Q4 2023 DOW Inc Earnings Call
Greetings and welcome to the Dow fourth 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 at that time. Please press star followed by one on your telephone keypad.
As a reminder, this conference is being recorded.
I will now turn it over to Dow Investor Relations, Vice President Hong <unk> Gupta, Mr. Gupta, you may begin.
Hong Gupta: Good morning, Thank you for joining today and the accompanying slides are provided through this webcast and posted on our website <unk> dot.
Jim <unk>: All Investor Relations, Vice President and joining me are Jim <unk>, Chairman and Chief Executive Officer, and Jeff <unk> Chief Financial Officer. Please note our comments contain forward looking statements and are subject to the cautionary statements contained in the earnings news release and slides.
Jeffrey J. Zekauskas: Please refer to our public filings for further information about the principal risks and uncertainties unless otherwise specified all financials, where applicable exclude significant.
Jim <unk>: Significant items, you also with reference to non-GAAP measures a reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in the earnings news release and slides that are posted on our website on slide two is our agenda for today's call Jim will review, our fourth quarter results.
Jeffrey J. Zekauskas: <unk> highlights and operating segment performance, Jeff will provide an update on the macroeconomic environment, our strong financial position through the cycle as well as the modeling guidance to close Jim then provide an update on key milestones for our long term growth and sustainability Road map, which will continue to drive shareholder value. Following that you can take your.
Jeffrey J. Zekauskas: Now, let me turn the call over to Jim. Thank you Brian.
Jim <unk>: Beginning on slide three in the fourth quarter, we continued to execute with discipline and advance our long term strategy in the face of the dynamic macroeconomic environment.
Jim <unk>: Net sales were $10 $6 billion down 10% versus a year ago period, reflecting declines in all operating segments sales were down 1% sequentially as volume gains in packaging and specialty plastics were more than offset by seasonal demand declines in performance materials and coatings.
Jim <unk>: Volume increased 2% year over year with gains across all regions, except Asia Pacific, which was flat sequentially volumes decreased by 1%, including the impact of an unplanned event from a storm that was equivalent to a category one hurricane at our Bahia Blanca site in Argentina.
Hong Gupta: Local price decreased 13% year over year with declines in all operating segments due to lower feedstocks and energy costs.
Hong Gupta: Sequentially price was flat, reflecting modest gains in most regions.
Hong Gupta: Operating EBIT for the quarter was $559 million.
Down $42 million year over year, primarily driven by lower prices sequentially operating EBIT was down $67 million as gains in packaging and specialty plastics were more than offset by seasonally lower volumes in performance materials and coatings.
Our cash flow generation and working capital management enabled us to deliver cash flow from operations of $1 6 billion in the quarter.
Hong Gupta: We continued to reduce cost and focus on cash generation, completing our $1 billion of cost savings for the year and in the fourth quarter, we pursued additional derisking opportunities for our pension plans, including a new authorization at risk transfer of $1 7 billion and pension liability.
And a onetime noncash and nonoperating settlement charge of $642 million.
Hong Gupta: We also advanced our long term strategy, while returning $616 million to shareholders and we reached final investment decision with our board of directors for our path to zero project in Fort Saskatchewan, Alberta.
Hong Gupta: Now turning to our full year performance on slide four.
Hong Gupta: Our 2023 results demonstrate strong execution and our commitment to financial discipline.
Hong Gupta: Against the dynamic macroeconomic backdrop team Dow continues to take proactive actions.
Hong Gupta: As a result, we generated $5 $2 billion in cash flow from operations for the year, reflecting a cash flow conversion of 96%.
Hong Gupta: We also returned $2 $6 billion to shareholders through dividends and share repurchases.
Our efforts continue to be recognized externally through industry, leading awards certifications and recognitions and we continue to outpace our peers on leadership diversity.
I'm proud of how team now and delivering for our customers driving shareholder value and supporting our communities as we progress on our long term strategy.
Hong Gupta: Now turning to operating segment performance on slide five in.
Hong Gupta: In the packaging <unk> specialty plastics segment operating EBIT was $664 million up.
Hong Gupta: Up $9 million compared to the year ago period.
Hong Gupta: <unk> were driven by lower input costs and higher operating rates, where we closed out the year strong and hit record ethylene production levels on a full year basis.
Speaker Change: Local price declines were driven by lower global prices.
Speaker Change: Volume increases were led by higher packaging demand for primarily in the U S, Canada and Latin America.
Sequentially operating EBIT increased by $188 million.
Speaker Change: This was driven by higher integrated polyethylene margins the impact of planned maintenance activity in the third quarter and higher licensing revenue.
Speaker Change: Moving to the industrial intermediates <unk> infrastructure segment, operating EBIT was $15 million compared to $164 million in the year ago period.
Results were driven by lower local prices in both businesses as well as reduced supply availability and industrial solution sequentially.
Speaker Change: Sequentially operating EBIT was down $6 million, driven by seasonally lower volumes and building and construction end markets, which were partially offset by seasonally higher demand for deicing fluid and higher demand for mobility applications.
And in the performance materials and coating segment operating EBIT was a loss of $61 million compared to a loss of $130 million a year ago period.
Speaker Change: Driven by lower costs and reduced planned maintenance turnaround activity.
Speaker Change: <unk> was up year over year, driven by higher demand and project driven building and construction end markets sequentially operating EBIT decreased $240 million, primarily due to seasonally lower volumes.
Speaker Change: Next I'll turn it over to Jeff to review, our outlook and actions on slide six.
Jeff: Thank you Jim before I begin I'd like to mention how excited I am to have rejoined <unk> last November.
Jeff: And connecting with key stakeholders analysts and shareholders, including many of you on this call today.
Jeff: And I look forward to meeting with so many others in the future.
Jeff: After four years, serving in a CFO rollout out of now I'm pleased to see that Dallas culture of execution commitment to advancing our ambition and the focus everyone as demonstrated on delivering on our financial priorities since spin remains.
Hong Gupta: This is an exciting time for the company.
As CFO I'm proud to carry forward, our commitment to maintaining a disciplined and balanced approach to capital allocation over the economic cycle as we are.
Hong Gupta: Our growth strategies and deliver long term value for shareholders.
Hong Gupta: Now for our outlook on slide six.
