Q1 2025 Dow Inc Earnings Call

Thank you.

Speaker Change: Greetings and welcome to the Dow First Quarter 2025 earnings conference call. At this time all participants are in a listen only mode.

Speaker Change: A brief question and answer session will follow the formal presentation. If you would like to ask a question at that time, please press star, followed by one on your telephone keypad. As a reminder, this conference is being recorded. Thank you very much.

Speaker Change: I'll now turn it over to Dow Investor Relations by President Andrew Riker. Mr. Riker, you may begin.

Speaker Change: Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I'm Andrew Riker, Dow's Investor Relations Vice President.

Speaker Change: Leading today's call are Jim Fitterling, Chair, and Chief Executive Officer. [inaudible]

Speaker Change: Jeff Tate, Chief Financial Officer, and Karen S. Carter, Chief Operating Officer.

Speaker Change: Please note our comments contain forward-looking statements and are subject to the related cautionary statement contained in the earnings news release and slides. Please refer to our public filings for further information about principal risk and uncertainties.

Speaker Change: Unless otherwise specified, all financials, where applicable, exclude significant items. We will also refer to non-GAAP measures. A reconciliation of the Most Directly Comparable GAAP financial measure and other associated disclosures are contained in the earnings news release that is posted on our website.

Speaker Change: On slide two is our agenda for today's call. Jim will review our first quarter results and further actions we are taking to navigate the co-long downturn.

Speaker Change: Karen will provide an overview of our operating segment performance in actions we are taking to improve business results through more efficient resource allocation. She will also provide details around how our advantage footprint once again demonstrated relatively strong performance versus our peers in our full year 2024 benchmark. Thank you very much.

Speaker Change: This includes how we expect it to provide mitigation levers that are unique to Dow against the recent geopolitical volatility we have seen.

Speaker Change: Chapel Sharon update on the macroeconomic environment, our modeling guidance, and details in the progress of our unique cash levers in the near term. We will close the divisional comments about our strategic focus areas.

Following that, we will take your questions.

Now, let me turn the call over to Jim.

Jim Fitterling: Thank you, Andrew. Beginning on slide three, in the face of volatile macroeconomic conditions, teamed out focused on operational discipline, while taking actions to reduce costs and align capacity to the slower GDP conditions that are impacting our industry.

Jim Fitterling: We delivered our sixth consecutive quarter of year-over-year volume growth and net sales were $10.4 billion, down 3% versus the year-ago period. This reflects declines in all operating segments, largely due to margin pressures.

Sequentially net sales were flat. [inaudible]

Jim Fitterling: This reflected lower pricing and industrial intermediates and infrastructure and performance materials and coatings.

Jim Fitterling: which was offset by downstream growth and silicone as a result of improvements in home and personal care and electronic and markets, as well as seasonally higher demand in building and construction and the IC.

Jim Fitterling: Eva Dow was $944 million, which is bound compared to the same period last year, as volume gains were more than offset by margin compression.

Jim Fitterling: Hasklo from continuing operations was $104 million and returns to shareholders to $494 million of dividends in the quarter. [inaudible]

Jim Fitterling: We're taking targeted actions to further reduce costs and support near-term cash flow in response to the ongoing macroeconomic weakness. [inaudible]

Jim Fitterling: Our actions include at least one billion dollars in annualized cost reductions by 2026 in areas like purchase services, contract labor, and the elimination of approximately 1,500 Dow rolls.

Jim Fitterling: We're also delaying construction at our path to zero project in Fort Saskatchewan, Alberta, Canada.

Jim Fitterling: This will accelerate our CAPEX spending reductions this year, reflecting a total decrease of $1 billion for an enterprise spend of approximately $2.5 billion versus our plan of $3.5 billion.

Jim Fitterling: In addition, we are expanding the scope of our previously announced review of select European assets primarily in polyurethane. [inaudible]

Jim Fitterling: We also received regulatory approval from the Committee on Foreign Investment in the United States for a strategic transaction with Macquarie Asset Management for the sale of a minority stake in select U.S. Gulf Coast infrastructure assets.

Jim Fitterling: We expect to receive proceeds of approximately $2.4 billion upon closing, which is on track to be completed by May 1st, with the potential for an additional $600 billion later this year.

Jim Fitterling: and lastly we received the final ruling on the pending NOVA litigation

Jim Fitterling: For which we expect to receive more than $1 billion later this year.

Jim Fitterling: The reality is our industry has been one of the most protracted down cycles in decades, facing a third consecutive year of below 3% GDP growth.

Jim Fitterling: This has been further exacerbated by geopolitical and macroeconomic concerns which are weighing on demand globally.

Jim Fitterling: In response, theme now remains agile, taking quick and decisive actions to reduce our costs, adjust our supply chains, and protect and improve our margins.

Jim Fitterling: These proactive actions will help us to outperform our peers and ensure long-term competitiveness.

Jim Fitterling: We also remain committed to a balanced capital allocation approach over the cycle.

Jim Fitterling: Let me delve deeper into the actions that we announced today, beginning on slide four.

Jim Fitterling: Team Dow remains focused on discipline execution to improve profitability and support cash flow, as evidenced by the additional actions we announced today.

Jim Fitterling: First, following a comprehensive review, we have made the decision to delay construction at our Path to Zero Project in Fortress, Catch One, until market conditions improve.

Jim Fitterling: This decision supports our near-term cash flow and adjust the project timing to align with the market recovery.

Jim Fitterling: We remain committed to the long-term strategic rationale of the project and the growth upside that it will enable in targeted applications like pressure pipes, wiring cable and food packaging. Thank you very much.

Jim Fitterling: However, we now see a higher probability of a lower for longer earnings environment, which changes our expectations for when the capacity from this project will be needed.

Jim Fitterling: We are steadfastly focused on ensuring returns for the project are above our cost of capital, and because of that, now is the time to delay construction before spending ramps up.

Jim Fitterling: As a result of this decision, we now expect our 2025 capital expenditures to be $2.5 million, compared to the original plan of $3.5 billion.

