Q1 2024 Dow Inc Earnings Call
Operator: Greetings and welcome to the Dow Jones first quarter 2024 earnings conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If you would like to ask a question at that time, please press star followed by one on your telephone keypad. And as a reminder, this conference is being recorded. I would now like to turn it over to Dow Investor Relations Vice President Pankaj Gupta. Mr. Gupta, you may begin.
Greetings and welcome to the Dow first quarter 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If you would like to ask a question at that time. Please press star.
Followed by one on your telephone keypad and as a reminder, this conference is being recorded I would now like to turn it over to Dow Investor Relations Vice President Pankaj Gupta, Mr. <unk> you may begin.
Pankaj Gupta: Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I'm Pankaj Gupta, Dow's outgoing Investment Relations Vice President. Leading today's call are Jim Fitterling, Dow's Chairman and Chief Executive Officer, and Jeff Tate, Chief Financial Officer.
Pankaj Gupta: Good morning, Thank you for joining today and the accompanying slides are provided through this webcast and posted on our website.
Pankaj Gupta: Thanks, guys.
Pankaj Gupta: Investor Relations Vice President.
Pankaj Gupta: Leading today's call are Jim finally, Belgium, and Chief Executive Officer, and Jeff <unk>.
Speaker Change: <unk> financial officer.
Pankaj Gupta: Also joining us is our new Investor Relations Vice President, Andrew Riker, who you may remember was a member of our IR team a few years ago. Please note our comments contain forward-looking statements and are subject to the related cautionary statement contained in the earnings news release and slides. Please refer to our public filings for further information about principal risks and uncertainties. Unless otherwise specified, all financials, where applicable, exclude significant items.
Speaker Change: Also joining us are renewed Investor Relations Vice President Andrew Reicher, who you May remember was a member of our IR team a few years ago.
Speaker Change: Please note our comments contain forward looking statements and are subject to the related cautionary statements contained in the earnings news release and slides.
Speaker Change: Please refer to our public filings for further information about principal risks and uncertainties.
Speaker Change: Unless otherwise specified all financials, where applicable exclude significant items.
Pankaj Gupta: We will also refer to non-GAAP measures. The reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in the earnings user lead and slides that are posted on our website. On slide two, we have our agenda for today's call. Jim will review our first quarter results and operating segment performance. Jeff will then provide an update on the macroeconomic environment and modeling guidance, as well as the results of our annual benchmark.
Speaker Change: We will also refer to non-GAAP measures a reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in the earnings news release and slides that are posted on our website.
Speaker Change: On slide two is our agenda for today's call Jim will review, our first quarter results and operating segment performance. Jeff will then provide an update on the macroeconomic environment and modeling items as well as a result of our annual benchmarking.
Pankaj Gupta: Jim will then provide an update on key milestones for our long-term strategy, which positions us well to deliver growth through the cycle. Following that, we will take your questions. Now, I will turn the call over to Jim.
Speaker Change: Jim will then provide an update on key milestones for our long term strategy, which positions us well to deliver growth through the cycle. Following that we will take your questions now let me turn the call over to Jim.
James R. Fitterling: Thank you, Pankaj. Beginning on slide 3, In the first quarter, Team Dow delivered sequential volume growth and margin expansion. We strategically increased operating rates to capture improving demand, we maintained pricing, and we benefited from lower feedstock and energy costs. These results reflect the strength of our advantaged portfolio, including our participation in diverse end markets and our cost-advantaged positions around the world.
Jim: Beginning on slide three in the first quarter team Dow delivered sequential volume growth and margin expansion reached.
Jim: We strategically increased operating rates to capture improving demand, we maintain pricing and we benefited from lower feedstock and energy costs.
Jim: These results reflect the strength of our advantaged portfolio, including our participation in diverse end markets and our cost advantaged positions around the world let.
James R. Fitterling: Net sales were $10.8 billion, down 9% versus the year-ago period, but up 1% sequentially, driven by gains in performance, materials, and coatings, and industrial intermediates and infrastructure. Volume increased 1% year-over-year, and excluding hydrocarbons and energy, volume increased 5%, with gains in all regions. This marks the second consecutive quarter of year-over-year volume growth. Sequentially, volume increased 1%, and excluding hydrocarbons and energy, it was up 3%, led by gains in performance materials and coatings. Local prices decreased 10% year-over-year and was flat sequentially, as modest gains in Europe, the Middle East, Africa, and India, or EMEA, were offset by declines in Asia Pacific, the United States, and Canada.
Net sales were $10 8 billion down.
Jim: Down 9% versus the year ago period, but up 1% sequentially driven by gains in performance materials, and coatings and industrial intermediates <unk> infrastructure.
<unk> increased 1% year over year, and excluding hydrocarbons and energy volume increased 5% with gains in all regions. This marks our second consecutive quarter of year over year volume growth sequentially.
Jim: Sequentially volume increased 1% and excluding hydrocarbons and energy was up 3% led by gains in performance materials and coatings.
Jim: Local price decreased 10% year over year and was flat sequentially as modest gains in Europe, the Middle East Africa, and India, or EMEA were offset by declines in Asia Pacific The United States and Canada.
James R. Fitterling: Operating EBIT for the quarter was $674 million, down $34 million year-over-year, driven by lower prices in all regions. However, sequentially, operating EBIT was up $115 million, reflecting gains in performance, materials, and coatings, and industrial intermediates and infrastructure. We delivered cash flow from operations of $460 million in the quarter, resulting in a 94% cash flow conversion on a trailing 12-month basis. This reflects our focus on cash flow generation and enabled $693 million in returns to shareholders.
Jim: Operating EBIT for the quarter was $674 million.
Jim: Down $34 million year over year, driven by lower prices in all regions sequentially operating EBIT was up $115 million, reflecting gains in performance materials, and coatings and industrial intermediates <unk> infrastructure.
Jim: We delivered cash flow from operations of $460 million in the quarter, resulting in a 94% cash flow conversion on a trailing 12 month basis. This reflects our focus on cash flow generation and enabled $693 million.
Turns to shareholders.
James R. Fitterling: We also advanced our long-term strategy with our higher-return, highly capital-efficient Path to Zero project in Fort Saskatchewan, Alberta, where construction started earlier this month. Now, turning to our operating segment performance on slide four. In the Packaging and Specialty Plastics segment, operating EBIT was $605 million, down $37 million compared to the year-ago period, primarily due to lower integrated margin. Local price declines were primarily driven by lower energy and feedstock costs globally. Volume decreased year over year, driven by declines in hydrocarbons in energy.
Jim: We also advanced our long term strategy with our higher return highly capital efficient path to zero project in Fort Saskatchewan, Alberta, where construction has started earlier this month.
Jim: Now turning to our operating segment performance on slide four.
Jim: In the packaging <unk> specialty plastics segment operating EBIT was $605 million down $37 million compared to the year ago period, primarily due to lower integrated margins.
Jim: Local price declines were primarily driven by lower energy and feedstock costs globally.
Jim: Volume decreased year over year, driven by declines in the hydrocarbons and energy business. This was primarily due to prioritizing higher value downstream derivatives polymer sales as well as lighter feed slate cracking in Europe.
James R. Fitterling: This was primarily due to prioritizing higher-value downstream derivative polymer sales as well as lighter feed slate cracking in Europe. However, sequentially, operating EBIT decreased by $59 million as improved polyethylene integrated margins were more than offset by expected lower nonrecurring licensing revenue and higher planned maintenance expenses.
Jim: Sequentially operating EBIT decreased by $59 million.
Jim: As improved polyethylene integrated margins were more than offset by expected lower nonrecurring licensing revenue and higher planned maintenance activity.
James R. Fitterling: Moving to the industrial intermediates and infrastructure segment, operating EBIT was $87 million, compared to $123 million in the year-ago period. Results were driven by lower prices in both businesses, which were partly offset by three items – lower energy and feedstock costs, improved equity earnings, and volume gains in polyurethanes and construction chemicals. sequentially, operating income was up $72 million, driven by improved equity earnings and lower energy and feedstock costs, primarily in EMEA.
Moving to the industrial intermediates and infrastructure segment operating EBIT was $87 million.
Jim: Compared to a $123 million in the year ago period.
Jim: Results were driven by lower prices in both businesses, which were partly offset by three items lower energy and feedstock cost.
Jim: <unk> equity earnings and volume gains in polyurethane and construction chemicals.
Jim: Essentially operating EBIT was up $72 million, driven by improved equity earnings and lower energy and feedstock costs primarily in EMEA.
James R. Fitterling: And in the Performance Materials and Coatings segment, operating EBIT was $41 million, up $6 million compared to the year-ago period, driven by volume growth and higher operating rates. Volume is up year over year, driven by gains primarily in the United States, Canada, and Latin America. sequentially, operating EBIT increased to $102 million, driven by higher seasonal volumes and overall improved demand. Now, I'll turn it over to Jeff to review our outlook and actions. Thank you, Jim, and good morning to everyone joining us on our call today.
Jim: And in the performance materials and coatings segment operating EBIT was $41 million up $6 million compared to the year ago period, driven by volume growth and higher operating rates.
Jim: Volume was up year over year, driven by gains primarily in the United States, Canada, and Latin America sequentially.
Jim: Sequentially operating EBIT increased to $102 million driven by higher seasonal volumes and overall improved demand now.
Jim: Now I'll turn it over to Jeff to review, our outlook and actions.
You, Jim and good morning to everyone joining our call today.
Jeffrey L. Tate: Turning to our outlook on slide 5, we are seeing signs of improving macroeconomic conditions in several regions, which gives us cautious optimism heading into what is typically a seasonally strong quarter. That said, we are keeping a close eye on inflation, interest rates, and geopolitical tensions. The U.S. is benefiting from improving industrial activity, with manufacturing PMI in expansionary territory every month this year so far. In fact, manufacturing production expanded at its fastest rate in 22 months in March. Average chemical rail car shipments were also up 4.3% year-to-date compared to last year through mid-April.
Jeff: Turning to our outlook on slide five we are seeing signs of improving macroeconomic conditions in several regions, which gives us cautious optimism heading into what is typically a seasonally strong quarter that said, we are keeping a close eye on inflation interest rates and geopolitical tensions.