Hong Gupta: As we enter 2024, we expect near term demand to remain pressured by elevated inflation high interest rates and geopolitical tension, particularly in building and construction and durable goods end markets.
Hong Gupta: That said, we are seeing some initial positive indicators.
Hong Gupta: While inflation is still elevated compared to pre COVID-19 levels. This growth rate is moderating supporting more stable economic conditions.
Hong Gupta: In addition, the Destocking that began in late 2022 has largely run its course.
Again, low inventory levels throughout most of our value chains.
Hong Gupta: In the U S industrial activity continues to be moderate.
Hong Gupta: And December industrial production increased 1% year over year.
Hong Gupta: Chemical railcar loadings are up nine 6% in January versus the prior year.
Hong Gupta: U S consumer spending has remained resilient with retail trade sales up four 8% in December.
Hong Gupta: We're also encouraged by a recent forecast from the American Coatings Association, which expect market demand to grow approximately 3% in 2024 following three consecutive years of declines.
Hong Gupta: In Europe, while inflation has moderated consumer demand remains weak with retail trade sales down one 1% year over year in November.
Hong Gupta: And December manufacturing PMI remains a contractionary territory and new car registrations fell three 3% year over year after 16 consecutive months of growth.
We continue to monitor China, where we see improving conditions, which could provide a source of demand recovery following the lunar new year.
Hong Gupta: Industrial production was up six 8% year over year last month exceeding market estimates of six 6%.
Hong Gupta: December auto sales also continue to be strong in China supported by year end incentives.
Hong Gupta: In other regions around the world industrial activity remains constructive.
Hong Gupta: While India manufacturing PMI remains expansionary, Osteon manufacturing PMI and a contractionary territory last month.
Hong Gupta: And Mexico November marked the 25th consecutive months of industrial production growth.
Hong Gupta: On slide seven.
Hong Gupta: Our competitive advantages early cycle growth investments and operational discipline position us well to capitalize on a recovery and deliver growth when economic conditions improve.
Hong Gupta: Our differentiated portfolio with structurally advantaged assets global scale and strong cost positions enable us to competitively support global demand growth over the cycle.
Hong Gupta: Healthy oil to gas brands supported by growing natural gas and NGL production in the us favor our cost advantage and the ability to capture margin momentum.
Hong Gupta: We've also taken actions to position the company for profitable growth, including ongoing execution of near term investments that are expected to deliver approximately $2 billion in incremental underlying EBITDA by mid decade.
Hong Gupta: In addition, we've improved our cost profile delivering $1 billion in targeted savings in 2023 that included lower plant maintenance spending and structural improvements to raw materials logistics and utility costs.
Hong Gupta: In addition, more than 90% of the 2000 impacted roles exited by year end.
Hong Gupta: Our strong balance sheet allows us to navigate the bottom of the cycle and have the strength to capitalize on the next upside in the global economy.
Hong Gupta: Turning to our outlook for the first quarter on slide eight.
Hong Gupta: Turning to our outlook for the first quarter on slide eight.
Hong Gupta: In the packaging <unk> specialty plastics segment, lower feedstock and energy cost will be more than offset by lower earnings from nonrecurring licensing activity from the prior quarter.
Hong Gupta: Resulting in a $25 million headwind.
Hong Gupta: Additionally, we expect a $50 million headwind due to higher planned maintenance activity at select energy asset in the U S Gulf Coast.
Hong Gupta: And the industrial intermediates <unk> infrastructure segment, we expect margin expansion on higher MDI, and Mpg's press as well as lower European energy costs, resulting in a $50 million tailwind.
Hong Gupta: Increased seasonal demand for Deicing fluids is expected to provide a $25 million tailwind despite being partly offset by continued weakness in consumer durables demand.
Hong Gupta: We also expect a headwind of $50 million due to planned maintenance activity in the quarter, primarily related to our PVH turnaround and catalyst change.
Hong Gupta: In the performance materials and coatings segment downward pressure is expected to continue due to excess supply from competitive supply additions that will keep margins at depressed levels.
However, we expect higher seasonal demand and building and construction end markets to contribute $150 million tailwind for the segment.
Hong Gupta: We also expect higher planned maintenance turnaround activity at our Deer Park acrylic monomer site and PVH to result in a 50 million dollar headwind in the quarter.
Hong Gupta: With all the puts and takes we expect first quarter earnings to be approximately $25 million to $50 million above fourth quarter performance.
Next I will turn it back to Jim.
Hong Gupta: Thank you, Jeff moving to slide nine.
Hong Gupta: Decarbonize and grow and transform the waste strategy to uniquely position us to capitalize on demand for more sustainable and circular solutions across our attractive market verticals.
Altogether by 2030, these investments enable us to deliver an increase of more than $3 billion.
Hong Gupta: Two our underlying earnings through the cycle, while reducing scope, one and two emissions by 5 million metric ton and commercializing 3 million metric tons of circular and renewable solutions annually.
Jeff Smith: In November we reached a key milestone is our path to zero project at Fort Saskatchewan, Alberta achieved final investment decision by our board of directors.
Jeff Smith: We also continue to advance our transform the waste strategy via intentional actions strategic partnerships and offtake agreements in the fourth quarter below origins 15000 ton per year mechanical recycling line in France achieved mechanical completion.
Jeff Smith: And mirror technologies in the U K commenced commissioning, which is expected to contribute 2000 tons per year of advanced recycling capacity.
Jeff Smith: Both the origin and expect to reach commercialization in the first half of this year.
Jeff Smith: And the next step of our sustainability strategy that was established a green finance framework, which was published on our Investor website. Today. This allows us to further align our funding with our goals and targets, while also providing an opportunity for the investor community to take part in the execution.
Of our sustainability strategy.
Jeff Smith: Altogether, we remain confident in our long term earnings growth with continued focus on a more sustainable future, while maintaining a disciplined and balanced approach to capital allocation.
Jeff Smith: Now turning to slide 10 polyethylene demand is expected to continue to grow at approximately one two to one four times GDP through 2015.
Jeff Smith: A growing population regulations and consumer preferences support this and our customers have expressed an increasing need for low and zero carbon emissions and circular products.
Jeff Smith: As global demand grows no new cost advantaged ethylene capacity is expected to come online in North America until the late 2026 to 2027 timeframe, which is expected to tighten the supply demand balance in the near term.
