
Speaker 4: Turning to our outlook for the second quarter on slide six. In the packaging and specialty plastic segment, we see signs of improving domestic demand versus the start of the year, as well as continued easing and re-impact cargo allowing for increased export volumes.
Speaker 4: We expect healthy oil to gas spreads to continue to favor our cost-advanced positions as rates increase to meet seasonally higher demand levels.
Speaker 4: All in, we expect these factors to have a $75 million tailwind versus the prior quarter, along with another approximately $70 million tailwind from cost savings actions.
Speaker 4: We anticipate these will be partly upset by a $25 million headwind from a seasonal increase in plan maintenance activity.
Speaker 4: In the industrial and immediate to infrastructure segment, demand remains resilient in energy and pharmaceutical and markets. However, we expect continued demand pressuring consumer durables and building a construction which is also driving a decline in cost pricing from its recent peak.
Speaker 4: We anticipate the $25 million tailwind from improved volumes in industrial solutions following third-party outages and the winter weather-related impacts, as well as a $20 million tailwind from cost savings actions.
Speaker 4: Additionally, that will begin to turn around at our Louisiana Glide Calls facility, which is projected to be a $50 million headwind for the segment.
Speaker 4: And the performance materials and coding segment, while the man for consumer electronics and industrial end markets is softening, we're seeing a seasonal increase in demand for coding applications, as well as improvement in mobility. Our cost saving actions will deliver a $50 million tail-in for the segment. And we're seeing a $50 million tail-in for the segment.
Speaker 4: The completion of our first quarter turnaround at our Gear Parker Chrillic Monomer Facility will be offset by impacts from the plan maintenance that are carolton and our Zhang Zhiguang salope saying facilities.
Speaker 4: All in with the puts and takes mentioned and listed on our model in guidance slide, we expect sequential earnings improvement of $150 to $200 million versus the prior quarter. With that, I'll turn it back to Jim. Thank you Howard. Moving to slide 7, while we expect near-term conditions to remain challenging through the year.
We continue to see positive underlying demand trends driving above GDP growth across our attractive market verticals over the next few years. Packaging is vital to delivering a lower carbon footprint.
Through our 3 million metric ton transform the waste commitment, we will capture demand growth for recycled polyethylene, which is accelerating as brand owners and customers increasingly seek more circular products.
In infrastructure, more than $3 trillion in investments will be needed to meet global infrastructure plans.
Green buildings are driving demand for doubt products, including low carbon footprint silicone sealants for high-rise buildings, reflective roof coatings, and lower carbon emissions cement additives.
An expanding middle class will support growth and consumer spending, where our products help deliver a lower carbon footprint and enable more sustainable materials through technologies such as biodegradable polymers or biobases or factors for home care, and thermal conductive silicone gels and adhesives for electronics and batteries.
And in mobility, stable global vehicle production growth is expected, with increasing demand for electric vehicles, which contain three to four times more silicone content than internal combustion engine vehicles.
Linerweight vehicles are also aided by our high-value polyurethane systems and EPDM technologies. Further, we continue to execute our targeted suite of higher return, lower risk projects, which are expected to add $2 billion in underlying EVIDA by the middle of the decade.
These investments put us in an advantage position to capture demand as economies recover and raise our underlying earnings profile. Turning to slide 8.
With growing consumer and brand-owner demand for more sustainable and circular products, leading in the transition to a more sustainable future remains critical to our strategy to drive growth and shareholder value creation.
In collaboration with X Energy, in the second quarter we expect to select an announcement site in the US Gulf Coast to develop a small modular nuclear energy facility by 2030.
Nuclear technology will be key in generating safe and reliable power and steam at our sites, while enabling zero CO2 emissions manufacturing.
In Alberta, we recently ordered Flour with a contract to provide front-end engineering and design services for our Path to Zero project.
Today, we achieved another key milestone by selecting Lindey as our industrial gas supplier to supply nitrogen and clean hydrogen for the site.
Securing partner agreements and subsidies is our next step.
All of these actions are critical to reaching a final investment decision this year.
