Q2 2024 Dow Inc Earnings Call
Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dow, Inc. 2024 Earnings Report.
Operator: Operator today. At this time, I would like to welcome everyone to the Dow, Inc. 2024 earnings report. All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. And if you'd like to withdraw that question, again, press star 1.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. And if you'd like to withdraw that question, again, press star 1.
Operator: Thank you. I will now like to turn the conference over to Andrew Riker. Andrew, the floor is yours.
Thank you. I will now like to turn the conference over to Andrew Riker. Andrew, the floor is yours.
Andrew Riker: Thank you for joining us today. The accompanying slides are provided through this webcast and posted on our website. I'm Andrew Riker, Dow's Investor Relations Vice President. Leading today's call are Jim Fitterling, Dow Chairman and Chief Executive Officer, and Jeff Tate, Chief Financial Officer.
Andrew Riker: Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I am Andrew Riker, Dow's Investor Relations Vice President. Leading today's call are Jim Fitterling, Dow's Chair and Chief Executive Officer, and Jeff Tate, Chief Financial Officer.
Andrew Riker: Please note our comments contain forward-looking statements and are subject to the related cautionary statements contained in the earnings news release and slides. Please refer to our public filings for further information about principal risk and uncertainty. I must otherwise specify that all financials, where applicable, exclude significant items.
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. Please refer to our public filings for further information about principal risk and uncertainty.
Andrew Riker: I must otherwise specify that all financials, where applicable, exclude significant items. We will also refer to non-GAAP measures.
Andrew Riker: We will also refer to non-GAAP measures. The reconciliation of the Most Directly Comparable Gap financial measure and other associated disclosures are contained in the unexcused release and slides that are posted on our website. On slide two, we have our agenda for today's call. Jim will review our second quarter results and operating segment performance. Jeff will then share an update on the macroeconomic environment and modeling data, followed by a discussion on how our proven playbook will advance our near-term priorities and support growth.
Andrew Riker: The reconciliation of the Most Directly Comparable GAAP financial Measure and other associated disclosures are contained in the uninfused release and slides that are posted on our website.
Andrew Riker: On slide two is our agenda for today's call. Jim will review our second quarter results and operating segment performance.
Andrew Riker: Jeff will then share an update on the macroeconomic environment and modeling data, followed by a discussion on how our proven playbook will advance our near-term priorities and support growth.
Andrew Riker: Jim will then provide more color on key milestones for a long-term strategy, including How We Will Capture Earnings Outside of the Microeconomic Conditions of the World. Following that, we will take your questions. Now, I will turn the call over to Jim. Thank you, Andrew.
Andrew Riker: Jim will then provide more color on key milestones for a long-term strategy.
Jeff: Including how we will capture earnings upside as microeconomic conditions improve.
Andrew Riker: Following that, we will take your questions. Now, let me turn the call over to Jim.
James R. Fitterling: Beginning on slide three, in the second quarter, Team Dow delivered sequential top and bottom line growth, as well as a third consecutive quarter of year-over-year volume growth. We achieved this despite a slower than expected global macroeconomic recovery, particularly in areas like building and construction and consumer durables. Net sales were $10.9 billion, down 4% versus the year-ago period and up 1% sequentially, driven by gains in packaging and specialty plastics and performance materials and coatings.
Jim: Thank you, Andrew. Beginning on slide three. In the second quarter, Team Dow delivered sequential top and bottom line growth, as well as a third consecutive quarter of year-over-year volume growth.
Jim: We achieved this despite a slower-than-expected global macroeconomic recovery, particularly in areas like building and construction and consumer durables.
Jim: Net sales were $10.9 billion, down 4% versus the year-ago period and up 1% sequentially, driven by gains in packaging and specialty plastics and performance materials and coatings.
James R. Fitterling: Volume increased 1% versus the year-ago period, with gains led by the United States and Canada. Excluding hydrocarbons and energy sales, which were down primarily due to lighter feed slate cracking in Europe, volume increased 4%. Sequentially, volume increased 1% with gains in all regions except Asia Pacific, which was flat. Local prices decreased 4% year over year.
Jim: Volume increased 1% versus the year ago period with gains led by the United States and Canada.
Jim: Excluding hydrocarbons and energy sales, which were down primarily due to lighter feed slate cracking in Europe , volume increased 4%.
Jim: Sequentially, volume increased 1% with gains in all regions except Asia Pacific, which was flat.
James R. Fitterling: sequentially, local prices increased 1%, led by gains in Europe, the Middle East, Africa, and India, or EMEA. Operating EBIT was $819 million, up $145 million sequentially, reflecting gains in packaging and specialty plastics and performance materials and coating. Cashflow from operations was $832 million on higher earnings and an efficient release of working capital, resulting in an 85% cashflow conversion on a trailing 12-month basis.
Jim: Local price decreased 4% year-over-year.
Jim: Sequentially, local price increased 1%, led by gains in Europe , the Middle East, Africa, and India, or EMEA.
Jim: Operating EBIT was $819 million, up $145 million sequentially, reflecting gains in packaging and specialty plastics and performance materials and coatings.
Jim: Cash flow from operations was $832 million on higher earnings and an efficient release of working capital, resulting in an 85% cash flow conversion on a trailing 12-month basis.
James R. Fitterling: Our focus on cash flow generation enabled $691 million in returns to shareholders, including $491 million through dividends and $200 million in share repurchase. In June, we published our 2023 intersections progress report. This report showcases the positive impact that we are making on the environment and society, and importantly, how those actions support long-term profitable growth. Now, turning to our operating segment performance on slide four. In the packaging and specialty plastics segment, operating EBIT was $703 million, down $215 million year over year. This was driven by lower integrated margins, higher planned maintenance activity, and lower non-recurring licensing sales. Local price declines were due to lower downstream polymer prices, primarily in Asia Pacific.
Jim: Our focus on cash flow generation enabled $691 million in returns to shareholders, including $491 million through dividends and $200 million in share repurchases.
Jim: In June , we published our 2023 Intersections Progress Report. This report showcases the positive impact that we are making on the environment and society, and importantly, how those actions support long-term profitable growth.
Jim: Now turning to our operating segment performance on slide four.
Speaker Change: In the packaging and specialty plastic segment, operating EBIT was $703 million, down $215 million year-over-year. This is driven by lower integrated margins, higher planned maintenance activity, and lower non-recurring licensing sales.
Speaker Change: Local case declines were due to lower downstream polymer prices, primarily in Asia Pacific.
James R. Fitterling: Volume decreased year over year, and higher demand for functional polymers and polyethylene was more than offset by lower merchant hydrocarbon sales, primarily due to lighter feed slate cracking in Europe. However, sequentially, operating EBIT increased by $98 million, primarily due to higher integrated margins behind both price and volume gains. Moving to the Industrial and Immediate and Infrastructure segment, operating EBIT was $7 million, an improvement of $42 million versus the year-ago period. Results were driven by improved equity earnings, partly offset by lower integrated marks.
Speaker Change: Volume decreased year over year as higher demand for functional polymers and polyethylene was more than offset by lower merchant hydrocarbon sales, primarily due to lighter feed slate cracking in Europe .
Speaker Change: Sequentially, operating EBIT increased by $98 million, primarily due to higher integrated margins behind both price and volume gains.
Speaker Change: Moving to the Industrial Intermediates and Infrastructure segment, operating EBIT with $7 million, an improvement of $42 million versus the year-ago period.
Speaker Change: Results were driven by improved equity earnings, partly offset by lower integrated markets.
James R. Fitterling: Local prices declined year over year, but volume was up, driven by gains in polyurethane and construction chemicals. However, sequentially, operating need has decreased $80 million, driven by higher planned maintenance activity and higher equity losses, as well as lower volume.
Speaker Change: Local price declined year over year, but volume was up, driven by gains in polyurethane and construction chemicals.
Speaker Change: Sequentially, operating decrease to $80 million, driven by higher planned maintenance activity and higher equity losses, as well as lower volumes.
James R. Fitterling: And in the performance materials and coding segment, operating EBIT was $146 million, up $80 million compared to the year-ago period, driven by broad-based business and geographic volume growth. Local prices declined year over year, but volume was up, driven by gains in both businesses and all geographic regions. Sequentially operating EBIT increased to $105 million, driven by volume and price gains in both businesses and lower plan maintenance activities. Now, I'll turn it over to Jeff to review our outlook and share some examples of our playbook in action. Thank you, Jim, and good morning to everyone joining our call today. Moving to slide five.
Speaker Change: And in the Performance Materials and Codings segment, operating EBIT was $146 million dollars, up $80 million dollars compared to the year-ago period, driven by broad-based business and geographic volume growth.
Speaker Change: Local price declined year over year, but volume was up, driven by gains in both businesses and all geographic regions.
Speaker Change: Sequentially, Operating EDIT increased $105 million, driven by volume and price gains in both businesses and lower plan maintenance activity.
Speaker Change: Now I'll turn it over to Jeff to review our outlook and share some examples of our playbook in action.
Jeffrey L. Tate: In the near term, we expect macrodynamics to remain largely unchanged. While global manufacturing PMI has been positive since February 2024, the pace of the global economic recovery has decelerated slightly. This is primarily led by China, where economic growth in the second quarter was lower than the market expected. Overall, we continue to keep a close eye on the weight of inflation on the U.S. consumer, global interest rates, and geopolitical tension. Looking across our four market verticals, packaging demand is seeing global growth, primarily in the U.S. and Canada, as the industry experiences robust domestic and export demand for polyethylene.
Jeff: Thank you, Jim, and good morning to everyone joining our call today.
Jeff: Moving to slide five. In the near term, we expect microdynamics to remain largely unchanged. While global manufacturing PMI has been positive since February 2024, the pace of the global economic recovery has decelerated slightly.
Jeff: This is primarily led by China, where economic growth in the second quarter was lower than the market expected.
Jeff: Overall, we continue to keep a close eye on the weight of inflation on the U.S. consumer, global interest rates, and geopolitical tensions.
Jeff: Looking across our four market verticals, packaging demand is seeing global growth, primarily in the U.S. and Canada, as the industry experiences robust domestic and export demand for polyethylene.
Jeffrey L. Tate: In Europe, soft demand across the value chain is reflected in manufacturing PMI levels, which despite stabilizing, remain in contractionary territory. And in Asia, packaging demand has remained steady, but the region has been impacted by poor congestion and rising transportation costs. Infrastructure demand, primarily residential construction, continues to be soft across most regions. In June, existing U.S. home sales, which tend to drive residential paint sales from both buyers and sellers, were below prior year levels. And building permits were down slightly due to date through June. Eurozone construction PMI remains in contractionary territory and declined to 41.8 last month, down from 42.9 in May.
Jeff: In Europe , soft demand across the value chain is reflected in manufacturing PMI levels, which despite stabilizing, remains in contractionary territory.
Jeff: And in Asia, packaging demand has remained steady, but the region has been impacted by poor congestion and rising transportation costs.
Jeff: Infrastructure demand, primarily residential construction, continues to be soft across most regions.
Jeff: In June , existing U.S. home sales, which tend to drive residential paint sales from both buyers and sellers, were below prior year levels, and building permits were down slightly due to date through June .
Jeff: Eurozone construction PMI remains in contractionary territory and declined to 41.8 last month, down from 42.9 in May.
Jeffrey L. Tate: And in China, new loan prices were down 4.5% year-over-year in June. Consumer spending has shown resilience in most regions except Europe, where consumer confidence remained negative in July. In the U.S., retail sales are up 2.3% year-to-date through June, but furniture and bedding sales remain low. In China, retail sales increased by 2% year-over-year in June, but it marked the first month of deceleration since July 2023. And in mobility, China's auto production was down 2.1% year over year in June amidst the potential for tariff increases and slow to materialize incentives. In the U.S., auto sales were down year over year in June after increasing by more than 2% in May.
Jeff: And in China, new loan prices were down 4.5% year-over-year in June .
Jeff: Consumer spending has shown resilience in most regions except Europe where consumer confidence remained negative in July .
Jeff: In the U.S., retail sales are up 2.3% year-to-date through June , but furniture and bedding sales remain low.
Jeff: In China, retail sales increased by 2% year-over-year in June , but marked the first month of deceleration since July 2023.
Jeff: And in mobility, China auto production was down 2.1% year-over-year in June amidst the potential for tariff increases and flow to materialize incentives.
Jeff: In the U.S., auto sales were down year-over-year in June after increasing by more than 2% in May.
Jeffrey L. Tate: Against this backdrop, we've delivered the third consecutive quarter of year-over-year volume growth and will continue to leverage our differentiated portfolio to capitalize on areas of demand strength, while maintaining operating and financial discipline. And I'll touch on these actions in more detail shortly. Now turning to our outlook on slide six, we expect 3rd quarter earnings to be slightly above 2nd quarter performance, continuing our trend of sequential improvement. We experienced minimal disruption from Hurricane Beryl in the U.S. Gulf Coast, and we expect a positive sequential signal in some markets will continue.
Speaker Change: Against this backdrop, we've delivered the third consecutive quarter of year-over-year volume growth and will continue to leverage our differentiated portfolio to capitalize on areas of demand strength while maintaining operating and financial discipline. And I'll touch on these actions in more detail shortly.
Speaker Change: Now turn to our Outlook on slide 6.
Speaker Change: We expect 3rd quarter earnings to be slightly above 2nd quarter performance, continuing our stream of sequential improvement.
Speaker Change: We experienced minimal disruption from Hurricane Beryl in the U.S. Gulf Coast, and we expect that positive sequential signals in some markets will continue.
Jeffrey L. Tate: In the packaging and specialty plastic segment, we expect modest top-line sequential growth. Domestic and export demand for polyethylene in North America will remain robust, and EMEA will experience typical lower demand seasonality from the summer holidays. In addition, the completion of our cracker turnaround at Sabine, Texas, in the second quarter will be offset by another planned turnaround at our St. Charles, Louisiana, cracker in the third quarter.
Speaker Change: In the packaging and specialty plastic segment, we expect modest top-line sequential growth.
Speaker Change: Domestic and export demand for polyethylene in North America will remain robust, and EMEA will experience typical lower-demand seasonality from the summer holidays.
Speaker Change: In addition, the completion of our cracker turnaround in Sabine, Texas in the second quarter will be offset by another planned turnaround at our St. Charles, Louisiana cracker in the third quarter.
Speaker Change: In the industrial, intermediate, and infrastructure segment, market conditions remain mixed. Demand in energy and pharma end markets remains resilient, but consumer durables demand has not shown any significant signs of inflection.
Jeffrey L. Tate: Demand in energy and pharma end markets remains resilient, but consumer durables demand has not shown any significant signs of inflection. We expect an approximately $25 million headwind due to the planned maintenance activity on the U.S. Gulf Coast. Importantly, at the end of June, we successfully started up our Glycol II facility at Louisiana Operations, which will ramp through the quarter and provide a sequential tailwind of $75 million. In the performance materials and coating segment, we continue to see growth in downstream silicone applications across most thin markets, but LOXane prices are still under pressure. Lower seasonal demand for building and construction in markets is expected to be a headwind of approximately $50 million, while lower planned maintenance activity will contribute a $25 million tailwind. Moving to slide seven.
Speaker Change: We expect an approximately $25 million headwind due to the planned maintenance activity in the U.S. Gulf Coast.
Speaker Change: Importantly, at the end of June , we successfully started up our Glycol II facility at Louisiana Operations, which will ramp through the quarter and provide a sequential tailwind of $75 million.
Speaker Change: In the performance materials and coating segment, we continue to see growth in downstream silicone applications across most end markets, but the LOXAME prices are still under pressure.
Speaker Change: Lower seasonal demand for building and construction in markets are expected to be a headwind of approximately $50 million, while lower planned maintenance activity will contribute a $25 million tailwind.
Jeffrey L. Tate: As we navigate the current market conditions, we are focused on executing our proven playbook to deliver increased value over the cycle. We benefit from our global access footprint with leading positions in every region. This is particularly true in cost-advantaged America, where approximately 65% of our global production capacity is local. And, supported by a solid financial position, we remain on track to deliver our counter-cyclical growth investment. Team Dow continues to operate with discipline as we maintain our low-cost-to-serve mindset, focus on maximizing cash flow, and further strengthen our financial position. Our actions include continued de-risking of our pension liabilities with minimal, if any, cash outlay.
Speaker Change: Moving to slide 7.
Speaker Change: As we navigate the current market conditions, we are focused on executing our approval playbook to deliver increased value over the cycle.
Speaker Change: We benefit from our global asset footprint with leading positions in every region.
Speaker Change: This is particularly true in the cost-advantaged America, where approximately 65% of our global production capacity is located.
Speaker Change: And we expect to reach 70% by 2030.
Speaker Change: With leading low-cost feedstock positions, plus our industry-leading feedstock flexibility, Dow is well-positioned to capture growing global demand for our products.
Speaker Change: And supported by our solid financial position, we remain on track to deliver our counter-cyclical growth investments.
Speaker Change: Team Dow continues to operate with discipline as we maintain our low-cost-to-serve mindset, focus on maximizing cash flow, and further strengthen our financial position.
Speaker Change: Our actions include continued de-risking of our pension liabilities with minimal, if any, cash outlay.
Speaker Change: In fact, this month we initiated the termination process for two of our U.S. fishing plans by the end of 2025.
Speaker Change: While not impacting previously earned benefits, Dow is able to provide a secure, cost-effective way of paying pension benefits in reducing administrative costs and risk to the company.
Jeffrey L. Tate: Lastly, in the near term, we expect to enhance our cash flow generation by executing over $1.5 billion in unique cadal leverage. We plan to use the proceeds to support our strategic growth investments, including our Path to Zero project in Fort Saskatchewan. In addition, we expect to receive more than $1.5 billion in cash in tax incentives by 2030, which is closely aligned with our CAPEX deployment for the project. Thank you, Jeff.
Speaker Change: Lastly, in the near term, we expect to enhance our cash flow generation by executing over $1.5 billion in unique cadal levers.
Speaker Change: We plan to use the proceeds to support our strategic growth investment, including our Path to Zero project in Fort Saskatchewan.
Speaker Change: In addition, we expect to receive more than $1.5 billion in cash in tax incentives by 2030, which is closely aligned with our CapEx deployment for the project.
James R. Fitterling: Moving to slide eight, our expectations for 2024 reflect a slower pace of recovery in certain end markets. Dow is positioned to capture more than $3 billion in EBITDA upside as we return to mid-cycle earnings levels. We are encouraged by the positive top-line signals across our portfolio. This is demonstrated by our year-over-year volume improvement in the last three quarters, as well as price stabilization across the entire enterprise over that same period. In packaging and specialty plastics, we anticipate supply and demand fundamentals to continue improving as the recent polyethylene capacity builds in North America have been fully absorbed by growing global demand.
Speaker Change: With that, I'll turn it back to Jim.
Jim: Thank you, Jeff. Moving to slide 8.
Jim: Our expectations for 2024 reflect a slower pace of recovery in certain end markets.
Jim: Dow is positioned to capture more than $3 billion in EBITDA upside as we return to mid-cycle earnings levels.
Speaker Change: We are encouraged by the positive top line signals across our portfolio. This is demonstrated by our year-over-year volume improvement in the last three quarters, as well as price stabilization across the entire enterprise over that same period.
Speaker Change: In packaging and specialty plastics, we anticipate supply-demand fundamentals to continue improving as the recent polyethylene capacity builds in North America have been fully absorbed by growing global demand.
James R. Fitterling: We're also starting to see rationalization of higher cost assets, particularly in Europe. And going forward, we do not expect to see any new capacity in cost-advantaged America until the 2026-2027 timeframe. In Industrial Intermediates in Infrastructure, we've maintained a disciplined approach to our inventory management.
Speaker Change: We're also starting to see rationalization of higher-cost assets, particularly in Europe . And going forward, we do not expect to see any new capacity in the cost-advantaged America until the 2026-2027 timeframe.
Speaker Change: In Industrial Intermediates in Infrastructure, we've maintained a disciplined approach to our inventory management.
James R. Fitterling: The beginning of an interest rate cutting cycle will accelerate demand for our polyurethane. In industrial solutions, the majority of our U.S. Gulf Coast capacity is aligned to higher value EO derivatives. With the successful restart of our Glycol II facility in Louisiana, we will see positive impact in consumer, mobility, pharma, and energy markets. And in performance materials and coatings, industry siloxane capacity additions are expected to slow due to prolonged negative cash margins impacting non-integrated players.
Speaker Change: The beginning of an interest rate cutting cycle will accelerate demand in our polyurethanes business.
Speaker Change: In industrial solutions, the majority of our U.S. Gulf Coast capacity is aligned to higher value EO derivatives.
Speaker Change: With the successful restart of our Glycol II facility in Louisiana, we will see positive impact in consumer, mobility, pharma, and energy and markets.
Speaker Change: And in performance materials and coatings, industry siloxane capacity additions are expected to slow due to prolonged negative cash margins impacting non-integrated players.
James R. Fitterling: And lastly, our codings business is highly correlated to existing home sales, with market demand forecasted to see pre-pandemic levels by next year. With these positive indicators combined with an economic recovery, Dow is positioned to capture significant annual earnings upside at a mid-cycle level. Next, on slide 9, the work we've done to strengthen our financial foundation has allowed us to invest counter-cyclically in lower-risk, higher-return projects that will drive more than $3 billion in annual earnings growth by 2030.
Speaker Change: And lastly, our codings business is highly correlated to existing home sales, with market demand forecasted to see pre-pandemic levels by next year.
Speaker Change: With these positive indicators combined with an economic recovery, Dow is positioned to capture significant annual earnings upside at mid-cycle levels.
Speaker Change: Next on slide 9, the work we've done to strengthen our financial foundation has allowed us to invest counter-cyclically in lower risk, higher return projects that will drive more than $3 billion in annual earnings growth by 2030.
James R. Fitterling: Our near-term investments are progressing and remain on track to deliver more than $2 billion of underlying mid-cycle EBITDA by mid-decade. To date, we have added the capacity to deliver $800 million of that $2 billion. So far this year, we've enhanced our product mix to produce higher-value elastomers for focal proteic films and ethylene copolymers that are sites in Paragona, Spain.
Speaker Change: Our near-term investments are progressing and remain on track to deliver more than $2 billion of underlying mid-cycle EBITDA by mid-decade.
Speaker Change: To date, we have added the capacity to deliver $800 million of that $2 billion.
Speaker Change: So far this year, we've enhanced our product mix to produce higher-value elastomers for focal voltaic films and ethylene copolymers at our site in Tarragona, Spain.
James R. Fitterling: We're also advancing multiple downstream silicone de-bottlenecking projects to support growth for liquid silicone rubber and adhesion. Meanwhile, our team in Fort Saskatchewan is making solid progress on our Path to Zero project. Phase one startup is expected in 2027, and phase two will start up in 2029. The project will deliver an additional $1 billion of EBITDA annually at full run rates by 2030. Construction continued in the second quarter, where we started our piling program, which will anchor the foundation of our new net zero cracker.
Speaker Change: We're also advancing multiple downstream silicone de-bottlenecking projects to support growth for liquid silicone rubber and adhesives.
Speaker Change: Our team in Fort Saskatchewan is making solid progress on our Path to Zero project.
Speaker Change: Phase 1 start-up is expected in 2027, and Phase 2 will start up in 2029.
Speaker Change: The project will deliver an additional $1 billion of EBITDA annually at full run rates by 2030.
Speaker Change: Construction continued in the second quarter, where we started our piling program, which will anchor the foundation of our new net-zero cracker. Major foundation work is expected to begin in the third quarter.
James R. Fitterling: Major foundation work is expected to begin in the third quarter. We're also advancing our Transform the Waste strategy to deliver more than $500 million in incremental underlying EBITDA by 2030 through partnerships and direct investment. In June, we announced that Dow had signed an agreement to acquire Circulus, a leading U.S.-based mechanical recycler.
Speaker Change: We're also advancing our Transform the Waste strategy to deliver more than $500 million in incremental underlying EBITDA by 2030 through partnerships and direct investments.
Speaker Change: In June , we announced the Dow signed an agreement to acquire Circulus, a leading U.S.-based mechanical recycler.
James R. Fitterling: This will help us accelerate our goals while enabling more high-performance circular products that brands and customers are demanding. We expect the deal, which includes two facilities with a combined capacity of 50,000 metric tons of recycled materials annually, to close in the third quarter. Consistent with our best owner mindset, we also announced in the second quarter that we reached an agreement with Arkema to sell our laminating adhesives, which are part of the packaging and specialty plastics portfolio.
Speaker Change: This will help us accelerate our goals while enabling more high-performance circular products that brands and customers are demanding.
Speaker Change: We expect the deal, which includes two facilities with combined capacity of 50,000 metric tons of recycled materials annually, to close in the third quarter.
Speaker Change: Consistent with our best owner mindset, we also announced in the second quarter that we reached an agreement with Arkema to sell our laminating adhesives to business.
James R. Fitterling: That transaction is expected to close by the fourth quarter of 2024. And lastly, in the second half of the year, we're planning to commercialize products with greater circularity using offtake from both the Bellorgen Mechanical and Murrah Advanced Recycling Facility. In closing, on slide 10.
Speaker Change: which is part of the packaging and specialty plastics portfolio. That transaction is expected to close by the fourth quarter of 2024.
Speaker Change: And lastly, in the second half of the year, we're planning to commercialize products with greater circularity using offtake from both the Belorgen Mechanical and URA Advanced Recycling Facilities.
James R. Fitterling: Dow remains focused on driving earnings growth by executing our playbook, delivering on our capital allocation priorities, and closely managing costs as we advance our long-term strategy. We're committed to operational and financial discipline. We've delivered returns in past generations better than our peer benchmark, and we will maintain our low-cost-to-serve mindset while capturing high-value demand and optimizing margins. Our financial flexibility allows us to invest counter-cyclically in higher-value areas that will raise our underlying earnings and Drive Circularity.
Speaker Change: In closing, on slide 10.
Speaker Change: Dow remains focused on driving earnings growth by executing our playbook, delivering on our capital allocation priorities, and closely managing costs as we advance our long-term strategy.
Speaker Change: We're committed to operational and financial discipline, we've delivered returns and cash generation better than our peer benchmark, and we will maintain our low-cost-to-serve mindset while capturing high-value demand and optimizing margins.
Speaker Change: Our financial flexibility allows us to invest counter-cyclically in higher-value areas that will raise our underlying earnings.
James R. Fitterling: With all of this, Dow is well-positioned to create significant upsides in top and bottom line growth as cycle dynamics improve and we unlock the full benefits of these investments, enabling higher shareholder returns. With that, I'll turn it back to Andrew to get us started with the Q&A. Now, let's move on to your questions. I would like to remind you that our forward-looking statements require both our prepared remarks and the following Q&A.
Ken: and Penn Tribes Regularity.
Ken: With all of this, Dow is well positioned to create significant upsides in top and bottom line growth as cycle dynamics improve and we unlock the full benefits of these investments.
Ken: Enabling Higher Shareholder Returns. With that, I'll turn it back to Andrew to get us started with the Q&A.
James R. Fitterling: Operator, please provide the Q&A instructions. 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 to raise your hand and join the queue.
Andrew Riker: Thank you, Jim. Now let's move on to your questions. I would like to remind you that our forward-looking statements require both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions.
Operator: If you would like to withdraw that question, again, press star 1. And please be advised that after you answer your first question, you will be muted. Your first question comes from Hassan Hamad with Olympic Global. Please go ahead.
Speaker Change: Thank you. We will now begin the question and answer session.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to withdraw that question, again, press star 1.
Speaker Change: And please be advised that after you answer your first question, you will be muted. Your first question comes from Hassan Ahmed with Olympic Global. Please go ahead. Hassan Ahmed. Thank you. Thank you. Thank you. Thank you.
Hassan Ijaz Ahmed: Morning, Jim and Jeff, you know, just a question around Q3 sequential guidance. Particularly as I sort of take a look at some of the commentary around DNS-D, it seems that you guys are looking for relatively flat EBITDA sequentially. Obviously, I understand you guys have the St. Charles cracker sort of planned maintenance, but I'm just trying to get a better sense of what's baked into that guidance from an underlying fundamental. Meaning, obviously, you guys, the industry has North American Q3 price hikes on the table. It seems inventory levels are down.
Hassan Ijaz Ahmed: Morning Jim and Jeff. You know, just a question around Q3 sequential guidance. You know, particularly as I sort of take a look at some of the commentary around PNSD,
Speaker Change: It seems that you guys are looking for relatively flat EBITDA sequential. Obviously, I understand you guys have the St. Charles cracker sort of plan maintenance, but I'm just trying to get a better sense of what's baked into that guidance from an underlying fundamental perspective.
Speaker Change: Meaning, obviously, you guys, you know, the industry has North American Q3 price hikes on the table. It seems inventory levels are down. It seems exports, you know, have been sort of...
Unknown Speaker: It seems exports, you know, have been sort of steadily picking up. So just, you know, if you could give me a sense of, beyond your planned maintenance, what you guys have baked into those fundamentals for the Q3 guidance. Good morning.
Speaker Change: So just, you know, if you could give me a sense of beyond your planned maintenance, what you guys have baked into those fundamentals for the Q3 guidance.
Unknown Speaker: Unknown Speaker 0, You know, as we look at the outlook for PNHP into the third quarter, I do expect we're going to see prices up in North America. I think we're going to see $0.02. You know, you've got a combination of all of these and direction. We do expect and we have in the plan. But I do expect it will. One of the reasons Matt and I.
Speaker Change: Good morning, everyone. I'm happy to be here.
Speaker Change: You know, as we look at the outlook for PNSP into the third quarter, I do expect we're going to see increases up in North America, I think we're going to see.
Speaker Change: 2 cents on margin improvement there. You know, you've got a combination of grades switching, I think the macro number is there and direction is correct.
Speaker Change: We do expect, and we have in the plan, but we expect nothing to be upped a penny or two. It has not been instantaneously reached here today. But I do expect it will be.
Speaker Change: One of the reasons that gas and that thing is so low is because you have the free-flowing energy down through the hurricane barrel, and that backs up volume here at the Gulf Coast.
Unknown Speaker: That's going to reverse itself. In Europe, we still have a positive pronap spread, but it's a little bit less than what it was in the second quarter, but it's still very advantageous for us to crack propane. I mentioned cracking light, you know; we cracked light in the quarter, which led to less byproduct sales for cracker byproducts in Europe. But the derivative demand is good. If you look at derivatives volumes across the board, they've been up.
Speaker Change: That's going to reverse itself, but I think when that happens, our expectation is you'll see some epic pricing move up.
Speaker Change: In Europe , we have still positive pronap spread, but it's a little bit less than what it was in the second quarter. But it's still very advantageous for us to crack propane. I mentioned cracking light, you know, we crack light in the quarter, which...
Speaker Change: led to less byproduct sales for cracker byproducts in Europe .
Unknown Speaker: Asia was a little bit low in the second quarter, mainly because Asia was pushing a lot of export volumes out, especially in China, to get ahead of some tariff barriers. And that kind of caused some congestion over there.
Speaker Change: But the derivative demand is good. If you look at derivatives volumes across the board, they've been up.
Speaker Change: Asia was a little bit low in the second quarter, mainly because Asia was pushing a lot of export volumes out.
Speaker Change: Especially in China, to get ahead of some barriers.
Unknown Speaker: I think that's working itself out, and I think we'll see continued strong export environment out of the US Gulf Coast. As you mentioned, inventories are low right now. Inventories are right in line with where they've been historically, and exports are very strong.
Speaker Change: And that kind of caused some congestion over there.
Speaker Change: I think that's working itself out, and I think we'll see continued strong export environment out of the U.S. Gulf Coast.
Speaker Change: As you mentioned, inventories are low right now. Inventories are right in line with where they've been historically, and exports are very strong. So I do think the environment is there for pricing to take hold in the third quarter. I expect the derivative volumes to be strong.
Unknown Speaker: So I do think the environment is there for pricing to take hold in the third quarter. I expect the derivative volumes to be strong. We've got advantage cost positions, and operating rates are strong for us. So I think net turnarounds won't be any more than they were in the second quarter.
Speaker Change: We've got advantage cost positions and operating rates are strong for us, so I think net turnarounds won't be any more than they were in second quarter. I think you'll see some slight improvement in third quarter.
Vincent Stephen Andrews: I think you'll see some slight improvement in the third quarter. Your next question comes from the line of Vincent Andrews with Morgan Stanley. Please go ahead. Thank you and good morning, everyone.
Speaker Change: Your next question comes from the line of Vincent Andrews with Morgan Stanley . Please go ahead.
James R. Fitterling: Jim, I'd love to get your sort of high-level thoughts on two things that might have opposite reactions. One, it does seem like we're finally going to get into a period where interest rates are going to come down, which I would expect to be broadly positive for your business, particularly your exposure to building and construction. But politically, we may also be reentering a period of geopolitically with tariffs and duties and things like that. So I'm wondering if you can compare and contrast.
Vincent Stephen Andrews: Thank you and good morning, everyone. Jim, we'd love to get your sort of high-level thoughts on two things that might have opposite reactions. One, it does seem like we're finally going to get into a period where interest rates are going to come down, which I would expect to be broadly positive.
Vincent Stephen Andrews: for your business, particularly your exposure to building and construction, but politically, we may be also reentering a period.
Speaker Change: geopolitically with tariffs and duties and things like that. So I'm wondering if you can compare and contrast, you know, sort of what the impact of both of those dynamics could be for Dow as we look into 2025.
James R. Fitterling: sort of what the impact of both of those dynamics could be for the Dow as we look into 2025. On interest rates, you know, we had expected that by this time we'd probably have seen two or three here. We haven't seen the first one yet.
Speaker Change: Some more things, but I'm happy to do that. On interest rates, you know, we had expected that by this time we'd probably have seen two or three interest rate cuts, but we haven't seen a fourth one yet.
James R. Fitterling: I do think the expectation is that if you look at the housing market, I think you're seeing the weight right now of the higher interest rates on housing. You're seeing it on new builds, you're seeing it on, you know, some employees that are kind of stacking up out there. So I think when we do, it will be great to get something like a five handle, and you're going to see a couple of things happen, people who are getting audience mortgages at these higher rates of 7.7%.
Speaker Change: I do think the expectation is that probably if you look at the housing market, I think you're seeing the way.
Speaker Change: Right now, of the higher interest rates, you're standing on new bills, you're standing on, you know, employees that are stacking up out there, and part of it's because people aren't able to qualify for mortgages at these high rates.
Speaker Change: So I think when we start to see mortgage rates get something like a five-handle on them, you're going to see a couple of things happen. You're going to see people who have financed mortgages at these higher rates, at 7-plus percent.
James R. Fitterling: We'll get some advantage to do a week on it. You're going to see people who've been sitting on the sidelines with properties they want to sell move in to start to sell them because people can get qualified for the mortgages, and you're going to start to see building credit expanded to include, for example, polyurethanes and construction chemicals. When that starts to happen, you get a domino effect. You get both existing ones there, and new ones starting to build. That drives volume, and then, of course, anytime you have that, you've got appliances talking. All the other things are gone. And so that thing still ratcheted up pretty quickly. We haven't seen that yet.
Speaker Change: We'll get some advantage to do a refinance. You're going to see people who've been sitting on the sidelines with properties they want to sell.
Speaker Change: Move in to start to sell them because people can get qualified for the mortgages and you're going to start to see building permits increase.
Speaker Change: In polyurethanes and construction chemicals, when that starts to happen, you get a domino effect that happens. You get both existing ones going and new ones starting to go.
Speaker Change: That drives volume, and then, of course, any time you have that, you've got appliances, car hoops.
Speaker Change: All the other things are gone, and so that tends to ratchet up pretty quickly. We haven't seen that yet. Obviously, we're managing it closely, but we haven't seen that pick up.
James R. Fitterling: Page PAGE of NUMPAGES hcf.org Page PAGE of NUMPAGES hcf.org, On the geopolitics side. Yeah, I think on both sides of the political spectrum, you're expecting a more perplexing tone that we're going to come at from both sides. I would say that the big driver behind that is, in many cases where a lot of capacity has been built in China, there's enough data to suggest that they're being subsidized, and those products are being flooded into other markets.
Speaker Change: On the geopolitics side,
Speaker Change: Yeah, I think on what you view on both sides on the political spectrum, you're expecting a more perplexing tone that we're hearing coming off on both sides.
Speaker Change: I would say that the big driver behind that has been, in many cases where a lot of capacity has been built in Canada and stuff,
James R. Fitterling: And we're starting to see anti-dumping cases being brought against China around the world in different areas. And so I think you are going to see activities that are going to try to halt some of that from happening, in concert with trying to bring many types of that today. Most of the manufacturing is going into Mexico. If you think about it, from our perspective, we haven't had time to see the impact of semiconductors and other things being invested in, so that will take a few years to get to market. Most of them are on the 25.
Speaker Change: enough data to suggest that they're being subsidized and those products are being flooded into other markets. We're starting to see anti-dumping cases being brought against China around the world in different areas.
Speaker Change: And so I think we are going to see activities that are going to...
Speaker Change: I'll try to halt some of that from happening.
Speaker Change: In concert with trying to bring manufacturing back today, most of the manufacturing is going to go into Mexico, if you think about it from our perspective, and we haven't had time to see that.
Speaker Change: The impact from semiconductors and other things being invested in, so that will take a few years to get to market. But I think we're going to see increased rates on a whole host of things.
Speaker Change: Most of them are in the 25 to 50% range, and most of that is what people believe is the amount of subsidies going in.
James R. Fitterling: Most of that is what people believe is the amount of subsidies going on in those markets today. Whatever the case we get, depending on the outcome of the election. And as always, we just have to get in there and make sure that both sides understand the supply chain, how product flows, and what's important to keep the industry moving, not just: Your next question comes from the line of Steve Byrne with Bank of America. Please go ahead. Yes, thank you. And Jim, if you could change your audio in some way, it would really be helpful.
Speaker Change: to those markets.
Speaker Change: So, we're preparing for.
Speaker Change: You know, whatever case we get, depending on the outcome of the election.
Speaker Change: And as always, we just have to get in there and make sure that each side understands the supply chain, how product flows, and what's important to keep industry moving, not just here, but in Europe and around the world.
Speaker Change: Your next question comes from the line of Steve Byrne with Bank of America. Please go ahead.
Stephen V. Byrne: We're having a really hard time hearing. I have a couple of questions regarding your slide nine. With respect to your Fort Saskatchewan project, that billion-dollar EBITDA on a per-pound basis, is that comparable to what you would expect mid-cycle for your existing assets, you know, EBITDA per pound for polyethylene? Or is this an expansion?
Stephen V. Byrne: Yes, thank you. And Jim, if you change your audio in some way, it would really be helpful. We're having a really hard time hearing you.
Stephen V. Byrne: I have a couple of questions regarding your slide 9.
Speaker Change: With respect to your Fort Saskatchewan project, that billion-dollar EBITDA on a per-pound basis, is that…
Speaker Change: comparable to what you would expect, you know, mid cycle for for your existing assets? You know, even got per pound for polyethylene? Or is this
James R. Fitterling: And do you have customer commitments that give you that confidence in that, in the profitability of that? And maybe just an extension of this, that three million tons of waste are transformed. You know, the incremental EBITDA on that per pound. I think there must be a huge range depending on the type of product there because you have a competitor that has a similar objective, and the incremental EBITDA per pound is three times this, and I would assume that it's relevant to how much is mechanical versus how much is, say, paralysis-driven.
Speaker Change: An expansion, and do you have.
Speaker Change: customer commitments that give you that confidence in that, in the profitability of that, and maybe just an extension on this, that 3 million tons of Transform the Waste
Speaker Change: You know, the incremental EBITDA on that per pound.
Speaker Change: I think there must be a huge range, depending on on the type of product there, because
Speaker Change: You have a competitor that has a similar objective and the incremental EBITDA per pound is three times this and I would assume that it's
James R. Fitterling: Can you comment on where you see the most profitable outlook for your circular plastic platform? I'd like to address Professor Spector first. I think my answer is that it's similar to the mid-childhood homes for the 24-kilo model.
Speaker Change: relevant to how much is mechanical versus how much is, say, paralysis-driven. Can you comment on where do you see the most profitable outlook in your circular plastic platform?
Speaker Change: Yeah, thank you, Steve. I'll probably address Professor Spector first. I think my answer is a bit similar.
Speaker Change: [inaudible]
James R. Fitterling: There could be some. But, in general, it's pretty similar to what we've seen today. And as I mentioned before, I think the upside there is the ability to get additional value out of the file. [inaudible] Uncircularity will be a combination of mechanical and potentially cyclic, and I think we still feel that, long-term, two-thirds of our volume is expected to be the best recycling, mainly because we're trying to tackle functional forms, we believe, to get the high quality, which is what we need to go towards margin.
Speaker Change: In general, it's pretty similar to what we see today. And like I mentioned before, I think the upside there is the ability to get the additional value out of the file.
Speaker Change: Zero. Spoke one in two admissions. That's when the team was broken in half. We all know what's going to go. This policy and the way that they're going to take that, how you catch that, and how you do those assailants.
Speaker Change: Uncircularity will be a combination of mechanical and potential effects, but I think we still feel that long-term, two-thirds of our volume is expected to be advanced microscopy.
Speaker Change: Mainly because in terms of technical functional problems, we believe to get the high quality, which is what you need to go post-margin, you guys have to integrate the systems. On the technical side...
James R. Fitterling: You guys have to remember that it's a cycle, mechanical recycling, and the circular investment is a great position to be in. We're focused on trying to move the quality of the mechanical recycling to that point.
Speaker Change: When a circle is invested, that's a great position to put on.
Speaker Change: We're focused on trying to move the quality of the mechanical recycling to that point. When typically we're not doing, looking at making reinvestments in the chemical recycling.
James R. Fitterling: I think our ability to take the company on a circular and move the quality of that 50,000 pounds per year of waste up allows us to get the kind of mobile operator that we need to go about 500 more. And so it's going to be different in different markets, but it's all going to be driven by the quality of the material that we produce out of those offsets. The term on the agenda that I'd like to introduce to you is the supply and demand of high-quality medical care. Your next question comes from David Begleiter with Deutsche Bank. Please go ahead. Thank you. Good morning.
Speaker Change: Bye.
Speaker Change: I think our ability to take the company out of circulation and move the quality of that 50,000 tons per year of waste up allows us to get...
Speaker Change: A kind of more than operative overvoting CE that we need to get over that 500 million.
Speaker Change: And so it's going to be different by different markets, but it's all going to be driven by the quality of the material that we produce out of those outlets.
Speaker Change: The term I'm going to use is a reference to the Institute for the Study of Supplied and Supplied High-Quality Nutrient Control Problems.
Speaker Change: Your next question comes from the line of David Begleiter with Deutsche Bank. Please go ahead. Thank you. Good morning.
David L. Begleiter: Uh, Jim, you're rated at roughly $6 billion in EBITDA. Consensus for next year is $7.3 billion. How much of that earnings ramp is in Dow's control? And coding, I think we have a pretty good line of sight. And with glycol coming back, and I feel good about that. The real question mark will be how quickly polyurethane comes back. And that's going to be driven by what happens with interest rates, and what happens is an outage and construction. That's not just here.
David L. Begleiter: Jim, your run rating at roughly $6 billion at the EBITDA.
David L. Begleiter: Consensus for next year is $7.3 billion. How much of that earnings ramp is in Dow's control?
David L. Begleiter: David, the biggest will be what we see in terms of the...
David L. Begleiter: durable goods market.
David L. Begleiter: and the housing market coming back. Plastics right now, PNSP.
David L. Begleiter: [inaudible]
Speaker Change: And coding, I think we have a pretty good line of sight, and with glycol 2 coming back in IINI, we feel good about that.
David L. Begleiter: The real question mark will be, how quickly does polyurethane come back? And that's going to be driven by what happens with interest rates and what happens in housing and construction. That's not just here, that's Europe and Asia as well.
Speaker Change: Your next question comes from the line of Jeff Zekauskas with J.P. Morgan. Please go ahead.
James R. Fitterling: That's Europe and Asia as well. Thanks very much. Maybe a couple of questions. Your corporate expense was 30 million this quarter, and you forecast 30 versus 60 million a year ago, and you forecast 60 million for the third quarter versus 40 in the year ago period. Why that higher increment? Why doesn't it stay at the 30 level?
David L. Begleiter: Thanks very much. Maybe a couple of questions for Jeff.
Jeffrey John Zekauskas: Your corporate expense was $30 million this quarter and you forecast, $30 versus $60 in the year ago. And you forecast $60 for the third quarter versus $40 in the year ago period. Why that?
Speaker Change: higher increment, why doesn't it stay at the 30 level?
James R. Fitterling: And second, you've been repurchasing shares, and Dow's share price has been, you know, pretty flat. [inaudible] A good use of CAP. How are you, Chuck?
David L. Begleiter: And.
David L. Begleiter: Second, you've been repurchasing shares and Dow's share price has been
Speaker Change: You know.
Speaker Change: pretty flat since its inception as a public company.
Speaker Change: What criteria will you use to determine whether a share repurchase is a good use of capital for Dow? How will you judge that?
Jeffrey L. Tate: Good morning, Jeff. I appreciate the questions here. Starting on the corporate side, when we look at the second quarter, you're right, it was slightly lower and more favorable than what we traditionally had. I would say, as you're thinking about the second half of the year, it's going to be pretty much in the range of $60 to $65 million of negative EBITDA, which we've delivered in the past. What we had in the second quarter was actually some gains from our insurance operations, as well as some lower environmental cost accruals. When you think about the second half of the year, you can expect it to be in that $60 to $65 million.
Speaker Change: Good morning, Jeff. I appreciate the questions here, starting on the corporate side.
Speaker Change: When we look at the second quarter, you're right, it was slightly lower, more favorable than what we've seen.
Speaker Change: [inaudible]
Speaker Change: of negative EBITDA, which we've delivered in past times, and what we had in second quarter was we had actually some gains from our insurance operations, as well as some lower environmental cost accruals as well. But when you think about the second half of the year, you can expect it to be in that $60 to $65 million range.
Jeffrey L. Tate: In relation to share repurchases, you're right, we have continued to trend to cover dilution, and that's one of the things from a capital allocation perspective that we've been consistent with. And as we think about the CapEx ramp-up that we have and our commitment to deliver, you know, overall 65% more back to our shareholders, we're going to stay consistent with that at this point because of the cash flow expectations as well as our ability to be able to manage all of those capital allocation priorities.
Speaker Change: In relation to share repurchases, you're right, we have continued to trend to cover dilution, and that's one of the things from a capital allocation perspective that we've been consistent with.
Speaker Change: And as we think about the CapEx wrap-up that we have...
Speaker Change: And our commitment to deliver, you know, overall 65% more back to our shareholders.
Speaker Change: We're going to stay consistent with that at this point because of the cash flow expectations as well as our ability to be able to manage all of those capital allocation priorities. But we will look at, from a criteria perspective, what will give us the greatest return.
Jeffrey L. Tate: But we will look at, from a criteria perspective, what will give us the greatest return over that time period in comparison to the commitments that we have for our capital allocation priorities. Your next question comes from the line of Mike Sison with Wells Fargo. Please go ahead. Hey, good morning.
Speaker Change: Over that time period in comparison to the commitments that we have for our capital allocation prioritization.
Speaker Change: Your next question comes from the line of Mike Sison with Wells Fargo. Please go ahead.
Michael Joseph Sison: In the first half, your free cash flow didn't generate a lot. Could you give us a feel of, you know, how much free cash flow you generate in the second half and maybe for the full year? Good morning, Mike.
Michael Joseph Sison: Hey, good morning.
Michael Joseph Sison: You know, in the first half, your free cash flow didn't generate a lot. Could you give us a feel of, you know, how much free cash flow you generate in the second half and maybe for the full year?
Jeffrey L. Tate: Thanks for the question. You know, from our perspective, first of all, when you look at the second quarter, we saw some really positive signs. We were able to deliver over $800 million in cash from operations.
Michael Joseph Sison: Good morning, Mike. Thanks for the question. You know, from our perspective, first of all, when you look at the second quarter, you know, we saw some really positive signs. We were able to deliver over $800 million in cash from operations.
Michael Joseph Sison: Our conversion rate was at 55% and our free cash flow was a positive $109 million. All of those are sequential improvements.
Michael Joseph Sison: Over what we delivered in the first quarter. So we're really trending. Well, if we think about the full year, Mike, one of the things that we would expect is from a working capital standpoint, you can expect the use of cash anywhere from the 600 to 800 million dollar
Michael Joseph Sison: Range.
Michael Joseph Sison: You know, you've seen in our slide deck here, we've got some guidance on some of the other.
Michael Joseph Sison: Key levers related to pool your cash flow, but one of the areas that we're pleased about is our ability in the
Michael Joseph Sison: I'm going to give you some credit to the Joint Ventures to be able to get greater dividends out of that, which we're focused on moving forward, as well as looking at our liquidity right now in a really good position. We've got well over $3 billion.
Jeffrey L. Tate: Our conversion rate was at 55%, and our free cash flow was a positive $109 million. All of those are sequential improvements over what we delivered in the first quarter. So we're really trending well. Liquidity right now is in a really good position. We've got well over $3 billion of cash and cash equivalents and total liquidity of $13 billion. And right now, we don't have any debt maturities of substantive levels until 2027
Michael Joseph Sison: of Cash and Cash Equivalent.
Michael Joseph Sison: And total liquidity of $13 billion.
Michael Joseph Sison: And right now, we don't have any debt maturities of substantive levels until 2027.
Michael Joseph Sison: And the other thing I'd also like to remind you of as well is the fact that, you know, over the past several years, Dow has done a solid job.
Michael Joseph Sison: of being able to deliver what we like to call unique-to-Dow cash levers of anywhere from $1 to $3 billion. And our expectation is that we'll deliver at least a billion and a half of those levers here in 2024.
Speaker Change: Your next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please go ahead.
Kevin William McCarthy: And the other thing I'd also like to remind you of is that, you know, over the past several years, Dow has done a solid job of being able to deliver what we like to call unique to Dow cash levers of anywhere from $1 to $3 billion. And our expectation is that we'll deliver at least a billion and a half of those levers here in 2027. Your next question comes from the line of Kevin McCarthy with Vertical Research Partners; please go ahead. Thank you and good morning, Mr. McCarthy.
James R. Fitterling: As you look across your portfolio, on the monthly cadence in June, as well as your order books in July, were there any businesses that stood out, or varied versus your prior expectations, through that period? On a related note, can you comment on the barrel hurricane impact through the quarter and whether you're expecting that to have a net positive or negative or neutral impact. Yeah, good morning, Kevin.
Kevin William McCarthy: Thank you and good morning. Can you comment as you look across your portfolio,
Kevin William McCarthy: On the monthly cadence in June , as well as your order books in July , were there any businesses that stood out, varied versus your prior expectations?
Speaker Change: through that period. And on a related note, can you comment on the barrel hurricane impact in the third quarter and whether you're expecting that to have a net positive or negative or neutral impact on the quarter? Thank you.
James R. Fitterling: You know, we've seen pretty solid order books at the beginning of every month. I would say as we finish the second quarter, you'd see some softness toward the end of the month. July order book looks pretty solid as we move forward. Hurricane Beryl, we were running most of Freeport through the hurricane.
Speaker Change: Yeah, good morning, Kevin. You know, we've seen pretty solid order book at the beginning of every month.
Speaker Change: I would say as we finished the second quarter, you'd see then some softness toward the end of the month. July order book looks pretty solid as we move forward.
James R. Fitterling: So all the power plants and all the crackers ran through We obviously had damage to electrical lines and cooling towers and things. But within a week, we were backed up. So I expect it is not going to have a significant impact on volume, although there will be some cost impact. We're insured for it, but there's a deductible. And I don't remember how much that is, Jeff. 50 million dollars for the deductible. But a barrel.
Speaker Change: Hurricane Beryl, we were, we ran most of Freeport through the hurricane, so all the power plants and all the crackers ran through. We obviously had
Speaker Change: Damage to electrical lines and cooling towers and things, but within a week, we were backed up. So I expect it is not going to have a significant impact on volumes.
Speaker Change: There will be some cost impact to it. We're insured for it, but there's a deductible, and I don't remember how much that is, Jeff. Fifty. Fifty million on the deductible.
James R. Fitterling: Reports are back up and running. And. You know, I'd say the.
Speaker Change: but Beryl's
Speaker Change: Reports are back up and running. And I'd say we've gotten most of the issues identified. And we're fortunate, no impact to our employees or no impact to people other than
James R. Fitterling: You know, we've gotten most of the issues identified, and we're fortunate that there was no impact on our employees, there was no impact on people other than the normal things that impact their homes, but we jump in and help them out so that they're able to focus on what they need. Your next question comes from the line of John McNulty with BMO Capital Markets. Please go ahead.
Speaker Change: The normal thing is that, in fact, there are homes, but we jump in and help them out so that they're able to focus on what they need to do.
Speaker Change: Your next question comes from the line of John McNulty with BMO Capital Markets. Please go ahead.
John Patrick McNulty: Yeah, thanks for taking my question. Maybe just a follow-up on Beryl, it didn't hit the way some of the major hurricanes necessarily took down lots of capacity for long periods, but it does look like a lot of assets were taken down, including your own for, you know, at least a week or so. Can you speak to what that did to the market for you? And in terms of inventory levels, and what you're thinking about what that might mean for pricing in the next couple of months?
John Patrick McNulty: Yeah, thanks for taking my question. Maybe just a follow-up on Beryl.
John Patrick McNulty: It didn't hit the way some of the major hurricanes necessarily take down lots of capacity for long periods, but it does look like a lot of...
Speaker Change: Assets were taken down, including your own, for, you know, at least a week or so. Can you speak to what that did to the market for you, and in terms of inventory levels and how you're thinking about what that might mean for pricing in the next couple of months or so?
John Patrick McNulty: Yeah, good question, John. I think it's, I think you can already see in the market that it's starting to have some impact of firming things up. Because it happened early in the hurricane cycle, and early August or early July is definitely not when we would tend to see the first hurricanes come through.
Speaker Change: Yeah, good question, John . I think it's, I think you can already see in the market that it's starting to have some impact of firming things up.
James R. Fitterling: We tend to see them more in the August timeframe. And so I think what you're seeing is that it's firming up the sentiment that there will be price increase moves. I think what you're going to see in terms of impacts is going to be different grade by grade. So depending on what derivatives are down, and what grades are going to become a little bit tighter. And then you've got, you know, some planned downtime that's happening in the third quarter as well.
Speaker Change: Because it happened early in the hurricane cycle and early August or early July is definitely not when we would tend to see the first hurricanes come through. We tend to see them more in the August time frame.
Speaker Change: And so I think what you're seeing is that's firming up the sentiment that there will be price increase moves. I think what you're going to see in terms of
Speaker Change: Impacts are going to be different grade by grade, so depending on what derivatives are down and what grades are going to become a little bit tighter.
Speaker Change: And then you've got some planned downtime that's happening on the third quarter as well. So you've got some planned outages for third quarter. I'd say we're back up and running hard, trying to catch up to those volumes.
James R. Fitterling: So you've got some planned outages for the third quarter. I'd say we're back up and running hard, trying to catch up to those volumes, and get customers stocked back up at this point. And there is a little bit of concern starting to come through the market from customers about being ready for the next impact. That's off to our team for moving product out in railcars and other areas ahead of it, you know, so we were able to get things positioned to be able to react so that we could keep product moving to customers. And we always do a good job of preparing for that and doing things that Please go ahead.
Speaker Change: I'm going to get customers stocked back up at this point.
Speaker Change: And there is a little bit of.
Speaker Change: Concerns starting to come through the market from customers about being ready.
Speaker Change: For the next impact.
Speaker Change: That's off to our team for moving product out in rail cars and other areas ahead of it, you know, so we were able to get things positioned to be able to react so that we could keep product moving to customers.
Speaker Change: We always do a good job of preparing for that and doing things in advance.
Speaker Change: Your next question comes from the line of Josh Spector with UBS. Please go ahead.
Joshua David Spector: Yeah, good morning. I was wondering if you could give some early thoughts on the fourth quarter. So, you know, a couple of quarters ago, you thought that there'd be some maybe unseasonal improvement as volumes improved. As we sit today, would you think about a normal seasonal in the fourth quarter, call it down 100, 200 million in EBITDA sequentially? Or are there other factors you can point out that would buck that trend?
Joshua David Spector: Yeah, good morning. I was wondering if you could give some early thoughts on fourth quarter. So, you know, a couple of quarters ago,
Joshua David Spector: You thought that there'd be some maybe unseasonal improvement as volumes improve. As we sit today, would you think about a normal seasonal in fourth quarter, call it down 100, 200 million in EBITDA sequentially, or are there other factors you'd call out that would buck that trend? Thank you.
James R. Fitterling: Thank you. I think plastics is going to continue to see solid volumes, and we've got a cost advantage. So I think you're going to continue to see plastic. Thank you.
Speaker Change: I think plastics is going to continue to see solid volumes and we've got cost advantage so I think you're going to continue to see plastics.
Speaker Change: Delivers through fourth quarter. Silicones is positive. You could see the impact.
James R. Fitterling: Because we're fully integrated, you know, we have an advantage there. So, the silicones, I would think, are going to hold up well. IINI is going to improve because we've got glycol 2 back. We've got $75 million of tailwind in the third quarter. I think that'll ramp up to closer to $90 million for the fourth quarter and get up to $100 million, which is kind of the full run rate by first quarter. And so that's good. I think the coatings had a really solid second quarter.
Speaker Change: On volumes and the derivatives part, and because we're fully integrated.
Speaker Change: You know, we have an advantage there. So, silicones, I would think, is going to hold up well. IINI is going to improve because we've got glycol 2 back.
Joshua David Spector: We've got $75 million of tailwind in third quarter. I think that'll ramp to closer to $90 million for fourth quarter and get up to the $100 million, which is kind of full run rate by first quarter.
James R. Fitterling: And, you know, even though I talked earlier about housing and some of the issues in housing or volume, we're very solid there. I think what's working in housing right now is obviously higher-value homes, and some of the big home builders you can see are actually delivering pretty good numbers. That tends to go through the contract side of the business, so the contract painters are doing better than, say, the do-it-yourself business that you would see.
Joshua David Spector: And so that's good. I think the codings had a really solid second quarter. And, you know, even though I talked earlier about housing and some of the issues in housing or volumes,
Joshua David Spector: We're very solid there.
Joshua David Spector: I think.
Joshua David Spector: What's working in housing right now is obviously
Joshua David Spector: Higher value homes and some of the big homebuilders you can see are.
Joshua David Spector: are actually delivering pretty good numbers. That tends to go through the contract side of the business. So the contract painters are doing better than, say, the do-it-yourself
Joshua David Spector: Business that you would see.
Joshua David Spector: And so that's a big chunk of the market, and that's moving positively, and we're benefiting from that, and we're also getting some share gains there. So I think third quarter will continue to be good for coding, maybe a little bit less than second quarter.
James R. Fitterling: And so that's a big chunk of the market, and that's moving positively. We're benefiting from that, and we're also getting some share gains there. So I think the third quarter will continue to be good for coatings, maybe a little bit less than the second quarter. The fourth quarter is typically the low season for coatings anyway, and that's when we start to get ourselves prepared with maintenance and other activities so we're ready to run into next year's season.
Joshua David Spector: Fourth quarter is typically low season for codings anyway, and that's when we start to get ourselves prepared with maintenance and other activities so we're ready to run into next year's season.
James R. Fitterling: But on those businesses, I would expect you're going to continue to see strength in polyurethanes and construction chemicals. Volumes are improving. You even saw that even with some limitations that we had from turnaround downtime in the quarter. Volumes are improving, and inventories are well under control.
Joshua David Spector: But on those businesses, I would expect you're going to continue to see strength.
Joshua David Spector: On polyurethanes and construction chemicals, volumes are improving. You even saw that even with some limitations that we had from turnaround downtime.
Joshua David Spector: In the quarter, you saw volumes improving.
James R. Fitterling: So I think if there are interest rate cuts that happen this quarter and next quarter, you're going to see some positive impact there. And then it'll be a question of how much of that will flow to the bottom. Your next question comes from Frank Mist with Framium Research.
Speaker Change: Inventories are well under control. So I think if there are interest rate cuts that happen this quarter and next quarter, you're going to see some positive impact there. And then it'll be a question of how much of that will flow to the bottom line.
Speaker Change: Your next question comes from the line of Frank Mist with Framium Research. Please go ahead.
Frank Joseph Mitsch: Please go ahead. Thank you. Good morning, and I'm happy to hear that the sound quality on the answers has gotten materially better. But I believe the first answer that you gave concerned polyethylene, and that came through fairly globally. So I was just wondering, Jim, since you were very accurate in forecasting the April price increase, obviously June didn't come through, but I'm curious as to what your thoughts are with respect to July and the third quarter in general in terms of polyethylene pricing and margins.
Frank Joseph Mitsch: Thank you, good morning, and happy to hear that the sound quality on the Ansys has gotten materially better.
Frank Joseph Mitsch: But I believe the first answer that you gave concerned polyethylene, and that came through fairly garbled. So I was just wondering...
Frank Joseph Mitsch: Jim, since you were very accurate in forecasting the April price increase, obviously June didn't go through, but I'm curious as to what your thoughts are with respect to July and the third quarter in general in terms of...
Frank Joseph Mitsch: Also, on the Glycol II restart, there was an expectation that it would add about $100 million in the third quarter and $100 million in the fourth quarter. You're indicating today that it's $75 in the third quarter, which makes sense as it ramps up. Would you anticipate that $100 million coming through in the fourth quarter? Thank you. Yeah, good morning, John.
Speaker Change: Polyethylene pricing and margins and then also on the Glycol 2 restart There was an expectation that it would add about a hundred million in the third quarter and a hundred million in the fourth quarter You're indicating today that it's 75 in the third quarter, which makes sense as it ramps up You know, would you anticipate that hundred million coming through in the fourth quarter? Thank you
James R. Fitterling: Thanks. They brought me probably another microphone here. So I'm sorry if the first question wasn't answered or understood well. On pricing, we've got prices out around the world, everywhere except ours for July. In August, in North America, we've got plus five and plus five out in the market, and you're going to see price stick in the quarter. So price is going to come through. Now, the question is how much of all that comes through. I think what we put into the estimate is we put in that we're going to see a two cents per pound margin improvement, so net of price.
Speaker Change: Yeah, good morning, John . Thanks. They brought me another microphone here, so I'm sorry about if the first question wasn't answered or understood well. On pricing, we've got prices out around the world, everywhere except Argentina.
Speaker Change: For July and August in North America, we've got plus five and plus five out in the market.
Speaker Change: That is going to, you're going to see price stick in the quarter. So price is going to come through. Now, the question is how much of all that comes through? I think what we put into the estimate is we put in that we're going to see two cents per pound margin improvement. So net of
James R. Fitterling: And as I mentioned, I think Ethane costs will come up through the quarter. I think it'll come up a penny or two through the quarter if you look quarter over quarter. So I think net of that ethane cost increase, you're going to see a two cent per pound margin increase in North America. And I'd say volume on derivatives around the world supports that. And I think, you know, there are outside things that we can't predict, like, will we have more hurricane activity? But inventories in the chain are low, so I would expect that it's going to go. When it comes to glycol, the startup was smooth and as expected on glycol too.
Speaker Change: Price. And as I mentioned, I think.
Speaker Change: ethane costs will come up through the quarter. I think it'll come up a penny or two through the quarter if you look quarter over quarter. So I think net of that ethane cost increase, you're going to see a two cent per pound margin increase in North America.
Speaker Change: I'd say volume on derivatives around the world supports that. Inventory levels support that.
Speaker Change: And I think, you know, there's the outside.
Speaker Change: Things that we can't predict, like will we have more hurricane activity, but inventories in the chain are low, so I would expect that it's going to go through.
Speaker Change: When it comes to glycol, the startup was smooth and as expected on glycol too. Obviously, we've got to
James R. Fitterling: Obviously, we've got to, You know, get through the product mix, and we've got to get some safety stocks built back up. And that's part of the ramp up that happens from 75 to 90 to 100 billion. Could it ramp up more than 90 in the fourth quarter?
Speaker Change: You know, get through the product mix, and we've got to get some safety stocks built back up. And that's part of the ramp-up that happens from $75 to $90 to $100 billion.
James R. Fitterling: I guess it could. I mean, usually, year end, there's a little bit of seasonal slowness. So our expectation is it would probably ramp up more into the first quarter, which is when we tend to get, You know, into some higher volumes across some of the markets, but that's what we've got in the estimate. Your next question comes from the line of Lawrence Alexander with Jeffreys. Please go ahead.
Speaker Change: Could it...
Speaker Change: Is this ramp up more than 90 in the fourth quarter, I guess it could, I mean, usually at the year end, there's a little bit of a seasonal slowness. So I expectation is, it would ramp up more than the first quarter where we tend to get
Speaker Change: You know, into some higher volumes across some of the markets, but that's what we've got in the estimate right now.
Speaker Change: Your next question comes from the line of Lawrence Alexander with Jeffrey. Please go ahead.
Laurence Alexander: Good morning, I just wanted to follow up on your discussion around potential tariff structures and how they might evolve. How do you think the response function in the industry with your customers has shifted? That is, if there is movement towards new tariffs. How significant a restock cycle do you see that triggering? I don't think anything has started yet, Lawrence, on people, you know, doing stocking in advance of tariffs.
Laurence Alexander: Good morning. I just wanted to follow up on your discussion around, you know, potential tariff structures and how they might evolve. How do you think the response function in the industry with your customers has shifted? That is, if there is movement towards new tariffs,
Speaker Change: How significant a restock cycle do you see that triggering in advance?
Speaker Change: I don't think anything has started yet, Lawrence, on people, you know, doing stocking.
Laurence Alexander: And I, you know, I think primarily because there's all the uncertainty around the election and what policies are going to actually stick. By the same token, I think there's a little bit of a view that China doesn't know what it's going to do yet from an incentive standpoint for its own economy until it gets a better feel for what's going to happen with the US presidential election.
Speaker Change: In advance of tariffs, and I, you know, I think primarily because there's all the uncertainty around the election and what policies are going to actually stick. I think on the same.
Speaker Change: By the same token, I think there's a little bit of view that China doesn't know what it's going to do yet from an incentive standpoint for its own economy until it gets a better feel for what's going to happen with the US presidential election.
James R. Fitterling: We're doing scenario planning here to look at the impacts. As I mentioned, there are anti-dumping activities going on in different parts of the world because of the challenges that we see from things like volumes being dropped into markets. And so there's a lot of work going on behind the scenes.
Speaker Change: We're doing scenario planning here to look at the impacts, as I mentioned, there are anti-dumping activities going on in different parts of the world because of
Speaker Change: challenges that we see from things being volumes being dropped into markets and so there's a lot of work going on behind the scenes.
James R. Fitterling: I think that we'll get a clearer picture of that by the end of the year, but right now, I would say I haven't seen any uptick in volumes or stock because of that. Your next question comes from the line of John Roberts with Mizuho, please go ahead. Thank you.
Speaker Change: I think that we'll get a clearer picture for that by the end of the year, but right now I would say I haven't seen any uptick in volumes or stocking because of that.
Speaker Change: Your next question comes from the line.
Speaker Change: of John Roberts with Mizuho, please go ahead.
John Ezekiel E. Roberts: Jim or Jeff, I'm looking at slide eight in the top exhibit on volumes. You've had relatively easy year-over-year comparisons the last three quarters, and then you have that in the third quarter as well. But the fourth quarter begins, I think, with more challenging year-over-year comps. If we have normal seasonality, will the fourth quarter be down in volume?
John Ezekiel E. Roberts: Thank you. Jim or Jeff, I'm looking at slide 8 in the top exhibit on volumes.
John Ezekiel E. Roberts: You've had relatively easy year-over-year comparisons the last three quarters, and then you have that in the third quarter as well, but the fourth quarter begins, I think, more challenging year-over-year comps. If we have normal seasonality, will the fourth quarter be down in volume?
James R. Fitterling: I still think you're going to see strength, John, in plastics. I don't remember if silicones had a turnaround time in the fourth quarter last year. It should be up.
Speaker Change: I still think you're going to see strength, John , in plastics.
John Patrick McNulty: I don't remember if silicones had turnaround time in fourth quarter last year. It should be up.
James R. Fitterling: Based on the downstream demand forecast that we've seen, normal seasonality, I would expect out of Cody. But, but I think in plastics and silicones, you're going to see up, and then I and I, because of the industrial solution. And Glyco2 being back, you're going to see up.
Speaker Change: Based on the downstream demand forecast that we've seen, normal seasonality, I would expect out of coatings.
Speaker Change: But-but I think in plastics and silicones, you're going to see up, and in II&I, because of industrial solutions, and glycol-2 being back, you're going to see up.
Patrick Duffy Fischer: The question mark will be, how much do we see in terms of demand uptick on durable goods? And that'll be what determines whether PU is up or down. Your next question comes from the line of Duffy Fisher with Goldman Sachs. Please go ahead.
Speaker Change: And the question mark will be, how much do we see in terms of demand uptick on durable goods? And that'll be what determines whether PU is up or not.
Speaker Change: Your next question comes from the line of Duffy Fischer with Goldman Sachs. Please go ahead.
James R. Fitterling: Yes, good morning. I have two questions. First, Jim, you made a comment that you thought your coded raw material business did quite well in Q2. A lot of the companies have come out, and their volumes seem weak. So can you just kind of triangulate that? And then for Jeff, the other assets and liabilities on the cash flow statement have eaten almost a billion dollars of cash so far this year, which is much higher than normal. What is that?
Patrick Duffy Fischer: Yes, good morning. Two questions. First, Jim, you made a comment that you thought your coatings raw material business did quite well in Q2. A lot of the paint companies have come out and their volumes seem weak, so can you just kind of triangulate that?
Jeffrey John Zekauskas: And then for Jeff, the other assets and liabilities on the cash flow statement has eaten almost a billion dollars of cash so far this year, which is much higher than normal. What is that and what happens that going forward?
Jim: Yeah, Duffy, I'll take codings. Codings,
Speaker Change: Next is part of it. So, in addition to architectural coatings, where, as I mentioned, I think in the contractor space and with the customers who are in that space, we've done quite well. We also saw traffic paint improvements, and that's been driven by infrastructure projects that have gone along.
Jeffrey John Zekauskas: And also, you know, continue to see good response on the innovation side there.
Jeffrey John Zekauskas: The team's done a great job of, you know, getting their assets running well, had great uptime, and I think has been delivering on market share gains across that, taking advantage of their good cost positions.
Jeffrey L. Tate: And what happens going forward? Yeah, Duffy, I'll take codings on codings. Mixed is part of it.
James R. Fitterling: So in addition to architectural coatings, where, as I mentioned, I think in the contractor space and with the customers who are in that space, we've done quite well. We also saw traffic paint improvements, and that's been driven by infrastructure projects that have gone on. And also, you know, continue to see good response on the innovation side there. The team's done a great job of getting their assets running well, had great uptime, and I think it has been delivering on market share gains across that, taking advantage of their good cost position. Jeff on the cash side.
Jeffrey L. Tate: Yeah. Good morning, Duffy. In terms of other assets and liabilities, you know, you're right, the primary driver there is that we had a reduction in long-term tax payables related to some of our tax audit reassessments over the period. You may recall, even in the first quarter, we had a significant item more specific to one of our regions as well. So those things were somewhat unique from that vantage point here, so it should stabilize here moving forward. Your next question comes from the line of Patrick Cunningham with Citi. Please go ahead. Hi, good morning.
Jeffrey John Zekauskas: Jeff, on the cash side. Yeah, good morning, Duffy. In terms of other assets and liabilities, you know, you're right. The primary driver there is we had a reduction in long-term tax payables.
Jeffrey John Zekauskas: related to some of our tax audit reassessments over the period. And you may recall, even in first quarter, we had a significant item more specific to one of our regions as well. So those things were somewhat unique from that vantage point here. So it should stabilize here moving forward.
Jeffrey John Zekauskas: Your next question comes from the line of Patrick Cunningham with Citi. Please go ahead.
Patrick David Cunningham: I'm just curious about Siloxane's pricing in Asia. Would you characterize this as lingering oversupply issues, or is just the pace of demand recovery not as strong as expected? And I think there was maybe a bit more confidence in the pricing environment in the second quarter. Did that revert over the past couple of months? Yeah, good question, Patrick.
Patrick David Cunningham: Hi, good morning. I'm just curious on Syloxene's pricing in Asia. Would you characterize this as lingering oversupply issues or is just the pace of demand recovery not as strong as expected? And I think there was maybe a bit more confidence on the pricing environment in the second quarter. Did that revert over the past couple of months?
James R. Fitterling: I mentioned on the call the difference between integrated and non-integrated players. I think some of the weakness you see in siloxanes in Asia is from non-integrated players. And as you say, the capacity overhang that is there, capacity additions have slowed. So we do think we're going to start to see, as we move into next year, some pricing improvement on siloxanes. We've been working to make investments in downstream silicone products, which have all been doing well.
Speaker Change: Thank you.
Speaker Change: Yeah, good question, Patrick. I mentioned on the call the difference between integrated and non-integrated players. I think some of the weakness you see in phyloxanes in Asia is from
Speaker Change #103: The non-integrated players, and as you say, the capacity overhang that is there.
Speaker Change: Capacity additions have slowed, so we do think we're going to start to see, as we move into next year, some pricing improvement on siloxanes. We've been working to make investments in downstream silicone products,
James R. Fitterling: And we continue to move that way, really trying to drive that volume growth for those downstream derivatives and sell less into that merchant siloxanes market and more into the downstream derivatives. And you're seeing that start to come through in the volume in the second quarter. That was one of the big drivers.
Patrick David Cunningham: which have all been doing well, and we continue to move that way, really trying to drive that volume growth for those downstream derivatives and sell less into that merchant-side oxygen market and more into the downstream derivatives. And you're seeing that start to come through in the volume in the second quarter.
James R. Fitterling: So that was a big driver, plus the fact that you've seen an improvement in downstream demand for things like consumer electronics. You saw a pretty strong automotive business, and it's still good on the commercial construction side of things, which drives a lot of volume of product. Health and personal care has been.
Patrick Duffy Fischer: That was one of the big drivers.
Patrick Duffy Fischer: That was a big driver, plus the fact that you've seen an improvement in downstream demand in things like consumer electronics. You saw a pretty strong automotive business, and still good on the commercial construction side of things, which drives a lot of volume of products. Health and personal care has been...
James R. Fitterling: Pretty solid, I'd say we see good volume growth year over year, kind of 3%, a little bit more than 3%. Mixed is under a little bit of pressure because consumers are trading brands and trading quality, maybe a little bit as they're trying to balance their spending at the grocery store and at the pharma. Your next question comes from Mike Leithead with Barclays. Please go ahead. Great, thanks. Good morning.
Patrick Duffy Fischer: Pretty solid. I'd say we see good volume growth year over year, kind of 3%, a little bit more than 3%. Mixed is under a little bit of pressure because consumers are
Patrick Duffy Fischer: Trading brands and trading quality, maybe a little bit as they're trying to balance their spending at the grocery store and at the pharmacy.
Patrick Duffy Fischer: Your next question comes from the line of Mike Leithead with Barclays. Please go ahead.
Michael James Leithead: Jim, just a bigger picture question. Dow's obviously investing a lot in medium-term growth. You've laid out a lot of 2025 and 2030 expansion targets, but at the same time, the overall demand backdrop since about mid-22 has probably been materially worse than you or anybody else had thought at that time. So that timing gap between near-term weakness and medium-term growth sort of closes. I mean, 2025 is only five months away now
Michael James Leithead: Great. Thanks. Good morning. Jim, just a bigger picture question.
Michael James Leithead: Dow's obviously investing a lot for medium-term growth. You've laid out a lot of 2025 and 2030 expansion targets, but at the same time, the overall demand backdrop since about mid-22 has probably been materially worse than you or anybody has thought at that time.
James R. Fitterling: Does that give you any pause at all on some of your investments? Do you need to rethink or pivot any of these expansions in sort of a slower for longer economic scenario? It's a good question, Mike.
Speaker Change #105: So as that timing gap between near-term weakness, medium-term growth sort of closes, I mean 2025 is only five months away now, does that give you any pause at all on some of your investments? Do you need to rethink or pivot any of these expansions in sort of a slower for longer economic scenario?
Patrick Duffy Fischer: It's a good question, Mike, but I would also.
James R. Fitterling: But I would also, you know, I ask you to think about it in a longer-term timeframe. It takes years to plan and make these investments, and we have to look at what's happening with plastics. Take, for example, Since 2019, we've seen a 20% increase in volumes of plastic. You can't obviously respond to the market when you see the increase and start to get this capacity in place. You have to get in place to take advantage of the mid cycle and the up cycle ahead of time.
Speaker Change #101: You know, I ask you to think about it in even a longer-term timeframe. It takes years to plan and make these investments, and we have to look at what's happened in plastics. Take, for an example...
Speaker Change #102: Since 2019, we've seen a 20% increase in volumes in plastics.
Speaker Change #102: You can't obviously respond to the market when you see the increase and start to get this capacity in place. You've got to get in place to take advantage of the mid-cycle and the up-cycle ahead of time.
James R. Fitterling: So typically, when we're at this point in the cycle, it's a common question that everybody asks, but we've got to look through the long term trends, and the long term trends for plastic say that the growth is going to continue to be there. We've tried to move into the area where there is differentiation and there's higher growth rate. Were those silicones, or whether that's plastic?
Speaker Change #102: So, typically, when we're at this point in the cycle, it's a common question that everybody asks, but we've got to look through at the long-term trends, and the long-term trends for plastics say the growth is going to continue to be there. We've tried to move into the areas
Speaker Change #102: where there is differentiation and there's higher growth rates.
James R. Fitterling: Well, that's industrial solutions on the higher value, especially EO derivatives where we're investing. That's where the dollars are going, so those three markets are consuming most of your capacity expansion. What we've been doing in polyurethanes is more rationalizing the footprint print around the higher value mark.
Patrick Duffy Fischer: Whether that's silicones, whether that's plastics.
Patrick Duffy Fischer: Well, that's industrial solutions on the higher value, especially EO derivatives, where we're investing. That's where the dollars are going. So those three markets are consuming most of your
Patrick Duffy Fischer: Capacity Expansion. What we've been doing in polyurethanes is more rationalizing the footprint around the higher value markets.
James R. Fitterling: More downstream left commodities like CO, more MDI-containing components, and on coatings, obviously, being able to move with the market as the housing market improves. So, I feel good about the long-term direction. We're not back at mid-cycle yet.
Patrick Duffy Fischer: More downstream left commodity like CO, more MDI-containing components, and on coatings, obviously.
Patrick Duffy Fischer: Being able to move with the market as the housing market improves.
James R. Fitterling: As we get back to mid-cycle, there's a $3 billion step-up in earnings at mid-cycle margins. And then once past the zero comes on in the 27-29 timeframe, and you get the P. There's another $3 billion step-up. Your next question comes from the line of Chris Parkinson with Wolf Research. Please go ahead. Great, thank you so much.
Patrick Duffy Fischer: So I feel good about the long-term direction. We're not back at mid-cycle yet. As we get back to mid-cycle, there's a $3 billion step-up in earnings at mid-cycle margins.
Patrick Duffy Fischer: And then once past the zero comes on in the 27, 29 timeframe, and you get to peak, there's another $3 billion step up to peak.
Patrick Duffy Fischer: and many more.
Speaker Change: Your next question comes from the line of Chris Parkinson with Wolf Research. Please go ahead.
Christopher S. Parkinson: Jim, in your $2 billion of mid-cycle upside for P&SP, you know, I understand there are obviously a lot of moving factors there, but if we stick to the U.S., can you just offer some insights in terms of what you're expecting in terms of integrated, you know, PE margins, just given where the current FD dynamic is, export trends, NGLs, just any color in terms of kind of getting that back would be Thank you.
Christopher S. Parkinson: Great, thank you so much. Jim, in your $2 billion of mid-cycle upside for PNSP, I understand there are obviously a lot of moving factors there, but if we stick to the U.S.,
Christopher S. Parkinson: Can you just offer some insights in terms of what you're expecting in terms of integrated PE margins, just given where the current SD dynamic is, export trends, NGLs, just any color in terms of kind of getting that back would be especially helpful. Thank you.
Christopher S. Parkinson: Yeah, so mid-cycle margins typically run in the range of 27 cents globally, but that can run from, you know, in Europe, maybe 20 cents for mid-cycle margins to America's 32 cents. When we've gotten to peak, the global average on peak would tend to be more like $0.48. And maybe that range would run from Europe being in the 40 range, 38 to 40, and America being as much as 56.
Jim: Yeah, so mid-cycle margins typically run in the range of
Speaker Change: 27 cents globally, but that can run from, you know, in Europe maybe 20 cents mid-cycle margins to America's 32 cents.
Christopher S. Parkinson: When we've gotten to peak, the global average on peak would tend to be more like 48 cents, and maybe that range would run from Europe being in the 40 range, 38 to 40, and America's being as much as 56.
James R. Fitterling: So that's, you know, kind of what the outlook is. And of the $2 billion of upside, I'd say some of that is capacity, debottlenecking, and things that we're adding. So about $800 million of the $2 billion is from additional and tweaking on making some more higher-value products available, like we announced with elastomers and things in Tarragona. And then the rest of it will come from margin expansion. Your next question comes from the line of Aleksey Yefremov with KeyBank. Please go ahead. Good morning, everyone.
Christopher S. Parkinson: So that's, you know, kind of what the outlook is, and of the $2 billion of upside, I'd say some of that is capacity, debottlenecking, and things that we're adding. So about $800 million of the $2 billion is from additions.
Christopher S. Parkinson: and tweaking on making some more higher-value products available, like we announced, you know, we've done with elastomers and things in Terragona, and then the rest of it will come from margin expansion.
Speaker Change: Your next question comes from the line of Aleksey Yefremov with KeyBank. Please go ahead.
Aleksey V. Yefremov: Jim, looking at ACC numbers, North American polyethylene demand this year is roughly at the same level as in 2018-2019. Do you have any thoughts on this observation? Do you think there's another leg up for US polyethylene demand? I do.
Aleksey V. Yefremov: Good morning, everyone. Jim, looking at ACC numbers, North American polyethylene demand this year is roughly at the same level as in
Aleksey V. Yefremov: Do you have any thoughts on this observation? Do you think there's another leg up for U.S. polyethylene demand?
James R. Fitterling: I think when we look at North American demand, we're starting to see, you know, the total domestic demand plus exports getting north of, you know, five billion pounds. So, you know, this is. This is a step up. Obviously, exports have been a big driver. Historically, you know, 30% of total demand was for export. You're running about 45% of that demand in 2023. Also, I would tend to look at not just US data, but I would also look at Mexico. I mean, we move product into Mexico the same way we move into the US market.
Jim: I do. I think when we look at North American demand, we're starting to see, you know, the total domestic demand plus exports getting north of, you know, 5 billion pounds.
Speaker Change #104: So, you know, this is a.
Jim: This is a step up. Obviously, exports have been a big driver. Historically, you know, 30% of total demand was export. You're running about 45% of that demand in 2023.
Jim: Also, I would tend to look at not just U.S. data, but I would also look at Mexico. I mean, we move product into Mexico the same way we move into the U.S. market. And as I mentioned, you know, one of the biggest consumption increases has been
James R. Fitterling: And as I mentioned, one of the biggest consumption increases has been in Mexico with manufacturing reshoring moving into that area. So I think we're seeing good volumes this year in the U.S., and I think we're going to continue to see that improve at a steady rate.
Jim: in Mexico with manufacturing and reshoring moving into that area. So I think we're seeing good volumes this year in the U.S. I think we're going to continue to see that improve at a steady rate.
Arun Shankar Viswanathan: Your next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please go ahead. Arun, your line is open.
Speaker Change #106: Your next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please go ahead.
Arun Shankar Viswanathan: Arun, your line is open.
Andrew Riker: Yeah, thank you, everyone, for joining our call, and we appreciate your interest in Dow. Also, we understand there were some technical issues and audio issues to start the early part of the Q&A. We do apologize for this.
Jim: Andrew.
Speaker Change #108: Yeah, thank you, everyone, for joining our call, and we appreciate your interest in Dow. Also, we understand there were some technical issues and audio issues to start the early part of the Q&A. We do apologize for this. As a reminder, we do post the transcript to our investor website, and we'll do so as quickly as possible today to make sure everything's addressed. This concludes our call. Thank you for your time, and thank you for your interest in Dow.
Operator: As a reminder, we do post the transcript to our investor website, and we'll do so as quickly as possible today to make sure everything's addressed. This concludes our call. Thank you for your time, and thank you for your interest in Dow. This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Speaker Change #107: This concludes today's conference call. Thank you for your participation and you may now disconnect.