Jeff Smith: We are well positioned to capture new and growing demand with our existing assets and partnership agreements. In addition, we are investing in low carbon emissions infrastructure to capture growing demand for polyethylene and you will see on slide 11.
Our Fort Saskatchewan project will build upon the strong foundation of our Texas nine Cracker, where we have proven our best in class execution capital efficiency reliability and emissions reduction.
Jeff Smith: Canada's feedstock cost advantage provides down with lower cash costs compared to the rest of the world even more advantaged than the U S Gulf Coast.
Jeff Smith: We also anticipate potential upside from the commercialization of low and zero emissions products.
Jeff Smith: Total capex spend is expected to be $6 $5 billion on this key growth project.
Jeff Smith: Excluding any incentives with Dallas total enterprise capex to ramp in 2024% to approximately $3 billion.
Jeff Smith: And exceed depreciation and amortization levels annually through 2027.
Jeff Smith: We remain committed to keeping our capex within DNA across the economic cycle and expect to return to those levels as we complete this project.
Jeff Smith: We expect to receive governmental support totaling more than $1 $5 billion in cash and tax incentives that will bring the net capital outlay for this project to $5 billion.
Jeff Smith: The majority of these incentives are expected to be received by now through 2030, which is closely aligned with our capex deployment for the project.
We will begin construction in the first half of 2024 with phase one startup of approximately one 3 million tons per year of capacity expected in 2027 in phase II, we will add another 600000 tons of capacity, which is expected to startup in 2029.
Jeff Smith: Phase two also includes the retrofit of our existing cracker, reducing net 1 million metric tons per year of Sidoti scope, one and two emissions.
Jeff Smith: Closing on slide 12.
Jeff Smith: The actions we've taken since spend have strengthened our balance sheet increased cash flow and enhanced our financial flexibility and resilience of our business and.
Jeff Smith: In 2023, we built on that foundation, moving swiftly to deliver $1 billion in cost savings and focus on cash generation as economic conditions remain challenging.
Jeff Smith: As a result, we delivered on all of our capital allocation priorities, including a fully funded dividend $625 million of share repurchases and growth investments all while maintaining the strongest balance sheet. We've ever had at this part of the cycle.
Jeff Smith: With all of our debt at fixed rate.
Jeff Smith: No substantive debt maturities due until 2027 and $13 billion of available liquidity. Additionally, we have returned approximately 90% of our net income to shareholders since spin.
Well above our 65% target across the economic cycle.
Jeff Smith: With global reach and presence in attractive end markets and advantaged cost position in early stage growth investments in flight.
Jeff Smith: We are well positioned to capture attractive growth opportunities as economic conditions recover with that I'll turn it back to <unk> to open the Q&A.
Jeff Smith: Thank you Jim now, let's move on to your questions I would like to remind you that our forward looking statements apply to both our prepared remarks as well as perform in Q&A.
Jim <unk>: Operator, please provide the Q&A instructions.
Jim <unk>: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. We ask that you. Please limit yourself to one question only your first question comes from the line of Hassan Ahmed from Alembic Global Your line is open.
Jim <unk>: Good morning, Jim.
Jim <unk>: Jim You know a couple of times through the prepared remarks, you talked about.
Jim <unk>: Inventory.
Jim <unk>: It just seems that there are two camps out there.
Jim: As of.
Jim: The thought process with regards to <unk>.
Jim: What potential restocking may look like and I'd love to hear your views about that on one side of the debate.
Jeff Smith: People are sitting there and saying hey look since the second half of 2022.
Jeff Smith: The Destocking was quite significant.
Jeff Smith: <unk>.
Jeff Smith: Maybe as and when we should expect and equally impressive restock, but then on the other side of the can you will have some.
Jeff Smith: Some of the folks that are sort of debating that.
Jeff Smith: <unk> gotten across the supply chain has changed quite dramatically coming out of the pandemic.
Jeff Smith: And maybe a restock.
Jeff Smith: Good.
Speaker Change: <unk> not looked at it Brexit so I'd love to hear your views and if you could also sort of elaborate on that within some of the main product chain VA polyethylene and polyurethane and the like.
Good morning, and Sun I think Thats a great question I think one of the reasons that December and fourth quarter ended up stronger than expected, especially values packaging and specialty plastics as an example.
Jeff Smith: It was because you had a pretty mixed year end 'twenty three.
In December you can sometimes see the behavior of that last half of December things slowdown and people manage cash and they don't buy that was not what we experienced in December we actually experienced strong demand right through the month I don't think thats, an indication of restocking, but I do think it's an indication that inventories.
Low through the supply chain and the consumer demand was resilient and so people had to buy to keep their supply chains, moving so I would say through the value change today and almost all of the businesses. It looks like there is not an excess of inventory out there and as demand is coming people are having to buy to keep.
Jeff Smith: The changed full secondly, inventories are low and areas like PSP industrial solutions.
Jeff Smith: Because the arbitrage is open and our own footprint, 85% of our own global footprint is in light cracking jurisdictions for re crack ethane and propane, which have been highly advantaged and so that's what allowed us to set an ethylene records for the year.
Jeff Smith: I would say, we're not I don't think we're in a restocking cycle yet.
Jeff Smith: I think people are.
Jeff Smith: Coming together around a soft landing here.
Jeff Smith: We're seeing positive signs on housing permits.
Jeff Smith: That doesn't turn into housing demand until we start to see.
Jeff Smith: Hey, maybe interest rates come down if interest rates come down in the second quarter, maybe you start to see some pick up as housing construction and that starts to show up more towards the back half of the year.
Jeff Smith: You've got to remember that energy costs are low and so if people are thinking.
Jeff Smith: Energy costs are low and I'm still able to buy at reasonable prices going forward. There may not be a reason for them to do a big restock right now.
Jeff Smith: But this will turn and as energy costs start to move up in the whole complex starts to move up with demand I think at that point I think we would be wise to keep our eye on what's happening with the potential for restock it might just be a little snow right now.
Jeff Smith: Your next question comes from the line of Mike Sison from Wells Fargo. Your line is open.
Jeff Smith: Hey, guys nice nice end of the year.
Jeff Smith: Just curious you had good volume.
Jeff Smith: Volume growth and PSP and in the fourth quarter, and we expect that to continue into the first.
Jeff Smith: Maybe.