As a reminder, this investment for the world's first net zero CO2 emissions, ethylene and derivatives complex will decarbonize 20% of our global ethylene capacity. At the same time, it will grow our global polyethylene supply by 15% and triple our Alberta site polyethylene capacity.
We're also taking a capital-efficient approach to meet increasing demand for more circular solutions as we scale up production for both advanced and mechanical recycling with strategic partners like Belorogen, Neurotechnology, and WM among others.
The Louridon's 15 kiloton mechanical recycling facility in France will start up during the second half of this year. This hybrid recycling plant is expected to process up to 70 kilotons of plastic waste per year by 2025. And Mira remains on track to start up the first of its kind, 20 kiloton per year, advanced recycling plant in T-side, the United Kingdom, in the second half of this year. This is the first step in our strategic partnership with Mira to launch as much as 600 kilotons per year.
of advanced recycling capacity by 2030. As the key off-taker of post-consumer and advanced recycled feed from both of these partnerships, Dow will commercialize circular polymers and high demand from global brands.
All together by 2030, we are on track to deliver an additional $1 billion in underlying EBITI improvement to our Alberta project. Commercialize 3 million metric tons per year of circular and renewable solutions, and reduce scope 1 and 2 CO2 emissions by 5 million metric tons compared to our 2020 levels.
Turning to slide 9, we remain focused on delivering on our commitments with transparency, accountability, and a culture of benchmarking. Today we published our annual benchmarking update as we have every year since it's been, which can be found in the appendix of this presentation and is posted on our website.
and returns to shareholders.
Take a closer look at the results on slide 10. Our free cash flow yield on a three-year average is nearly two times the peer average and three times the sector and market averages.
Our differentiated portfolio cost-advanced assets and operating discipline have resulted in three year evidom margins and return on invested capital well above the peer median.
This includes our 15% return on invested capital, which is above our 13% target across the economic cycle.
Our focus on cash flow generation has supported strong shareholder returns and our strength and balance sheet has resulted in improved credit ratings and outlooks. Additionally, all operating segments achieve best in class or top quartile free cash conversion and cost performance.
Notably, packaging and specialty plastics further expanded its outperformance over the next best peer on an EBITDA propound to polyolifen basis by 5 cents per pound. It also delivered 5-year average EBITDA margins 500 basis points above the peer median.
Looking forward, our growth investments throughout the decade will further enhance our competitive advantages and shareholder value creation. Closing on slide 11, Dow continues to execute with consistency and discipline to deliver resilient performance in the near term.
and sustainable growth and cash flow generation over the long term.
We're implementing targeted actions across the enterprise to reduce costs and maximize cash.
Our strong balance sheet provides financial flexibility as we continue to deliver against our capital allocation priorities and our decarbonized and grow and transform the waste strategies will raise our underlying earnings profile while reducing our carbon footprint and increasing recycled content. All combined, we are confident in our ability to continue delivering against our capital allocation priorities.
If you would like to ask a question, press star them a number one on your telephone keypad. We ask that you please note your questions to one. Our first question comes from the line of infant Andrews with Morgan Stanley . Please go ahead. Thank you and good morning everyone. I'm wondering if you could touch a little bit more on performance materials and coatings. Obviously the segment.
showed very strong results on a sequential basis that were clearly better than what the street was looking for. So if you could just give it a little bit more insight into why things turned out better than plan and just sort of what your thing to directory is for the balance of the year.
Yeah, good morning Vince. Good question. They obviously we had some headwinds obviously in the fourth quarter and silicone with some outages that did not recur in the first quarter. So that was part of the impact. The other thing you would see in silicones was that.
pricing and demand held up relatively well. Some pressure downward on siloxane pricing in China from new capacity additions there, but I think we're starting to see that the demand is picking up and that should help smooth things out. So you also saw
higher net sales and coatings and monomers and also higher volumes. Some of its supply availability as I mentioned in silicones and soloxane. The other is getting ready for seasonly higher volume is going into the second quarter and then we think we'll see.
more of a traditional seasonal pickup in the coatings and and modern or segment.
Some pressure on architectural coatings, but industrial coatings are looking relatively strong. And I think we'll have to watch carefully what's going on with housing starts and housing sales and see how that impacts architectural coatings through the quarter.