Jim Fitterling: In addition, we are expanding our European Asset Review to address the ongoing demand challenges and regulatory environment in that region.

Jim Fitterling: We have identified three initial upstream assets across each of our operating segments where we expect to either idle or shut down capacity.

Jim Fitterling: These actions will help to further enhance Dow's near-term cash flow and align our asset base to the realities of our participation in the region.

Jim Fitterling: And importantly, they are additive to our previously announced plans to determine the best strategic option for a call-a-year thing to business in Europe .

Jim Fitterling: The assets we announced today include an Ethylene Cracker in Bowling, Germany. . .

Jim Fitterling: Encore Alphaline, and vinyl assets in Stokau, Germany, that will likely result in an idol or shutdown.

Jim Fitterling: Each of the assets represents a meaningful portion of our regional capacity. [inaudible]

Jim Fitterling: which is either not fully integrated, resulting in excess merchant sale exposure or as high on our cost curve, where we have better options to supply derivative demand and optimize margins.

Jim Fitterling: Next, I'll turn the call over to Karen, who will unpack our first quarter performance across the Dow's operating segments.

Karen: She will also provide an overview of our business in regard to the current tariffs environment.

Thank you, Jim.

Karen: We are moving with urgency to deliver strong operational and financial results through this persistent down cycle.

Karen: We are taking a hard look at everything across the enterprise with a sharp focus on driving volume growth, capturing price, and taking actions in the near term that will enhance profitability and improve margins.

Karen: We will continue to accelerate our cross-saving actions and are looking for additional opportunities to build on what we are already delivering.

Karen: Now turning to packaging and specialty plastics results on slide 5.

Karen: During our January earnings call, we acknowledged that higher-feet stocks and energy prices would be a headwind for us in the first quarter. Although we expected these prices to moderate throughout the quarter, they remained elevated, leading to margin compression across the segment.

Karen: Net sales in the quarter were down compared to the year ago period driven primarily by pricing pressures and structural polymers from increased competition and Asia Pacific. [inaudible]

Karen: and the return of our P.D.H. Unit drove a 4% volume improvement.

Karen: Sequentially net sales were flat. While we benefited from higher oliphance crisis in the quarter, Polly ethylene sales were down, primarily driven by lower sequential export sales following record high industry exports in November and December of last year.

Karen: Operating EVIT was $342 million, reflecting a decrease compared to the year ago period. [inaudible]

This was primarily driven by law-integrated murder.

Sequentially, operating EBITD priest at higher input costs, pressured margins. [inaudible]

Karen: This was partly offset by higher equity earnings at our principal joint venture. [inaudible]

Karen: Next is our industrial intermediates and infrastructure segment on slide set.

Karen: Looking at first quarter results, net sales declined both year over year and sequentially, as market conditions in the segment remain difficult, particularly in our polyurethanes and construction chemicals business, which have a high exposure to durable demand.

Karen: This segment was able to deliver a 1% volume gain year-over-year, primarily driven by improved supply availability in our industrial solutions business.

Karen: Equitially, volume increased as a result of seasonally higher building and construction and the icing fluid demand. [inaudible]

Karen: We continue to experience stable demand across the energy and pharma and markets.

Karen: These are key markets where we are positioning our business for growth. [inaudible]

Karen: This includes our new Alcoxilation expansion and seizure of Texas, which we expect to be fully operational by mid 2025. We anticipate the project will provide earnings upside in the second half of the year, delivering margins and excess of 1000 basis points higher than MEG. We anticipate the project will provide earnings upside in the second half of the year, delivering margins and excess of 1000 basis points higher than MEG.

Karen: Operating EBIT for the segment decreased $215 million versus a year ago period, results for primarily driven by lower prices and higher energy costs, which compress integrated margins, as well as lower equity earnings. [inaudible]

Karen: On a sequential basis, operating EBIT decreased, driven by margin compression and higher planned maintenance activity, which are partly offset by volume gain. [inaudible]

Karen: Moving to the Performance Materials and Coding segment on slide 7.

Karen: We delivered a sixth consecutive quarter of downstream silicone's growth. However, overall volume decreased for the segment. This was driven by lower volumes and upstream select zones and acrylic monomers.

Karen: Met cells in the quarter decreased 4% versus last year. Local price also decreased year-over-year due to continued tiloxane's pricing pressure. [inaudible]

Karen: sequentially net sales increased, primarily driven by a seasonally higher demand in building and construction and market, which comprises a significant portion of the segment's sales.

Karen: We also experienced higher demand for electronics and personal care applications, which have been resilient in markets for us.

Karen: Operating evit was up compared to the year ago period, driven by lower fixed costs, which were partly offset by lower prices.

Karen: Equitially, Operating Event Increased, Driven by a seasonally higher demand for architectural coding, which was partly offset by higher planned maintenance activity in North America, and preparations for the demand high point of the painting season.

Now turning to flight 8.

Karen: In addition to the comprehensive set of actions underway, we are adjusting our business to current market realities by leveraging our strategic asset footprints, global reach, low cost positions, and unmatched feedstock flexibility.

Karen: More specifically, we have a leading, or low cost position, and world-class manufacturing sites in every geography with well-developed, agile regional supply chain, and a deep understanding of the needs of our customers. [inaudible]

Karen: And we are the only company with integrated polyethylene production on four continents.

Karen: In addition, Dow's unique feedstock flexibility allows us to optimize our assets based on regional advantages.

Karen: We have the ability to crack the most optimal feet plate and have the widest range to take advantage of dynamic periods. [inaudible]

Karen: Disability to capitalize on preferred feedstocks, peered with our breadth of process technologies, and able to doubt to optimize what, where, and how we produce our products the best serve our customers.

Karen: And while the chair of environment remains fluid, we estimate greater than 95% of our North American volume is US MCA compliant, which is an advantage for Dow.

Karen: There are also areas of our portfolio, mainly MDI and silicones in North America, where we expect additional margin support from our local production, as significant Chinese oversupply has forced local markets to go long.

Lastly,

Karen: We have engaged in rigorous scenario planning to identify potential additional cost pressures and mitigation strategies.

Karen: All together are unmatched cross-position and feedstock flexibility to peer your product mix and geographic diversity are strong differentiators that give doubt a competitive edge today and throughout the cycle.

Karen: The proof of Dow's competitive edge is in our annual benchmarking results. Our industry-leading feedstock flexibility translates to value through our ethylene and propylene derivatives.

Karen: This is coupled with our leading sardisficiency and douse portfolio advantages, which enable higher margin.

Karen: This is clearly illustrated in terms of EBIDOP, propound of polyolephense capacities which continue to deliver superior results versus competition.

Karen: The breadth of our portfolio also stands out in downstream silicones, where we grew volume year-over-year in 2024 and outperformed peers on EBITDA growth.

Karen: This is just one highlight from our annual benchmarking efforts, which we published on our investor website today. [inaudible]

Karen: These results once again highlight Dow's performance relative to industry peers. As we performed in line or ahead of peers across more than 80% of the metrics we track most closely.

Karen: This underscores the power of our competitive advantages and track record of solid execution in various market conditions.

Karen: Now, I'll turn the call over to Jess, who will provide an overview of the macros and our outlook.

Jess: Thank you, Karen, and good morning to everyone joining our call today. Moving to slide 10. Welcome to slide 10.

Jess: From a macroeconomic perspective, global demand remains well below historical average GDP levels. Recent disruption from tariffs has weighed on expectations for global economic growth, as it has on business and consumer sentiment.

Jess: We are closely monitoring these factors as they are increasing the probability of a longer timeline to mid-cycle earnings. This vigilant monitoring is crucial as we navigate the fluctuating market conditions and ensure our actions are aligned with the evolving economic landscape.

Jess: We still expect demand to be positive for the year. However, the impact from uncertain trade flows could create additional margin pressure for our portfolio. Most notably against the one area where we've seen resilience for some time, the North American consumer. [inaudible]

Jess: Looking across our four market verticals and packaging, domestic demand continues to grow in North America. Although it's mentioned, we're closely monitoring it for changes through the growing inventory and inflation. We're looking to see if we can make a change in the future.

Jess: We are not seeing any significant pattern changes in Chinese economic activity, and we see continued softness in Europe.

Jess: Dow's global footprint with low cost assets and all regions should position as well to navigate current market dynamics. [inaudible]

Jess: Across infrastructure markets, we have yet to see any meaningful inflection and housing demand, including in China, as well as Europe . In the US, mortgage rates remain high, resulting in subdued demand and the 14th consecutive Euroview decline and building permits in March.

Jess: Increasing risk to the global economy, including the potential for retaliatory terrorists between multiple countries, is also impacting consumer markets.

Jess: And March, US Consumer Confidence declined to its lowest level in more than four years.

Jess: And while retail sales were up in China, supported by government stimulus, prices have been deflationary for two consecutive months. [inaudible]

Jess: And in mobility, higher tariffs are expected to create further affordability concerns in the US, although we saw temporary spike in auto sales in March ahead of these implementations.

Jess: In the EU, new car registrations in February , so their largest year of year decline in six months.

Jess: China Auto Sales Benefit is from Government and Centers, and we're up 8% year in March. [inaudible]

Now, turning to our Outlook on slide 11.

Jess: In today's world, there's a high degree of uncertainty in the market, which makes this a difficult quarter to project. Until negotiations on tariffs are finalized, we expect to see delays in both purchase and investment decisions from consumers, as well as corporations.

Jess: Our outlet today is based on everything we have line of sight to, understanding that we're operating to a very dynamic market and geopolitical times. [inaudible]

Jess: Should be gaining insight into substantial changes in the quarter, we're committed to maintaining transparency and we'll provide timely updates accordingly.

Jess: Before I get into the details by segment, let me share a couple of enterprise level drivers.

Jess: Our cost reduction actions will ramp at the second quarter progresses, providing approximately $50 million of overall benefits versus the first quarter across all three operating segments.

Jess: Additionally, we expect $50 million in sequential upside following recent winter storms. Primarily inzo that required us to proactively take units down, resulting in loss production.

Jess: We will see startup costs related to our incremental higher return growth projects in the second quarter, as well as higher plant maintenance activity and packaging and specialty plastics and industrial intermediates and infrastructure.

Jess: We expect things to be completed to the end of the second quarter, creating an Arnie's tailwind in the third quarter.

Jess: With our continued commitment to running our plant safely and reliably, we expect full-year plant maintenance activity to be roughly in line for 2024 levels.

Jess: Next, I'll turn to our outlook in seconds for guidance by segment.

Jess: In packaging and specialty plastics, we expect sequential evagiles to be approximately 50 million dollars lower. [inaudible]

Jess: This is primarily driven by higher planning and activity in lower integrated margins, including pure emergent sales, which we expect to be partly offset by the initial benefits of our cost reduction actions.

Jess: In the Industrial, Intermediate, and Infrastructure segment, we expect second quarter EBITDA to be roughly flat with first quarter.

Jess: While we expect to see modern seasonal demand improvements and higher margins for MDI, some of this will be offset by lower anticipated pricing for MEG, driven by increased competition in Asia Pacific as natural prices come down with oil.

Jess: In addition, we will have costs in the quarter related to a plan turnaround and the start of cost associated with our new oxalation capacity and seizure of taxes.

Jess: This new capacity is one of the near-term growth investments we've spoken about and should support higher earnings to getting into third quarter.

Jess: And in the performance materials and coding segments, we expect higher sequential diva dot. [inaudible]

Jess: This will be driven by a $75 million benefit from seasonal demand improvements for coatings and markets.

Jess: We also expect continued growth for downstream silicones, where our current expectation is to deliver the seventh consecutive quarter of year-over-year volume growth.

Jess: and Summary, we expect second quarter EBITDA to be roughly in line with first quarter levels.

Jess: We anticipate improved volumes, primarily from seasonality, and improved margins in certain product chains.

Jess: With that higher planned maintenance and one-time startup calls that our new asset are expected to be an offset. Thank you very much.

Now turning to slide 12.

Jess: Dow's commitment to financial discipline provides important flexibility in the midst of the slow growth environment and increased macroeconomic and geopolitical uncertainty. [inaudible]

Jess: We've outlined today several proactive actions we're taking to effectively manage this extended down cycle. Thank you very much for your time.

Jess: In total, we expect these actions to provide approximately $6 billion in near-term cash support.

Jess: This includes our Strategic Infrastructure Transaction, Unique to Dow Cash Levels, Additional Cost Saving, and Reduced Cap-X.

Jess: More specifically, our signed agreement with Macquarie Asset Management represents a strategic partnership that has been several years in the making.

Jess: Dow sale of a minority equity stake in select infrastructure assets and expected to generate $2.4 billion of initial cash proceeds with clothing expected by May 1st.

Jess: McCory had the option to increase their state to 49% for an additional $600 million within six months of clothing which would increase total cash proceeds to approximately $3 million for Dow in 2025. Thank you very much.

Jess: The newly formed Infrastructure Focus Company named Diamond Infrastructure Solutions is comprised of assets that support a wide range of services from the energy and environmental to infrastructure and pipeline for more than 70 long standing customers. [inaudible]

Jess: With improved operational efficiencies, we expect to withdraw growth with new and existing customers while providing near-term financial flexibility for Dow.

Jess: In addition, the court of teams benched in Alberta, Canada issued a ruling awarding Dow additional compensation for damages incurred through 2018, related to the jointly owned ethylene asset with Nova Chemicals in job for Alberta, Canada.

Jess: We expect the final resolution to come this year with cash proceeds exceeding $1 billion, allowing doubt to recover costs from a decade's long legal process. [inaudible]

Jess: And as Jim mentioned earlier, we've now expect our total enterprise 2025 CapEx to be $2.5 billion. A $1 billion a reduction compared to our original plan of $3.5 billion.

Jess: This new target builds on the approximately $400 million reduction that we announced in January . [inaudible]

Jess: And lastly, we also announced in January that that would deliver at least $1 billion in targeted cost savings on an annual run rate basis in response to the ongoing macroeconomic challenges. And we continue to push the number higher and faster.

Jess: The Cost Savings Action aims to improve our margins and long-term competitiveness across the economic cycle, and we expect approximately $50 million of end-period savings supporting second quarter.

Jess: As previously shared, look at the majority of these cost savings for a reduction in direct cost of $500 to $700 million, primarily focused on purchase services and third party contract labor.

Jess: We're also implementing a workforce reduction of approximately 1,500 Dow rolls globally. [inaudible]

Jess: Our collective actions to navigate the realities of the current macroeconomic environment and deliver $6 billion in cash support over the next two years and able to maintain our financial flexibility. Thank you very much.

Jess: Our balance sheet remains solid with no substance to debt materities to until 2027. The lines were at that tower which we also recently completed from debt new through liability management to take advantage of tight spreads and extend our materities at lower rates.

Jess: We will continue to seek options where Dow can for actually take action to improve our capital structure, to this type of activity, or be risking as we've done in the past. [inaudible]

Jess: We remain focused on delivering on our balance capital allocation approach over the cycle. We will continue our practice of managing Dow's capital structure and priorities in order to better position the company to create additional shareholder value. We will continue our practice of managing the company to create additional shareholder value.

Jim Fitterling: Now I'll turn the call back over to Jim to close things out.

Speaker Change: Closing on slide 13. As our industry weather the current challenging conditions, we're executing several proactive and decisive actions to improve margins, support near-term cash flow, and optimize our global portfolio.

Speaker Change: We're doing so today in a manner that is consistent with our best-owner mindset and a balanced capital allocation approach.

Speaker Change: Our purpose-built asset footprint and our low-cost feedstock positions primarily in the Americas and the Middle East create a meaningful cost advantage for Dow and provide industry-leading flexibility to navigate global trade dynamics. Thanks for joining us today.

Speaker Change: We're focused on improving our margins by reducing our spending and matching regional supply to profitable demand.

Speaker Change: As we've outlined throughout today's call, we have line of sight to $6 billion in near-term, cash flow improvement, including completing the launch of diamond infrastructure solutions, our strategic and growth-focused transaction with McCory for up to $3 billion.

Speaker Change: receiving proceeds from the Nova Judgment, which is expected to be more than $1 billion. $1 billion.

Speaker Change: Delane Construction, at our Path to Zero Project in Fortes, Saskatchewan, to align with Market Reality, which will result in reducing our total 2025 enterprise capex by approximately $1 billion. $1 billion.

Speaker Change: and expanding the scope of our strategic review of our polyurethane assets in Europe by identifying three additional assets that we expect to idle or shut down in the region.

Speaker Change: In addition, we are nearing the completion of our higher return incremental growth investments in regions where we have energy and feed stock advantages.

Speaker Change: Three of these projects, one in packaging and specialty plastics, and two in industrial solutions, will begin to come online at the end of second quarter and show benefit in the third quarter and beyond.

Speaker Change: The Dow team is closely monitoring the current uncertain macro environment, and we are taking the necessary actions to further improve our competitive position, including looking for additional ways to reduce costs and increase our competitiveness.

Speaker Change: Our new term strategic priorities are focused on navigating the challenges our industry is facing. [inaudible]

Speaker Change: By delaying the Alberta project, maintaining financial flexibility, protecting our balance sheet, rationalizing assets and high cost regions, reducing costs and focusing on profitable growth, we are positioning Dow for long term success through the cycle.

Speaker Change: With that, I'll turn it back to Andrew to get it started on the Q&A.

Speaker Change: Thank you, Jim. Now let's move on to your questions. I would like to remind you that our forward-looking statements apply to both our prepared remarks and the following Q&A operator. Please provide the Q&A instruction. Thank you very much.

Speaker Change: As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Thank you very much.

Speaker Change: Your first question comes from the line of Vincent Andrews with Morgan Stanley . [inaudible]

Please go ahead.

Vincent Andrews: Thank you and good morning, everyone. Jim, I'd like to ask you on Alberta to contextualize a couple of things.

Vincent Andrews: First, you noted in your prepared remarks a lower for longer environment. So I'm curious. Thank you very much.

Vincent Andrews: If the board came to that conclusion sort of before or after April 2nd, and sort of the follow-up to that, when you talk about taking the delay on Alberta off when market conditions improve, how would you define market conditions improving? Is that a function of where spreads are? Is it a function of your SMD outlook? Is the function of oil prices? Where are the sort of KPIs you're looking for there? [inaudible]

Speaker Change: Morning, Vincent. Thank you. Good question. Yeah, so when we look at the market outlook, our original plan for Alberta was to come up in two phases, first phase in 2027, second phase in 2029. Thank you very much.

Speaker Change: and our view has been that we would be seeing a cycle recovery.

Speaker Change: When that first phase come up, I think with the situation that we're in now with the uncertainty around where tariffs are going to land. [inaudible]

with the impact that's having on demand.

That's driving our lower for longer outlook on the environment. [inaudible]

Speaker Change: And we're at a point right now where we can make this decision to have minimal impact on the project. So we've done a lot of groundwork. We're finishing our engineering work. We've got our long lead time items ordered. Thank you very much.

Speaker Change: We can pause now before we have a big ramp up in labor in the field.

Speaker Change: And if we could push some of that workout until we see how things land with tariffs. [inaudible] we could push some of that,

Speaker Change: So we're going to revisit it on a regular basis, I'd say we won't revisit it until for the end of this year.

Speaker Change: Trying to make a call if wrapping up next year's the right answer or if we wait after that, but I'd say we have to start seeing things moving.

Speaker Change: Up in the supplied man balances, frightening up a bit, and understand how the supply chains are going to work as we adjust to this tariff environment. Thank you very much.

Mike Sison: The next question comes from the line of Mike Sison with Wells Fargo. Please go ahead.

Mike Sison: Hey, good morning. I know it's difficult to give an outlook for the full year, but you know, if you're going to do 1-819 or so in the first half.

Mike Sison: How could EBITDA get better in the second half? I know you have some cost savings. You know, maybe talk about what volumes, what demand environment could be, could be worse, could be better, but, you know, what could happen in general to have a better second half EBITDA than the first half directly. [inaudible]

Morning, Michael. Another good question.

Mike Sison: So I mentioned on the call that we have obviously three projects that are completing in the second half of the second quarter. [inaudible]

Mike Sison: Packaging, especially plastics, and also two additions in industrial solutions. And both of those are going into markets where we have a need for those products. And so I think you'll start to see that come through. Thank you very much.

Mike Sison: One of the pressures we saw in first quarter was the fact that...

Mike Sison: All the input costs were higher than we'd anticipated because of the winter weather.

Mike Sison: and the drawdown on inventory. We're starting to see that normalized in the second quarter, which you would assume. So I think you're going to see some energy cost advantages rolled through the back half of the year. I would assume. [inaudible]

Mike Sison: You know, next winter, depending on what the weather forecast looks like, we're going to see the same pattern again. [inaudible]

Mike Sison: We're going to have cost reductions. We've got $50 million of cost reductions coming in the second quarter.

Mike Sison: Our target for the year is 300 million. Karen continues to push for more and faster, but you're going to start to see that ramp up to where we get to. The run rate for next year, which is full billion dollars. The run rate for next year, which is full billion dollars.

Mike Sison: So that's going to step in. And then the wild card, I would say is...

Mike Sison: Having some visibility to where the supply chains are going to land. We have an advantage. [inaudible]

Mike Sison: In that we have footprint, Canada, US, Argentina, Middle East, and the ability to flex the supply chain and to mitigate care of impacts on where we export our materials. Such very positive, we also have the advantage set.

Mike Sison: Greater than 95% of everything we move between the United States and Canada, as USMCA compliant, so I think those things will have a positive impact. But we just need a little bit better clarity on where these tariffs land and what that impact is on overall demand. Thank you very much.

Speaker Change: Your next question comes from the line of David Begleiter with Deutsche Bank.

Please go ahead.

David Begleiter: Thank you, good morning. Jim, on the issue of tariffs, how are you thinking about the impact of the Chinese tariffs on imported US polyethylene? [inaudible]

David Begleiter: And how that might impact domestic polyethylene prices going forward if we do lose that export market for U.S. produced polyethylene. Thank you.

Speaker Change: Good morning, David. I hope you're shot at that and then I'll maybe ask Karen to comment on some of the things that we're doing.

That's, I think, the big question is all trade.

Speaker Change: You know, not just Paul Yefremov, but all trade between US China, where is that going to land? We have a very active tariff and trade team that is engaged on all sides of that. And of course, a lot comes down to what's going to be on an exemption list. [inaudible]

And what is it going to be on an exemption list? [inaudible]

Speaker Change: So we're optimistic that some discussions will start and we'll get some clarity around that as the quarter develops in the meantime.

Speaker Change: We're doing things that we need to do to flex that supply chain. You want to speak to that, Karen? Yeah, sure. I mean, we are well on our way on reconfiguring our supply chain, the team is working. [inaudible]

Karen: And really, you know, the middle of our squatter on this. And so we are able to export quite a bit more product out of Canada. And then, of course, in the United States, our low cost position enables us to produce for the local demand. [inaudible]

Speaker Change: As a matter of fact, the growth project that Jim alluded to, Callie 7, that's going to start up in second quarter and it's going to provide us even more flexibility. Ability,

Speaker Change: to supply even more of that U.S. demand right here. And then, of course, we've got, you know, four, four continents and greater polyethylene production. So think about the Middle East as well as an opportunity for us to supply demand around the world, but also direct demand China. So we are a well-positioned, we feel good about where we are, and able to mitigate the giraffes directly.

Speaker Change: But again, I just want to reiterate that the indirect impact is really the biggest concern on overall demand, so we'll continue to watch that as we go forward.

Thank you.

Speaker Change: The next question comes from the line of Chris Parkinson with Wolf Research.

Please go ahead.

Chris Parkinson: Great. Thank you so much for taking my question. So on one hand, the China situation, so a corollary of Dave's question. On one hand, one could argue that the current situation could potentially incentivize. [inaudible]

Chris Parkinson: the Chinese to further, let's say, you know, push a little bit harder in domestic capacity over the intermediate to long term.

Chris Parkinson: And on the other hand, in the near term, there's been a lot of debate about Chinese, you know, NGL imports.

Chris Parkinson: You're giving that's where a decent amount of their capacity has also been growing and there's a debate on obviously the feedstock side of it. So, you know, as far as Dow's you understanding there are various scenarios here, how would Dow come out in terms of like those two, you know, the facets that we're all kind of pondering these days? [inaudible]

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Chris Parkinson: Good question, Chris. Let me start with the second half of that first.

Speaker Change: I think the NGO imports into China. If you look at that today, you have to look at a context of what's happened with oil price, so I would say the advantage right now would be oil using NAFTA in China. [inaudible]

Speaker Change: If once you look at NGL price here, exported, landed in China, inverted to Ethelene, you're really driven up the cost of the Ethelene, so that's not going to be a very competitive position. I think they're going to have better options there.

Speaker Change: I think on the other hand, in terms of incentivize to make more capacity, a lot really is going to depend on grades of product. I think our experience is. [inaudible]

Speaker Change: We haven't looked at moving commodity grades of polyethylene into China for quite some time. We remove more specialized grades and so I think there's a limit.

Speaker Change: To the ability to be able to produce that in the country. There's also a need for those materials to make finished products that they have to export around the world. And so this is a balance between, you know, being able to have access. And that's it.

Speaker Change: At a reasonable cost to the things that they need to be able to produce finished goods for their own export demand, which is global demand, not just US demand.

Speaker Change: And that's the thing people are trying to navigate right now.

Speaker Change: The domestic outlook in China isn't really driving any big support for additional capacity to be added.

Speaker Change: It's moderate at best, and so there's not a big consumer ribbon uptick in China, so I think we continue to watch those two angles that you talked about and try to see where that's going to land. Thank you very much.

Speaker Change: Your next question comes from the line of Josh Spector with EBS

Please go ahead.

Good morning, it's Chris Perrella on for Josh. [inaudible]

Speaker Change: Could you go in a little more detail about the moving parts of AI and I, and it's outlook for the second half of the year. I know there's some projects coming online, but the underlying weakness there and what's, you know, how does that play into the strategic review of the business as well? Thank you very much.

Speaker Change: I think the biggest pressures on I and I in the first quarter really were related to pricing pressures because demand is slow and higher energy costs both in the United States and Europe . The energy costs I've said are moderating. [inaudible]

Speaker Change: Maybe ask Karen to give a little bit of color on the outlook of what we see happening in I.I. Thank you very much.

Speaker Change: Earlier before, like MBI, where, of course, the global market has suffered from Chinese oversupply. And so, you know, that could provide a bit of a tailwind, but the headline, really on the outlook for Collier, Vincent Construction, Chemical, is that we'll continue to lean into a pretty challenging macro. So, let's move on to the next slide.

Speaker Change: So let me switch quickly into our industrial solutions business because they're, although we are seeing softening demand, we are seeing awful practice of stability and markets like energy, home care, and farming and markets, data centers as an example, is a significant growth opportunity for us and our solutions there are used and things like thermal management. So let's move on to the next one. Let's move on to the next one.

Speaker Change: I do, though, just want to double down on the new asset that we're going to start up there here in second quarter in the US for new outcrop relations capacity. That unit is going to focus on roads and attractive in markets for us. So, home and personal care and farmer. Thanks.

Speaker Change: And really the good news around that asset is about 50% of that capacity it's already contracted for. So we expect that to provide us with a tailwind going into second half. [inaudible]

Speaker Change: On the question about Fort Folio, Chris, we're going to come back to the end of the quarter with some guidance on where we think the best option is for those European assets that Paul, your things. Thank you very much.

Speaker Change: Enterprise, I think you know one thing to remember is we have low cost positions there. We have some very strategic positions and full integration for that whole polyurethane chain. So that's going to be the result of an exercise just looking at what we think the best option is in the marketplace. Thank you very much.

and others. Thank you. Thank you.

Speaker Change: The next question comes from the line of Jeff Zekauskas with JP Morgan. Please go ahead.

Thanks very much.

Speaker Change: On slide 15, you say that you're expected corporate expense for the year is 320. And I think your corporate expense was 33 million in the first quarter. So you're annualizing it 130. Why is that number 320?

Speaker Change: Second, cash flow from operations was $90 million in the quarter and you did have a working capital increase.

Speaker Change: But the cash flows were low. So what's the cash flow that you expect in the second quarter?

Speaker Change: You know, is it low or is there something that's unusually depressing things? [inaudible]

Speaker Change: And then lastly, what do you do about your agreement with Linda? [inaudible]

That's a $2 billion dollar... That's a $2 billion dollar...

Thank you. Bye.

Speaker Change: Outlay that they would make. Do you have to take a charge to settle that or, and if it is, is it large, is it small? Can you fill us in on some of those issues? No, no, no, no, no, no.

Thank you.

Speaker Change: Let me take the last question and I'll ask Jeff to cover the first two.

Jeff Zekakis: On Lindy, we have had contact with Lindy, and we have a contract that covers that, and so a lot of that is going to depend on the length of the delay. Thank you very much.

Jeff Zekakis: and so we're in active engagement with them and the answer to your question is I don't expect that we'll have to take a charge right now.

Jeff Zekakis: in order to do that. Jeff, you want to comment on the first two? Sure, good morning, Jeff. I'll first call on the corporate segment you're right it is.

Jeff Zekakis: Cicely Lower, in 1Q, we have some credits that we would not expect to occur. [inaudible]

Jeff Zekakis: In the second quarter or beyond, Jeff, you know, and as a reminder, there are a number of different activities that take place in our corporate segment, whether it be related to the bench. [inaudible]

Jeff Zekakis: General Operations, some of our financial assets, gain and losses, as well as some of our, no, none business aligned litigation and severance costs associated with some of our programs. So, there are a number of different puts and takes that we will have from one period to the next that can create a somewhat of a level of volatility. But the guy that we're providing right now, I would say would be what we would expect for the full year in the corporate segment. So, I would like to thank you for your time. Thank you very much.

Jeff Zekakis: Moving to your second point around cash flow, for the first quarter, you know, we did have use of cash from a networking capital perspective, which is typically the case and first quarter. [inaudible]

Jeff Zekakis: We would normally have that as we look at the seasonal builds for higher sales for the quarter, as well as preparing for our planned maintenance activity. [inaudible]

Jeff Zekakis: That will have not only in first quarter, but also will expect to have in second quarter. So that creates some level of additional use.

as well.

Speaker Change: Your next question comes from the line of Matthew Blair with Tudor Pickering. Thank you.

Please go ahead.

Matthew Blair: Thank you, and good morning. As hoping you could expand a little bit more on how you're thinking of the security of the dividend. Thank you very much.

Speaker Change: In this environment, you have four billion of extra cash coming in this year. You're implementing some cost reductions. You've also reduced your spending for the year. Does that make a dividend to cure for this year and probably next? And then after that, we'll have to see or are you thinking about it differently. Thank you.

Matthew Blair: Yeah, good morning, Matthew. You know, a track of dividend yield is something that's always been a priority for Dow. [inaudible]

Matthew Blair: We're well aware of the pressures of the current environment places on the capital structure. Thank you.

Matthew Blair: Certainly the six billion in the near term, and of that six billion, as Jeff mentioned earlier, the vast majority that will come in in 2025, that will help support the dividend. Thank you very much.

Matthew Blair: But as the macro evolves, we'll have to continue to monitor and act in alignment with our capital allocation framework. Thank you very much.

Matthew Blair: As you know, from a quarter, we're pulling every level we can to manage cash through a difficult time. And I think we'll have better certainty once we see how tariffs are going to settle out. And I think we'll have better certainty once we see how tariffs are going to settle out.

Matthew Blair: We're just in an environment right now where in the marketplace, if you look at downstream demand, it doesn't matter if it's a consumer, or one of our customers or somebody in the V2B world. Let's go on.

Matthew Blair: They're all just kind of thinking of wait and see approach and that has an impact on what we think the long term is going to look like. [inaudible]

Matthew Blair: I'm hopeful that we get some better clarity before the end of the quarter when this 90-day pause ends. That'll help us a lot be able to have better visibility. Thank you very much.

Speaker Change: The next question comes from the line of Hassan Ahmed with Alambic Global. Let's move on to the next question.

Please go ahead.

Hassan Ahmed: Mornington, I just wanted to revisit the question about Chinese sort of feedstock imports. [inaudible]

Hassan Ahmed: from the US in particular. I mean, you know, if we could get a little more granular about things, I mean, if I take a look at essaying, it seems over 90% of the essaying that the Chinese import is from the US. [inaudible]

Hassan Ahmed: And, you know, call it almost half of their LPG, imports come from the US as well. [inaudible]

So when I sort of drill that down...

at a crackle level.

you know, thinking about the athlete, polyathlete facilities over there.

Hassan Ahmed: Certainly the ethane-based facilities in the current era of regime.

Woodneed to shut.

Hassan Ahmed: And then, you know, certain LPG facilities, you know, would need to shut as well. So, you know, I totally understand that it's a wait and see right now in terms of...

Hassan Ahmed: What happens after the 90-day pause? But if there is some semblance of a continuation maybe a 30, 40, 50 percent of these tariffs, how do you see the Chinese reacting to that sort of a tariff regime would they continue those? [inaudible]

Hassan Ahmed: Running those facilities with some of them just shatter. And I guess part of the broader question is, will we start seeing a more aggressive rationalization globally? [inaudible]

Thank you.

Hassan Ahmed: Yeah, I think the line of reasoning Hassan that you have is similar to the way that we look at it. I mean, you have to look at, you know, the landed cost and then the ability to react for it, I think. Yeah, I think so.

Hassan Ahmed: The challenge is you know with oil coming down and after coming down obviously you've got some different dynamics there as well but there is pressure and and currently those assets are operating at negative hash margins so.

Hassan Ahmed: You know, you would have to see some activity you would think in that area. Yeah.

Hassan Ahmed: I think it's fundamentally one of the reasons that, you know, there's pressure on these tariffs in this tariff discussion right now, is it's not a fair and not a level playing field. [inaudible]

Hassan Ahmed: And so that's the way we viewed it. We're seeing that pressure, you know, come into other markets now. And so we have to, we have to see that resolved. [inaudible]

Hassan Ahmed: I think over time, you're still going to have an advantage in the U.S. Gulf Coast and in Canada and in Argentina.

Hassan Ahmed: Where you have those domestic supplies and are continuing to grow, the LNG exports are going to continue to grow. The amount of FAM is available here in the amount of propane that's available here. That's an advantage to us. I think the big question mark is where's the demand. That's a big question mark.

Hassan Ahmed: And right now, all this activity on tariffs is just stifling the demand. [inaudible]

Kevin Mccarthy: Your next question comes from the line of Kevin McCarthy with Vertical Research.

Please go ahead.

Kevin Mccarthy: Good morning, and thank you. Jim, I was wondering if you could speak to a few related questions on the subject of Europe . First would be, can you elaborate on how and why I guess you've expanded your scope of strategic review there with emphasis on polyurethanes?

Kevin Mccarthy: And then secondly, on slide four, I think you reference idling or shutdown for a few different assets there. So what we'll inform those decisions. And then more broadly and lastly. And lastly.

Kevin Mccarthy: Dow is not alone, right? We've seen so many other announcements of capacity rationalizations recently from Total and Belgium, but Versailles, Saabic, Exxon, Mobile. As I add these up, you know, we're now in the teens in terms of percentage destruction of ethylene capacity. [inaudible]

Kevin Mccarthy: in the European region. And so I'd welcome your thoughts on that. Are we nearing stability, looking out a year or two, or how do you view that?

Thank you.

Morning, Kevin. [inaudible]

How and why we expanded this goal?

Kevin Mccarthy: Paul Eurethane, we looked at the region and felt there was a better order and so that's the work that we're going to complete by the end of the quarter. And I think there's an opportunity there.

Kevin Mccarthy: In terms of ethylene, and look at silox veins, and what has happened around the world, and then choral, quite choral vinyl.

These all require energy cost competitiveness, which is...

Kevin Mccarthy: Gone in Europe . They require downstream demand. Downstream demand in Europe is still 20% below pre-COVID levels.

Kevin Mccarthy: I structurally can't imagine that coming back. We're starting to see continued pressure on downstream customers. You heard it in the automotive sector. That has a knock-on effect to other big industries that we sell to.

Kevin Mccarthy: The things that are holding up relatively well are packaging and the consumer goods there. A little bit as well on some of the durable goods. Not, you know, durable goods like appliances and a few other things. You're some pressure. [inaudible]

But there's still some base business there. [inaudible]

Kevin Mccarthy: So I think these moves, I agree with you, we're into the teens, we're probably headed towards 20% of that capacity coming out on gasoline. I think that probably gets us much more balanced. Let's move on to the next one.

Kevin Mccarthy: There's a fair amount of links there, but I think that brings it balanced. It really allows us to focus very on specialties, which have been growing and doing well, but that's all been masked by the pressure on sidewalk scenes.

And why idle or shut down?

Kevin Mccarthy: We just have to work through the costs and the trade-offs of the two. Thank you.

Kevin Mccarthy: And make sure we don't make a move that we would regret while in return. I'll share a story that goes back to...

Kevin Mccarthy: Before the shale gas days, we've been around for a long time, you remember a lot of stuff. Before shale gas days, we were approaching a big capital expenditure for a lifetime extension down at our St. Charles crackers. [inaudible]

Kevin Mccarthy: And we just put in the forward to do it. Natural gas, I think, costs were relatively high. And we had the same decision. Do we idler, or do we shut it down? No, no, no, no, no.

Kevin Mccarthy: And we decided to eyelid and eyelid in a way that if the market changed, we could come back and we could do the enhancements in the lifetime extension at that time. [inaudible]

Shale Gats happened, a couple years later.

Kevin Mccarthy: And the market changed dramatically. The first project off the ranks was the rehab project on the St. Charles cracker.

Kevin Mccarthy: And it was immediately accretive and it's run and it's been positive ever since. [inaudible]

Kevin Mccarthy: We know what we know, and there are sometimes things that we don't know, and that's the real crux of making a good strategic decision here on what our title is shut down. [inaudible]

Frank Mitch: Question comes from the line of Frank Mitsch with Fermion Research. Please go ahead.

Frank Mitch: Good morning. One follow-up and one question and it's all up talking about cash flow.

Frank Mitch: Since you're guiding to a similar EBITDA in 2Q relative to 1Q, I was wondering if you could comment on the free cashflow expectations for 2Q relative to the negative 580 for 1Q. [inaudible]

Frank Mitch: And then among the biggest positives for the second quarter, relative to the first quarter, pertains to downstream siloxanes. [inaudible]

Frank Mitch: And I was wondering if you could, and you also mentioned that the Chinese market is still very much in oversupply. So I was wondering if you could provide some insights into the profitability trends that you're seeing in celloxanes in the first quarter and so far here in the second quarter. Thank you. Thank you.

Frank Mitch: Jeff, why don't you take cash flow, and then Karen, you want to touch by Luxin? [inaudible]

Speaker Change: Good morning, Frank. I'll just a couple of comments I'd make on on two few cash flow, you know, as we mentioned in the prepare remarks, we do expect the. Yeah.

Frank Mitch: Infrastructure asset, transaction to close, on May 1st, it will have approximately $2.4 billion.

Frank Mitch: Of cash that we would expect to come in and join the quarter.

Frank Mitch: and to the bridge around getting through, you know, the full cash flow performance, you know, expect to get that 2.4 billion coming in around the McCory asset management transaction. [inaudible]

Frank Mitch: So we've got just quickly a comment on silicone because that for sure has been a bright spot for us even going back to. [inaudible]

Frank Mitch: The first quarter. We continue to see growth downstream, particularly in consumer electronics applications that, of course, go into data centers, but also AIOT, of course, artificial intelligence applications. Application.

Frank Mitch: And we continue to see that coming into second quarter. I mean, if I look ahead, you know, we'll continue to see that downstream growth. Also, some of the seasonal uplift that we normally get may be a bit muted by tariff, but overall the trend is still low. [inaudible]

Frank Mitch: I will also, you know, just indicate that the announcement on the upstream block seems is going to bring us back into better balance. And so we really look forward to continuing to leaning into downstream. And so we look forward to continuing to leaning into downstream.

Frank Mitch: I think on celloxanes, Frank, we've seen obviously some positive pricing moves from first quarter, going into second quarter here, and North America and Asian demand for the downstream as well as the celloxanes product is still good. Thank you very much.

Frank Mitch: Europe , the driver for demand there is mostly specialty silicones going into. Thank you.

Frank Mitch: Health, personal care, some into auto-voted sector as well, so they don't have as many outside drivers to demand there, and that kind of gets back to our decision on the very site. Thank you very much.

Frank Mitch: I will now turn the call back over to Andrew Riker for closing remarks. Please go ahead.

Frank Mitch: Thank you everyone for joining our call, and we appreciate your interest in Dow. For your reference, a copy of a transcript will be posted on Dow's website within 48 hours. This concludes our call.

Frank Mitch: Ladies and gentlemen, this concludes today's call. Thank you all for joining and you may now disconnect.

Speaker Change: Gautam Raja Ramachandran Jyoti Naira Jyoti Narayan Jyoti Narayan Jyoti Narayan Jyoti Narayan Jyoti Narayan

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