Your thoughts on how your operating rates for polyethylene, well, let's sort of improves sequentially in and the cadence for the year.
Jeff Smith: Thanks, Michael Good question operating rates in the advantaged regions, especially Canada U S Gulf Coast Argentina.
Michael Good: We're strong through the end of the year I mentioned ethylene production record.
Michael Good: We saw rates above 90%.
Michael Good: And those regions for the fourth quarter.
Michael Good: And obviously, we saw a little bit of an improvement in Europe, I would say the Suez Canal.
Situation means not as much material from the middle East is flowing into Europe, and so that's given Europe, a little bit of a lift on operating rates as we go into the first quarter and of course with propane being where it is reached.
Michael Good: Cracking LPG to news and <unk>, that's helping out a bit there.
Michael Good: I would say I think <unk> is going to continue to see good volume growth. That's what our outlook is going forward. The industrial solutions is holding up relatively well, we have our own self inflicted issue with plasma and glycol plant, but I'm expecting that back up in the second quarter.
Michael Good: And.
Michael Good: We're watching carefully on construction chemicals demand in durable goods.
Michael Good: If we see an uptick there we saw some good movement in consumer electronics, and so that's got me a little bit optimistic.
Michael Good: Your next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is open.
Vincent Stephen Andrews: Hi, Thanks, maybe two quick ones for me just on slide seven you have some project starts that are going from 24 to 26 I'm talking about how material some of that might be for 2024, and then also if you could just give us an update on what you did with the pension.
Vincent Stephen Andrews: During the year.
Vincent Stephen Andrews: Yeah.
Vincent Stephen Andrews: Yes on project starts.
Vincent Stephen Andrews: Got the things that we've got coming up obviously as we've got somehow constellation capacity.
Vincent Stephen Andrews: I'm up.
And 'twenty, two and 'twenty three that's running really well.
Vincent Stephen Andrews: We started up the MDI distillation facility in Freeport and the third quarter I think that will start to show some positive benefits us as we move forward, there's about a 30% increase in MDI distillation and and also.
Vincent Stephen Andrews: <unk> of our footprint get into the silos, the la Porte site.
Vincent Stephen Andrews: We've got <unk>.
Vincent Stephen Andrews: Our constellation.
Michael Good: Wei expansion in fourth quarter of this year have been introduced in the fourth quarter of 2025, both of that supports a growing demand.
Speaker Change: Energy and also consumer solutions and pharma.
Speaker Change: Business. So that's good.
Speaker Change: Amines business for carbon capture is growing well and so that's good.
Speaker Change: You look at plastics industry, there is really no new capacity coming on in plastics, one one train at the shell plant.
Speaker Change: The United States, otherwise all the classics capacities in the market inventories are low export channels running strong and we saw volume growth year over year in the fourth quarter. So I.
I feel good about the overall outlook for plastics as we're going into 2024, when you get into polyolefin.
Speaker Change: Urethane and propylene oxide little bit different story that capacity come on in China.
We've seen the same in siloxane last year I think we're working through that the silicones growth.
Speaker Change: Going to eat up that <unk>.
Speaker Change: <unk> capacity, but we've got to see the durable goods market in the housing market has come back to tighten up.
Propylene glycol side has been strong.
Speaker Change: But as you know housing and automotive drafts PPE a lot of those two things drive the propylene markets and we've got to keep a close eye on them.
Speaker Change: Sure.
Speaker Change: Jeff Jeff do you want to cover pension and what we did George.
Jeff Smith: If we've been communicating.
Jeff Smith: Communicating to the street here in recent quarters, one of the things that we're consistently looking to do is with solidifying our financial position is look for ways to de risk our pension plans and one of those could be around north of the basin as well as price transfer of our liabilities.
Jeff Smith: <unk> in fourth quarter, we were actually able to reduce our pension liability by $1 $7 billion. The execution of those transactions did not require any additional cash from the company as Jim mentioned in some of his opening remarks.
Jim: The impact of that was a one time non cash non operating settlement charge of $640 million in the quarter.
Jim: Your next question comes from the line of Jeff Zekauskas from Jpmorgan. Your line is open.
Jeffrey J. Zekauskas: Thanks very much.
Jeffrey J. Zekauskas: Recently, there was a cold snap in.
Jeffrey J. Zekauskas: Texas.
And.
Jeffrey J. Zekauskas: I didn't notice that there was any penalty in EBITDA for the first quarter.
You're still assessing what the amounts might be or or do you think that it's a zero.
Jeffrey J. Zekauskas: And then <unk>.
Jeffrey J. Zekauskas: Secondly.
Jeffrey J. Zekauskas: You pulled out $1 billion in costs can you allocate the $1 billion across your three segments.
Jeffrey J. Zekauskas: Sure.
Jeff Smith: I'll take the cold snap and then Jeff I'll have you taken a look at the cost look on the freeze Jeff I just wanted to go back yet.
Jeff Smith: Two years ago. This was a third consecutive year freeze on the Gulf Coast.
Jeff Smith: <unk>.
Jeff: We've improved plans every year to be able to be ready for that this year will be the lowest impact that we've had in three years.
Jeff: And so the big impacts that hit us more deer park and at Seadrift.
Jeff: But almost all of that is back up and running now so we were able to rebound pretty quickly.
Jeff: Never go completely unscathed, but I think we managed through it pretty well we haven't had to.
Disrupt any customers because of downtime and I think we're going to recover pretty strong here and be running by the end of this month. So.
Jeff: I feel that we've navigated that pretty well and we didn't we didn't see enough of an impact that we put that into first quarter estimates I think our biggest.
Jeff: Our biggest delta and first quarter as we've got quite a few turnarounds in the first quarter.
Jeff: And so thats, our biggest impact about $200 million.
Jeff: Ill.
Jeff: Turnarounds in the quarter.
Jeff: 150, and then we expect some margin and some seasonality in first quarter state plus $200 million on margins.
Jeff: $150 million turnarounds in the quarter. So that's the biggest net net on the first quarter 2000 and for guidance, Jeff do you want to hit.
Jeff: 1 billion costs fell across the business.
Jeff: Jim.
Jeff: In the simplest terms about 50% of those cost savings are in Pnm's 2012, 20% to 25% R&D. Other two segments, respectively. We also have a little bit in corporate as well, so pretty well distributed based on our operations and our revenues as well we ended the year at $1 $4 billion run rate.
