Q3 2023 Dow Inc Earnings Call

Greetings and welcome to the Dow third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation, if you'd like to ask a question during that time. Please press star followed by the one on your telephone keypad as a reminder, this conference.

Is being recorded I will now turn the call over to Dow Investor Relations, Vice President Pankaj Gupta Mr.

You may begin.

Good morning, Thank you for joining today the accompanying slides are provided through this webcast and posted on our website I am Pankaj Gupta now Investor Relations Vice President and joining me are Jim Farley, <unk> Chair, and Chief Executive Officer and <unk>.

Howard Underwriter, President and 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.

Refer to our public filings for further information about principal risks 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 earning.

News release and slides that are posted on our website on slide two you will see the agenda for our call Jim will review, our third quarter results and operating segment performance Howard will provide an update on our cost savings actions and financial position and share our outlook and modeling guidance to close Jim will outline how our long term.

Growth in sustainability roadmap continues to enable value creation as we navigate challenging short term dynamics. Following that we will take your questions now let me turn the call over to Jim. Thank you Paul guidance beginning on slide three for the third quarter. We continued to advance our long term strategy while also.

So taking action to reduce costs and maximize cash generation in the face of slow global macroeconomic activity and higher sequential feedstock costs in.

In particular, we continue to implement targeted actions to deliver $1 billion in cost savings in 2023.

We delivered a sequential improvement to operating cash flow of more than $300 million net sales were $10 7 billion down.

Down 24% versus the year ago period, reflecting declines in all operating segments due to slower global macroeconomic activity sales were down 6% sequentially as volume gains were more than offset by lower local prices.

Volume decreased 6% year over year, mainly due to lower merchant hydrocarbons and energy sales volumes were up 1% sequentially led by gains in industrial intermediates, <unk> infrastructure and performance materials and coatings.

Volume was up 3% sequentially, excluding merchant sales in hydrocarbons and energy with gains across all operating segments.

Operator: Greetings and welcome to the Dow 3rd quarter 2023 earnings conference call. At this time, all participants are in a lesson only mode. A brief question and answer session will follow the formal presentation. If you'd like to ask a question during that time, please press star followed by the one on your telephone keypad. As a reminder, this conference is being recorded.

Local price decreased 18% year over year with declines in all operating segments and regions, primarily due to lower feedstock and energy costs sequentially price was down 7%, primarily in Europe , the Middle East Africa, and India or EMEA.

Pankaj Gupta: I will now turn up call over to Dow Investor Relations Vice President, Pankaj Gupta, Mr. Gupta, you may begin.

Operating EBIT for the quarter was $626 million down from $1 2 billion in the year ago period, and $885 million in the prior quarter.

Pankaj Gupta: Good morning. Thank you for joining today. The company slides are provided through this webcast and posted on our website. I am Pankaj Gupta, Dow Investor Relations Vice President, We will also refer to non-gap measures. The reconciliation of the most directly comparable gap financial measure and other associated disclosures are contained in the earnings news release and slides that are posted on our website. On slide two, you will see the agenda for our call.

Our consistent focus on cash flow generation and working capital management enabled team Dow to generate cash flow from operations of $1 7 billion.

<unk> and cash flow conversion of 129% for the quarter and 103% on a trailing trailing 12 month basis.

We continue to invest in our long term strategic priorities, while also returning $617 million to shareholders in the quarter through dividends and share repurchases year to date, we've returned nearly $2 billion to shareholders. Our cash flow generation continues to enable dow to fully cover its capital allocation.

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And our balance sheet remains the best it has been in for decades supported by strong investment grade credit ratings with no substantive long term debt maturities due until 2027.

Pankaj Gupta: Jim will review our third quarter results and operating segment performance. Howard will provide an update on our cost savings actions and financial position and share our outlook and modeling guidance. To close, Jim will outline how our long-term growth and sustainability roadmap continues to enable value creation as we navigate challenging short-term dynamics. Following that, we will take your questions.

Now turning to our operating segment performance on slide four in.

In the packaging <unk> specialty plastics segment operating EBIT was $476 million.

Compared to $785 million in the year ago period.

Local price declines were driven by lower polyethylene and olefin prices in all regions, primarily as a result of lower global energy costs.

Jim Fitterling: Now let me turn the call over to Jim. Thank you, Ponka. It's beginning on slide three. For the third quarter, we continued to advance our long-term strategy while also taking actions to reduce costs and maximize cash generation in the face of flow, global macroeconomic activity and higher sequential feed stock costs. In particular, we continued to implement targeted actions to deliver $1 billion in cost savings in 2023 and delivered a sequential improvement to operating cash flow of more than $300 million.

Volume declined as increased polyethylene demand across all regions was more than offset by lower volumes in merchant hydrocarbons and energy sales sequentially operating EBIT decreased by $442 million driven by lower integrated polyethylene margins increased planned maintenance activity and lower.

Licensing revenue.

Moving to the industrial intermediates and infrastructure segment operating EBIT was $21 million compared to $167 million in the year ago period results were driven by lower prices and demand in both businesses as well as reduced supply availability due to an unplanned event in industrial solutions.

Jim Fitterling: That sales were $10.7 billion down 24% versus a year ago period reflecting declines in all operating segments due to slower global macroeconomic activity. Sales were down 6% sequentially as volume gains were more than offset by lower local prices. Volume decreased 6% year over year mainly due to lower merchant hydrocarbons and energy sales. Volume was up 1% sequentially led by gains in industrial intermediates and infrastructure and performance materials and coatings. Volume was up 3% sequentially excluding merchant sales and hydrocarbons and energy with gains across all operating segments.

At our Louisiana operations.

Sequentially operating EBIT was up $56 million, driven by volume gains and lower costs, which were partly offset by the Louisiana event.

And in the performance materials and coatings segment operating EBIT was $179 million compared.

Compared to $302 million in the year ago period, driven by local price declines in both businesses volume was down as gains in commercial building and construction end markets were more than offset by lower demand for personal care and coatings applications in residential construction sequentially.

Jim Fitterling: Local price decreased 18% year over year with declines in all operating segments and regions primarily due to lower feed stock and energy costs. Sequentially price was down 7%, primarily in Europe, the Middle East Africa and India or India. Operating EBIT for the quarter was $626 million, down from $1.2 billion in the year-ago period, and $885 million in the prior quarter. Our consistent focus on cash flow generation and working capital management, enabled team Dow to generate cash flow from operations of $1.7 billion, resulting in cash flow conversion of 129% for the quarter, and 103% on a trailing 12-month budget.

Sequentially operating EBIT increased $113 million, driven by higher operating rates and cost savings.

Next I'll turn it over to Howard to review, our outlook and actions on slide five.

Thank you Jim we expect the challenging macroeconomic dynamics to continue through the fourth quarter, including sluggish industrial activity Global manufacturing PMI has declined for the 13th consecutive month in September . It also includes weak demand in Europe , and a slower than expected recovery in China, while inflation continues to moderate it remains at <unk>.

Elevated levels, resulting in a continuation of a tighter monetary policy.

In the U S. We're seeing some mixed indicators as September manufacturing PMI improved to $49 eight retail sales growth remains positive while consumer confidence has declined for the last two months.

Jim Fitterling: We continue to invest in our long-term strategic priorities while also returning $617 million to shareholders in the quarter through dividends and share repurchases. Year-to-date, we've returned nearly $2 billion to shareholders. Our cash flow generation continues to enable Dow to fully cover its capital allocation priorities, and our ballot shoot remains the best it has been in four decades, supported by strong investment-grade credit rating.

In Europe , industrial and consumer demand remains weak despite sharply lower inflation.

PMI has contracted for 15 consecutive months through September and consumer confidence remains low with that said automotive demand is showing signs of resilience.

In China, while manufacturing PMI remained an expansionary territory in September China exports tell for the fifth straight months.

Jim Fitterling: We've no substantive long-term debt maturities due until 2027.

Automotive sales and production are bright spot rising in August both sequentially and over the prior year in September .

Jim Fitterling: Now turning to our operating segment performance on slide four. In the packaging and specialty plastic segment, operating EBIT was $476 million, compared to $785 million in the year-ago period. Local price declines were driven by lower polyethylene and olefin prices in all regions, primarily as a result of lower global energy costs. Volume declined as increased polyethylene demand across all regions was more than offset by lower volumes and merchant hydrocarbons and energy sales.

Around the rest of the World, India manufacturing PMI remains expansionary, while in Mexico industrial production rose more than 20 months in August .

Never ASEAN manufacturing PMI contracted for the first time in two years in September .

Against this macroeconomic backdrop, we will continue to take a disciplined approach to managing our operations, while leveraging our diverse global portfolio and our cost advantaged assets.

Turning to slide six our commitment to financial and operational discipline continues to be reflected in the proactive actions, we are implementing to lower our costs and maximize cash flow we.

Jim Fitterling: Sequentially operating EBIT decreased by $442 million driven by lower integrated polyethylene margins, increased plant maintenance activity, and lower licensing revenue. Moving to the industrial intermediates and infrastructure segment, operating EBIT was $21 million, compared to $167 million in the year-ago period. Results were driven by lower prices and demand in both businesses, as well as reduced supply availability due to an unplanned event in industrial solutions at our Louisiana operations.

We achieved $700 million in cost savings year to date and remain on track to deliver our $1 billion commitment in 2023.

In addition, we are further enhancing our financial flexibility as we execute on our capital allocation priorities across the economic cycle.

For example, we're implementing continued actions to improve our working capital to maximize cash flow as a result, our cash conversion cycle has improved by approximately eight days from pre COVID-19 levels, and we have unlocked approximately $600 million of cash from working capital in the third quarter.

Jim Fitterling: Sequentially operating EBIT was up $56 million driven by volume gains and lower costs, which were partly offset by the Louisiana event. And in the performance materials encoding segment operating EBIT was $179 million, compared to $302 million in the year-ago period driven by local price declines in both businesses. Volume was down as gains in commercial building and construction in markets were more than offset by lower demand for personal care and coding applications in residential construction.

Since spin we have taken actions to strengthen our balance sheet, ensuring ample liquidity, while reducing net debt and pension liabilities and we are continuing to take actions to further de risk our pension plans.