Jeff: The U S is benefiting from improving industrial activity with manufacturing PMI, an expansionary territory every month, thus far this year.
Jeff: <unk> manufacturing production expanded at its fastest rate in 22 months in March.
Jeff: Average chemical railcar shipments were also up four 3% year to date compared to last year through mid April.
Jeffrey L. Tate: And while high interest rates continue to temper building and construction activity in the U.S., building permits were 1.5 percent higher in March year-over-year, while existing home sales declined 3.7 percent in March. In Europe, consumer spending and industrial activity remain weak, with manufacturing PMI decreasing in February and March. This partly reflects ongoing geopolitical tensions in the Red Sea, which have led to higher freight costs globally.
Jeff: And while higher interest rates continued to temper, our building and construction activity in the U S drilling permits were one 5% higher in March year over year, while existing home sales declined three 7% in March.
Jeff: In Europe, consumer spending and industrial activity remained weak with manufacturing PMI decreasing in February and March.
Jeff: This partly reflects ongoing geopolitical tensions in the Red Sea, which have led to higher freight costs globally.
Jeffrey L. Tate: Declines in inventory levels are a promising indicator, with March at the lowest levels since July 2022. Economic activity in China continues to recover steadily, with signs of improving demand. Industrial production increased 4.5% year-over-year in March. Additionally, retail sales grew 3.1% year-over-year in March, supported by consumer spending around the Lunar New Year. Nonetheless, the property sector remains weak, with new home prices continuing to decline through March.
Jeff: Declines in inventory levels are a promising indicator with March at the lowest levels since July 2022.
Jeff: Economic activity in China continued to recover steadily with signs of improving demand <unk>.
Jeff: Industrial production increased four 5% year over year in March.
Jeff: Additionally, retail sales grew three 1% year over year in March supported by consumer spending around the lunar new year.
Jeff: Nonetheless, the property sector remains weak with new home prices continuing to decline through March.
Industrial activity in other regions remains constructive.
Jeff: In March India manufacturing PMI reached its highest level in more than three years at $59 one.
Jeffrey L. Tate: Industrial activity in other regions remains constructive. In March, India's manufacturing PMI reached its highest level in more than three years at 59.1. ASEAN manufacturing PMI reached an 11-month high at 51.5.
Jeff: ASEAN manufacturing PMI recently 11 month high at 51 five.
Jeff: And then Mexico industrial production increased further in February.
Jeff: Now turning to our outlook for the second quarter on slide six.
Jeff: In the packaging <unk> specialty plastics segment higher global polyethylene integrated margins resilient demand in packaging as well as continued strength in the export markets are expected to drive a $150 million tailwind in the quarter.
Jeffrey L. Tate: And in Mexico, industrial production increased further in February. Now, turning to our outlook for the second quarter on slide six. In the packaging and specialty plastic segment, higher global polyethylene integrated margins, resilient demand in packaging, as well as continued strength in the export markets, are expected to drive a $150 million tailwind in the quarter. Additionally, we expect $25 million in tailwinds from our site in Bahia Blanca, Argentina, which has returned to operations following an unexpected storm in December of 2023. Lastly, we expect a $75 million headwind due to increased plant maintenance, primarily in Sabine, TX. In the industrial, intermediate, and infrastructure segments, consumer durables demand continues to be muted.
Additionally, we expect $25 million until wins from our site in Bahia Blanca, Argentina, which has returned to operations. Following an unexpected storm in December of 2023.
Jeff: Lastly, we expect a $75 million headwind due to increased plant maintenance, primarily and so being Texas.
Jeff: And the industrial intermediates <unk> infrastructure segment consumer durables demand continues to be muted.
Jeff: However, we expect margin expansion on improved MDI and polyol spreads in Europe.
Jeff: We also expect modest seasonal demand improvement and building and construction end markets.
Jeff: As well as resilient demand in pharma and energy end markets.
Jeff: Altogether these represent a $25 million tailwind.
Jeff: In addition, we expect a headwind of $25 million due to planned maintenance in Europe, and the U S Gulf Coast.
Jeffrey L. Tate: However, we expect margin expansion on improved MDI and polyol spreads in Europe. We also expect modest seasonal demand improvement in building and construction and marketing, as well as resilient demand in pharma and energy and markets. Altogether, these represent a $25 million tailwind. In addition, we expect a headwind of $25 million due to planned maintenance in Europe and the U.S. Gulf Coast. This will be partly offset by the completion of a turnaround at a PDH unit in the first quarter.
Jeff: This will be partly offset by the completion of a turnaround at our <unk> unit in the first quarter.
Jeff: In our performance materials, and coatings segment higher global siloxane prices and seasonal demand increases and building and construction end markets are expected to drive a $75 million tailwind in the second quarter.
Jeff: We also expect an additional $25 million tailwind from a turnaround at our siloxane pillar site in the U S. While our Deer Park and PDA sites will come back up following plant maintenance in the first quarter.
Jeffrey L. Tate: In the performance materials and coating segment, higher global siloxane prices and seasonal demand increases in building and construction in markets are expected to drive a $75 million tailwind in the second quarter. We also expect an additional $25 million tailwind from a turnaround at our Siloxane pillar site in the U.S., while our Deer Park and PDA sites will come back up following planned maintenance in the first quarter. So with all the puts and takes at a company level, we expect second quarter earnings to be approximately $200 million above first quarter performance. Now, moving to slide seven.
Jeff: So with all the puts and takes at a company level, we expect second quarter earnings to be approximately $200 million above first quarter performance.
Jeff: Now moving to slide seven.
Jeff: As we navigate the cycle and execute on our long term strategic action Dow remains committed to our culture of transparency accountability and benchmarking.
Jeff: Today, we published the results of our annual benchmarking update once again, demonstrating our strong performance and value creation relative to our peers.
Jeff: The results can be found on our investor website.
Jeff: Dow came in well ahead of peer average and broader S&P 500 with continued attractive three year average free cash flow and dividend yields.
Jeff: This reflects our commitment to industry, leading cash generation and shareholder remuneration across the economic cycle.
Jeffrey L. Tate: As we navigate the cycle and execute on our long-term strategic action, Dow remains committed to our culture of transparency, accountability, and benchmarking. Today, we publish the results of our annual benchmarking update, once again demonstrating our strong performance and value creation relative to our peers. The results can be found on our investor website.
Jeff: Our three year EBITDA margins and return on invested capital are above the peer median with return on invested capital of 200 basis points above our 13% target across the economic cycle.
Jeff: We also deliver best in class net debt reduction since 2019, which allows us to deliver on our capital allocation priorities, even at the bottom of the cycle.
Jeffrey L. Tate: The Dow came in well ahead of the pure average and broader S&P 500 with continued attractive three-year average free cash flow and dividend yield. This reflects our commitment to industry-leading cash generation and shareholder remuneration across the economic cycle. Our 3-year EBITDA margins and return on invested capital are above the peer median, with return on invested capital 200 basis points above our 13% target across the economic cycle. We have also delivered best-in-class net debt reduction since 2019, which allows us to deliver on our capital allocation priorities, even at the bottom of the cycle.
Jeff: Our achievements in these areas point to our continued discipline and financial flexibility as a result team Dow has set the stage for us to drive earnings growth and increase shareholder returns through the cycle.
With that I'll turn it back to Jim.
Jim: Thank you, Jeff moving to slide eight <unk> is well positioned to capture demand and drive earnings growth as the economic recovery takes hold.
Jim: This is reflected in our competitive advantages and early cycle growth investments, which are advancing while also demonstrating <unk> continued focus on operational and financial discipline.
We have a differentiated portfolio with structurally advantaged assets global scale and low cost positions in every region.
Jeffrey L. Tate: Our achievements in these areas point to our continued discipline and financial flexibility. As a result, Team Dow has set the stage for us to drive earnings growth and increase shareholder returns through the cycle. With that, I'll turn it back to Jim.
Jim: Healthy oil and gas brands supported by growing natural gas and NGL production in North America favor, our cost advantage and ability to capture continued margin improvements as the economic recovery gathers strength. We've also taken actions to grow earnings as we execute our near term higher value.
James R. Fitterling: Moving to slide 8, Dow is well-positioned to capture demand and drive earnings growth as the economic recovery takes hold. This is reflected in our competitive advantages and early cycle growth investments, which are progressing while also demonstrating Dow's continued focus on operational and financial discipline. And we have a differentiated portfolio with structurally advantaged assets, global scale, and low-cost positions in every region.
Jim: Lower risk growth investments that are expected to deliver approximately $2 billion in incremental underlying EBITDA by mid decade.
Jim: Since 2021, we have added capacity that will increase our mid cycle EBITDA by approximately $800 million.
Jim: Including investments in our <unk> unit in Louisiana, and our constellation capacity investments in the United States and Europe that serve attractive market segments, such as consumer non durables and pharma.
Jim: In addition, we have invested in multiple downstream silicones, the bottlenecks to address fast growing application in mobility science and electronics.
James R. Fitterling: Healthy oil-to-gas spreads, supported by growing natural gas and NGL production in North America, favor our cost advantage and ability to capture continued margin improvements as the economic recovery gathers strength. We've also taken actions to grow Dow's earnings as we execute our near-term, higher-value, lower-risk growth investments that are expected to deliver approximately $2 billion in incremental underlying EBITDA by mid-decade. Since 2021, we have added capacity that will increase our mid-cycle EBITDA by approximately $800 million, including investments in our FCBH unit in Louisiana and our consolation capacity investments in the United States and Europe that serve attractive market segments such as consumer non-durables and pharma. In addition, we have invested in multiple downstream silicone de-bottlenecks to address fast-growing applications in mobility science and electronics.
Jim: We are on track to achieve the remaining $1 2 billion of our near term EBITDA target by mid decade enabled by our lower risk and higher return growth projects.
These investments represent a significant portion of Dallas earnings growth in the next up cycle.
Jim: Moving to slide nine now continues to execute with financial and operational discipline as we invest through the bottom of the chemical industry as economic cycle for long term profitable growth.
Jim: Our near term growth and efficiency investments continue to progress with our propylene glycol expansion in Thailand, achieving mechanical completion this month.
Jim: We're also making good progress on our Decarbonize and growth strategy, including our path to zero project in Fort Saskatchewan, Alberta construction.