Jeff: On that so if you look at full year 'twenty for Jeff We've still got another $400 million coming in in terms of the cost savings for 'twenty, four, but we have $200 million higher turnarounds in 'twenty four or so net net $200 million coming into 'twenty four I hope that.
Jim: So what you were looking for.
Jim: Your next question comes from the line of Steve Byrne from Bank of America. Your line is open.
Jim: Yes. Thank you.
Jim: I would like to get some help from you on.
Stephen Byrne: Why were the earnings in PNM P M and see so much slower than what you were expecting say in the third quarter slide deck.
You attribute this to just.
Stephen Byrne: Lower pricing higher raws.
Stephen Byrne: Help me on this one and maybe in particular coatings.
Stephen Byrne: You got a key customer reason price and targeting mid single digit lower raws.
Your propylene costs are higher why why not able to push more price in this segments or.
Stephen Byrne: Or cut back on operating rates or something along those lines, what's your outlook for that segment.
Stephen Byrne: Yes, good good question Steve.
Stephen Byrne: I would say starting at the top.
Stephen Byrne: <unk> and monomers.
Michael Good: In the silicones or siloxane silicon monomers in coatings <unk> monomers are both oversupply and so that put pressure, obviously on both volume and pricing in the quarter and you had volumes decreased sequentially across all regions and all markets and that's not unusual, especially in coatings and monitor.
Michael Good: So thats pretty typical of fourth quarter that we would see that but silicones was a little bit softer and I think that was the biggest delta there.
Michael Good: Year over year.
Michael Good: We're down on price, which is because of that supply demand for both <unk> and acrylic monomers. The downstream in terms of the quota of the.
Michael Good: Binders business in coating.
Michael Good: Held up relatively well and actually had decent volumes in the fourth quarter. So what we supply to the downstream coatings customers look good and as we mentioned our view going forward is about a 3% increase this year in <unk>.
Michael Good: Strained coatings and I'd say downstream.
Michael Good: Silicones demand continues to hold up pretty well I'd say the one thing we're keeping an eye on is what happens with EV volume production EV drives a lot of silicones content a lot into batteries and so we need to keep an eye on that but the other segments in silicones.
Michael Good: Sean produced substantial growth for 2024, and so those upstream monomers markets that we're going to keep an eye on.
Michael Good: Things will start to tighten up a bit in China and that will help answer of all claims.
Michael Good: Your next question comes from the line of Josh Spector from UBS. Your line is open.
Michael Good: Yes.
Josh Spector: Yeah, Hi, good morning, I was wondering if you'd comment on your polyethylene price assumptions in the first quarter I think within your brand you talk about lower cost and some other moving pieces, but there's not really anything there on price. So are you assuming that you get positive pricing in February and March like some of the consultant data shows are you assuming something different thank you.
Josh Spector: Good morning, Josh We've got five price increases on the table for January and February I would say.
Globally, we're looking pretty flat quarter over quarter on pricing I am expecting to see some price up in EMEA.
Josh Spector: I mentioned, the Suez Canal and the impact that had on middle east volumes going up into EMEA. So I think we're going to see that up.
I think we're going to see price up in Asia Pacific I think we're going to see it relatively flat in the Americas integrated margins for the Americas ought to be about where they were in the fourth quarter integrated margins in Europe should be up.
Josh Spector: A few cents, that's what the market markers will look at right now.
Input costs are in line I mean, even though we had that cold snap natura.
Josh Spector: Natural gas costs are are very competitive I think costs are very competitive propane then.
Josh Spector: A little bit high because of the heating demand but.
Josh Spector: That may start to come off a little bit as we move through this cold spell.
Josh Spector: Okay.
Josh Spector: Your next question comes from the line of Jacob David Begleiter from Deutsche Bank. Your line is open.
Josh Spector: Thank you good morning, Jimmy highlight the U S chemical railcar loadings up 10% what do you think is driving that and given the strong start to the quarter do you expect volumes to be up in all three segments.
Josh Spector: Q1.
Josh Spector: Okay.
Josh Spector: Okay.
Josh Spector: Yes look I think on chemical railcar loadings industrial production.
Josh Spector: The U S is starting to come back the U S has a tremendous cost advantage.
Josh Spector: Operating rates in most of the sectors are up and.
Josh Spector: And.
Josh Spector: I think the Destocking.
Josh Spector: Beans.
Josh Spector: Yes.
Josh Spector: Hard to have enough visibility to call the end of it but I think what we saw in December where signs that that Destocking has worked through so.
Josh Spector: Any downstream demand is turning into orders and I think thats, what youre seeing with the railcar loadings.
Josh Spector: Also remember rail.
Josh Spector: Railcar service, the Mexican market as well Mexico has been <unk>.
Josh Spector: Strong.
Josh Spector: Benefited a lot from near shoring.
Josh Spector: So having both China volumes up in Mexico volume drop I think it is.
Josh Spector: Positive here.
I would say on volumes my expectations, we have.
Josh Spector: Volume growth for all three segments for 2024.
Josh Spector: I think thats going to start to materialize I think plastics is underway right now.
Josh Spector: I think construction chemicals housing related demand on polyurethane will probably be.
Josh Spector: Geared more towards the back half of the year I think downstream silicones industrial solutions.
Josh Spector: Will be throughout the year and then we will have a step up in industrial solutions. So when we get the glycol to plan.
Josh Spector: Back in.
Speaker Change: <unk> and I think I can speak for the business here.
Hong Gupta: As soon as we get that plant back up we will have been sold out.
So we're working really hard to get that thing back offline.
Yeah.
Hong Gupta: Your next question comes from the line of Laurence Alexander from Jefferies. Your line is open.
Hong Gupta: Hi, This is Dan Rizzo on for Laurence Thank you for taking my call.
Hong Gupta: Can we just discuss your strategy on mechanical recycling.
Dan Rizzo: We expect by 2030 and longer term do you expect that to outgrow the market.
Dan Rizzo: Yes, I think when we look at if you look at what we put in the deck on on polyethylene demand.
Dan Rizzo: Our view is that both mechanical recycling and advanced recycling are going to continue to grow there's going to be demand drivers to <unk>.
All of those segments, we are in the Midland.
Dan Rizzo: Discussions on a global plastics Treaty right now we've got a big.