Our pension funded status has greatly improved driven primarily by changes in the discount rate and the $1 billion voluntary contribution we made in 2021.

Our decision to freeze the U S deferred benefit plans at year end 'twenty three further reduced the pension liability.

Jim Fitterling: Sequentially operating EBIT increased $113 million driven by higher operating rates and cost savings.

We expect to pursue additional derisking opportunities for our pension plans in the fourth quarter, including a new innovation and risk transfer of some pension liabilities. If these transactions are executed we expect to record a one time noncash and nonoperating settlement charge in the range of $500 million to $1 billion in the fourth quarter.

Howard Ungerleider: Next, I'll turn it over to Howard to review our outlook and actions on slide five. Thank you, Jim. We expect the challenging macroeconomic dynamics to continue through the fourth quarter, including sluggish industrial activity. Global manufacturing PMI has declined for the 13th consecutive month in September. It also includes weak demand in Europe and a slower than expected recovery in China. While inflation continues to moderate, it remains at elevated levels resulting in a continuation of a tighter monetary policy.

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All in our targeted actions have given us the ability to continue investing in growth, while delivering more than 80% of operating income back to our shareholders well above our 65% target.

Turning to our outlook for the fourth quarter on slide seven and the packaging and specialty plastics segment industry data shows a continued decline in U S. Gulf coast inventory levels, driven by resilient domestic demand and export market strength higher polyethylene prices and elevated the oil to gas spreads continue to favor our cost advantage.

Howard Ungerleider: In the US, we're seeing some mixed indicators as September manufacturing PMI improved to 49.8, retail sales growth remains positive, while consumer confidence has declined for the last two months. In Europe, industrial and consumer demand remains weak, despite sharply lower inflation. PMI has contracted for 15 consecutive months through September, and consumer confidence remains low.

Footprint and are expected to generate $100 million tailwind in the quarter.

Additionally, we expected $25 million tailwind as we complete planned maintenance activity at our cracker in St Charles Louisiana.

Howard Ungerleider: With that said, automotive demand is showing signs of resilience. In China, while manufacturing PMI remained in expansionary territory in September, China exports fell for the fifth straight month. Automotive sales and production are bright spot rising in August, both sequentially and over the prior year in September. Around the rest of the world, India's manufacturing PMI remains expansionary, while in Mexico, industrial production rows are more than 20 months in August. However, out of the on manufacturing PMI contracted for the first time in two years in September. Against this macroeconomic backdrop, we will continue to take a disciplined approach to managing our operations, while leveraging our diverse global portfolio and our cost-advantaged assets.

We also expect a $50 million headwind to equity earnings due to a planned turnaround at our joint venture in Thailand.

And the industrial intermediates and infrastructure segment, we expect seasonal demand increases in deicing fluid to offset seasonal volume declines in building and construction end markets. Additionally, we expect a headwind of $25 million due to elevated energy and feedstock costs, particularly in Europe impacting our polyurethane and our construction chemicals business.

Yes.

In the performance materials and coatings segment, we expect the current macroeconomic conditions to limit consumer discretionary spending and non service areas. We also expect margin pressure to continue in upstream siloxane from competitive supply additions, which will result in a $25 million headwind.

Howard Ungerleider: Turning to slide six, our commitment to financial and operational discipline continues to be reflected in the proactive actions we are implementing to lower our costs and maximize cash flow. We achieved $700 million in cost savings year-to-date and remain on track to deliver our $1 billion commitment in 2023. In addition, we are further enhancing our financial flexibility as we execute on our capital allocation priorities across the economic cycle. For example, we are implementing continued actions to improve our working capital to maximize cash flow.

Additionally, the seasonal decline in building and construction demand is expected to contribute approximately $50 million headwind in the quarter.

All in we expect fourth quarter earnings to be in line with the third quarter.

Next I'll turn it back to Jim.

Thank you Howard moving to slide eight we continue to make progress on both our decarbonize and grow and transform the waste strategies, which by 2030 position us to deliver more than $3 billion in underlying earnings while reducing greenhouse gas emissions by 5 million metric tons and commercial.

Howard Ungerleider: As a result, our cash conversion cycle has improved by approximately eight days from pre-COVID levels, and we have unlocked approximately $600 million of cash from working capital in the third quarter. Since spin, we have taken actions to strengthen our balance sheet, ensuring ample liquidity, while reducing net debt and pension liabilities, and we are continuing to take actions to further de-risk our pension plans. Dow pension funded status has greatly improved, driven primarily by changes in the discount rate and the $1 billion voluntary contribution we made in 2021.

Rising 3 million metric tons of circular and renewable solutions annually.

Starting with Decarbonize and grow.

In September we achieved startup of a new MDI distillation and pre polymers facility at our manufacturing site in Freeport, Texas.

This new facility replaces Dallas existing capacity in La Porte, Texas and expand supply by an additional 30% at the site to support high value demand growth in polyurethane system, while also reducing our greenhouse gas emissions by more than 45% compared to the laporte asset.

Howard Ungerleider: Our decision to freeze the U.S, deferred benefit plans at ERN 23 further reduce the pension liability. We expect to pursue additional de-risking opportunities for our pension plans in the fourth quarter, including annunization and risk transfer of some pension liabilities.

Our path to zero project in Alberta remains on track, we expect the final investment decision by year end pending completion of our subsidies and incentives with the Canadian Federal government.

Howard Ungerleider: If these transactions are executed, we expect to record a one-time non-cash and non-operating settlement charge in the range of $500 million to $1 billion in the fourth quarter of 2023. All in, our targeted actions have given us the ability to continue investing in growth, while delivering more than 80% of operating income back to our shareholders, well above our 65% target.

Additionally, we recently announced a solar power purchase agreement with MSU Green energy in Bahia, Blanca, Argentina, which will drive the slight to saw a 75% of its electric power supply from renewable sources by 2025 inch.

Introducing the Dutch government informed us that they need more time for adjustments to certain rules and regulations critical to enabling carbon capture and clean hydrogen.

Howard Ungerleider: Turning to our outlook for the fourth quarter on slide seven, and the packaging and specialty plastic segment industry data shows a continued decline in U.S. Gulf Coast inventory levels driven by resilient domestic demand and export market strength. Higher polyethylene prices and elevated oil to gas spreads continue to favor our cost-advanced footprint and are expected to generate $100 million tail women. Carter, Additionally, we expected $25 million tailwind as we complete planned maintenance activity at our cracker in St. Charles, Louisiana.

Public private partnership is a crucial element of our path to zero effort after news.

Dow investment and timing will depend on the level of collaboration subsidies available and are clear regulatory framework, we will continue to engage with the Dutch government to advance these efforts and.

And we continue to advance our transform the waste strategy in the third quarter, we successfully leveraged our U S Gulf coast assets for Bayou and circular feedstock processing accomplishing a key milestone to utilize existing assets to quickly scale production of recycled and bio based products.

Howard Ungerleider: We also expect a $50 million headwind to equity earnings due to a plan turn around at our joint venture in Thailand. In the industrial and immediate and infrastructure segment, we expect seasonal demand increases in de-icing fluid to offset seasonal volume declines in building and construction and markets. Additionally, we expect a headwind of $25 million due to elevated energy and feed stock costs, particularly in Europe, impacting our polyurethane and our construction chemicals businesses.

This was a direct enabler to the commercial launch of our sustainable <unk>, which support high end applications like perfume and cosmetics packaging.

In addition below origin in France, and Bureau of technology in the UK remain on track to start up their respective mechanical and advanced recycling facilities by year end.

Howard Ungerleider: In the performance materials and coding segment, we expect the current macroeconomic conditions to limit consumer discretionary spending in non-service areas. We also expect margin pressure to continue in upstream saloxanes from competitive supply additions, which will result in a $25 million headwind. Additionally, the seasonal decline in building and construction demand is expected to increase in demand. This is expected to contribute an approximately $50 million headwind in the quarter. All in, we expect fourth quarter earnings to be in line with the third quarter.

All in we expect that our initiatives to develop a circular ecosystem will generate more than $500 million of incremental run rate EBITDA by 2030.

Altogether, we remain confident in our long term growth with continued focus on a more sustainable future, while maintaining a disciplined and balanced approach to capital allocation.

Next an update on our path to zero project in Fort Saskatchewan, Alberta on slide nine.

Jim Fitterling: Next, I'll turn it back to Jim. Thank you, Howard. Moving to slide eight, we continue to make progress on both our decarbonized and grow and transform the waste strategies, which by 2030 position us to deliver more than $3 billion in underlying earnings. While reducing greenhouse gas emissions by 5 million metric tons and commercializing 3 million metric tons of circular and renewable solutions annually.

The project will enable dow to capture sustainable growth opportunities, while also delivering on our 2030 greenhouse gas emissions reduction targets and advancing our long term goal of carbon neutrality by 2050 <unk>.

Construction is planned to begin next year with phase one startup expected in 2027 and phase two expected in 2029 weeks.

We expect to spend an average of $1 billion of Capex annually on this key growth projects with total enterprise capex ramping above depreciation and amortization levels in the 2025 to 2027 time period as we implement the first phase.

Jim Fitterling: Starting with decarbonized and grow. In September, we achieved startup of a new MDI distillation and prepolimers facility at our manufacturing site in free for Texas. This new facility replaces Dow's existing capacity in Laporte, Texas and expands supply by an additional 30% at the site to support high value demand growth and polyurethane system. While also reducing our greenhouse gas emissions by more than 45% compared to the Laporte asset.

We remain fully committed to keeping our capex within DNA across the economic cycle and expect to return to those levels as we complete the project.

We are expecting bottom line returns on our Alberta path to zero project equal to or better than our Texas nine investment.

Jim Fitterling: Our path to zero project in Alberta remains on track. We expect a final investment decision by year and pending completion of our subsidies and incentives with the Canadian federal government. Additionally, we recently announced the solar power purchase agreement with MSU Green Energy in Bihia Blanca, Argentina, which will drive the site to source 75% of its electric power supply from renewable sources by 2025.