Your next question comes from the line of Pisan Ahmed with Olympic Go-Able. Please go ahead. Morning, Jim and Howard.
You know, question around packaging and specialty plastics. Look, I was a bit surprised to see EBITDA being sequentially flat, keeping in mind that, you know, obviously we got six ends of our own worth of polyethylene priceikes. And, you know, Etienne was down sequentially.
So that's sort of part one of the question. And part two is that I'd also love to sort of hear your views on what's happening with your operating rates within sort of ethylene and polyethylene, keeping in mind that you guys scaled back into you for. Thanks so much.
Morning, guys. Good questions. A PNSP did see pricing improved through the quarter in the first quarter. But obviously in the fourth quarter, we saw things slide down through the quarter. So a simple way to think about it is we ended the quarter really still below where we started the fourth quarter of last year. So we did see pricing improved.
month of March primarily, we didn't see so much impact in the month of February , but the month of March we saw that. So we, I would expect that to carry into the second quarter. Operating rates for the quarter were up 10 percentage points with the biggest pressure still continuing to be in Europe because of the higher cost position there and also the lower demand in Europe . And I would say that's the biggest.
If you look at our volumes and not just in packaging, especially plastics, but our overall volumes in Europe , they're down the most in Europe and our operating rates are the lowest in Europe , as you would expect, whereas operating rates in the US Gulf Coast, Canada and Argentina with the exception of turnaround time.
are continuing to be in the 90 plus percent range.
There's on two other points on that comparison. So don't forget that in the fourth quarter we had the univation catalyst and actually licensing sale. Those are lumpy. That was about 70 million in the fourth quarter that didn't recurse. That was a headwind sequentially. And then also the bulk of Q1 we had the cracker.
in Sedara out for a planned maintenance turnaround. So that's now back up and running in that should be a tailwind improvement in the second quarter.
Your next question will come from the line of David Begglider with Deutsche Bank. Please go ahead.
Thank you. Good morning. Jim, this is a crucial increase in Q2 is a little less than normal. Were you seeing the greatest pressures from a volume perspective in Q2 versus maybe perhaps normal seasonality? Yeah, I would say the biggest pressure still continues to be in I and I and more specifically in.
polyurethane and construction chemicals. I'd say the one one thing that may not be quite as obvious in the second quarter of guidance is there's a $70 million headwind in there from Chloralculine vinyl and we've seen some pressure obviously there on lower demand.
And as you know, that complex operates on both caustic soda and also chlorine demand and with housing down
You know, PBC demand being down and the pressure that puts on operating rates brings things down When on the other side Obviously, we're seeing industrial uses Clinton's in downward pressure on both demand and price and cost Xota So I say they're they're managing it well. They're making the adjustments that they need to make
And but that's probably the biggest difference in looking forward to Q2. I would say from a turnaround perspective, we're pretty good shape. Howard, do you have a comparison like on turnaround Q2 versus Q1? Yeah, I mean turnaround sequentially, you're going to be about a $75 million hand wind.
25 million of that in PNSP and the balance in industrial intermediates. Your next question comes from the line of Steve Byrne with Bank of America. Please go ahead. Yes, thank you. I just wanted to confirm that the margin benefit.
What is that off of the total number? And is your benchmarking analysis that did highlight that as an area to focus on like, EBITDA per employee or something like that? Thanks.
Yeah, first, Steve, I'm going to take a shot, but I want to make sure I get this right. So, Howard, I'll ask you to comment. We transfer, hopefully, an athlete at market. Good.
Having said that, we roll some of the benefit of the probative probaline spread forward into IINI, for example, for polyurethanes and into coatings and monomers. So they see it's there for their integration benefit, and so they see that in their numbers it rolls forward. So it should show up in that side of the equation. So here. Let's find out the information.
On the 2000 headcount reduction, that is off our published Dow Direct Headcount list. So you would expect 75% of those exits to happen by the end of the second quarter as Howard said, probably close to 90% by the end of the year.
The only reason for the time lag is that some of the site announcements get made on site closures. Well, I have to obviously work through the timing with works councils and others on that and the timing of the closures.
The driving force for that is obviously just looking at our overall cost position and trying to keep our costs lean and in line with demand. If you can take a look at demand really hit the fourth quarter, really hit the lowest we'd seen since the beginning of the COVID pandemic, which was back in March of 2020.
Thanks very much. ExxonMobil announced a very large project in Baytown to produce
ammonia and hydrogen in order to decarbonize their Gulf Coast facilities.
Is that something that Dow might do? That is, do you want to get involved in the ammonia markets or the hydrogen markets in the United States?
And then secondly, for Howard, what's the working capital benefit look like for this year? Is it, I don't know, 400 million? Is it a higher number or lower number? Or your cash flows?
for Howard, what's the working capital benefit look like for this year? Is it, I don't know, 400 million? Is it a higher number or lower number? Your cash flows.
you know, probably will work their way up this year. Good morning, Jeff. I'll take the Exxon question and the ammonia question. I'll have Howard tackle the working capital.
I think one of the things that's happening is obviously ammonia as a fuel is becoming an interesting market. And so in addition to decarbonizing there's also a shift in what's expected to be a shift in fuel mix. We've seen that with some announcements in ammonia fuel for overseas shipping. And so I think there's a play into that market.
As we look at our own assets, we're going to look at hydrogen and carbon capture as ways to decarbonize. And obviously we've got the plan to decarbonize one of our assets with advanced small modular nuclear reactors. It will be site specific as we go through it.
I think hydrogen clearly is going to play a role because of the ability to take off gases through auto thermal reforming and convert those into hydrogen that will probably be the most efficient for us. But there will be a wide variety of uses, but I don't see us entering the ammonia markets.
Yeah, Jeff, on the working capital, really proud of the work that the Dow team did sequentially. We kept our conversion efficiency on a day's basis flat sequentially from Q4 to Q1. You think about as we enter turnaround season as we enter a hopefully a period of heavier demand. That's very good, actually. We really...
put our inventory units down about 2% sequentially. To your question about the full year, and I would say we're working on between two and three days of structural efficiency improvement in working capital. On a dollars basis that's anywhere between $300 and $500 million for the year.
in terms of improvement in cash. Your next question will come from the line of Mike Sisson with Wells Fargo. Please go ahead.
Hey guys, nice start to the year. Just curious, I think you mentioned your North American operating rates would improve 2Q to 90%. I think the EBIT driver is up 75 million. So just curious why the improvement in PST wouldn't be stronger in 2Q. Are you
thinking polyethane margins are coming down or just maybe any other factors that the improvement would have been better. Good morning, Michael. I would say two things. We've got nominations out for April in terms of pricing.
I think there's also capacity coming on. So we're being realistic about where we think things are moving in the marketplace. Exports are up, which is good. We hit the highest level of Marine Pack cargo exports.
since March of 21. And so that is a really good sign. And the schedule reliability on Marine Pack Cargo exports has been the best since October of 2020. So we're seeing really positive trends there. The only inventory increase we saw in the region was really at the export hubs.
demand for that natural gas picks up a little bit. We should see some of that natural gas pricing move up a little bit, but still it's going to be good while the gas spreads here in the U.S. So I think it's still guiding up on integrated margins.
But you know, there could be potential for some upside from there. Yeah, Michael the other thing is don't forget There's a $25 million headwind from a turnaround in functional polymers, which is in P and SP as well sequentially Your next question comes from the line of John McNulty with BMO capital markets. Please go ahead
Yeah, good morning. Thanks for taking my questions. So maybe just to dig a little bit further on the US side of the market. Obviously there is some capacity coming in on the Napalia Plain area. Can you speak to the demand trends that you're actually seeing if there's any pockets of either strength or incremental weakness that you're seeing? And then also, can you give us kind of an update as to how you're seeing the mix of domestic versus export demand and how you expect that to trend through 2023? Yeah.
Yeah, good morning, John . The global demand has been improving. North America, we had some benefit, obviously, in the first quarter because the industry had about 14% of capacity online due to.
forced major and unplanned events, and there were some delays in capacity startups in the first quarter. We still see North American fundamentals to be very robust as we go into the second quarter and through the year. I think logistics challenges appear to be behind us, both Marine Pack Cargo road shipments and through all.
kind of getting back to normal space. The biggest...
The biggest drag right now probably on PNSPs and in Europe has been pretty slow. Still some destocking going on there. We're having some advantage from cracking propane and turnuzen and turnuzen. We've been cracking max propane there, so that helps. We've been cracking max propane there, so that helps.
a little bit, but I think the weight of the European market is really the biggest strike right now. I expect North American market to be pretty robust.
Your next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please go ahead. Yes, good morning. Jim, in listening to your prepared remarks, it sounds like you're still evaluating potential for rationalization of some higher-cost assets. I'm wondering if you could speak to the possible size of the asset.
say Europe obviously has the attention because in most cases it's moved into the high cost position around the globe and there's a lot of pressure from higher energy cost as well. LNG costs into Europe right now are in the $14 to $17 million.
depends on how the European Union and also how the individual member states respond via energy policies and other changes that they are looking at and hard to anticipate when they'll make those decisions but energy.
cost is going to be a big driving force and that will be one that will be hard to overcome. So we'll continue to look at those assets. We don't want to jump the gun and get ahead of any policy changes that might make them still competitive long-term. But those are the biggest things on big assets, big sites that are in our head right now. So we'll continue to look at those assets.
Your next question comes from a line of W. Fisher with Goldman Sachs. Please go ahead. Yes, good morning. Jim, wanted to dig a little bit on the comment you made about a $70 million sequential headwind in Corapoli. So a couple of questions there. Is that mostly with the European assets or is that on the U.S.
and Latin America.
So most of that $70 million is on that. None of what was in that, guidance, that outlook guidance was related to our contracts with all and so nothing related to that.
And I would say that's clearly driven by the market dynamics and the market demand that is.
driving lower prices and also lower operating rates in those regions. So we'll continue to keep an eye on that. Housing, I think.
If housing begins to turn a little bit, that'll be one of the first things that will help out. And then industrial demand has also been relatively soft. Those two drivers will be the ones that will start to make that turn.
Your next question comes from the line of Josh Spector with UBS. Please go ahead.
Yeah, hi, thanks for taking my question. I just want to follow up on volumes and thinking maybe another quarter or two out. So, you know, the past couple quarters, your volumes have been down, something in the range of 8 to 10 percent year over year. That seems to be kind of where you're guiding to the second quarter. And I mean, generally we're seeing a slower upkick than what we expected.
to crunchly in some market weakening. So I'm just curious, at this point, should we be assuming that volumes are down a similar level to that in 3Q? And obviously the comps get easier in 4Q, but I'm wondering what in your view would change at trajectory, or if that's the right way to think about it? Yeah, good question on the volumes.
You know, I would say North America volumes are coming back, which I think is going to be a real positive. If you look at same quarter last year, I mentioned we were down 11% on volume. That was really led by Nia.
So, the meal was down 15% during that same timeframe. So, you can see that some of the other cost advantage regions were still doing relatively well.
The other thing to think about is Asia Pacific. We did start to see, after February , we started to see some positive expansion in the China market, which we had not seen early in the first quarter. And so if you looked at PNSP and II&I, both volumes were down a lot in the first quarter.
We had some, as Howard mentioned, non-recurring licensing activity, which not really a volume, but an EVA.play. And then we had the SEDARA cracker turnaround, which took volumes out as well for them. And so I think you're going to see Asia Pacific volumes pick up in the second quarter, and I would think that that would continue.
We're starting to see even in even in areas like MEG. We're starting to see the spot market pick up a bit and the operating rates in China pick up a bit. So that will help and then the question will be, you know, when do we start to see some positive momentum out of Europe ? So I would think through the year we should start to see this gradually improve and that's what our...
plan for the year is first half of the year, if you follow where we are, we'll make a little bit less than half of our target for the year and we'll make the rest in the back half largely on good price volume management, good control over operations and our own self help on delivering that $1 billion of cost. Your next question comes from the line of Lauren's Alexander with Jeffries.
As Howard mentioned, we're really focused on efficiency, and so we're looking to get two to three days of efficiency.
I'd love to get that efficiency through higher sales rather than through the opposite way, but we're keeping inventory well under control. For example, we ended the first quarter really similar, maybe slightly lower than we ended the fourth quarter in terms of actual volume in inventory. I don't think we're in a scenario where there's any reason to really...
build big inventory going into the season. Maybe in a specific business like coding needs to build a little bit ahead of the seasonal demand. But for the rest, we have the ability to ramp up rates to match that demand, and that's what we're going to do. So I feel like
inventory, and we're going to manage it pretty tight through the year. I don't see any outside drivers out there that would give us a signal that we should be doing anything more. We would need to see some really strong demand drivers and demand signals to move off of that tight inventory management.
Your next question comes from the line of Christopher Parkinson with Mizzouho. Please go ahead. Great. Thank you so much. It's obviously been a few years with China now finally merging from COVID. But can you just give us your latest and greatest thoughts on your three main segments regarding the potential for new Chinese supply?
on saloxane's capacity. You had each one of them range. They were between 100 and 200,000 tons each.
and tons added. So I think we're through that. MDI I think is a timing game as we've said before. I feel good about what supply demand is with MDI. In the short term, the operating rates have been, you know, between 75 and 80%. And it's all depending on your view of how fast.
the Chinese capacity is going to come on. We think it's going to be spread out a little bit more over time versus all coming on in 2023. And so our view is that the industry operating rates should hold up in that high 70s, almost 80 percent range, which historically is a constructive range for MDI.
And in polyethylene, I haven't seen, as you know, most of the capacity over the last 10 years has been added in China. The supply additions and also the delays and the cancellations mean that things are going to be pretty balanced to maybe even...
slightly net shorts over the next couple of years maybe maybe in the range of two to five million tons net shorts. So I think supply additions in polyethylene is not the big concern right now. I think it's you know we're focused more on you know growing that recycling business and also making sure that we've got our footprint in the lowest cost to operate jurisdictions.
North America, Middle East, and US ethane, Canadian ethane, Argentina, all substantially advantaged to European and Asian, NAFTA right now, and even MTO and CTO. So we want to continue to build out our footprint in more cost advantage regions going forward.
Your next question comes from the line of myglydehead with Barclays. Please go ahead. Great. Thanks. Good morning. I was hoping you could help me reconcile slide 5 and slide 7 a bit. If we look at slide 5, your main product verticals was pretty challenged near term. And then on slide 7 you talk about why this should be pretty attractive.
remained weaker for longer.
Yeah, good question, Michael. I mean, I think a lot right now, a lot of the weight on the market is the inflationary pressure and the things that remain stickier for longer. You are seeing in commodities that pricing is coming down that hasn't rolled through yet to the consumer. And so the weight on the consumer and the consumer's competence has not been there. So that's where we are. L You already see your earlier.
It's a little bit mixed still here in North America but
A couple of zones in the Fed are starting to move into positive PMI territory.
So I think as that market sentiment improves, we'll get ourselves back on to the normal trajectory. And what typically drives the growth for our products is GDP and an increasing middle class. And both of those we believe are going to continue to drive them for the long term. It's true in packaging and specialty plastics. Next? WhosefoldD CombatEJ Oluozec lightning
The urbanization drives a lot of volume and silicones and siloxane, so think about architectural structures, high-rise buildings, even multi-family homes, which have been weak relatively. And then when you get back into IINI, you know, polyurethane and construction chemicals.
really driven by housing, housing starts, housing sales, whether it's in insulation or it's in appliances or durable goods. And in Dow Industrial Solutions, markets like ag, pharma, incipients, everyday consumer products, household goods, cleaning items that you buy all have positive trends.
So I think it is a timing issue. There's been a lot of
projects and incentives and policies deployed to drive this capital that's going to be invested in infrastructure. But it takes a while for that to actually ramp up. And so I think that's why we took the near term long term view of it. And that was what those two slides were meant to represent. And Mike, I mean the other positive on long term trend of mobility with EVs.
Don't forget there's a significant increase in multiple of the need for Dow chemistry in an EV vehicle in an internal combustion engine. So that will be a real growth driver for our solar comes business as well as our last customers business and to a lesser extent, you're a thing acrylics. Your next question comes from the law.
Texas and I'm cracker on the other Gulf Coast. Morning, Alexi. Thanks for the question. On Alberta, I would think about it this way. Our target there is to try to get the...
total cost of the project and dollars platonic capacity to be advantaged to the Texas 9 project and we believe that we can do that based on what we've seen so far through the rest of this year we'll be getting from bits on some of the bulk materials that go in.
and we'll have a feel for that, but we've been watching obviously steal cement and the other markets that really drive a lot of those bulk costs. I think we'll be able to do that. Part of it is scale. Part of it is learnings on construction and techniques that we picked up off of Texas 9. And so there's something that we'll engineer into this as well. But my sense is Texas 9 since startup has been well about 15% return on invested capital, which gotta be.
implied by EBITDA guidance.
When you think about that, it looks like there's 75 million of headwinds in there as well. So maybe it's a 1.6 billion dollar number. So how would you characterize that within your framework of. Take the trough, would you would you still consider maybe 2Billion? As a mid cycle Q2 number and so maybe you're 75 to 80% of the way there or.
And does the cost reduction kind of bridge that gap or how are we thinking about where we are kind of in your in your earnings trajectory? Thanks Go through the walk through on the album. Yeah, and I think I mean everyone you're thinking about it right in terms of the walk from Q1 to Q2 You know, I would say my perspective Jim you may have your your own view that I look I think 2 billion is light From a normalized basis. You know, we're still looking at that 6 to 12
current portfolio view from from trough to peak and that's heading in the middle of the decade that should be more like You know seven and a half or eight to as much as 13 or eventually 14 once we add in the Alberta project So I think a more normalized EBITDA for us is in that nine to ten billion dollar range in the normalized macro So when you're looking at one and a half billion plus or minus
You know, you're still, you're right around the floor of the earnings quarter on an annualized basis and then obviously that billion dollar cost saves that will ramp 65 percent will get us, will come to the bottom line in the second half of the year. You know, that just is there to protect and ensure that we can deliver in that 6 billion plus or minus range. Your next question comes from the line of Patrick Cunningham with City. Please go ahead.
I'd be more in fix for taking my question. It would release you highlighted some year over year strength and functional almer for renewable technology. Can you highlight some of those technologies? And then similarly on the near term growth investment, I think functional almer is a significant part of that. What technologies are and markets are targeted investments here? Yeah, welcome Patrick and um.
Functional polymers is about 25% of the PNSP portfolio on the polymer side. And I'd say the two biggest areas of strength there are in the solar, foldable tank films, and you think about the protective films that are used to put together the solar panels. We've got a good position there and with some of the leading.
producers around the world and we're starting to see some real volumes pick up there. So I think you're going to see that industry be the beneficiary in the near term, you know, probably one of the early beneficiaries of the infrastructure and the IRA monies that have been deployed and the other area would be wiring cable and we're trying to see a pickup there. So as we
We put more alternative energy in and we also have to deal with the aging grid and we have to deal with also infrastructure work that utilities need to do on the grid to increase the reliability and expand the grid because populations are expanding in a lot of these urban areas. That drives demand for wiring cable products, which we have a leading market position. This is a way to build the infrastructure for new smart software with new adaptation work.
whether it's high voltage transmission or whether it's down into medium and lower voltage, things like in the telecom sector. So as we're expanding reach for more wireless access to people, we're going to see more telecommunications towers go up that's going to drive more demand for wiring cable products for those projects. heard from fans already, so talk to us and question all the great people out there who
Your next question comes from the line of Matthew Blair with the Tutor Pickering Holt. Please go ahead. Hey, good morning. Jim, could you provide some more color on your autos and market the mobility category on slide five? Actually looks a little bit better than...
than all of your other major areas. Are you gaining share, and how are things tracking relative to your expectations? You know, mobility is a growth platform for us, and the team there that's focused on building back some of that core capability that we had prior to the spin is doing a great job. Silicones are a big part of that, so...
improving the resilience of the system with more electronics on the vehicles is great, but we also play a leading part in noise vibration and harshness in the vehicle so we've got a long history of doing that we're starting to see pick up for recycled materials.