Dan Rizzo: Conference in Ottawa at the end of April beginning of May there is another one in Korea towards the end of the year.
Dan Rizzo: And I think towards coalescing around the industry and also the.
The consumer brand owners.
Speaker Change: And some of the Ngos that we work with.
Speaker Change: There is a focus on enhanced producer responsibility is part of it to drive circularity.
Focus on recycled content mandates are focused on all forms of recycling of bio based products that are made from waste or alternative feedstocks and in some cases like we have a project that's making.
Josh Spector: Io based materials from waste from corn production.
Josh Spector: Corn stover the choose to convert into bio feedstocks youre going to see demand for for all forms of that in place.
Josh Spector: We've got some capacity coming up in Europe.
Josh Spector: And we started there because the enhanced producer responsibility schemes are there some of the mandates are there and the demand from the downstream is very strong.
Josh Spector: <unk> come in when you look around the states and the United States, that's coming in Canada, I think we're going to see it come globally.
Josh Spector: I feel that over time, youre going to see more focus on LOE.
Stephen Byrne: Low carbon.
Hong Gupta: Fossil approaches like we're doing with Alberta, So how can you make plastics from also people set at zero <unk> emissions, you're going to see focus on advanced recycling mechanical recycling and.
Hong Gupta: And all of the above and we're just going to place bets in different regions based on what the market market demand dictates good uptake from the customers. We see good volume growth there we see pricing.
Hong Gupta: <unk>.
Virgin materials and of course Virgin materials are relatively low right now.
Hong Gupta: And we continue to work to get plants certified with Isps C. Plus so that we can certify that recycled content for our for our customers.
Speaker Change: Your next question comes from the line of Kevin Mccarthy from vertical Research partners. Your line is open.
Hong Gupta: Yes, good morning.
Kevin W. McCarthy: Jim on a year to date basis, we've seen polyethylene export prices rise by led.
Kevin W. McCarthy: Let's say four to five cents a pound.
Kevin W. McCarthy: I'm curious.
Kevin W. McCarthy: As to what you think is driving that would you attribute that pattern to better demand or some of the logistics challenges that have emerged in the red sea or or perhaps other factors and then maybe as a related question. If you don't have any unplanned outages. How hard do you think you might be able to run your.
U S Gulf Coast.
Kevin W. McCarthy: Ethylene linked assets in the first quarter, just trying to get a sense of whether the export market might be strong enough to lift up the U S domestic market.
Kevin W. McCarthy: Yes. Good question, Kevin I would say if you look back at 2023.
Kevin W. McCarthy: In the first half of the year really the limit on export volumes and prices was just more on the volume side on the supply chain side of it is the ability to get marine pack cargo moving that improved.
Kevin W. McCarthy: <unk> as we work through the year in fact December.
Kevin W. McCarthy: Was one of the highest months of the year for export sales and we've got the export.
Kevin W. McCarthy: Channel full and lined up.
Kevin W. McCarthy: And overall.
We're running.
Kevin W. McCarthy: Canada, United States Argentina.
Kevin W. McCarthy: As hard as we can.
Kevin W. McCarthy: We reran it rates on crackers above 90%.
Kevin W. McCarthy: For the back part of the year, especially in the fourth quarter and so to your point unconstrained, if theres no freeze impact or anything else.
Kevin W. McCarthy: Going to be run in the park. The arbitrage has opened the volumes are there.
Kevin W. McCarthy: Add up double digit volumes for the year and plastics go into China.
Actually were up year over year in China on PSP as well as industrial solutions.
Kevin W. McCarthy: And I think a little bit and coatings.
Consumer solutions, I'm, sorry, and consumer solutions. So we.
Kevin W. McCarthy: We were often industrial solutions because of the lack of an outage, but were up slightly.
Kevin W. McCarthy: Slightly up in <unk> slightly up in consumer solutions and up double digits in <unk>.
Kevin W. McCarthy: S P.
Kevin W. McCarthy: So I think.
Kevin W. McCarthy: The market is there and that is.
Kevin W. McCarthy: Everybody is talking about China being relatively light GDP last year, and we can move those kind of volumes my expectations are taken actions that are going to help.
Kevin W. McCarthy: 2024 will be better.
Kevin W. McCarthy: As we do the work on 2024 for the full year EBITDA walk.
We've got about $300 million margin expansion. So we started with $5 4 billion in 2023 EBITDA.
Kevin W. McCarthy: We have about 300 million for margin expansion.
Kevin W. McCarthy: We got about $800 million from volume growth in all three segments.
Kevin W. McCarthy: We've got.
Kevin W. McCarthy: Turnarounds, which cost us $200 million.
Kevin W. McCarthy: And then we've got about 100 million of improvement from equity earnings and the JV.
Kevin W. McCarthy: So net net.
Kevin W. McCarthy: Youre walking it up to the 6465 kind of range.
Kevin W. McCarthy: For 2024.
Kevin W. McCarthy: And I think with soft landing scenario on the United States that will help the domestic market, we saw good domestic volume and <unk>.
Kevin W. McCarthy: P as well here.
Kevin W. McCarthy: Your next question comes from the line of Frank Mitsch from Fermium Research. Your line is open.
Jeff: Good morning, and Jeff Nice to hear your voice again.
Jeff: Hey, Jim really appreciate that walk up into 2024, I wanted to take a step back to slide seven where.
Jeff: Where you talked about the projects.
Jim: Mid cycle that started up in 'twenty, two should contribute $400 million.
The projects that started up in 'twenty three should contribute another $400 million can you just look at those those $800 million worth of mid cycle earnings and.
Jim: Suggest what youre anticipating they're going to contribute in 2024.
Jim: Okay.
Jim: Yes, I think Frank.
Frank Mitsch: I think coming back to that and I, probably didn't answer what Vince was asking.
Frank Mitsch: Well at the beginning.
Frank Mitsch: Yes.
Frank Mitsch: I think youre, probably looking back half of this year to 2025 before you start to see mid cycle type.
Frank Mitsch: Types of returns, we're not we're not to mid cycle, yet I mean, obviously, we're navigating the bottom here.
Frank Mitsch: But I think with interest rates potentially coming off in the first half of the year some amount.
Frank Mitsch: Stimulate some demand and mid cycle, probably get there.