Turning to slide 10, we are partnering with brand owners and leaders across the value chain to strategically enable and scale waste management transformation through mechanical recycling advanced recycling and bio based solutions.

This allows us to lead the way to a more circular economy and become a major offtake or a circular feedstock, while also minimizing capital outlay per DAU.

Robust industry demand for these solutions is expected to outpace supply through the end of this decade.

Jim Fitterling: In Tunisans, the Dutch government informed us that they need more time for adjustments to certain rules and regulations, critical to enabling carbon capture and clean hydrogen. The public private partnership is a crucial element of our past zero effort at Tunisans. Dow investment and timing will depend on the level of collaboration, subsidies available and a clear regulatory framework. We will continue to engage with the Dutch government to advance these efforts.

We expect Dallas differentiated innovation portfolio to create opportunities that will result in more than $500 million.

And incremental earnings by 2030.

Continuing on slide 11.

Our actions to commercialize 3 million metric tons of circular and renewable solutions annually are driven by our robust pipeline of strategic partnerships.

Jim Fitterling: And we continue to advance our transform the waste strategy. In the third quarter, we successfully leveraged our US Gulf Coast assets for bio and circular feedstock processing, accomplishing a key milestone to utilize existing assets to quickly scale production of recycled and bio based products. This was a direct enabler to the commercial launch of our sustainable Surland Ionimers, which support high-end applications like perfume and cosmetics packaging. In addition, Belorigen in France, and Bureau of Technology in the UK remain on track to start up their respective mechanical and advanced recycling facilities by year end. All-in, we expect that our initiatives to develop a circular ecosystem will generate more than 500 million of increments and it will run rate EBITDA by 2030.

These collaborations enable us to deliver innovative solutions to meet increasing brand owner demand for example.

Our partnership with P&G, China to enable Recyclability of air capsule E Commerce packaging delivers on effective and efficient way to protect products, while avoiding excessive packaging.

Dow's spec like Cir phone system uses recycled waste from the automotive industry to produce circular polyurethane based materials matching the performance of existing products as seen in the recent launch of the Mercedes Benz E class.

And our collaboration with <unk> beauty is pioneering circular feedstocks for sustainable packaging and the cosmetics industry. This has enabled dow's first sales of bio based and advanced recycling polymers in the third quarter.

Jim Fitterling: All together, we remain confident in our long-term growth with continued focus on a more sustainable future while maintaining a disciplined and balanced approach to capital allocation.

Closing on slide 12.

Spin, we have executed against our strategic priorities and consistently demonstrated financial and operational discipline.

Jim Fitterling: Next, an update on our path to zero project in Fort Saskatchewan, Alberta on slide nine. The project will enable doubt a capture sustainable growth opportunity while also delivering on our 2030 greenhouse gas emissions reduction targets and advancing our long-term goal of carbon neutrality by 2050.

As a result of our proactive actions.

Our underlying earnings and cash flow generations are well above pre COVID-19 levels.

And our balance sheet is the strongest it's ever been especially in this part of the cycle or.

Our global scale, and leading positions across key value chain paired with our cost advantaged assets and industry, leading feedstock flexibility positioned us well to respond quickly to evolving market trends and capture above GDP demand growth across our attractive market verticals.

Jim Fitterling: Construction is planned to begin next year with phase one startup expected in 2027 and phase two expected in 2029. We expect to spend an average of $1 billion of CAPEX annually on this key growth project with total enterprise CAPEX ramping above depreciation and amortization levels in the 2025 to 2027 time period as we implement the first phase. We remain fully committed to keeping our CAPEX within DNA across the economic cycle and expect to return to those levels as we complete the project. We are expecting bottom line returns on our Alberta path to zero project equal to or better than our Texas nine investment.

These distinct competitive advantages will continue to enable us to execute our capital allocation priorities, while also driving long term value growth for our shareholders.

Finally, before we move to Q&A I would like to speak to the announcement. This morning that Howard has elected to retire from the company. Following 33 years of dedicated service.

I want to personally thank Howard for his significant contributions to DAU over the last three decades.

Jim Fitterling: Turning to slide 10, we are partnering with brand owners and leaders across the value chain to strategically enable and scale waste management transformation through mechanical recycling, advanced recycling and bio-based solutions. This allows us to lead the way to a more circular economy and become a major off-takeer of circular feed stock while also minimizing capital outlay for doubt.

He's been an incredible business and strategic partner <unk>.

Created a financial and leadership team that guided our company through numerous challenges and accomplishments and most importantly, he has been a tremendous colleague and friend.

In addition to recognizing and thanking Howard we're pleased to share that the board has elected Jeff Tate. So the role of CFO effective November one 2023.

Jim Fitterling: Robots industry demand for these solutions is expected to outpaste supply through the end of this decade. We expect Dow's differentiated innovation portfolio to create opportunities that will result in more than $500 million in incremental earnings by 2030.

As we thank Howard for his years of service and there will be time to honor and recognize him for that we're excited to welcome Jeff back to now.

Many of you will remember, Jeff who also previously led Dow's Investor relations team at.

He returns to us following a four year stint as the CFO of Leggett <unk> Platt.

Jim Fitterling: Continuing on slide 11, our actions to commercialize 3 million metric tons of circular and renewable solutions annually are driven by a robust pipeline of strategic partnerships. These collaborations enable us to deliver innovative solutions to meet increasing brand owner demand. For example, our partnership with PNG China to enable recyclability of air capsule e-commerce packaging delivers an effective and efficient way to protect products while avoiding excessive packaging. Dow's spec-like CIR phone system uses recycled waste from the automotive industry to produce circular polyurethane based materials, matching the performance of existing products as seen in the recent launch of the Mercedes Ben E-Class. And our collaboration with LVMH Beauty is pioneering circular feed stocks for sustainable packaging in the cosmetics industry.

Here to that Jeff had 27 years with Dow in various finance roles, including VP of finance for packaging and specialty plastics and was our lead auditor.

Jeff is joining us here today, and we'll look forward to him joining our next earnings call in his formal role.

In the meantime, more to follow as we all work together through this transition as.

As I noted this change will become effective November one and Howard will stay on to support the handover through early January when you'll formally retire from Dow Howard I'll now turn the Mike over to you for a few comments.

Thank you Jim.

Really appreciate those comments on thoughts and I would like to share a few personal thoughts of my own.

I had the good fortune of being Dow CFO for nearly a decade and president for the last five and they have truly been the best roles of my career.

Jim It was an absolute honor to serve with you and the rest of the leadership team we have accomplished a great deal together.

Jim Fitterling: This has enabled Dow's first sales of bio-based and advanced recycling polymers in the third quarter.

I am extremely proud of not only what we have delivered for all of our stakeholders, but also how we have done. It now is a great company, our decarbonize and growth strategy is absolutely the right path forward and our balance sheet as <unk> said is in the best shape. It's been in for decades and that is a direct result of our disciplined and balanced capital allocation approach.

Jim Fitterling: Closing on slide 12, since then we have executed against our strategic priority and consistently demonstrated financial and operational discipline. As a result of our proactive actions, our underlying earnings and cash flow generations are well above pre-COVID levels, and our balance sheet is the strongest it's ever been, especially in this part of the cycle.

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The Dow culture, and the incredibly smart hard working people, who embrace it each and every day all over the world are absolutely second to none.

Jim Fitterling: Our global scale and leading positions across key value chain, paired with our cost-advanced assets and industry leading feed stock flexibility, position Dow well to respond quickly to evolving market trends and capture above GDP demand growth across our attractive market vertical. These distinct competitive advantages will continue to enable us to execute our capital allocation priorities, while also driving long-term value growth for our shareholders.

After more than 33 years of Tao. This is the right moment for me to move onto my next chapter and I could not be more excited to hand, the finance reins over to Jeff <unk>.

Jeff and I have known each other for more than 25 years, we have worked alongside each other and I consider him to be a great professional as well as a friend and he is absolutely the right leader to help taped out to the next level of performance together with Jim and the leadership team.

Jim Fitterling: Finally, before we move to Q&A, I would like to speak to the announcement this morning that Howard is elected to retire from the company following 33 years of dedicated service. I want to personally thank Howard for his significant contributions to Dow over the last three decades. He's been an incredible business and strategic partner, created a financial and leadership team that guided our company through numerous challenges and accomplishments, and most importantly, he's been a tremendous colleague and friend.

And while I'm retiring from Dow I am not heading to the beach of the Golf course, I'm excited about my next chapter and the opportunities that lie ahead with that said I believe Dow Red Pantone 185 for those of you checking the color wheel and I will always be a supporter.

Fan and a friend of team Dow with that I'll turn it to put cash to open the Q&A.

Thank you Howard 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.

Jim Fitterling: In addition to recognizing and thanking Howard, we're pleased to share that the board has elected Jeff Tate to the role of CFO effective November 1, 2023. As we thank Howard for his years of service, and there will be time to honor and recognize him for that, we're excited to welcome Jeff back to Dow. Many of you will remember Jeff, who also previously led Dow's investor relations team. He returns to us following a four-year stint as the CFO of Leggett and Platt.

Thank you if you have a question. Please press star one on your telephone keypad, if you wish to remove yourself from the queue simply press star. One again, we ask that you restrict yourself to one question. Please one moment for your first question.

Jim Fitterling: Prior to that, Jeff had 27 years with Dow in various finance roles, including VP of Finance for packaging and specialty plastics and was our lead auditor. Jeff is joining us here today and will look forward to him joining our next earnings call in this formal role. In the meantime, more to follow as we all work together through this transition. As I noted, this change will become effective November 1st, and Howard will stay on to support the handover through early January when he will formally retire from Dow.

Your first question comes from the line of Hassan Ahmed of Alembic Global Your line is open.

Good morning, Howard and Jim.

Howard sorry to see you leave, but obviously wishing you the best wishes for your future.

Sort of endeavors.

In terms of my my question.

So obviously talked about a $100 million worth of tailwind.

The tailwind on the <unk> side of things.

And you cited.

Expanding oil to natural gas ratios I, just wanted to sort of delve a little deeper into that what sort of pricing regime for polyethylene are you baking into that what sort of pricing regime for ethane are you baking into that.