Jim: Construction began earlier this month, where we're installing the first of approximately 4000 pilots that will anchor the foundation of our new net zero cracker.
James R. Fitterling: We're on track to achieve the remaining $1.2 billion of our near-term EBITDA target by mid-decade, enabled by our lower-risk and higher-return growth projects. These investments represent a significant portion of Dow's earnings growth in the next up cycle. Moving to slide nine, Dow continues to execute with financial and operational discipline as it invests through the bottom of the chemical industry's economic cycle for long-term profitable growth.
Jim: In addition, all long lead time equipment items have been ordered further demonstrating our consistent focus on marketing cost efficiencies for this project.
Jim: We also entered into a long term agreement with Pembina, a leading ethane supply and transportation provider to supply and transport up to 50000 barrels per day of ethane.
Jim: With this latest agreement we have secured the majority of our cost advantaged ethane supply with multiple suppliers in the region.
Overall, we expect the path to zero a project to deliver an additional $1 billion per year in mid cycle EBITDA growth at full run rates over the economic cycle.
James R. Fitterling: Our near-term growth and efficiency investments continue to progress, with our propylene glycol expansion in Thailand achieving mechanical completion this month. We're also making good progress on our decarbonizing growth strategy, including our Path to Zero project in Fort Saskatchewan, Alberta. Construction began earlier this month, and we're installing the first of approximately 4,000 piles that will anchor the foundation of our new net-zero crack.
Jim: In addition, we continue to advance secularity through our transform the waste strategy via strategic partnerships and offtake agreements.
Jim: This includes our recent joint development agreement with Procter <unk> Gamble, which will create a new recycling technology aimed at converting hard to recycle plastic packaging into recycled polyethylene.
Jim: The result will be near Virgin quality, and lower greenhouse gas emissions than Virgin polyethylene.
James R. Fitterling: In addition, all long-lead time equipment items have been ordered, further demonstrating our consistent focus on locking in cost efficiencies for this project. We have also entered into a long-term agreement with Cumbina, a leading ethane supply and transportation provider, to supply and transport up to 50,000 barrels of ethane per day. With this latest agreement, we have secured the majority of our cost-advantaged ethane supply with multiple suppliers in the region. Overall, I expect the Path to Zero project to deliver an additional $1 billion per year in mid-cycle EBITDA growth at full run rates over the economic cycle.
Jim: All in we expect our transform the waste initiatives to generate more than $500 million of incremental run rate EBITDA by 2030.
Turning to slide 10, our actions since 2019 have created a stronger DAU over the past five years, we have worked hard to improve our balance sheet to improve cash flow conversion and to build a more resilient company that maintained consistent discipline.
This was demonstrated when we delivered $12 $4 billion in peak EBITDA in 2021 higher than any other timeframe in Dallas history.
Jim: This has created the opportunity for us to invest strategically at the bottom of the cycle for long term profitable growth.
James R. Fitterling: In addition, we continue to advance circularity through our Transform the Waste strategy via strategic partnerships and offtake agreements. This includes a recent joint development agreement with Procter & Gamble, which will create a new recycling technology aimed at converting hard-to-recycle plastic packaging into recycled polyethylene. The result will be near-virgin quality and lower greenhouse gas emissions than virgin polyethylene.
Jim: And its implementation of our growth strategy increases our underlying EBITDA, we will continue to target at least 65% of operating net income to shareholders. As we move up the next peak this means at least 45% in dividends and 20% in share buybacks.
Jim: On slide 11, I want to thank you for your interest and ownership in doubt the team and I look forward to engaging with many of you on our 2020 for Investor day on May 16th.
James R. Fitterling: All in, we expect our Transform the Waste initiative to generate more than $500 million of incremental run rate EBITDA by 2030. Turning to slide 10, our actions since 2019 have created a stronger Dow. Over the past five years, we have worked hard to improve our balance sheet, improve cash flow conversion, and to build a more resilient company that maintains consistent distributions. This was demonstrated when we delivered $12.4 billion in peak EBITDA in 2021, higher than any other time frame in Dow's history.
Jim: As a reminder, the event will be hosted from the New York Stock Exchange. It will also be available via live webcast more information can be found on our website at investors Dot DAU dot com.
Jim: During the event, we will share progress on <unk> commitment to improve underlying earnings by greater than $3 billion by 2030 that will enable raising the mid cycle as well as the trough and peak earnings levels.
Jim: We'll demonstrate our consistent commitment to operational and financial discipline, our capital allocation priorities and our leadership in attractive market verticals.
James R. Fitterling: This has created the opportunity for us to invest strategically at the bottom of the cycle for long-term profitable growth. And as the implementation of our growth strategy increases our underlying EBITDA, we will continue to target at least 65% of operating net income to shareholders as we move up the next peak. This means at least 45% in dividends and 20% in share buyback.
Jim: And we will show how taken together this creates significant value creation as we grow earnings and enhance shareholder returns over the cycle.
Before I turn it over to <unk>, you mentioned at the top of the call that we have our incoming vice president of Investor Relations, Andrew Reicher, joining us today.
Speaker Change: I'd like to take a moment to congratulate Andrew as he takes charge and to thank Tom <unk> for leading the Investor relations team over the last three years.
James R. Fitterling: Closing on slide 11, I want to thank you for your interest and ownership in Dow. The team and I look forward to engaging with many of you on our 2024 Investor Day on May 16. As a reminder, the event will be hosted at the New York Stock Exchange. It will also be available via live webcast.
Speaker Change: And also for his contributions to our upcoming Investor day.
Speaker Change: As we look forward to seeing your achievements in your next role leading our Dow industrial solutions business.
Speaker Change: With that <unk>, please get us started with the Q&A.
James R. Fitterling: More information can be found on our website at investors.dow.com. During the event, we will share progress on Dow's commitment to improve underlying earnings by greater than $3 billion by 2030, which will enable us to raise the mid-cycle as well as the trough and peak earnings levels. We'll demonstrate our consistent commitment to operational and financial discipline, our capital allocation priorities, and our leadership in attractive market verdicts. And we'll show how, taken together, this creates significant value creation as we grow earnings and enhance shareholder returns over the cycle.
Andrew Reicher: Thank you Jim.
Speaker Change: 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.
Speaker Change: Operator, please provide the Q&A instructions.
Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. If you would like to withdraw that question again Press Star. One. We also ask that you limit yourself to a single question.
Speaker Change: And your first.
Speaker Change: Question comes from the line of Hassan Ahmed of Alembic Global. Please go ahead.
James R. Fitterling: Before I turn it over to Pankaj, he mentioned at the beginning of the call that we have our incoming Vice President of Investor Relations, Andrew Riker, joining us today. I'd like to take a minute to congratulate Andrew as he takes charge and to thank Pankaj for leading the investor relations team over the last three years and also for his contributions to our upcoming Investor Day. Pankaj, we look forward to seeing your achievements in your next role leading our Dow Industrial Solutions. With that, Pankaj, please get us started with the Q&A.
Good morning, Jim.
Hassan Ijaz Ahmed: Jim a quick question around global ethylene and polyethylene supply demand fundamentals.
Hassan Ijaz Ahmed: You don't want the surface as I sort of take a look at.
Hassan Ijaz Ahmed: Global utilization rates, they seem relatively slack, but then it all as one sort of things true marginal producer economics.
Hassan Ijaz Ahmed: I mean, they seem pretty pretty weak right now and we're obviously hearing more and more announcements of capacity closures out in Europe. So how do you see you know you'd.
Hassan Ijaz Ahmed: Utilization rates Pan out.
Hassan Ijaz Ahmed: In 2004 and beyond.
Good morning Hassan Good question I would say, obviously there are differences around the globe, depending on the cost positions.
Pankaj Gupta: Thank you, Jim. Now, let's move on to your questions. I would like to remind you that our forward-looking statements apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions.
Speaker Change: We have a footprint that is very highly advantaged in North America, and Latin America, and the Middle East.
Speaker Change: Europe is right now where you've seen most of the focus on supply reductions with a couple of announcements.
Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw that question, again, press star 1. We also ask that you limit yourself to a single question. And your first question. The next question comes from the line of Hassan Hamad at Alembic Global. Please go ahead.
Speaker Change: Crackers being shut down I'd also say, China Theres, a lot of pressure on operating rates there because of the cash margins are negative and Ben have been negative for.
Speaker Change: For some time and there is a big arbitrage window opened between the United States and China.
Speaker Change: And so all of those things have really led to much higher operating rates and the cost advantage region.
Hassan Ijaz Ahmed: Morning, Jim. Jim, a quick question around global ethylene and polyethylene supply and demand fundamentals. You know, on the surface, as I sort of take a look at global utilization rates, they seem relatively slack. But then, you know, as one sort of thinks through marginal producer economics, I mean, they seem pretty, pretty weak right now, and, you know, we are obviously hearing more and more announcements of capacity closures out in Europe. So how do you see utilization rates pan out, you know, in 24 and beyond?
Speaker Change: And even in Europe, where we had LPG cracking flexibility in the first quarter.
Speaker Change: And propane was was still a little bit high in first quarter.
Speaker Change: That advantage led to higher operating rates for us in Europe.
Speaker Change: Our overall operating rates jumped about 10 percentage points in Europe in the first quarter. So I think if you've got a cost advantaged position things are looking pretty good.
Speaker Change: Europe is a little bit island, it off right now because of the tensions in the middle East and the Red Sea effect from shipping.
Speaker Change: And so it's relying on its domestic production for the market growth and there has been some volume growth there.
James R. Fitterling: question. I would say, obviously, there are differences around the globe, depending on the cost positions. And, you know, we have a footprint that is very highly advantageous in North America, Latin America, and the Middle East. Europe is right now where you've seen most of the focus on supply reductions, with a couple of announcements of crackers being shut down. I'd also say China; there's a lot of pressure on operating rates there because the cash margins are negative and have been negative for some time.
Speaker Change: In the Middle East <unk> has been focused more on the Asian demand.
Speaker Change: So I feel good about it all of the.
Speaker Change: Most of the new capacity is in the market already.
Speaker Change: And we're seeing volume growth second consecutive quarter of volume growth.
Speaker Change: We're starting to see year over year volume growth numbers. So it feels like we're starting to turn a corner.
Speaker Change: Your next question comes from the line of David Begleiter from Deutsche Bank. Please go ahead.
David L. Begleiter: Good morning.
James R. Fitterling: And there is a big arbitrage window open between the United States and China. And so all of those things have really led to much higher operating rates in the cost-advantaged regions. And even in Europe, where we had LPG cracking flexibility in the first quarter, and propane was still a little bit high in the first quarter, but that advantage led to higher operating rates for us in Europe. Our overall operating rates jumped about 10 percentage points in Europe in the first quarter.
David L. Begleiter: Jim last quarter, you gave a bit of earnings walk up to about 646 $5 billion of EBITDA. This year do you still I believe that number is achievable if not feasible given the solid Q1 results. Thank you.
David L. Begleiter: Good morning, David.
Speaker Change: I think with the first quarter results.
Speaker Change: The $200 million that Jeff mentioned on the call. We're right track I would add that as you go into third quarter snow that will have another $100 million from the restart of clinical too and plaque among.
Speaker Change: So a $100 million third quarter $100 million fourth quarter kind of numbers, so youre starting to see that our run rate and that great right in line with what we need to deliver that six four.
James R. Fitterling: So I think if you've got a cost advantage position, things are looking pretty good. Europe is a little bit isolated right now because of the tensions in the Middle East and the Red Sea effect from shipping. And so it is relying on its domestic production for market growth, and there has been some volume growth there. And the Middle East, then, has been focused more on Asian demand. So I feel good about it.
Speaker Change: And then I would say the underlying.
Speaker Change: Chemical demand.
Speaker Change: You talked about last quarter, it felt like Destocking slowed inventory.
Inventory levels for us in December.
Speaker Change: It's they've ever been and they continue to be low at the end of first quarter.
Speaker Change: And chemical production and chemical shipments are up.
Speaker Change: And so when you look at those numbers you say this volume growth right now feels like it's demand driven not restocking driven.
James R. Fitterling: All of the, most of the new capacity is in the market already. And we're seeing volume growth, the second consecutive quarter of volume growth, and we're starting to see year-over-year volume growth. So it feels like we're starting to turn a corner. Your next question comes from the line of David Begleiter from Deutsche Bank. Please go ahead.
Speaker Change: And so I think as we start to move up this thing.
Speaker Change: Hopefully the economy keeps with us here.
And we start to see us pick up some momentum on this trend.
Speaker Change: Your next question comes from the line of Vincent Andrews from Morgan Stanley. Please go ahead.
David L. Begleiter: Your next question comes from the line of David Begleiter from Deutsche Bank. Please go ahead. Thank you.
Vincent Stephen Andrews: Thank you and good morning, everyone. If I could just ask in the PSP guidance for <unk> in that step up to $150 million.
James R. Fitterling: Morning, David. I think with the first quarter results and the $200 million that Jeff mentioned on the call, we're right on track. I would add that as you go into the third quarter, know that we'll have another $100 million from the restart of Glycol-2 and Plaquemine. So $100 million third quarter, $100 million fourth quarter kind of numbers.
Vincent Stephen Andrews: Could you just walk us around the world and tell us sort of how you're how you're bridging that $1 50.
Speaker Change: Yes, good morning, Vincent Thank you and.
Speaker Change: It's mostly at a step up in integrated margins.
Speaker Change: I think we're looking at about three cents, a pound globally and integrated margin increase North America, Europe, maybe a little bit more than three rest of the world is pretty flat.
Speaker Change: We've got obviously kind of a onetime improvement we had Bahia Blanca down as mentioned in the first quarter for part of first quarter beginning of it because of the storm that in December, but it's back and so youll see a $25 million improvement there. So those two positives are $175 million.
James R. Fitterling: So you're starting to see that run rate and that trade rate right in line with what we need to deliver that 6-4. And then I would say, you know, the underlying chemical demand I talked about last quarter. It felt like the stocking had slowed. Inventory levels for us in December were the lowest they've ever been, and they continue to be low at the end of the first quarter.
We have higher turnaround cost in the quarter were doing the turnaround at Sabine This quarter, that's about 75 million. So net net you've got.
Speaker Change: About 100 million up and PSP for the second quarter.
Speaker Change: And the volume numbers are good.
The the margin numbers are good exports are good the U S. Gulf Coast product is flowing operating rates are good. So we're starting to see the positive impacts of all of those things.
Vincent Stephen Andrews: And chemical production and chemical shipments are up. And so when you look at those numbers, you say this volume growth right now feels like it's demand driven, not restocking driven. And so I think as we start to move this thing up, hopefully the economy stays with us here and, um, and we start to pick up some momentum on this trend. Your next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.
Speaker Change: Your next question comes from Frank Mitsch from Fermium Research. Please go ahead.
Frank Joseph Mitsch: Thank you and let me also echo my congratulations to PON Kush best wishes and industrial solutions.
Frank Joseph Mitsch: Jim I was wondering if you could talk about operating rates across the Dow portfolio in general.
Frank Joseph Mitsch: How has that.
Frank Joseph Mitsch: Appears to be one of the positives in.
Frank Joseph Mitsch: In the quarter.
Vincent Stephen Andrews: Your next question comes from the line of Vincent Andrews from Morgan Stanley. Please go ahead. Thank you.
Jim: If you could offer some commentary on your expectations for the Dow engine in <unk> and beyond on the operating rate front.
Jim: Sure Yeah, I hope you could do that frankly, I would say globally.
Jeffrey L. Tate: Yeah, good morning, Vincent. Thank you. And it's mostly a step up in integrated margins. I think we're looking at about three tenths of a pound globally in integrated margin increase. North America, Europe, maybe a little bit more than three. Rest of the world's pretty flat.
Speaker Change: At a high level we were at.
Speaker Change: At about 76%, which is up quarter over quarter.
Speaker Change: It's higher demand, obviously drove that lower energy costs in Europe were a big driver of that as well.
Jeffrey L. Tate: We've got obviously kind of a one-time improvement. We had Bahia Blanca down, as mentioned, in the first quarter for part of the first quarter to the beginning of it because of the storm they had in December. But it's back.
Speaker Change: The United States Gulf Coast.
Argentina, Canada had been running at.
Speaker Change: Well north of 80% some some as high as 90% kind of rates.
Speaker Change: Europe saw the biggest individuals' stepper.
Jeffrey L. Tate: And so you'll see a $25 million improvement there. So those two positives are $175 million. We have higher turnaround costs in the quarter. We're doing the turnaround at Sabine this quarter. That's about $75 million. So net-net, you've got about $100 million up in PNSP for the second. And, you know, the volume numbers are good, the margin numbers are good, exports are good out of the U.S. Gulf Coast, product is flowing, operating rates are good, so we're starting to see the positive impacts of all this. Your next question comes from Frank Mitsch from Firmium Research. Please go ahead. Thank you, and let me also echo my congratulations to Pankaj. Best wishes.
Speaker Change: As I mentioned previously, but all regions saw a step up in rates and so.
Speaker Change: I'm optimistic that that's just a sign of underlying demand coming.
Speaker Change: So you probably think I think I mentioned like about 10 percentage points up.
Speaker Change: That's a good ballpark for the whole global number with North America, Latin America being continuing to be strong at high rates in Europe being a big part of that step up.
Speaker Change: Your next question comes from the line of Steve Byrne from Bank of America. Please go ahead.
Stephen V. Byrne: Yes. Thank you I wanted to ask a question about.
So hydrogen fueled cracker you're building in Alberta.
Stephen V. Byrne: And then you also have the investments with.
The mirror paralysis feedstock.
Stephen V. Byrne: Those investments.
Frank Joseph Mitsch: Your next question comes from Frank Mitsch from Firmium Research. Please go ahead.
Stephen V. Byrne: How would you expect the unit cost of.
Stephen V. Byrne: Those downstream crackers to compare to say, Texas nine on our unit costs.
James R. Fitterling: Yeah, happy to do that, Frank. I'd say globally, at a high level, we were at about 76%, which is up quarter over quarter. It's higher demand obviously drove that; lower energy costs in Europe were a big driver of that as well. The United States Gulf Coast, Argentina, and Canada have been running at well north of 80%, some as high as 90%. Europe saw the biggest individual step up, as I mentioned previously, but all all regions saw a step up in rate.
Stephen V. Byrne: And to drive the return on those projects.
Stephen V. Byrne: Do you have sales agreements.
Stephen V. Byrne: For the product at a premium price.
Stephen V. Byrne: Okay.
Speaker Change: Good morning, Steve.
Speaker Change: On the hydrogen fueled cracker.
Speaker Change: We recover.
Speaker Change: Part of the higher unit costs, there through the price on carbon.
Speaker Change: And the team is working on as well.
Speaker Change: Trying to get the.
Speaker Change: Premium pricing for that offtake.
Speaker Change: And I would say our view on that is that it will be there and there is a strong demand for low carbon emission products.
Speaker Change: Ethylene based materials and so we're working on that right now the returns on that project are going to be equal or greater than Texas nine.
James R. Fitterling: And so I'm optimistic that that's just a sign of underlying demand coming. Um, so you probably think I mentioned like 10 percentage points up. You know, that's a good ballpark for the whole global number with North America, Latin America being continued to be strong and high rates, and Europe being a big part of that.
All in and so when you when you take a look at it.
Speaker Change: We are very optimistic about where we're going to be with that project in Texas. Nine was one of the projects that obviously led us to be able to deliver the $12 4 billion and peak.
Stephen V. Byrne: Your next question comes from the line of Steve Byrne from Bank of America. Please go ahead.
Speaker Change: Earnings in that 2021, 2022 time frame.
Stephen V. Byrne: Yes, thank you. I wanted to ask a question about the hydrogen-fueled cracker you're building in Alberta, and then you also have the investments with the mirror pyrolysis feedstock. For those investments... How would you expect the unit costs of those downstream crackers to compare to, say, Texas 9 on a unit cost and to drive the return on those projects? Do you have sales agreements for the product at a premium price?
Speaker Change: So I feel good about that again remember because of the scale and because of the fact that we get the hydrogen or methane as byproducts off the back of the cracker the.
Speaker Change: The incremental cost is coming through on a thermal reformer, which part of that is recovered through the price on carbon.
Speaker Change: And then we have long term itc's investment tax credits.
From Canada for that low carbon investments.
James R. Fitterling: Morning, Steve. On the hydrogen-fueled cracker, you know, we recover part of the higher unit cost there through the price for carbon. And the team is working on, as well, trying to get the premium pricing for that offtake. And I would say our view on that is that it will be there. There's a strong demand for low-carbon emission products and ethylene-based materials.
Speaker Change: Those two things will make it very competitive with Texas Tonight.
Speaker Change: On mirror.
Speaker Change: Mirror will be focused on primarily.
Speaker Change: I'm looking at.
Speaker Change: The recycled demand, which.
Speaker Change: The supply for recycled polyethylene right now is as much shorter than the demand and so there are premiums in the market today for those materials.
James R. Fitterling: And so we're working on that right now. The returns on that project are going to be equal to or greater than Texas-9, all in. And so when you take a look at it,
Speaker Change: And the euro process.
Our view is one of the.
Speaker Change: More highly profitable ones because it uses supercritical scheme.
Two.
Changes of <unk>.
James R. Fitterling: We are very optimistic about where we're going to be with that project, and Texas 9 was one of the projects that obviously led us to be able to deliver the $12.4 billion in peak earnings in that 2021-2022 timeframe. So I feel good about that. Again, because of the scale and because of the fact that we get hydrogen and methane as byproducts from the back of the crack. The incremental cost is coming through the autothermal reformer, part of that's recovered through the price for carbon, and then we have long-term IT fees and investment tax credits from Canada for that low-carbon investment. Those two things will make it very competitive with Texas.
Speaker Change: Product back into a monomer state. So we feel good about the startup of that project.
Speaker Change: Your next question comes from the line of Josh Spector from UBS. Please go ahead.
Joshua David Spector: Yeah, Hi, good morning, I was wondering if you could share some thoughts on free cash flow for 2004 that you've kind of reiterated your expectations there on EBITDA.
Joshua David Spector: How do you see that tracking and any update you can provide on any of the non operating items that you thought could bridge free cash flow this year as well.
Joshua David Spector: Jeff do you want to walk through what you think the free cash flow outlook is for the year.
Jeff: I would just say Josh the one thing we have to remember is returned in the corner here.
Jeff: December was the low point from a pricing standpoint, and we've seen successive improvements January February March. So we go from a use of cash.
James R. Fitterling: On MIRA, MIRA will be focused primarily on looking at the recycled demand, at which the supply for recycled polyethylene right now is much shorter than the demand. And so there are premiums in the market today for those materials. And the mural process, in our view, is one of the more highly profitable ones because it uses supercritical steam to change the product back into a monomer. So, we feel good about the startup of that project. Your next question comes from the line of Josh Spector from UBS. Please go ahead. Yeah, hi, good morning.
Jeff: Source of cash in the fourth quarter to a use of cash in the first quarter, but as we make that turn in earnings improve we'll start generating the free cash flow out of higher earnings.
Speaker Change: Well said, Tim and good morning, Josh.
Tim: Building on Jim's statement there the other thing I would mention is that we've also started to see at the at.
Speaker Change: The volumes have been improving we're seeing sales ramp up and we saw the sales ramp up throughout the quarter. So our receivables are also ramping up as well from a working capital standpoint, we're also going into heavy turnaround period, as well, which we anticipate and so all of this is in line with our expectations and our projections, especially flood.
Joshua David Spector: Your next question comes from the line of Josh Spector from UBS. Please go ahead.
James R. Fitterling: Jeff, do you wanna walk through what you think the free cash flow outlook is for the year? And I would just say, Josh, you know, the one thing we have to remember is we're turning the corner here.
First half of the year in terms of the working capital uses of cash that we would expect in half, but as Jim mentioned as we go into the second half of the year continuing to see the volume growth and the volume ramp up in the sales leading to earnings growth that will get us into a really good position as we think about our cash flow on a full year basis.
James R. Fitterling: You know, December was the low point from a pricing standpoint, and we've seen successive improvements in January, February, and March. So we go from a use of cash, you know, a source of cash in the fourth quarter to a use of cash in the first quarter. But as we make that turn and earnings improve, we'll start generating free cash. Yeah, well said, Jim, and good morning, Josh. Building on Jim's statement there, the other thing I would mention is that we've also started to see, as volumes have improved and we're seeing sales ramp up, and we saw sales ramp up throughout the quarter, so our receivables are also ramping up as well from a working capital standpoint. We're also going into a heavy turnaround period as well.
Speaker Change: And we will continue to have what we like to call unique to Dow cash levers. If you look over the past several years, we have had anywhere from 1 billion to almost $3 billion on an annual basis of cash levers that we've identified and executed on and you can expect that to be very similar in 2024, as we work on our Nova judgment.
Speaker Change: Which we've talked about in the past we continue to evaluate a number of our non product producing assets that we have.
Speaker Change: Across our portfolio as well we've got to continue to focus on structural working capital improvements that we can make while also looking at opportunities to get cash out of our joint ventures.
Jeffrey L. Tate: Yeah, well said, Jim. And good morning, Josh.
Jeffrey L. Tate: Building on Jim's statement there, the other thing I would mention is that as volumes have improved and we're seeing sales ramp up, and we saw the sales ramp up throughout the quarter, so our receivables are also ramping up as well from a working capital standpoint. We're also going into a heavy turnaround period as well, which we anticipated. So all of this is in line with our expectations and our projections, especially for the first half of the year in terms of the working capital uses of cash that we would expect and have.
Speaker Change: Your next question comes from the line of Mike Sison from Wells Fargo. Please go ahead.
Michael Joseph Sison: Hey, guys nice quarter and congrats again.
Michael Joseph Sison: Sounds good.
Speaker Change: <unk> volumes will grow hydrocarbons <unk> energy.
Michael Joseph Sison: Headwind again in.
Michael Joseph Sison: And I guess, how much I'm just curious on sort of the core volume growth for PST and then.
Michael Joseph Sison: Just quickly curious on siloxane, if why do you think there could be improvement in <unk> versus <unk>.
Jeffrey L. Tate: If you look over the past several years, we have had anywhere from $1 billion to almost $3 billion in cash levers that we've identified and executed on, and you can expect that to be very similar in 2024. As we work on our NOVA judgment, which we've talked about in the past, we continue to evaluate a number of our non-product-producing assets that we have across our portfolio as well.
Michael Joseph Sison: Yes.
Michael Joseph Sison: Yeah.
Sure I think.
Michael Joseph Sison: On hydrocarbons and energy I would say as we went into first quarter.
Michael Joseph Sison: Because we had.
Michael Joseph Sison: Obviously, but he had been impacted by the storm and because we had the the arbitrage obviously to China and wanted to move more product, we elected not to move materials into the broader market and just focus on higher operating rates. So.
Jeffrey L. Tate: So we're going to continue to focus on structural working capital improvements that we can make, while also looking at opportunities to get cash out of our joint ventures with Wells Fargo, please go ahead. Hey guys, nice quarter, and uh...
Michael Joseph Sison: Sometimes byproduct sales are not as high up the crackers, especially if we're cracking light like we were in Europe and in North America, and so that leads to less volume of byproducts and sell and sometimes its run in the derivatives harder as I mentioned volume was up 5% on derivatives.
Michael Joseph Sison: Your next question comes from the line of Mike Sison from Wells Fargo. Please go ahead.
James R. Fitterling: Sure. I think on hydrocarbons and energy. I would say as we went into the first quarter, you know, because we had, you know, obviously Bahia had been impacted by the storm, and because we had the arbitrage, obviously, to China and wanted to move more product, we elected not to move materials into the broader market and just focus on higher operating rates. So, you know, sometimes byproduct sales are not as high off the crackers, especially if we're cracking light like we were in Europe and in North America, and that leads to a less volume of byproducts to sell, and sometimes it makes running the derivatives harder.
Michael Joseph Sison: First quarter and that was just we were moving that.
Michael Joseph Sison: Clean through the derivatives, making more product.
Michael Joseph Sison: I expect that will continue so we might see hydrocarbons and energy.
Michael Joseph Sison: Be a little bit less but I think youre going to see improved margins on those volumes.
Speaker Change: And the team's working hard too.
Michael Joseph Sison: Continue to deliver on the volume growth numbers, we had.
Michael Joseph Sison: We had a very good first quarter result, we've got strong volume as part of that second quarter number plus.
Michael Joseph Sison: The higher integrated margins, so im saying price.
Michael Joseph Sison: China has moved up and.
Michael Joseph Sison: Demand from the downstream products is good.
Michael Joseph Sison: Especially when you think about things like electronics.
James R. Fitterling: As I mentioned, volume was up 5% on derivatives in the first quarter, and that was just because we were moving that ethylene through the derivatives and making more product. I expect that will continue, so we might see hydrocarbons and energy.
Michael Joseph Sison: Even continuing into automotive hybrids and evs.
Michael Joseph Sison: <unk> good demand.
Michael Joseph Sison: This centers chips thermal management for silicones is big so the only the only thing thats a little bit slow is on the construction side.
James R. Fitterling: I'll be a little bit last, but I think you're going to see improved margins on those volumes, and the team's working hard to continue to deliver on the volume growth numbers we had done. We had a very good first quarter result; we've got a strong volume as part of that second quarter number, plus the higher integrated margins. So Oxfam's price in China has moved up. And demand for downstream products is good, especially when you think about things like electronics.
Michael Joseph Sison: And so you've got higher operating rates in China, you've got better sell akshay and pricing we have.
Michael Joseph Sison: Got personal care markets that are moving into positive territory. So.
Michael Joseph Sison: I would say before we even see a big step up and building and construction those are already starting to improve.
Michael Joseph Sison: Your next question comes from the line of Jeff Zekauskas from Jpmorgan. Please go ahead.
Jeffrey John Zekauskas: Thanks very much.
Jeffrey John Zekauskas: In your industrial intermediates, <unk> infrastructure or forecast.
James R. Fitterling: Even continuing to the automotive side, hybrids and EVs both drive good demand, data centers, chips, you know, thermal management for silicones is big. So the only thing that's a little bit slow is on the construction side. And so you've got higher operating rates in China, you've got better siloxane pricing, and we've got personal care markets that are moving into positive territory. So I would say, before we even see a big step up in building construction, those are already starting to
Jeffrey John Zekauskas: You have sales going up sequentially, one or 2% and you've got your.
Jeffrey John Zekauskas: EBITDA flat sequentially.
Jeffrey John Zekauskas: And normally there's a seasonal strength in the various construction markets.
Jeffrey John Zekauskas: Why is your forecast so.
Jeffrey John Zekauskas: <unk> and then.
Jeffrey John Zekauskas: Secondly for Jeff how many shares will be issued or whats the amount of options and shares issued that will affect the share count in 2024.
Jeffrey John Zekauskas: Your next question comes from the line of Jeff Zekauskas from J.P. Morgan. Please go ahead.
Speaker Change: Yes, good morning, Jeff I think the biggest thing when you look from first quarter to second quarter on ini.
James R. Fitterling: Thanks very much. In your Industrial Intermediates and Infrastructure forecast, you have sales going up sequentially by 1 or 2%, and you've got your EBITDA, FLOT sequentially, and normally there's seasonal strength in the various construction markets. Why is your forecast so conservative? And then, secondly, for Jeff, how many shares will be issued or what is the amount of options and shares issued that will affect Shark Count in 2000.
Speaker Change: Because of the glycol to situation in plasma and we had some insurance recoveries in the first quarter that don't recur in the second quarter.
Speaker Change: <unk> creates what looks like a bit of a headwind I think the underlying business is good and the underlying demand is good if you look at.
Speaker Change: All your things in construction chemicals, obviously, we've seen a step up in Europe and in operating rates.
James R. Fitterling: Yeah, good morning, Jeff. I think the biggest thing when you look from first quarter to second quarter on IINI is because of the glycol 2 situation in plaquemine. We had some insurance recoveries in the first quarter that didn't recur in the second quarter. So that creates what looks like a bit of a headwind. But I think the underlying business is good, and the underlying demand is good. If you look at polyurethanes and construction chemicals, obviously, we're seeing a step up in Europe and in operating rates.
Speaker Change: Sudan is also.
Speaker Change: Doing more of the marketing.
Speaker Change: Some of those materials and so we see a little bit less volume coming through SEDAR up from that.
Speaker Change: From Dow marketing that Sundar offtake.
Speaker Change: It has a little bit of an impact, but I would say our view is.
Speaker Change: We're still seeing construction slightly better and we're seeing obviously Europe.
Speaker Change: Better cost position and Thats driving the improved operating rates and just that insurance Delta.
James R. Fitterling: SIDHARA is also doing more of the marketing of some of those materials, and so we see a little bit less volume coming through SIDHARA from the, you know, from Dow marketing that SIDHARA offtake, so that has a little bit of an impact, but I would say our view is, We're still seeing construction slightly better, and we're seeing, obviously, Europe, a much better cost position, and that's driving the improved operating rates, and just that insurance delta is probably the biggest Jeff, good morning, Jeff. In terms of the issue with this for the whole year.
Speaker Change: Delta is probably the biggest thing.
Speaker Change: Jeff Good morning, Jeff in terms of the issuances for the full year.
Speaker Change: <unk> captures options, the first stock or one K plan as well as Tom employee stock purchase plan. We're looking at approximately 11 million shares on a full year basis.
Speaker Change: Your next question comes from the line of Kevin Mccarthy from vertical Research partners. Please go ahead.
Kevin William McCarthy: Yes, Thank you and good morning.
Kevin William McCarthy: Jim I would like to ask you about your thoughts on the likely pace of capacity rationalization across the global ethylene chain you mentioned the cash negative margins in China today.
Jeffrey L. Tate: Jeff. Good morning, Jeff. In terms of the issuances for the full year, and this encaptures options, deferred stock, 401k plans, as well as employee stock purchase plans, we're looking at approximately 11 million shares on a full year basis.
Kevin William McCarthy: Obviously, we've seen some of your competitors announced rationalizations in Europe in recent weeks. So my question would be relative to prior cycles. Do you think we're likely to see more supply come out of the equation. This cycle based on a combination of the current energy regime in Europe.
Kevin William McCarthy: Your next question comes from the line of Kevin McCarthy from Vertical Research Partners. Please go ahead.
James R. Fitterling: Thank you and good morning, Jim. I'd like to ask you about the likely pace of capacity rationalization across the global ethylene chain. You mentioned the cash negative margins in China today. Obviously, we've seen some of your competitors announce rationalizations in Europe in recent weeks. So my question would be, relative to prior cycles, do you think we're likely to see more supply come out of the equation this cycle based on a combination of, you know, the current energy regime in Europe and, obviously, a powerful drive to decarbonize? Yeah, good morning, Kevin.
Kevin William McCarthy: Then obviously powerful drive to Decarbonize.
Speaker Change: Hey, good morning, Kevin.
Speaker Change: Always hard to predict exactly the pace the things that are happening, but we.
Speaker Change: We have been under pressure on the high costs.
Speaker Change: Assets have been under pressure from a cash cost standpoint for some time so.
Speaker Change: Its normal around this time, you will start to see retirements.
Speaker Change: The things that we should consider when we're looking at.
Speaker Change: Our assets likely to be retired the age of the asset and the older. The asset in general you get a couple a.
Speaker Change: Couple of things that unit costs are not as competitive.
Kevin William McCarthy: It's always hard to predict exactly the pace that things are happening, but we've been under pressure on the high-cost assets have been under pressure from a cash-cost standpoint for some time, so it's normal around this time you would start to see retirement. The thing that we should consider when we're looking at, are assets likely to be retired? The age of the asset, and the older the asset in general, you get a couple of things. Its unit costs are not as competitive, its maintenance costs start to ramp up, and so you have to question putting in big maintenance dollars on top of that asset, and then, depending on the environment you're in, CO2 and the emissions from those assets. And what does that do to you longer term? Because there is a cost in Europe, obviously, for CO2. And if you're not going to abate that, then you have to make long-term decisions about that.
Speaker Change: It's maintenance costs start to ramp up and so you have to question put in in big maintenance dollars on top of that asset.
Speaker Change: And then depending on the environment you're in.
Speaker Change: <unk>.
Speaker Change: And the emissions off of those assets.
Speaker Change: What does that do to your longer term because there is a cost in Europe, obviously for Cotwo.
Speaker Change: And if you're not going to abate that then you have to take long term decisions about that.
Speaker Change: That's why Europe has seen the first moves.
Speaker Change: And obviously as we've talked about before there are a lot of policies in Europe.
Speaker Change: We're continuing to drive cost up so we've seen it not just in petrochemicals, but we see it in steel we see it in other energy intensive industries.
Speaker Change: I think we've.
Speaker Change: <unk> been fortunate that we are advantaged in Europe, because of our ability to crack LPG and that has helped us tremendously.
Speaker Change: And in China, some of those assets are newer.
Speaker Change: <unk>.
Speaker Change: A lot of state owned enterprises, there so it may not be the pace.
James R. Fitterling: So I think that's why Europe has seen the first move. And obviously, as we've talked about before, there are a lot of policies in Europe that are continuing to drive costs up, so we've seen it not just in petrochemicals, but we see it in steel. We see it in other energy-intensive industries. I think we've been fortunate that we are advantaged in Europe because of our ability to crack LPG, and that's helped us tremendously.
Speaker Change: Pace that you would see the changes in Europe, but we just have to keep an eye on that I think.
Speaker Change: Nobody wants to run when you're bleeding the kind of cash that we're talking about.
Speaker Change: Between 100 and $200 a ton.
Speaker Change: It's pretty pretty ugly territories, so I think youll continue to see some changes.
Speaker Change: Your next question comes from the line of Laurence Alexander from Jefferies. Please go ahead.
Speaker Change: Hey, Good morning, this is Kevin on for Laurence.
James R. Fitterling: In China, some of those assets are newer, and, you know, a lot of state-owned enterprises are there, so it may not be the pace at which you would see the changes in Europe, but we just have to keep an eye on that, I think. Nobody wants to run when you're bleeding the kind of cash that we're talking about, you know, between $100 and $200 a ton, pretty, pretty ugly territory. So I think you'll continue to see some change. Your next question comes from the line of Lawrence Alexander from Jeffreys.
Kevin William McCarthy: Just to touch back on in Silicon trends I was just wondering if you guys had seen any visibility into restocking in Europe, and whether you can maybe any green shoots in construction globally. Thank you.
Kevin William McCarthy: No I haven't seen big signs of restocking in Europe, I would say on construction trends, we are starting to see some positive things happening.
Speaker Change: When you take a look at <unk>.
Speaker Change: Existing home sales.
Speaker Change: Even though some of the year over year trends are are down we're starting to see some marginal improvements building permits are starting to tick up.
Laurence Alexander: Your next question comes from the line of Lawrence Alexander from Jeffreys. Please go ahead.
James R. Fitterling: You know, I haven't seen big signs of restocking in Europe. But I would say on construction trends, we are starting to see some positive things happen. When you take a look at existing home sales, even though some of the year over year trends are down, we're starting to see some marginal improvements. Building permits are starting to tick up.
Speaker Change: She is good so new homes.
Speaker Change: There is a need for new homes in North America.
Speaker Change: Sure and so youre going to start to see that demand and with the team.
Speaker Change: Sense to me is that when we start to see interest rate declines.
Speaker Change: A couple of interest rate declines in a row you tend to start to see in a pretty immediate uptick in the downstream demand for products that are in our polyurethane business, our silicones business our coatings business.
Patrick Duffy Fischer: When you see a couple of interest rate declines in a row, you tend to start to see a pretty immediate uptick in downstream demand for products that are in our polyurethanes business, our silicones business, our coatings business. So we're watching closely for that, but I feel like this is more underlying demand-driven. Some of the markets I talked about earlier, electronics, data centers, automotive, You know, anything that has to deal with energy and thermal management. Those have been strong, personal care is strong, Paramount goes into infrastructure; infrastructure is obviously still good. So as soon as we see some pickup in housing, I think we're going to start to see another step change.
Speaker Change: So we're watching closely for that.
Speaker Change: But I feel like this is more underlying demand driven some of the markets I talked about earlier.
Speaker Change: Electronics Datacenters automotive.
Speaker Change: Anything.
Speaker Change: As to deal with.
Speaker Change: Energy and thermal management those have been strong.
Speaker Change: Personal care is strong.
Speaker Change: Paramount goes into infrastructure and infrastructure is obviously still good.
Speaker Change: As soon as we see some pickup in the housing I think we're going to start to see another step change.
Speaker Change: Your next question comes from the line of Duffy Fisher from Goldman Sachs. Please go ahead.
Patrick Duffy Fischer: Your next question comes from the line of Duffy Fischer from Goldman Sachs. Please go ahead.
James R. Fitterling: Yeah, good morning. Just a question about your coatings and monomers business. You had volumes up, but when you look at a lot of your big competitors, or not competitors, customers who have already announced, PPG, Sherwin-Axel, their revenue is all down in Q1. What's your sense of what's happening in the coatings market this year? Are you guys overshipping, do you think, in Q1 for where the demand level for paints will be this year? And then just how do you see pricing trending in that business for you guys?
Patrick Duffy Fischer: Yeah. Good morning, just.
Patrick Duffy Fischer: Just a question around your coatings and monomers business you had volumes, but when you look at a lot of your big competitors are not competitors customers, who have announced already PPG Sherwin Act. So their revenue was all down in Q1.
Patrick Duffy Fischer: What's your sense for what's happening in the coatings market. This year are you guys over shipping do you think in Q1 for where the demand level for paints will be this year and then just how do you see pricing trending in that business for you guys.
Speaker Change: Yes, good morning, Duffy I don't think theres any over shipping or stocking going on there I think.
Patrick Duffy Fischer: Obviously.
John Patrick McNulty: Yeah, good morning, Duffy. I don't think there's any overshipping or stocking going on there. I think, obviously, some customers are more exposed to the contractor business, and that's very much driven by new homes and new construction. And then there's the DIY segment, and we're pretty heavily impacted by the DIY segment, so painting existing homes or when existing homes are sold. And so we tend to see that ball and pence to help us.
Patrick Duffy Fischer: Some customers are more exposed to the contractor business and thats very much driven by new homes and new construction.
Patrick Duffy Fischer: And then there is the DIY segment and were pretty heavily impacted by the DIY segment.
Patrick Duffy Fischer: Painting existing homes or when existing homes are sold.
Patrick Duffy Fischer: And so we tend to see that that volume tends to help us.
Patrick Duffy Fischer: I think obviously, we had a very strong fourth quarter.
Patrick Duffy Fischer: Had some turnaround activity in first quarter and still had.
Patrick Duffy Fischer: Pretty good numbers, so I think we're well positioned for the peak of the season in second and third quarter.
John Patrick McNulty: I think, obviously, we had a very strong fourth quarter. We had some turnaround activity in the first quarter and still had pretty good numbers, so I think we're well positioned for the peak of the season in the second and third quarters.
Patrick Duffy Fischer: And also some of the monomers demand from time to time.
Patrick Duffy Fischer: Being added positive on that and so it doesn't necessarily mean, it's downstream coatings some of the monomers going into other markets could help us out a little bit too.
John Patrick McNulty: And also, some of the monomers demand from time to time can be an added positive to that. And so, it doesn't all necessarily mean it's downstream coding. Your next question comes from the line of John Roberts from Mizuho. Please go ahead.
Patrick Duffy Fischer: Your next question comes from the line of John Roberts from Mizuho. Please go ahead.
John Patrick McNulty: And congrats as well to both Pankaj Chin Andrew on the new roles.
John Patrick McNulty: Jim There are some reports about European warehouses imports being jammed again with your customers' products do you think there.
James R. Fitterling: And congratulations, as well, to both Pankaj and Andrew on their new roles.
John Patrick McNulty: Supply chain inventory building again downstream in Europe.
Patrick David Cunningham: Any particular products, John, that you're thinking of? Just the economic magazines we're talking about because of the Red Sea issues. Just a lot of safety stock, I guess, being built up again across some supply chains. I see. I haven't seen it yet.
Speaker Change: Any particular products John that Youre thinking of.
John Patrick McNulty: Just the economic magazines to talk to you about because of the Red Sea issues, just a lot of safety stock I guess being built up again across some supply chains.
Speaker Change: I see.
Speaker Change: I haven't seen it.
James R. Fitterling: I haven't seen it in plastics, for sure. I don't know if we've seen any of that in polyurethanes or construction chemicals. Our days of inventory are low. I mean, we're at 41 days of sales and inventory, which is a day better than we were in the fourth quarter. So I'm certainly not seeing it in our case, and we're pretty focused in Europe on the domestic market. We're not, you know; we don't rely on Europe as an export hub.
Speaker Change: Haven't seen it in plastics for sure.
Speaker Change: I don't know if we've seen any of that in polyurethane and construction chemicals.
Speaker Change: Sure.
Speaker Change: Our days of inventory are low.
Speaker Change: We're at 41 days sales in inventory, which is a day better than we were in fourth quarter.
Speaker Change: I'm certainly not seeing it in our case and we're pretty focused in Europe on the domestic market.
Speaker Change: We don't rely on Europe as an export hub. So I think that's to our advantage there.
James R. Fitterling: So I think that's to our advantage there. The Red Sea, I believe, is going to be the way it is for the next, you know, for the rest of the year, probably. I mean, if things were resolved today, I think it would take about six months for the shipping channels to move back around. So we'll just have to keep an eye on it. It hasn't had an impact on us so far, and we're not exporting from there. And we're still expecting good operating rates in the second. Your next question comes from the line of Patrick Cunningham from Citigroup. Please go ahead. Hi, good morning.
Speaker Change: The Red Sea I believe is going to be the way it is for the next.
Speaker Change: For the rest of the year are probably I mean, if things were resolved today I think it would take about six months for the shipping channels to move back around.
Speaker Change: So I'll just we'll just have to keep an eye on it it hasnt had an impact on us so far and.
Speaker Change: We're not exporting out of there so.
Speaker Change: We're still expecting good operating rates in second quarter.
Speaker Change: Your next question comes from the line of Patrick Cunningham from Citigroup. Please go ahead.
Patrick David Cunningham: Hi, good morning.
Patrick David Cunningham: You closed increased demand and functional polymers for the first time in a few quarters. If you speak to some of the specific areas of strength or products or what youre seeing increased demands and you've also called it out as a source of some higher churn on EBITDA contribution incremental growth projects for meaningful net benefit in 2024.
Patrick David Cunningham: Your next question comes from the line of Patrick Cunningham from Citigroup. Please go ahead.
James R. Fitterling: Now, functional polymers are going to primarily be driven by infrastructure markets. You think wiring cable is big, automotive is big, golf balls are a big part of it, and footwear sales are improving. So, all those areas are very robust; I'd say the power demand, electric, you know, you hear about it, AI data centers, but just beyond that, the energy transition, electric grids, installations of new, it could be wind, it could be offshore wind, it could be a solar farm, it could be a telecom center, it could be a data center, it could be the replacement of wiring in an existing grid. All of that takes the So that's been really big.
Speaker Change: Now functional polymers going to primarily be driven by infrastructure markets. You think wiring cable is big automotive is big.
Speaker Change: Golf balls.
Speaker Change: Is the big part of our footwear sales are improved.
Speaker Change: So all of those areas are very robust I would say the power demand electric.
Speaker Change: You hear about it AI data centers, but just beyond that.
Speaker Change: The energy transition electric grids installations of new it could be.
Speaker Change: It could be when that could be offshore wind it could be a solar farm it could be.
Speaker Change: Telecom center it could be.
Speaker Change: Data center, it could be replacement of wiring and existing grid all of that takes the products that we sell and what are the market leader in wire and cable jack-a-dandy.
James R. Fitterling: And then I think we're kind of set up for year-over-year improvements on footwear, which was a little bit slow last year. And then infrastructure also would include things tied to water, such as membranes for lining, water basins, and water treatment basins. Membranes for roofing replacement. We do a lot of membranes, and cool roofing for building efficiencies. So when you put a new flat roof on a building, you'll see a lot of these very white, light-colored roofs.
Speaker Change: That's been paid and then I think.
Speaker Change: Kind of set up for year over year improvements on footwear, which was a little bit slow last year.
Speaker Change: And then infrastructure also would include things.
Speaker Change: Tied to.
Speaker Change: Imagine membranes for lining.
Speaker Change: Water basins and water treatment basins membranes for roofing a replacement, we do a lot of membranes into cool roofing for building efficiencies. So when you put a put a new.
Speaker Change: Flat roof on a building you will see a lot of these.
Speaker Change: Very white light colored routes, we work with our customers, who make that material and install those there's a high demand for that and Thats continued.
James R. Fitterling: You know, we work with our customers who make that material and install it. There's a high demand for that, and that's continued, and commercial building and retrofits of anything from an energy efficiency standpoint still continue to be high. Solar PV, I should mention. We've got a big new piece of business for solar PV encapsulation, and we put on some of the outer layers that protect it. Thank you.
Speaker Change: Commercial building and retrofits of anything from an energy efficiency standpoint still continues to be high.
Speaker Change: Solar PV I should mention.
Speaker Change: We've got a big new piece of business for solar PV encapsulation.
Speaker Change: And we put on some of the outer layers that protect.
Christopher S. Parkinson: Your next question comes from the line of Chris Parkinson from Wolf Research. Please go ahead.
Speaker Change: The solar panels and so.
Speaker Change: This is a product that is.
Speaker Change: Very durable and long lasting and it's it's really picked up over the last couple of years. So those would be the big drivers.
Christopher S. Parkinson: Great. Thank you so much.
James R. Fitterling: So, Jim, there's been a lot of back and forth in the buy and the sell side communities about, you know, the 3 cent increase for April and then obviously some preliminary ideas for May. Just, you know, where we stand right now, given the U.S. macro, given where you anticipate USGC operating rates to be, you know, on a sequential basis, what's Dow's view of this? We all know what the consultant's view is, but what's your view in terms of how things play out during the second quarter and how that ultimately sets the tone for the second half?
Speaker Change: Your next question comes from the line of Chris Parkinson from Wolfe Research. Please go ahead.
Christopher S. Parkinson: Great. Thank you so much so theres been a lot of back and forth in the buy and the sell side communities about the 3% increase for April and then obviously some preliminary ideas for me just where we stand right here right now given the U S macro given where you anticipate USCC operating rates to be on a sequential basis.
Speaker Change: Whats Dallas view of this we all know what the consultant views, but what's your view in terms of how things play out during the second quarter and how that ultimately sets the tone for.
Michael James Leithead: We're moving up in the second quarter. I would say it almost moved up to $0.03 at the end of the first quarter, and the numbers have continued to go up. The macroeconomic indicators have continued to get stronger, not weaker. So I think with the volume that we're seeing on the downstream derivatives with improved economic business and consumers still being strong, I think you're going to see it move up in the second quarter. So I think we're very firm on the 3 in April.
Speaker Change: For the second half thank you so much.
Speaker Change: We're moving up in the second quarter.
Speaker Change: I would say almost moved up that three <unk> at the end of the first quarter.
Speaker Change: And the numbers have continued to the macroeconomic indicators have continued to get stronger not weaker so I think with the volume that we're seeing in the downstream derivatives with <unk>.
Speaker Change: Improved.
Speaker Change: Economic business and the consumer is still being strong.
Speaker Change: I think youre going to see it move up in the second quarter.
Speaker Change: So I think we are.
Speaker Change: Very firm on the three in April and.
Michael James Leithead: And, you know, as I mentioned, we started at a low point at the end of December, and we just saw a steady improvement through the first quarter. And so I think we're off to start the second quarter at a much higher rate and see some momentum as we move through that. Your next question comes from the line of Mike Leithead from Barclays. Please go ahead.
Speaker Change: As I mentioned, we started with the low point at the end of December and we just saw a steady improvement through the first quarter.
Speaker Change: And so I think we're off to.
Speaker Change: To start the second quarter at a much higher rate.
Speaker Change: And see some momentum as we move through that quarter.
Speaker Change: Your next question comes from the line of Mike <unk> from Barclays. Please go ahead.
Michael James Leithead: Your next question comes from the line of Mike Leithead from Barclays. Please go ahead. Great. Thank you. Good morning. I wanted to ask a follow-up to an earlier question on cash flow, maybe for Jeff. I guess if you hit your EBITDA targets for this year, are you?
Michael Joseph Sison: Great. Thank you good morning.
Michael Joseph Sison: I wanted to ask a follow up to an earlier question on cash flow maybe for Jeff.
Michael Joseph Sison: I guess, if you hit your EBITDA targets for this year.
Michael Joseph Sison: Forecasting working capital to be a use of cash or source of cash this year.
Michael Joseph Sison: Roughly what magnitude thank you.
Jeffrey John Zekauskas: Yes. Good morning, Mike, Yes, we are actually looking at is still being a use of cash on a full year basis as we work our way through again the recovery for a number of the dynamics that I mentioned earlier in relation to Joshua question here, but again, if we see the earnings improve based on the volume improvements that we're anticipating.
Jeffrey L. Tate: Yeah, good morning, Mike. Yeah, we are actually looking at it as still being a use of cash on
Michael Joseph Sison: Right, we will start to turn that corner, but coming from where we're coming from on our working capital today. It will be a use of cash from a full year basis.
Aleksey V. Yefremov: Your next question comes from the line of Aleksey Yefremov from RBC Capital. Sorry, KeyBank Capital Markets, please go ahead.
Michael Joseph Sison: Your next question comes from the line of Alexia <unk>.
Speaker Change: Yeah from Manav from our VC capital, sorry, Keybanc capital markets. Please go ahead.
Alexia: Thanks, and good morning, everyone I wanted to come back to Silicones was the improvement that you saw.
James R. Fitterling: Good morning, Aleksey. It's from both of them.
Alexia: More on the upstream silicone side of downstream.
James R. Fitterling: We saw better demand for siloxanes and better pricing. We also saw better downstream. We saw improvements in building and infrastructure, which were primarily seasonality driven. Additionally, we saw gains in personal care. We saw gains in industrial and chemical processing, where some of the products are used as intermediates. We saw gains in mobility, and we saw gains in consumer electronics. So all the downstream markets were up. The siloxanes demand was up, and the operating rates were up, too. The pricing on siloxanes was up, so it was pretty balanced on both sides.
Alexia: Follow up where are your downstream silicones margins.
Alexia: With a tier or mid cycle expectations.
Manav: Therefore, what's the sort of optionality for downstream silicones improvement.
Speaker Change: Good morning, Alexia, it's from both we saw better demand on <unk> and better pricing, we saw better downstream.
Speaker Change: Improvements in building, an infrastructure, which were primarily seasonality driven we saw gains in personal care, we saw gains in industrial and chemical processing, where were some of the products are used as intermediates.
Speaker Change: We saw gains in mobility, and we saw gains in consumer electronics. So.
Speaker Change: All the downstream markets were up.
Speaker Change: <unk> demand was up the operating rates were up the pricing on <unk> things were up so it was it was pretty balanced on both sides.
Arun Shankar Viswanathan: Your next question comes from the line of Arun Viswanathan from RBC Capital Markets. Please go ahead.
Speaker Change: Your next question comes from the line of Rune Vishwanathan from RBC capital markets. Please go ahead.
Arun Shankar Viswanathan: Great. Thanks for taking my question. I hope you guys are well and enjoy working with you, Pankaj, as well.
Arun Shankar Viswanathan: Great. Thanks for taking my question I Hope you guys are well and good working with you Ponca did as well.
James R. Fitterling: And so I guess my question is, you know, you're on a run rate now of, say, $6.3, $6.4, $6.5 billion of annual EBITDA. Do you still think maybe mid-cycle levels are around $8 billion? And if that is the case, how do you bridge the kind of going from $6.5 to $1.5 billion? Are there any discrete items maybe that you'd call out as far as capacity additions, or is it mainly going to be volume recovery based?
Arun Shankar Viswanathan: And so I guess my question is.
Arun Shankar Viswanathan: You're on a run rate now, let's say 63646 5 billion of annual EBITDA.
Arun Shankar Viswanathan: Do you still think maybe mid cycle levels around 8 billion and if that is the case, how do you bridge kind of going from six and a half that that $1 5 billion with are there any discrete items, maybe that you'd call out as far as capacity additions or is it mainly going to be volume recovery base.
James R. Fitterling: Yeah, good morning, Arun. I think you're right on top of the run rates, so no comments there. Yeah, I do think mid-cycle is probably closer to nine. And so, you know, to get to that mid-cycle run rate, obviously, we have to have another couple of step-ups to get there. Volume is a big part of it.
Arun Shankar Viswanathan: Okay.
Speaker Change: Yes, good morning, Arun I think youre right on top of that.
Speaker Change: Run rate so no comments there I do think mid cycle I mean, our view of mid cycle is probably closer to nine.
Arun Shankar Viswanathan: And.
Speaker Change: So you know.
Speaker Change: To get to that mid cycle run rate. Obviously, we have to have another couple of step ups to get there.
Speaker Change: Volume is a big part of it so as I mentioned.
James R. Fitterling: So, as I mentioned, all the projects on the call, some that we've already put in place that equal $800 million of the step-up, and the rest that we're in flight right now, that's another $1.2 billion of step-up. So, that $2 billion of improved margins is all volume, and most of that capex. Either Ben Spatter or I will be finished this year and the beginning of next year, so I feel good about that.
Speaker Change: All the projects on a call that some that we've already put in place that equal $800 million of the step up and the rest of that were in flight right. Now that's another $1 $2 billion of step up so that $2 billion of improved margins is all volume.
Speaker Change: Most of that Capex is either been spend or it will be finished this year and beginning of next year. So I feel good about that obviously the path to zero and in Alberta comes later, so I think you'd see that $1 billion more towards as we're getting to the next peak that's a 27%.
James R. Fitterling: Obviously, the path to zero in Alberta comes later. So I think you'd see that billion more towards as we're getting to the next peak. That's a 27 to 29 timeframe where that's coming in. 27 is phase one, and 29 is phase two.
Speaker Change: <unk> 2009 timeframe, where that is coming in 2007 phase one and 2009 as phase two.
James R. Fitterling: And so if we've got our timing right, and that's what we intended, we got that up and running before we get into the next piece. And, um, so I think we've got the line of sight to the volume.
Speaker Change: And so if we've got our timing right and Thats. What we intended was we got that up and running before we get into the next peak.
Speaker Change: So I think we've got good line of sight to the volume that's going to come from here to mid cycle.
James R. Fitterling: That's going to come from here to mid cycle. Uh, when we get to investor day on May 16th, we're going to unpack all that volume and that trajectory. And then we've got the line of sight then to the stuff that gets us greater than 3 billion by 2030. Next, peak type economy. And from where we are, that's excellent growth rates for both of them. And so I feel like we've been through the worst of it here during the slowdown in the cycle. So there should be more upside and downside from here on.
Speaker Change: When we get to Investor day on May 16th and we're going to unpack all of that volume in that trajectory and then we've got the lineup of science into the stuff that gets us greater than $3 billion by 2030, which is next peak type economics.
Speaker Change: And from where we are.
Speaker Change: That's excellent growth rates for both of them.
Speaker Change: And so I feel like we've.
Speaker Change: We've been through the worst of it here on the slowdown in the cycle.
Speaker Change: So it should be more more upside than downside from here out.
Pankaj Gupta: That concludes our question and answer session. I will now turn the conference back over to Pankaj Gupta for his closing remarks.
Speaker Change: That concludes our question and answer session I will now turn the conference back over to potash Gupta for closing remarks.
Pankaj Gupta: Thank you, Krista, and thanks to everyone for joining our call, and we appreciate your interest in Dow. For your reference, a copy of our transcript will be posted on Dow's website within 48 hours. This concludes our call. Thanks once again.
Pankaj Gupta: Thank you Krista and thanks, everyone for joining our call and we appreciate your interest and for your reference a copy of our transcript will be posted on <unk> website within 48 hours. This concludes our call. Thanks once again.
Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: Thank you.
Speaker Change:
Speaker Change: Yeah.
Speaker Change: Yeah.