Frank Mitsch: So maybe $300 million to $400 million of that.
Frank Mitsch: Youll see in 2020 for the balance.
Frank Mitsch: In 2025.
Frank Mitsch: Okay.
Frank Mitsch: Your next question comes from the line of Duffy Fisher from Goldman Sachs. Your line is open.
Frank Mitsch: Yeah good morning.
Duffy Fischer: If you could just on the $50 million to $100 million on the equity income improvement can you walk through your major Jv's and just kind of say, what's additive whats subtractive from that number.
Duffy Fischer: Yeah.
Yeah sure.
Duffy Fischer: I think youre going to see on the.
Duffy Fischer: Yes.
Saddam jv's year over year should be up.
Duffy Fischer: I don't know I'd say about $100 million.
Duffy Fischer: Remember they had some outages in the first part of the year. So they had some volume impact in the first part of the year and obviously theyre seeing the same improvements and arbitrage that we're seeing out of the U S Gulf Coast.
Duffy Fischer: Youre going to see Kuwait JV up about 60.
Duffy Fischer: Obviously, that's the strengths on ethylene glycol, and we saw a bit of that in the fourth quarter.
Duffy Fischer: And their ability to run hard as well I think the <unk> will be down a lot of pressure obviously on on naphtha cracking in there they are based on naphtha cracking.
Duffy Fischer: So I expect them to be down about 20, and then everything else down about $30. So net net net you are up about $100 million.
Duffy Fischer: Your next question comes from the line of John Roberts from Mizuho. Your line is open.
Duffy Fischer: Thanks, and it looks like a pretty smooth transition in finance so congratulations on the stability there.
Duffy Fischer: I believe you were considering some additional infrastructure divestments could you give us an update on that.
Duffy Fischer: Sure.
John Roberts: Nice to hear your voice on the call John Welcome back.
Yes, we've got a number of non product produced the infrastructure assets that we continue to evaluate.
John: We have in flight for this this year greater than $1 billion.
I think maybe even greater than a 1 billion and a half of additional cash proceeds.
John: From transactions related to that we had a very successful.
John: Divestiture in 2020 of our rail and marine infrastructure assets.
And that is working well and the idea there was to liberate some cash but keep a competitive cost structure and that same mindset is in place here.
John: And we think obviously the cash proceeds are going to help us with reinvesting in revenue generating assets like the Alberta project as we move forward and then the other cash related.
John: Unique levers to Dow for the areas we've got.
John: The last.
John: Part of the settlement from the Nova litigation, which should wind all that up and that's about $500 million for the year side.
John: Net net we're pushing north of one five plus litigate.
Jeff Smith: Litigation to try to get those kind of unique cash levers and to the company anything else you want to add Jeff, Yes, and the only other thing and good morning, John and thank you. The only other thing I would add at the working capital structural working capital improvement opportunities that will continue to focus on it if you recall.
Jeff Smith: Reduced eight days and made eight days of improvement around our cash conversion cycles have been so tremendous work across team down we're going to look to continue to get at least another one to two days.
Jeff: Of improvements out of that which should also give us another unique to Dow cash cover.
Jeff: Great. Thank you.
John: Your next question comes from the line of Patrick Cunningham from Citigroup. Your line is open.
Patrick Cunningham: Hi, Good morning. So you mentioned you mentioned turnarounds, maybe weighted towards the first quarter platform and coming back into <unk> Freeport, bringing on the increase in MDI distillation should we expect more significant sequential earnings improvement throughout the year and maybe help size, where we can exit the year for the segment.
Patrick Cunningham: And then if you could also just briefly comment on what's driving the direction of MDI and Meg spreads into <unk> that would be great. Thanks.
Patrick Cunningham: Yes, I think I think generically that's that's true Patrick that I think you'll see that build through the year first quarter, obviously, we mentioned the turnaround.
Patrick Cunningham: But second quarter, we expect to get glycol to back in plasma and that'll be positive and then third quarter will be more positive so a ramp into the back half of the year.
Patrick Cunningham: Isocyanate incident, obviously the biggest driver is on <unk>.
Patrick Cunningham: Construction related and durable goods related markets. Obviously, there is some impact in automotive as well.
Patrick Cunningham: Any of the regions.
Patrick Cunningham: It's where most of that volume gets consumed so is that those volumes start to pick up you will start to see.
Patrick Cunningham: MDI take off and Thats, usually a driver of value across the entire portfolio.
Patrick Cunningham: Polyol.
Patrick Cunningham: On the MDI side of things, so I am hoping that we start to stimulate some of that demand in the back half of the year and I think was what China is doing.
Patrick Cunningham: In the markets.
Patrick Cunningham: In the financial markets to try and stimulate some things.
Patrick Cunningham: Could be between U S interest rates and what's going on in China that we see some momentum build in the back half of this year.
Your next question comes from the line of Mike <unk> from Barclays. Your line is open.
Patrick Cunningham: Great. Thank you good morning.
Patrick Cunningham: Two questions on your <unk> joint venture first I believe there was a report earlier this month that aramco is raising feedstock prices will that impacts the dara.
Expect input costs, there to remain relatively flat and second EBITDA remains quite depressed right now relative to the JV should we expect any further restructuring or cash infusion needed over the next year or so or is the runway there sufficient to get back to more mid cycle EBITDA levels.
<unk>.
Patrick Cunningham: Yes. Good question, we've had no cash contributions and Asia demand.
Patrick Cunningham: <unk> 'twenty, one 'twenty two 'twenty three I'm not expecting any going forward siddhartha itself like like us when you're navigating the bottom of the cycle is focusing on self help actions to try to pull levers to keep costs down.
Patrick Cunningham: There is talk in the kingdom of our arrays feedstock prices and so we'll obviously have to look at things that we can do within <unk> to offset those costs.
Duffy Fischer: But those haven't taken hold just yet.
Duffy Fischer: And then obviously the market comes back <unk> is very levered to oil price.
Duffy Fischer: And so oil clears the market for plastics, especially because that drives the Asia Pacific operating prices and costs.
Duffy Fischer: So when oil price comes up which the expectations are that that's going to be constructive as we move into 'twenty five and beyond there hasnt been a lot of investment in oil production.
Duffy Fischer: Demand is back above demand for oil is back above where we were pre pandemic and yet we have big parts of the market that are not back above where we were pre pandemic. So I think the outlook for demand is what demand is going to come as the global markets improved but the supply is going to lag.