Howard Ungerleider: Howard will now turn the mic over to you for a few comments. Thank you, Jim. I really appreciate those comments and thoughts, and I would like to share a few personal thoughts on my own.

Good morning.

And yes, as we mentioned.

Guided for the fourth quarter in line with the third quarter. It will obviously be a different mix I expect packaging and specialty plastics to be up.

Howard Ungerleider: You know, I've had the good fortune of being Dow CFO for nearly a decade and president for the last five, and they have truly been the best roles of my career. Jim, it was an absolute honor to serve with you and the rest of the leadership team. We have accomplished a great deal together, and I am extremely proud of not only what we have delivered for all of our stakeholders, but also how we have... Dow is a great company.

Obviously, the the weight of the St Charles turnaround on them in the third quarter.

And they also had the fact that we were out of the merchant ethylene market. When you look at the core underlying volumes polyethylene volumes were up in all regions year over year and they were up sequentially, 3% in Asia, Latin America, and EMEA and so those are good signs things.

Howard Ungerleider: Our decarbonized and gross strategy is absolutely the right path forward, and our balance sheet, as you've said, is in the best shape it's been in four decades. And that's as a direct result of our discipline and balanced capital allocation approach. The Dow culture and the incredibly smart, hard working people who embrace it each and every day all over the world are absolutely second to none.

Things that you should take into account as we obviously don't have the St. Charles turnaround in the fourth quarter, we do have a little bit of a headwind from Thailand turnaround we're.

We're expecting we saw prices up in September I'm expecting Q4 integrated margins to be up about two cents in PNM SP and thats, mostly on the back of pricing the outlook right now is for ethane to be flat.

Howard Ungerleider: After more than 33 years of Dow, this is the right moment for me. To move on to my next chapter, and I could not be more excited to hand the finance reins over to Jeff Tate. Jeff and I have known each other for more than 25 years. We have worked alongside each other, and I consider him to be a great professional as well as a friend, and he is absolutely the right leader to help take Dow to the next level of performance together with Jim and the leadership team. And while I'm retiring from Dow, I am not heading to the beach of the golf course.

Howard Ungerleider: I'm excited about my next chapter and the opportunities that lie ahead.

It could be slightly better than that but I think for right now we've got it in is flat.

We've got inventories down for three consecutive quarters in the United States and in plastics.

And U S. Gulf Coast exports were up 7% versus the previous quarter and the previous quarter was up about three 5% versus a quarter before.

So I think all in all I would expect volumes to be good we will be back in the merchant ethylene market for some extent pro nap spreads in Europe is positive at about $120 a ton and our assets are the lowest cost in Europe .

Pankaj Gupta: With that said, I bleed Dow red, pan tone 185 for those of you checking the color wheel, and I will always be a supporter of fan and a friend of team Dow with that alternate to Pankaj to open the Q&A. Thank you, Howard. 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.

When you factor all that in the guide for the fourth quarter is heavily on the back of <unk> delivering.

Operator: Operator, please provide the Q&A instructions. Thank you. If you have a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, simply press star one again. We ask that you restrict yourself to one question, please. One moment for your first question.

Thank you. Your next question comes from the line of David Begleiter of Deutsche Bank. Your line is open.

Thank you again, Howard it's been an absolute pleasure and best of luck.

Jim Howard second half EBITDA is running around $5 billion annualized maybe a little bit more than that how do you grow.

Hassan Ahmed: Your first question comes from the line of Hassan Ahmed of Alambed Global. Your line is open. Morning, Howard and Jim.

<unk> stays the same as it is today, how does EBITDA increase materially next year.

Good morning, David.

Hassan Ahmed: Howard, sorry to see you leave, but obviously wishing you the best wishes for your future sort of endeavors. In terms of my question, you guys obviously talked about $100 million worth of tailwind on the PNSB side of things. And you cited expanding oil to natural gas ratios. I just want to sort of delve a little deeper into that. What sort of pricing regime for polyethylene? Are you baking into that? What sort of pricing regime for ethen? Are you baking into that?

Good question, obviously, we're about 12 to 15 months into this economic slowdown.

And typically when we see a slowdown like we saw it starting mid last year.

About 12 to 18 months, we start to see things turned in a positive direction inflation is the thing thats weighing on People's minds right now.

And we're continuing to invest in organic growth while at the same time manage our costs. We've got investments in all three segments, both incremental investments as well as new plant investments.

Howard Ungerleider: Good morning, Hassan. Yeah, as we mentioned, we're guided for the fourth quarter in line with the third quarter. It'll obviously be a different mix. I expect packaging, especially plastics to be up. They had obviously the weight of the St. Charles turnaround on them in the third quarter. And they also had the fact that we were out of the merchant ethylene market. When you look at the core underlying volumes, all the ethylene volumes were up in all regions year over year.

They will start up through this year. This year, we expect those and an underlying 4% to $500 million of EBITDA mid cycle run rate to the bottom line.

On top of that year, we're continuing to see strength in areas like telecommunications and data centers automotive even in the face of the strikes is holding up relatively well and our view is that it should bounce back once the agreements are made between the UAW and the auto workers.

Howard Ungerleider: And they were up sequentially 3% in Asia, Latin America, and I mean, so those are good signs. Things that you should take into account is we obviously don't have the St. Charles turnaround in the fourth quarter. We do have a little bit of a headwind from the Thailand turnaround. We're expecting, we saw prices up in September. I'm expecting Q4 integrated margins to be up about two cents in PNSP. And that's mostly on the back of pricing, the outlook right now is for ethane to be flat.

Our cost positions are good.

So I think that we're positioned that once.

The weight of inflation starts to moderate.

Things start to turn back in a positive direction.

Our view is that we could be in a better shape for 2024.

Additionally, we've taken $1 billion of cost out since spin.

So if you think about where we're operating today, we're able to meet all of our capital allocation requirements.

Howard Ungerleider: It could be slightly better than that, but I think for right now, we've get it in as flat. We've got inventories down for three consecutive quarters in the United States and plastics. And US Gulf Coast exports were up seven percent versus the previous quarter. And the previous quarter was up about three and a half percent versus a quarter before. So I think all in all, I would expect volumes to be good.

Free cash flow before financing breakeven you saw a $300 million improvement this quarter and operating cash flows and we were still able to opportunistically buying back some shares in the third quarter.

So we've done our best to really manage to be able to get through the bottom of the cycle.

Time for us to continue to make organic investments to get the benefit and the next up cycle.

Howard Ungerleider: We'll be back in the merchant ethylene market for some extent. Pronap spread in Europe is positive at about $120 a ton. And our assets are the lowest cost in Europe. And I think when you factor all that in, the guide for the fourth quarter is heavily on the back of PNSP delivering. Thank you.

And David This is Howard Thanks for your comments on same to you as well the only other thing I would add David to your question is don't forget about cash right. So I mean, Jim laid out our EBIT or EBITDA improvements, but we have equally been doing cash flow improvements really every year since spin if you think about it.

Over the last five or six years every year, we've been able to increase cash flow. We will see if we can do that this year.

David Begleiter: Your next question comes from the line of David Begleiter of Deutsche Bank. Your line is open. Thank you.

But.

A couple of things we are able to cover all of our capital allocation priorities inclusive of continuing to buy stock back even at these low EBITDA levels and every year, we've had between one and $3 billion of what we like to call unique to Dow cash levers.

David Begleiter: Again, Howard has been an absolute pleasure and best of luck. Jim Howard, second half of the bidage running around $5 billion annualized, maybe a little bit more than that. How do you grow? If the macro stays the same as it is today, how does he but die increase materially next year? Morning, David. Good question. Obviously, we're about 12 to 15 months into this economic slowdown. And typically, when we see a slowdown like we saw starting mid last year, about 12 to 18 months, we start to see things turn the positive direction inflation is the thing that's weighing on people's minds right now.

And I would expect that to continue into next year. When you think about the $500 million plus judgment that we will likely get finally from Nova on the last tranche continued structural working capital improvements additional cash that we can.

Pursue out of our joint ventures.

And other.

Other projects that we currently have in the pipeline. So you should expect at least another $1 billion.

David Begleiter: We're continuing to invest in organic growth while at the same time manage our costs. We've got investments in all three segments, both incremental investments, as well as a new plant investments. They will start up, you know, through this year, this year, we expect those add an underlying four to 500 million of EBITDAQ mid cycle run rate to the bottom line. On top of that, you will continue to see strength in areas like telecommunications and data centers.

Unique to Dow cash flow levers coming out of next year on top of the organic investments that Jim talked about.

Thank you. Your next question comes from the line of Vincent Andrews of Morgan Stanley . Your line is open.

Thank you and let me also echo the prior remarks on congratulations to you Howard very very exciting for you.

If I could ask just looking at slide nine on the on the Capex I just want to make sure I understand I mean, obviously, we know what 'twenty three is it looks like 'twenty four is going to go to that DNA line and then at 25% to 27. It looks like there is quite a sort of a zone. There could you just speak to a little bit of maybe a range that you could give us to make sure we have that right in there.

David Begleiter: Automotive even in the face of the strikes is holding up relatively well. And our view is that it should bounce back once the agreements are made between the UAW and the auto workers. Our cost positions are good. And so I think that we're position that once the weight of inflation starts to moderate the things start to turn back in a positive direction. And our view is that we could be in a better shape for 2024.

Models and sort of what would define that at the lower end or the upper end of the range because I see you do have Alberta at about $1 billion a year, but is it maybe going to be a bit chunkier in some of those years or just how should we be thinking about the cadence in the range of capex during that period of time.

Hey, good morning, Vince Yeah, as we get into the Alberta project, it'll be 25% to 27% as a peak construction of that project phase one starts up in 2007.

David Begleiter: Additionally, we've taken a billion dollars of cost out since then. So if you think about where we're operating today, we're able to meet all of our capital allocation requirements, be free cash flow before financing break even. You saw a $300 million improvement this quarter in operating cash flows. And we were still able to opportunistically buy back some shares in the third quarter. So we've done our best to really manage to be able to get through the bottom of the cycle.

You would expect that we would get to somewhere in the three to three and a half range for capex during that 25% to 2007 timeframe.

That's very similar to where we were during the Gulfstream project.

We peaked at kind of that same level.

Obviously, we're in a little bit different spot than we were at Gulfstream, where just joined Alberta path to zero, but we're also funding growth in industrial solutions, which is high value growth and downstream incremental growth in our.

David Begleiter: And it's the right time for us to continue to make organic investments to get the benefit in the next up cycle. And David, this is Howard looking at. Thanks for your comments, Hassan, same to you as well. The only other thing I would add, David, your question is, don't forget about cash, right? So I mean, in gym laid out our EBITDA improvements, but we've equally been doing cashflow improvements really every year since spin, if you think about it.

Consumer solutions business. So I think it will be very manageable and as we get closer to those dates we will try to titrate more specifically so that you have some.

Year over year expectations on what Capex is going to look like.

Thank you. Your next question comes from the line of Jeff Zekauskas of Jpmorgan. Your line is open.

David Begleiter: So the last five or six years every year, we've been able to increase cashflow. We'll see if we can do that this year. But a couple of things, you know, we are. We are able to cover all of our capital allocation parities and clues so love continuing to buy stock back even at these low EBITDA levels. And every year we've had between one and $3 billion of what we like to call unique to Dow cash levers.

Okay.

Thanks, very much and you're a $1 billion cost cutting program.

How much of that comes out of SG&A and R&D in your slides.

You say that your share count in the fourth quarter of 710 and in the third quarter. It was 707 and half our year rounding or is that share count go down.

David Begleiter: And I would expect that to continue into next year, when you think about, you know, the $500 million plus judgment that we will likely get finally from Nova on the last tranche continued structural work and capital improvements, additional cash that we can pursue out of our joint ventures and other other projects that we currently have on the pipeline. So, you know, you should expect at least another billion dollars of unique to Dow cashflow levers coming out of next year on top of the organic investments that Jim talked about.

Okay.

Yes, Jeff good morning on the cost about half of the costs come out of.

Our structural operating cost model, which would include obviously, making sure that we're controlling SG&A. During this time period. It also includes things like contract labor.

David Begleiter: Thank you.

What we've been doing there to.

Reduce head count.

On our operating cost side as things like purchase raw material and logistics cost utilities costs being down our turnaround spend which is down about $300 million and while SG&A is down both in cost and as a percent of sales.

Vincent Andrews: Your next question comes from the line of Vincent Andrews of Morgan Stanley. Your line is open. Thank you. And let me also echo the prior remarks and congratulations to you, Howard. Very, very exciting for you. If I could ask just looking at slide nine on the on the capex. I just want to make sure I understand. I mean, obviously we know where 23 is. It looks like 24. I was going to go to that DNA line.

Vincent Andrews: And then at 25 to 27. It looks like there's quite a sort of a zone there. Could you speak to a little bit of maybe a range that you could give us to make sure we have that right in our models and sort of what would define the lower end or the upper end of the range because I see. You know, you do have Alberta at about a billion a year, but is it maybe going to be a bit chunkier in some of those years or just how should we be thinking about the cadence and the range of capex during that period of time.

We're obviously still continuing to invest in research as we go forward Howard do you want to touch on the share count, Yes, Geoff I was smiling. So yes. It is just purely rounding the share count actually went down about 2 million shares quarter on quarter.

Year on year, It went down 11 million shares and I would say.

Two things we are going to continue as long as we have the free cash flow before financing to continue to buy AD solution and we will also continue to be opportunistic when we have cash available <unk>. We believe it's a great investment.

And so we're continuing to buy shares on a regular basis and you should expect that to continue in the fourth quarter.

Vincent Andrews: Good morning, Vince. Yeah, as we get into the Alberta project, it'll be 25 to 27 that is a peak construction of that project phase one starts up in 27. You would expect that we would get to somewhere in the three to three and a half range for capex during that 25 to 27 timeframe. That's very similar to where we were during the Gulf Stream project. We peak at kind of that same level.

Thank you. Your next question comes from the line of Frank Mitsch Fermium.

Youre welcome.

Thank you Howard.

Congrats and thanks for all the help and friendship over the years.

Certainly looking forward to your to your next chapter.

This third quarter, whereas the third quarter in a row of sequentially higher volumes I was wondering what your expectations are as we finished the year and into 2024.

Vincent Andrews: Obviously we're in a little bit different spot when we were at Gulf Stream. We're just doing Alberta path to zero, but we're also funding growth and industrial solutions, which is high value growth and downstream incremental growth in our consumer solutions business. So I think it'll be very manageable and as we get closer to those dates, we'll try to titrate more specifically so that you have some, you know, year over year expectations on what capex is going to look like.

Jeffrey Tate: Thank you.

As a trend that we can continue to see.

Yes, good morning, Frank I think.

<unk> and PSP I would still be positive around what we see on polyethylene demand and all of the regions.

Also mentioned telecommunications and the fact that we've seen a lot of demand and infrastructure data centers et cetera, and so the wire and cable business is one which is very positive.

I would say industrial solutions will be limited a bit in fourth quarter because of the outage in <unk>, but the demand other than that the demand is there once that plant is back up and running.

Linda Frank Mitsch: Your next question comes from line of Jeff is a cascus of JP Morgan. Thank you very much. In your 1 billion cost-cutting program, how much of that comes out of S-G-N-A and R-N-D? And in your slides, you say that your shirt count in the fourth quarter is 710, and in the third quarter it was 707 and a half. Are you rounding or is the shirt count going up? Yeah, Jeff, good morning.

In P M C.

For consumer solutions for coatings, youre going to see fourth quarter slowdown, which we typically see with architectural coatings.

But other than that the silicones downstream demand has been holding up pretty well. This is the first quarter that we've seen core underlying volumes.

And all three segments better year over year, I mean, if you takeaway merchant ethylene sales in the third quarter, because we were when we had the cracker down in St. Charles the underlying downstream demand for all three segments was better in the third quarter than it was last year. That's the first time, we can say that in several years. So.

Linda Frank Mitsch: On the cost, about half of the cost come out of our structural operating cost model, which would include obviously making sure that we're controlling S-G-N-A during this time period. It also includes things like contract labor and what we've been doing there to reduce head count. On our operating costs side, it's things like purchase raw material and logistics costs, utilities costs being down, our turnaround spend, which is down about $300 million. And while S-G-N-A is down both in cost and as a percentage sales, we're obviously still continuing to invest in research as we go forward.

I'm optimistic that we can see the automotive strike resolved I think we will see a tick up in that demand as well.

China continues to be good we saw good quarter over quarter demand in China in PNM Sp.

Slightly up in polyurethane quarter over quarter up in consumer solutions, and a flat to just slightly down in the other two.

Linda Frank Mitsch: How do you want to touch on the shirt count? Yeah, Jeff, I was smiling. So yes, it is just purely rounding. The shirt count actually went down about 2 million shares, quarter on quarter, a year on year up went down 11 million shares. And I would say two things. We are going to continue as long as we have the free cashable before financing to continue to buy at dilution. And we will also continue to be opportunistic when we have cash available and or we believe it's a great investment. And so we're continuing to buy shares on a regular basis, and you should expect that to continue in the fourth quarter.

Thank you. Your next question comes from the line of Mike Sison of Wells Fargo. Your line is open.

Jeffrey Zekauskas: Thank you.

Hi, This is Richard on for Mike.

I was just wondering to follow up on that if you could give us some color on where your operating rates are <unk>.

Ross your segments.

Where do you see them.

For the industry, so that I think are PE polyethylene.

How should we think about.

<unk> improvement.

And EBITDA, if we do get a stronger demand environment next year and you can ramp those operating rates up to optimal levels. Thank you.

Yes, just taken a look at it I would take a look at it both by segments, but I think you also have to take a look at it by regions.

Frank Mitsch: Your next question comes from Linda, Frank Mitch. Thank you, Howard. Hey, congrats. Thanks for all the help and friendship over the years and certainly looking forward to your next chapter. The third quarter was the third quarter in row of sequentially higher volumes. I was wondering what your expectations are as we finish the year and into 2024. This is a trend that we can continue to see. Yeah, good morning, Frank. I think on volumes in PNSP, I would still be positive around what we see on polyethylene demand and all the regions.

In MP, NSP youre going to Youre going to see operating rates substantially north of 80% and obviously when you think about Canada. The U S Gulf Coast, Argentina, our middle East assets, all cost advantaged positions, even for news and Antero <unk> were thrown up spreads.

Greater than $100 $120 a ton.

That advantage has them versus their competition within Europe . So I think youll see all of those operating rates.

<unk> to be strong and we're not building inventory, we're obviously able to meet that and move into the export market.

Frank Mitsch: I also mentioned telecommunications and the fact that we've seen a lot of demand and infrastructure data centers, et cetera. And so the wiring cable business is one which is very positive. I would say industrial solutions will be limited a bit in fourth quarter because of the outage in Placaman, but the demand other than that, the demand is there once that plant is back up and running. In PM and C, you know, for consumer solutions for coatings, you're going to see fourth quarter slowdown, which we typically see with architectural coatings.

Where do you see things a little bit softer obviously, a construction related segments. So in polyurethane, which has a pretty heavy European footprint.

We see lower operating rates there.

We see that as well even on the Gulf Coast.

In industrial solutions operating rates have been good our own issue in <unk> is the thing that has.

Is that capacity out.

And then in consumer solutions.

On silicones, we tend to see good operating rates in the quarter.

Above 80% and if you take a look at.

PMC those are slightly down because of the typical year end slowdown in demand in coatings.

Frank Mitsch: But other than that, the silicone's downstream demand has been holded up pretty well. This is the first quarter that we've seen core underlying volume. And all three segments better year-over-year. I mean, you take away merchant-ethylene sales in the third quarter, because we were, and we had the cracker down in St. Charles. The underlying downstream demand for all three segments was better in the third quarter than it was last year. That's the first time we can say that in several years.

All in all I feel good that we're positioned to be able to ramp up to meet demand as it comes up.

Cost advantage regions are continuing to run strong as you would expect and we're watching closely for the demand signals that will pull us into 2024.

Okay.

Thank you.

Frank Mitsch: So I'm optimistic with that we can see the automotive strike resolved. I think we'll see a pickup in that demand as well. China continues to be good. We saw a good quarter-over-quarter demand in China and PNSP slightly up in polyurethanes, quarter-over-quarter, up in consumer solutions, and a flat to just slightly down in the other two. Thank you.

Your next question comes from the line of Kevin Mccarthy of vertical Research partners. Your line is open.

Yes, good morning.

Jim I'd appreciate your outlook for Dallas construction facing businesses heading into 2020 for some of the companies that we cover are pointing to meaningful benefits from infrastructure and re shoring related investments basically fiscal stimulus on the other hand, and we've got <unk>.

Mike Sison: Your next question comes from the line of Mike Sison of Wells Fargo. Your line is open. Hi, this is Richard on for Mike. I'm just wondering to follow up on that, if you could give us some color on where your operating rates are across your segments, where do you see them for the industry specific repeat polyethylene. And how should we think about the potential improvement in the event that if we do get a stronger demand environment next year, and you can ramp those operating rates up to optimal levels, thank you. Yeah, just taking a look at it.

<unk> rates and that typically has a chilling effect. So how do you see those countervailing trends netting out for Dow in.

Affecting the way Youre planning for the future.

Yes, good morning, Kevin the things, we watch on construction, obviously on commercial construction.

The completion rates on existing builds and the permit work that's going on on new builds.

I'd say this has been a relatively strong year on commercial because there've been a lot of projects that were in flight, we're starting to see obviously some tick up in applications for permits on residential for.

Mike Sison: I'll take a look at it both by segments, but I think you also have to take a look at it by regions. In PNSP, you're going to see operating rates substantially north of 80%. And obviously, when you think about Canada, the U.S. Gulf Coast, Argentina, our Middle East assets all cost advantage positions. Even for news in Ontario, go to where pro nap spreads of greater than $100, $120 a ton, that advantages them versus their competition within Europe.

The non commercial side of things, which is good.

But I think as long as Theres a question out there on rates and while rates continue to rise that's going to put a lid on what we'll see on residential construction.

In terms of infrastructure, we are seeing some movement in that space I would say the biggest rate limiting step on infrastructure is permitted.

So the speed at which people can get permits whether thats four it could be four pipelines that could be for transmission cabling.

Mike Sison: So I think you'll see all those operating rates are continue to be strong and we're not building inventory. We're obviously able to meet that and move into the export market where you see things a little bit softer. Obviously, construction related segments, so in polyurethane, which has a pretty heavy European footprint. We see lower operating rates there. We see that as well, even on the Gulf Coast. And industrial solutions operating rates have been good.

You name it but there could be some limitations there.

And we keep an eye on them.

Overall I feel good about the fact that we're moving through the toughest phase of it right now.

And.

If we could see some positive growth come back in the construction markets.

In the U S that will be a nice upside for us in 'twenty four.

Mike Sison: Our own issue in Placaman is the thing that has that capacity out. And then in consumer solutions on silicones, we tend to see good operating rates in the quarter above 80%. And if you take a look at PM and see, you know, those are slightly down because of the typical year end slowdown and demand in coding. So all in all, I feel good that we're positioned to be able to ramp up to meet demand as it comes up. Our cost advantage regions are continuing to run strong as you would expect. And we're watching closely for the demand signals that will pull us into 2024. Thank you.

Okay.

Thank you. Your next question comes from the line of Steve Byrne of Bank of America. Your line is open.

Yes. Thank you the inventory chart you have on slide six it was intriguing.

What I'm curious about is for each of your businesses.

Do you have a view as to how much your customers of destock tier products relative to their end market demand.

And thus how much of this <unk>.

Sequential decline that you've seen 12 15 months is destocking versus just end markets underlying demand weakness.

You showed some sequential improvement in each of your businesses in this third quarter is that just the destocking coming to an end or do you think that this is really some firming demand by your customers.

Kevin Mccarthy: Your next question comes from the line of Kevin McCarthy of vertical research partners. The line is open. That's good morning.

Hey, good morning, Steve It's a good question, obviously, we get.

Kevin Mccarthy: Jim, I'd appreciate your outlook for Dow's construction-facing businesses heading into 2024. Some of the companies that we cover are pointing to meaningful benefits from infrastructure and reshoring related investments, basically fiscal stimulus. On the other hand, we've got rising rates and that typically has a chilling effect. So how do you see those countervelling transnetting out for Dow? And affecting the way you're planning for the future? Yeah, good morning, Kevin. The things we watch on construction, obviously, on commercial construction, just the completion rates on existing builds and the permit work that's going on on new builds, I would say this has been a relatively strong year on commercial because there've been a lot of projects that were in flight.

Industry data that we published on the chart that you see there when it comes to downstream when we get into the consumer brands in the retailer space. We have to go on reported data that we clean out of their public reports.

Just a few things to keep in mind, we know we know in the auto sector. For example that with the Oems, it's been pretty much hand to mouth, because there've been other rate limiting steps like the ability to get computer chips we.

We haven't seen a big restocking with the Oems, we have seen the Oems continuing to run because they want to be in a position to ramp up when the strikes get settled so I would say I don't feel like Theres a lot of restocking going on there I would say on the consumer brands.

Kevin Mccarthy: We're starting to see, obviously, some tick up in applications for permits on residential for the non-commercial side of things, which is good. But I think as long as there's a question out there on rates and will rates continue to rise, that's going to put a lid on what we'll see on residential construction. In terms of infrastructure, we are seeing some movement in that space, I would say the biggest rate limiting step on infrastructure is permitting.

And in the pharma companies lately seen them, obviously watching inventory levels I don't get any sense of any stocking or destocking going on there I think it's running more to meet demand.

And then the other thing we take a look at is obviously, what's going on with the construction segments as I just mentioned.

Kevin Mccarthy: So the speed at which people can get permits, whether that's for, it could be for pipelines, it could be for transmission cabling, you name it, but there could be some limitations there. And we keep an eye on that. Overall, I feel good about the fact that, you know, we're moving through the toughest phase of it right now.

It's a little bit harder its a little bit fuzzier, when we get into the mid downstream. We don't have as much published data to rely on so we look more at PMI, we look more at retail sales, we look more at what they comment on in their public filings.

Thank you. Your next question comes from the line of John Mcnulty.

Of BMO capital markets. Your line is open.

Yes, Thanks for taking my question and Howard again, congratulations you've been a huge help over the years.

So the question would just be on the <unk> segment came in it looks like solidly better than kind of what you were expecting when you gave the outlook on the <unk> call. So curious what the factors were that drove it and I guess, if we back out the operations problem, you're kind of at a $2 50 run rate.

Kevin Mccarthy: And if we could see some positive growth come back in the construction markets in China and the US, that'll be a nice upside for us in 24. Thank you.

Steve Bern: Your next question comes from the line of Steve Bern of Bank of America. Your line is open. Yes, thank you. The inventory chart you have on slide six is intriguing. What I'm curious about is for each of your businesses, do you have a view as to how much your customers have destocked your products relative to their in market demand. And thus, how much of this, you know, sequential decline that you've seen 12, 15 months is destocking versus just end markets underlying demand weakness. You showed some sequential improvement in each of your businesses in this third quarter, is that just destocking coming to an end, or do you think that this is really some firming demand by your customers?

In terms of EBITDA is that is that a reasonable way to think about how you start out looking at 2024.

Yes.

Yes, good morning, John .

On an ini, we obviously saw strong demand in the energy side, which is industrial solutions in the mobility side, which is more the polyurethane side.

Durable goods are still lower than they were in the year ago period.

We also had a little bit better because Sudan.

<unk> had some.

Lower operating rates from some maintenance time and is coming back out of that so I think that will continue to be a positive upside.

There's price pressure, obviously on polyurethane.

Steve Bern: Good morning, Steve. It's a good question. Obviously, we get industry data that we've published on the chart that you see there. When it comes to downstream, when we get into the consumer brands and the retailer space, we have to go on reported data that we clean out of their public reports. But just a few things to keep in mind, we know, we know in the auto sector, for example, that with the OEMs, it's been pretty much hand them out because there've been other rate limiting steps like the ability to get computer chip.

We're going to see some positive impact from the new isocyanate capacity down in Freeport, which will be there.

The business also did a lot of work on their costs. So their EBITDA was up because they're also managing their costs.

I don't think in fourth quarter Youll see in a higher impact on black women unplanned event, we saw about $100 million in the third quarter Youll see that kind of flat to the fourth quarter and then the target is to try to get that asset up and running in the second quarter next year.

Steve Bern: We haven't seen a big restocking with the OEMs. We've seen the OEMs continuing to run because they want to be in a position to ramp up when the strikes get settled. So I would say I don't feel like there's a lot of restocking going on there. I would say on the consumer brands and the former companies lately seen them obviously watching inventory levels. I don't get any sense of any stocking or big destocking going on there.

Thank you. Your next question comes from the line of Josh Spector of UBS. Your line is open.

Yes, hi, thanks for taking my questions I want to Echo my congrats to Howard.

Yes.

So just wanted to ask on the siloxane side within PMC.

Two comments on kind of some increased pressure there I mean, you've been under pressure in that business all year from added supply.

Has anything changed in the last few months or is that just a reiteration of what you've seen and as you think about next year how.

Steve Bern: I think it's running more to meet demand. And then the other thing we take a look at is obviously what's going on with the construction segments, as I just mentioned. But it's a little bit harder. It's a little bit fuzzier when we get into the downstream. We don't have as much published data to rely on. So we look more at PMI. We look more at retail sales. We look more at what they comment on in their public filing.

Steve Bern: Thank you.

How much did things have to improve for that business to get back to a normal healthy level.

Okay.

Yes, good morning, Josh.

Obviously in <unk>, there were significant new capacity in 2022, and 2023, and we expect that to moderate in 2024 and beyond.

And that's put pressure on <unk> prices, primarily in Europe or in Asia, which are at the lowest levels that they've been out in quite some time there.

John Mcnulty: Your next question comes from the line of John McNulty of BMO Capital Markets. Your line is. Yeah, thanks for taking my question and Howard again, congratulations. You've been a huge help over the years. So the question would just be on the eye and eye segment. It came in. It looks like solidly better than kind of what you were expecting when you gave the outlook on the 2Q call. So curious what the factors were. And I guess if we back out the operations problem, you're kind of at a 250 run rate in terms of EBITDA. Is that a reasonable way to think about how you start out looking at 2024?

They are starting to move up.

A bit in the fourth quarter, some demand related some obviously related to higher silicones pricing upstream silicon metals pricing, which is kind of moving things up.

But I think what youre going to start to see is that youre going to have less capacity coming on in the downstream market continues to grow at good rates and we will start to absorb some of that and we'll start to see operating rates improved 'twenty four 'twenty five.

Okay.

Thank you. Your next question comes from the line of Patrick Cunningham of Citigroup. Your line is open.

John Mcnulty: Yeah, good morning, John. On eye and eye, we obviously saw a strong demand and the energy side, which is industrial solutions and the mobility side, which is more the polyurethane side. Durable goods are still lower than they were in the year ago period. We also had a little bit better because Sedara had had some lower operating rates from some maintenance time and is coming back out of that. So I think that'll continue to be a positive upside.

Hi, good morning on the long term de carbonization strategy, given the weaker macro and what seems to be some deceleration and appetite to tackle the green transition. How do you think about the risk to public private partnerships subsidies incentives in North America and abroad.

Yes.

Yes, good question.

Obviously, our view on the Alberta project as we're working in an environment that is supportive of de carbonization Theres a price on carbon in Canada. There is existing carbon capture infrastructure and there is obviously some investment credits for the.

John Mcnulty: You know, there's price pressure, obviously, on polyurethane. We're going to see some positive impact from the new isocyanate capacity down in pre-port, which will be there. The business also did a lot of work on their costs. So they're EBITDA was up because they're also managing their costs. I don't think in fourth quarter, you'll see any higher impact on Placaman unplanned event. You know, we saw about 100 million in the third quarter. You'll see that kind of flat to the fourth quarter. And then the target is to try to get that asset up and running in the second quarter next year.

John Mcnulty: Thank you.

The hydrogen portion of the project and so those are all positive as we mentioned though.

We have to keep in mind that this is also going to be a very low cost asset from an ethane supply capability standpoint. So that's why we say our expectation is the returns will be at or above our Texas nine cracker, which is the best project that we've ever had in our history.

Having said that we always have to keep our eyes wide open to what's going on on the incentive space.

We're not going to build just on the back of incentives we've got to make sure that we make investments that are long term low cost operating investments, where we have advantage feedstocks and we have access to market.

Joshua Spector: Your next question comes from the line of Josh Specter of UBS. Your line is open. Yeah, hi. Thanks for taking my questions. And I want to echo my congrats to Howard in. So just wanted to ask on the saloxane side within PMC, made some comments on kind of some increased pressure there. I mean, you've been under pressure in that business all year from added supply. Has anything changed in the last few months or is that just a reiteration of what you've seen? And as you think about next year. How much do things have to improve for that business to get back to a normal, healthy level?

That's the same thing is true when we get into circularity projects.

And when we talk about our advanced and mechanical recycling projects, we've got to make sure that the partnerships that we have are looking long term at where theyre going to access the waste will they be the low cost position and will they have the right access to market.

So we're looking at the project by project.

We're absolutely convinced that our timing is right on the Alberta project, we get this one final issue nailed down with the Canadian Federal government, we should have data before the end of the year.

Joshua Spector: Yeah, good morning, Josh. Obviously, in Syloxane, there was significant new capacity in 2022 and 2023. We expect that to moderate in 2024 and beyond. That's put pressure on Syloxane's prices. Primarily in Europe, Arun Asia, which are at the lowest levels that they've been at in quite some time. They're starting to move up a bit in the fourth quarter, some demand related, some obviously related to higher silicone's pricing, upstream, silicon metals pricing, which is kind of moving things up.

Okay.

Thank you. Your next question comes from the line of Iran. Viswanathan of RBC capital markets. Your line is open.

Great. Thanks for taking my question I'll add my congrats to you Howard definitely a pleasure working with you over the years I appreciate your insights.

Yeah, I guess I just had a question on China.

Maybe you could just update us on what Youre seeing there obviously very important for most of your markets.

Notice that volumes are up across the three businesses.

Joshua Spector: But I think what you're going to start to see is that you're going to have less capacity coming on in the downstream market, continues to grow at good rates, and we'll start to absorb some of that and we'll start to see operating rates improve. 2425.

Year on year, if you remove the merchant ethylene sales.

But I guess what are you seeing in China, maybe if you could characterize kind of polyethylene demand.

Yeah, maybe some impacts from the consumer side as well as construction that'd be great. Thanks, and your outlook.

Good good question I mean, obviously GDP growth. This year is expected to be about 5%.

Patrick Cunningham: Thank you. Your next question comes in line of Patrick, cutting him of city group here.

Patrick Cunningham: Let's open. Hi, good morning on the long term decarbonization strategy, given the weaker macro and what seems to be some deceleration and appetite to tackle the green transition. How do you think about the risk to public private partnerships, subsidies, incentives in North America, and abroad? Yeah, good question. Obviously, our view on the Alberta project is we're working in an environment that's supportive of decarbonization. There's a price on carbon in Canada, there's existing carbon capture infrastructure, and there's obviously some investment credits for the hydrogen portion of the project, and so those are all positive.

That's been on the back of consumer demand and that's really been the government's position is consumer.

Consumer driven recovery from the slowdown.

Our expectation is because of what's going on in the housing construction markets. There will be some pressure on the government for some stimulus activity to get things moving there.

Manufacturing PMI in September was up.

Second consecutive month off which is clearly automotive sales were up about nine 5% year over year in September .

<unk> sales are up about 38% year to date.

Retail sales were up five 5% in September and we saw a rise in the sale of clothes and textiles as well as some refined oil products.

Patrick Cunningham: As we mentioned, though, we have to keep in mind that this is also going to be a very low cost asset from an ethane supply capability standpoint. So that's why we say our expectation is the returns will be at or above our Texas nine cracker, which is the best project that we've ever had in our history. I mean, said that you we always have to keep our eyes wide open to what's going on on the incentive space.

I would say one of the things that we've always looked at in terms of coming out of a slowdown is the price of <unk> one of the things that drives the price of <unk> is the operating rates on the polyester plants, which are above 70% right now we haven't seen that in quite some time I think it's a little bit early to call that as the.

Turn, but it's something to keep an eye on.

Patrick Cunningham: We're not going to build just on the back of incentives, we've got to make sure that we make investments that are long term low cost operating investments where we have advantage feed stocks and we have access to market. That's the same thing is true when we get into circularity projects. And when we talk about our advance and mechanical recycling projects, we've got to make sure that the partnerships that we have are looking long term and where they're going to access the waste.

The volume moves quarter over quarter are good packaging.

Hold up really well and it typically does in an economic slowdown because of the nature of food packaging medical packaging day to day consumer.

Non durable items.

Thank you. Your next question comes from the line of Duffy Fisher of Goldman Sachs. Your line is open.

Patrick Cunningham: Will they be the low cost position and will they have the right access to market. So we're looking at them project by project, we're absolutely convinced that our timing is right on the Alberta project to get this one final issue nailed down with the Canadian federal government. We should have FID before the end of the year.

Yes, good morning, guys.

In both PMC and I cube, if you could walk through pricing you called out is down sequentially in each of the SP use but yet EBITDA was up in both segments sequentially. So could you walk through and just tell us where with this spread getting better because raw materials were falling more than <unk>.

Patrick Cunningham: Thank you.

Rice was down and how much of that was kind of the structural costs that you guys are trying to take out that we would put in is kind of a permanent.

Arun Viswanathan: Your next question comes from a line of a run this oneathon of RBC capital markets. Your line is Great. Thanks for taking my question. I'll add my regards to you, Howard. Definitely a pleasure working with you over the years. Appreciate your insights. Yeah, I guess I just had a question on China. Maybe you could just update us on what you're seeing there. Obviously, very important for most of your markets. You know, you noted that volumes are up across the three businesses year on year.

Yes.

If you look at ini.

The Louisiana outage was obviously.

Headwind.

And then you had some turnaround tailwind and cost savings of about 40 million Bucks.

Variable cost.

Benzene or propylene side really compressed there and then equity earnings from <unk> were a little bit better. So those are the moving parts in PMC you had tailwind of about $60 million from the turnaround in cost savings. So that's to the positive.

Arun Viswanathan: If you remove the merchant app lane sales, but I guess what are you seeing in China? Maybe you could characterize kind of polyethylene demand. You know, maybe some impacts from the consumer side as well as construction. That would be great. Thanks.

You had some seasonality and lower siloxane prices, so the negative and.

Arun Viswanathan: In your outlook. Yeah, good, good question. I mean, obviously GDP growth this year is expected to be about 5%. That's been on the back of consumer demand. And that's really been the government's position is consumer driven recovery from slow down. Our expectation is because of what's going on in the housing construction markets, there will be some pressure on the government for some stimulus activity to get things moving there. Manufacturing PMI in September was off.

Also improved supply availability of siloxane, and some opportunistic monomer sales in the coatings side of the business acknowledged we're.

We're strong in the quarter so that was.

Those were the things that net and that made the swing in those two segments.

Okay.

Thank you. Your next question comes from the line of Alexia <unk> from off.

Of.

Thank you.

Arun Viswanathan: It's a second consecutive month off, which is good. Automotive sales were up about 9.5% year over year in September. E.V, sales are up about 38% year to date. Retail sales were up 5.5% in September. And we saw rises and a sale of clothes and textiles as well as some refined oil products. I would say, you know, one of the things that we've always looked at in terms of coming out of a slow down is the price of MEG.

Okay.

Thanks, Good morning in the Howard Congratulations.

Just wanted to follow up on PMC.

I would say pretty healthy number is this a good level that we can use for thinking about next year. It's out of just in the previous years, where there were some approximate <unk> sales.

So.

That's sort of where my question is coming from is this.

A real sustainable number to think about going forward earnings in the segment.

Arun Viswanathan: One of the things that drives the price of MEG is the operating rate on the polyester plants, which are above 70% right now. We haven't seen that in quite some time. I think it's a little bit early to call that as the turn, but it's something to keep an eye on. And the volume moves quarter over quarter a good packaging has held up really well. And it typically does in an economic slow down because of the nature of food packaging medical packaging day to day consumer. They are non durable items. Thank you.

Yeah.

Yes, I think as siloxane improve you can see some positive uptick in consumer solutions and silicones. The downstream demand has continued to be strong so that hasnt been the primary issue.

We're seeing still continued good positive signs in the downstream demand sector things like Evs and battery production.

We'll have to watch.

Commercial construction markets I think residential will start to improve somewhat but household and personal care consumer products health and beauty I would say are going to continue to be positive in that space.

Duffy Fisher: Your next question comes from line of Duffy Fisher of Goldman Sachs. Yeah, good morning, guys. In both PMC and IQ, if you could walk through pricing, you called out is down sequentially in each of the SBUs, yet EBITDA was up in both segments sequentially.

Coatings has been slow due to construction.

I think theres some signs starting that applications for permits are starting to pick up on construction and thats kind of a U S.

Centric view and in China, We will have to watch if theres any stimulus to get the construction market's going there.

Duffy Fisher: So could you walk through and just tell us like where was the spread getting better because raw materials were falling more than price was down and how much of that was kind of the structural cost that you guys are trying to take out that we would put in as kind of permanent. Yeah, so when if you look at II and I, the Louisiana outage was obviously a headwind and then you had some turnaround tailwinds and cost savings about 40 million bucks.

Automotive I would say.

As a bright spot globally, even Europe in spite of a slow GDP has seen pretty strong automotive builds through the through the year and I would say once we get the strikes resolved here with the UAW and the big automakers I think youll see a step up in demand.

Because it will start to be competing again for that market share.

Duffy Fisher: Yes, variable costs, you know, in the benzene and propylene side, really compressed there, and then equity earrings from Sedara were a little bit better. So those were the moving parts in PM and C. You had tailwinds of about 60 million from the turnaround and cost savings. So that's to the positive. You had some seasonality and lower siloxane prices to the negative. And, you know, we had also improved supply availability of siloxanes and some opportunistic monomer sales in the coating side of the business accolades were strong in the quarter. So that was those were the things that net net made the swing in those two segments. Thank you.

Thank you. Your next question comes from the line of Laurence Alexander of Jefferies. Your line is open.

So good morning, I just wanted to revisit the inventory level. If you think about lessons learned from this cycle, where do you see inventory days in working capital days shaking out at the next mid cycle.

And separately Howard just thank you for your help.

Getting ramped up on DAU.

Yes, maybe Howard you want to.

<unk> inventories you got working capital team and there has been pretty focused on this all throughout yeah sure Jim and Lawrence. Thanks.

And I appreciate everything you've done to cover down overtime and hopefully will continue.

Yes, we've been look I've been very proud of the whole organization and how we've really if you think about one of the big changes that we've made I think as a leadership team as an organization last five or six years is really a big step change on cash and.

Alexia Yefremov: Your next question comes from the line of Alexia Yefremov of.

Alexia Yefremov: Thank you. Thanks.

Alexia Yefremov: Good morning and the Howard congratulations. Just wanted to follow up on PMC. I would say pretty healthy number. Is this a good level that we can use for thinking about next year. It sounded just in the previous answer. There was some opportunistic sales. So so that that that's that's sort of where my question is coming from is this a real sustainable number to think about going forward earnings in the second. Yeah, I think it's a lot of things improved.

Managing cash just as well as we are managing margins and EBITDA and operating great and au.

We have structurally taken out about eight days when you think about it on a cash conversion cycle since spin eight days has been structural and.

And the other the other improvements have been more around the cycle. So obviously that will continue.

We're as we head into as we've headed into this down cycle period, probably we've taken out about $1 billion of cash just on the releasing.

Alexia Yefremov: You can see some positive uptick in consumer solutions and silicons. The downstream demand has continued to be strong. So that hasn't been the primary issue. And we're seeing still continue good positive signs in the downstream demand sector things like EVs and battery production. We'll have to watch resident, you know, the commercial construction markets. I think residential will start to improve somewhat but household and personal care consumer products, health and beauty. I would say are going to continue to be positive in that space.

Revenue from working capital as we head into a normalized macro and eventually.

Cyclical peak out into the future you could expect $1 billion use of cash.

But overall eight days out cycle. The cycle I think is a good target so far and I would expect that under Jeff's leadership together with Jim and our leadership team I would expect at least another day, maybe another two days in the next year or two we will come out structurally so I think a nice target is 10.

Dave cycled the cycle from a structural standpoint, we've been really we've implemented an OMB or in the process of implementing OMB and almost all of our businesses now and really thinking about it end to end from the customer back and the team is still working on it but thats.

Alexia Yefremov: Coating has been slow due to construction. I think there's some signs starting that applications for permits are starting to pick up on construction. That's kind of a US centric view. And in China, we'll have to watch if there's any stimulus to get the construction markets going there. Automotive, I would say, is a bright spot globally even Europe in spite of a slow GDP has seen pretty strong automotive builds through the through the year.

That gives you a good range Jeff's going to cut you off before you sell anymore targets for them just one more day maybe to exit.

Okay.

Alexia Yefremov: And I would say once we get the strikes resolved here with the UAW and the big automakers, I think you'll see a step up in demand because it'll start to be competing again for that market share.

Thank you. Your last question comes from the line of Mike <unk> of Barclays. Your line is open.

Alright. Thanks, I appreciate you squeezing me in here.

Just briefly on packaging I think sequentially EBIT was down about $440 million on four.

Lawrence Alexander: Thank you.

Million lower sales almost a 100% drop through.

Yes.

With better understand the moving pieces in the quarter there.

Sure the lower sales were primarily due to being out of the merchant ethylene market.

Lawrence Alexander: Your next question comes from the line of Lawrence Alexander of Jeffries your lines open. So good morning. I just want to revisit the inventory level. If you think about lessons learned from this cycle, where do you see inventory days and working capital day shaking out at the next mid cycle. And separately, how would you thank you for your help getting ramped up on doubt? Yeah, maybe, how do you want to touch inventories?

And so that obviously had an impact the cost of the turnaround in the third quarter for the St. Charles Cracker.

And that was a drag.

Drag becomes a positive as we go into the fourth quarter.

<unk>.

We had some stronger equity earnings which were up from the previous quarter.

Then pricing and the impact of really a surge in feedstock and energy costs that happened in the third quarter, where the big the big Delta.

Lawrence Alexander: You got the working capital team and there's been pretty focused on this all throughout? Yeah, sure, Jim. And Laurence, thanks and appreciate everything you've done to cover Dow over time and hopefully we'll continue. Yeah, we've been, look, I'm very proud of the whole organization and how we've really, if you think about one of the big changes that we've made, I think as a leadership team as an organization last five or six years is really a big step change on cash and managing cash just as well as we were managing margins and EBITDA and operating great in the U.

Prices ran up on us in the third quarter and then the pricing came in September of which kind of lagged the increase in feedstock and energy cost and so you saw that margin squeeze I think we're back to even with that and we will get a little bit ahead of that like I said I expect about <unk> <unk>.

Great and margin improvement as we go into the fourth quarter.

Yeah.

Thank you there are no further question at this time I will now turn the call over to Mr. Gupta for closing remarks.

Lawrence Alexander: You know, we have structurally taken out about eight days. You think about it on a cash conversion cycle since spin eight days has been structural. And the other, the other improvements have been more around the cycle. So obviously that will continue. You know, as we're, as we head into it, as we've headed into this down cycle period, probably we've taken out about a billion dollars of cash just on the releasing revenue from working capital as we head into a normalized macro and eventually a cyclical peak out into the future.

Lawrence Alexander: You could expect a billion dollar use of cash. But overall eight days out cycle to cycle, I think is a good target so far and I would expect that under Jeff's leadership together with Jim and a leadership team, I would expect at least another day, maybe another two days in the next year or two will come out structurally. So I think a nice target is 10 days cycle to cycle from a structural standpoint.

Yes. Thanks, Jill Thank you everyone for joining our call today and we appreciate your interest in Dow for your reference a copy of our transcript will be posted a $1 web site within approximately 48 hours. This concludes our call. Thank you very much.

You may now disconnect.

Yeah.

Thank you.

Yeah.

Okay.

Okay.

Okay.

Yes.

Lawrence Alexander: We've been really we've implemented OMP or in the process of implementing OMP in almost all of our businesses now and really thinking about it end to end from the customer back and the team is still working on it, but that's that gives you a good range. Jeff's going to make me cut you off before you send him more targets for him. Just one more day, maybe two.

Mike Leithead: Thank you, your last question comes from the line of Mike lead head of Barclays. Your line is open. All right. Thanks. Appreciate you squeezing me in here. Just briefly on packaging, I think sequentially even it was down about 440 million on 480 million lower sales almost 100% drop through. Yeah, it's better understand the moving pieces in the quarter there. Sure. The lower sales were primarily due to being out of the merchant ethylene market.

Mike Leithead: And so that obviously had an impact. We had the cost of the turnaround in the third quarter for the same Charles cracker. And and that was a drag. That drag becomes a positive as we go into the fourth quarter. We had some stronger equity earnings, which were up from the previous quarter. But then pricing and the impact of really a surge in feed stock and energy costs that happened in the third quarter were the big the big delta.

Mike Leithead: Prices ran up on us in the third quarter. And then, you know, the pricing came in September, which kind of lagged the increase in the feed stock and energy cost. And so you saw that margin squeeze. I think we're back to even with that and we'll get a little bit ahead of that. Like I said, I expect about two cents integrating margin improvement as we go into the fourth quarter. Thank you.

Pankaj Gupta: There's no further question at this time. I'll now turn the call over to Mr. Gupta for closing remarks. Yeah, thanks, Jail. Thank you, everyone, for joining our call today and we appreciate your interest in Dow. For your reference, a copy of our transcript will be posted on Dow's website within approximately 48 hours.

Operator: This concludes our call. Thank you very much. You may now.

Operator: Thank you.