Duffy Fischer: So we're sitting here at $80 oil.
Duffy Fischer: That could firm up you could start to see the top end of oil.
Duffy Fischer: I'll be pitched more toward 90 or $100 as you get into the 'twenty five 'twenty six timeframe and that has a pretty substantial impact to the bottom line and so dara so near term.
Duffy Fischer: To navigate a cost it's the Dara.
Duffy Fischer: Keep the costs down and to be able to handle those feedstock costs longer term, obviously lead into the market as the economy improves.
Duffy Fischer: Your next question comes from the line of Alexia <unk> from Keybanc capital markets. Your line is open.
Alexia <unk>: Thanks, and good morning, everyone. Jim you just made a couple of comments that <unk> capacity can be absorbed by demand growth to me it sounds a little more positive here than in the past.
Alexia <unk>: Do you think this upstream silicones market could see margin uplift maybe within the next 12 months or is this a longer term project.
Alexia <unk>: Okay.
Jim: Yes, if you look at the amount of capacity that's coming on in 2024 versus what came on in 'twenty three it's down quite a bit you've got a couple of projects. There's four projects in China that are coming on and I think a couple of them could delay beyond 2020 for the downstream markets have been continuing to grow in <unk>.
Jim: We've been continuing to invest in Debottlenecking.
Jim: It's just the amount of upstream that's come on has added to that the other pas business happened is obviously silicon metal prices have come down too.
Jim: So that helps on the input side of things.
Speaker Change: So I think youre going to see that.
Speaker Change: As the downstream demand continues to improve and as the global economy continues to improve we're going to see that.
Speaker Change: The project pipeline for buildings continues to grow and remember this goes into everything it could go into high rise buildings. It can go on to do airports that could go into schools and all kinds of other construction those are big volume pools, I think as you start to see construction activity pick up.
Speaker Change: And then you kind of see that ramp we're seeing strong demand in areas, obviously, evs, where a big part of it <unk> and connectivity is a big part of it data centers, so as youre looking at things like.
Speaker Change: How to handle cooling on data centers.
Speaker Change: Silicon fluids, our dielectrics.
Speaker Change: Some immersive cooling applications and data centers.
Speaker Change: Whats your big energy hogs, and indeed energy efficiency.
Speaker Change: That's a growth area for us as well and then the normal downstream demand in consumer goods.
Speaker Change: Due to care products continues to be good.
Speaker Change: I'm optimistic may be it may take more into late 'twenty, four and into 'twenty five to see it but I do feel like we're going to start to move towards mid cycle in 2025.
Speaker Change: Your next question comes from the line of Arun Viswanathan from RBC capital markets. Your line is open.
Great. Thanks for taking my question.
So that's a good segue actually than what I was thinking about was.
Arun Viswanathan: If you think about the guidance that you're issuing here for Q1, it looks to be.
Arun Viswanathan: And the $1 3 billion or so level for EBITDA.
Arun Viswanathan: Give or take a little bit but.
Annualized that will get you to five two.
Arun Viswanathan: And then maybe adding a little bit of seasonality gets you to closer to $6 billion.
Arun Viswanathan: Would you consider that kind of trough like conditions and as you move through the year and 'twenty four.
Arun Viswanathan: What are some of the things that makes you excited that we can you know me.
Arun Viswanathan: Maybe achieve a mid cycle.
Arun Viswanathan: When you're exiting the year.
Arun Viswanathan: And then I guess, maybe if you can just comment on what your expectations are for China growth going forward, obviously, we will likely see a maybe a slower growth environment for the next four or five years versus the last four or five years.
Arun Viswanathan: Just wanted to get your thoughts on that as well thanks.
Arun Viswanathan: Yeah I think.
Arun Viswanathan: The things that are constructed to me as we're moving forward is.
Arun Viswanathan: No new capacity coming in and plastics packager.
Packaging and specialty plastics.
Arun Viswanathan: You've got high operating rates and all of the cost advantaged regions of the world.
Arun Viswanathan: And you've got export arbitrage window opened to China, as I mentioned double digit growth.
Arun Viswanathan: For us in China.
Arun Viswanathan: I think our view is we're able to move continue to move products, India has been strong.
Arun Viswanathan: So we're moving product into India, Mexico has been really strong we supply a lot of plastics to Mexico by rail.
Arun Viswanathan: I think thats all positive.
Arun Viswanathan: I would say.
Arun Viswanathan: Our view in the Americas argue in Asia Pacific is China.
Arun Viswanathan: Comes back so will the rest of Asia Pacific and then our view in Europe is a bit.
Arun Viswanathan: Next.
Arun Viswanathan: Energy cost is better in Europe.
Arun Viswanathan: I think in the short term helps it's not as big a drag as it was.
Arun Viswanathan: But I think longer term Europe, Scott some structural issues, if we can't get energy costs down even lower it puts a big weight on the consumer which puts a big weight on demand.
Arun Viswanathan: Additional weight on the industrial economy. So Fortunately, we've got some cost advantaged positions there and then help us.
And I think we will navigate through that.
Arun Viswanathan: Thank you half of the year, we've got industrial solutions coming back at full strength, we've got our new projects coming on I, just mentioned $3 million to $400 million from that.
Arun Viswanathan: All in that <unk>.
Arun Viswanathan: <unk> growth number that I talked about and then margin expansion is just the oil to gas spread on our existing business and the strength that we're kind of stands in pricing in polyethylene for the year. So I think we're going to ramp in 225.
Arun Viswanathan: And ourselves kind of back on to a.
Arun Viswanathan: Mid cycle run rate.
Arun Viswanathan: And we're going to in the meantime, we're going to pull the levers like we've been doing to manage cash and keep the balance sheet strong.
Speaker Change: Be the first mover in the next wave with the Alberta project, just like we were with Texas nine.
Speaker Change: This is the right time to do it. This is the time to lock in a low cost for construction.
And we're ready to roll.
Speaker Change: This ends our question and answer session I will now turn the call back over to Mr. Gupta for closing remarks.
Yes, thanks, Rob. Thank you everyone for joining our call and we appreciate your interest in Dow we referenced the copies of the transcript will be posted an upsize to an approximately 48 hours. This concludes our call. Thank you again.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: