Q2 2025 Dow Inc Earnings Call
Restoring core earning.
Karen will then provide an overview of our operating segment performance.
Jeff will share an update on the macroeconomic environment. We are facing and our modeling guidance for third quarter.
Speaker Change: Following that we will share more on the Strategic in-flight actions. Our teams are taking to navigate this prolonged downturn.
Speaker Change: Specifically around cash, support operational execution, and structurally, improving our Global asset footprint in the near term to position Dow. Well for when our industry recovers following that we will take your questions now, let me turn the call over to Jim.
Jim: Thank you, Andrew. Beginning on, slide 3, the prolonged down cycle. Our industry has been experiencing was further. Amplified this quarter by heightened trade and geopolitical uncertainties which have strained profitability across our industry.
Jim: In this environment, it is critical that we successfully navigate the near-term protect Dow's Financial flexibility and Advance. Our near-term. Growth initiatives to support higher earnings as the industry recovers.
Additionally growing signs of oversupply from Neuer Markt entrance, being exported to other regions. At anti-competitive economics, requires an aggressive industry response and Regulatory action to restore competitive Dynamics.
Given these challenges we remain focused on driving operational discipline in everything we do.
Jim: In the second quarter, net sales were 10.1 billion dollars down 7% versus the year ago, period, reflecting declines in all operating segments.
Jim: Sequentially. Net sales decreased 3% as seasonally higher demand in performance materials and Coatings was more than offset by declines in our other operating segments.
Jim: Peta D was 703 million which is also lower than the same period last year.
Following a significant analysis and consideration, we announced this morning that Dao would Implement a 50% dividend reduction effective in the third quarter of this year.
Jim: This decision was not taken lightly as we understand the importance, our shareholders place on the dividend.
Jim: And we carefully considered this on top of the financial impacts that we model.
Jim: The dividend is a key element of our investment thesis and that is not changing. We remain committed to targeting a competitive cycle.
However, given the current lower for longer earnings environment, and the lack of clear, line of sight to a recovery for our industry. This is the most prudent way to maintain Financial flexibility and maximize long-term value for our shareholders.
Jim: Also, in the second quarter, we progressed several near-term, cash support, levers.
Jim: The close of our strategic infrastructure, asset partnership named, Diamond infrastructure Solutions.
Delivered 2.4 billion dollars of cash for down in the second quarter and is already captured growth opportunities with new customers.
Jim: We also expect to receive cash proceeds from the Nova judgement this year and consistent with our best owner mindset. We recently announced 2 non-stop totaling, approximately 250 million dollars at attractive evidam multiples of around 10 x.
Jim: These devices are added to our announcement. That we will shut down 3 Upstream Assets in Europe to address structural challenges in that region.
Jim: We are confident that these actions paired with the completion of our near-term. Incremental growth projects will support long-term value creation.
Jim: Additionally, we are accelerating progress on our 1 billion dollars in cost savings actions where we now expect to deliver approximately 400 million dollars this year.
Jim: We are committed to continuing Dallas track record of operational and financial discipline.
Jim: Executing near-term actions to maximize shareholder value and navigating the current environment all to better position the company for profitable growth, and higher shareholder returns as the industry recovers.
Jim: Next, I'll turn the call over to Karen. Who will provide an overview of our second quarter of performance across V operating segments.
Karen: Thank you, Jim.
Karen: And the second quarter, our teams continue to focus on price management to restore margins. As we prioritize, volume and attractive and markets.
Karen: Ates the current lower for longer earnings environment as well as the impact brought on by recent trade and tariffs uncertainties.
Karen: Starting with the results for our packaging and Specialty plastic segments on 54.
Karen: During our first quarter earnings call, we shared our expectations for flat polyethylene prices. In second quarter in April however prices in North America settled down 3 cents per pound weighed down by the Tariff uncertainty. That salted, several export channels. We believe that absent seasons and certainties prices would have remained at least flat and may have increased given healthy demand and higher feed stock costs.
Karen: In June with export markets, normalizing the industry recovered, the 3 cents per pound that was lost in April.
Although industry, margins, remain below historical, averages demand remains steady, and following 32, consecutive months of Industry, inventory decreases. We see a favorable backdrop supporting further price increases.
Karen: Net sales were down compared to the year ago, period.
Karen: Higher volumes and polyethylene and increased energy sales were more than offset by lower. Downstream polymer pricing and lower volumes for infrastructure applications.
It's projects in that industry are long data. They are impacted more by tariff uncertainty.
Karen: Sequentially, net sales declined driven by lower Merchant ethylene sales.
Karen: This is due to the startup of poly. 7, our new polyethylene train in the US Gulf Coast.
Karen: The asset will help. Now, realize the full benefit of integration by absorbing our remaining ethylene length in the region.
Karen: Polyethylene volumes were up led by the US and Canada confirming resilient demand in the region. But down in Asia, Pacific. As tariffs uncertainty limited exports early in the quarter,
Karen: Operating ebit was 71 million, reflecting a decrease compared to the year ago. Period.
This was primarily driven by lower integrated margins.
Sequentially operating ebit decreased mainly due again to lower integrated margins primarily reflecting pressure from the unfavorable industry price settlement in April, as well as lower operating rates.
Karen: Next turning to our industrial intermediate and infrastructure. Segment on 555.
Karen: Net sales declined, both year-over-year and sequentially as market conditions across the segments, remained challenging, particularly in our polyurethane and construction chemicals business, which has high exposure, to durables and building, and construction and markets.
Volume declined 2% compared to the year ago. Period.
Karen: Lower polyurethanes and construction chemicals, volume and emai. Where we continue to see increasing import activity from competitors in China or partially offset by higher industrial Solutions volume across data center, Cooling, and gas, treating applications.
Karen: Sequentially a decline in demand for deicing. Fluids following the winter months was only partially offset by a modest seasonal uplift in building and construction applications.
Karen: Which was lower than expected in a typical year.
Karen: Operating ebit for the segment decreased versus the year ago period as well as sequentially, primarily driven by lower prices and higher planned maintenance activities,
Karen: this included activities related to the startup of our new alox, Texas.
Karen: The new capacity representing the completion of 1 of our near-term. Growth investments will support earnings growth, beginning in the third quarter and Beyond.
Karen: We also recently finalized a long-term agreement with a major consumer. Brand owner to supply, millions of pounds of low carbon Solutions demonstrating, our ability to capitalize on innovations that are meeting the needs of our customers, and their sustainability commitments to Consumers.
Moving to the performance materials and coding segments on slide 6.
Karen: The team delivered, a seventh consecutive quarter of Downstream silicon's growth supported by strong demand for Consumer and electronics applications.
Karen: However, lower volumes for coding applications and Upstream the last name, more than offset these games.
Karen: Net sales in the quarter decreased versus last year and local price decreased year-over-year driven by the decline in both businesses.
Sequentially. Net sales for the segment, increased 3% driven by higher demand for Downstream silicones and mobility and personal care applications, as well as seasonally higher demand for architectural coding
Karen: Operating ebit was up compared to the year ago, period.
Karen: Margin expansion from lower input costs as well as Better Mix and consumer Solutions, including more Downstream, silicone volumes, and less Upstream Sloane.
Karen: Sequentially operating ebit, increased driven by volume gains in both businesses. As a result of seasonal improvements and continued Downstream silicon growth as well as lower fixed costs.
Karen: In summary.
Karen: Team doubt is focused on taking action to help navigate the challenging industry conditions.
Karen: We are protecting and advancing our position in high growth markets, optimizing our Global asset footprint and staying close with our customers.
Karen: I will now turn the call over to Jeff who will share more on the macroeconomic. Landscape. Our Outlook and the related actions, we are taking to ensure Dow's Financial flexibility.
Jeff: Thank you, Karen. And good morning to everyone on the call today.
Jeff: Moving to slide 7 as we head into the back half of the Year. Dow and some of our industry peers are noting expectations that the global macroeconomic backdrop will remain challenged
Ongoing tariff and geopolitical uncertainty. Have impacted demand patterns, especially in the industrial infrastructure and durable goods sectors.
Jeff: This has contributed to downward revisions in global GDP forecasts.
Leading to expectations of a protracted down cycle across many of the in markets now serves.
Jeff: Looking across our for Market, verticals and packaging domestic demands in North. America is stable.
Jeff: However, export markets saw slower growth as volatile tariff policies. Weighed on trade flows, resulting in lower operating rates and additional margin pressure across the industry.
Jeff: Manufacturing activity in China, remains relatively flat and continue to contract in Europe.
Jeff: And the infrastructure sector us building permits remain their 5 year lows in June.
Jeff: In market conditions in Europe and China have shown no signs of improvement.
Jeff: Since summer, spending remains steady, even as us and European confidence, States below historical norms.
Jeff: June, retail sales were up in China, largely attributed to government stimulus.
Jeff: Harbor consumer prices in China have deflated in 4 out of the last 5 months, through June.
Jeff: And in Mobility, we continue to closely watch the impact on demand from both Global tariffs and government incentives.
Jeff: we have seen signs of softening in the US as Auto Sales declined for a third consecutive month in June
Jeff: In the EU and China while internal combustion vehicle demand, continues to soften electrical Vehicles, remain a bright spot.
Jeff: And China specifically vehicle production is forecasted to grow 3% this year.
Chinese Auto Sales and production are highly dependent on government incentives and could be affected by tariffs and trade uncertainties.
Jeff: If the current momentum continues, it should be beneficial for our elastomers and our silicone businesses that have exposure to this Market.
Jeff: Now, turning to our outlook on slide 8.
Jeff: With the considerable uncertainty that so many markets are facing making any projections right now, is especially challenging.
Jeff: Should we become aware of significant changes during the quarter, we will share timely updates as appropriate.
Although the macros remain largely unchanged based on current indicators. We anticipate our third quarter Eva to be approximately 800 million dollars. A hundred million dollar improvement from the second quarter.
Jeff: This reflects our expectations for a sequential Improvement in polyethylene integrated margins as well as higher volumes from our growth Investments. That were commissioned in the second quarter.
Jeff: It also takes into consideration our cost Reduction Program where we have increased our expectations for in your savings to approximately 400 million dollars versus our original Target of $300 million.
Jeff: Part of our sequential Tailwinds are expected to be offset by higher planned maintenance spending.
Jeff: In addition, we expect more seasonal demands more Express in certain in markets and lower Equity earnings.
Jeff: And packaging and Specialty Plastics we expect sequential EV dot to be approximately 95 million higher.
Jeff: This is largely driven by higher integrated margins following, the June price settlement and an expectation that we will secure a price increase in July
Jeff: Doing so will help us recruit some of the margin laws by elevated fees by cost this year.
You have the initial ramp of our new polyethylene train in the US Gulf Coast.
Jeff: Fire plant maintenance activities, will provide a headwind in the quarter.
And we expect lower Equity earnings primarily from sedara as a result of an unplanned event.
In the industrial intermediate and infrastructure segment. We expect third quarter, Eva dot to be approximately 85 million higher than the second quarter.
Jeff: This expected earnings uplift. Reflects our expectations for higher volumes from the startup of our new alation facility.
Jeff: In polyurethane we anticipate higher volumes in both MDI and polyols, although margins remain Under Pressure sequentially driven by Fierce price competition with Chinese exports and to both Europe and Latin America.
Jeff: following a heavy turnaround schedule in second quarter, I ini would have a sizable tailwind and the third quarter in addition to the ramp in cost reductions
Jeff: This segment will also experience headwinds from lower Equity, earnings at sadara.
And in the performance materials and coding segments, we expect lower sequential Evo of approximately 65 million.
Jeff: They do turn around spending will provide some Tailwinds in the third quarter.
Jeff: We also anticipate normal seasonally driven decreases in demand and the building and Construction in Market,
as well as margin compression and Upstream select things.
Jeff: The trade and tariff uncertainty from the prior quarter. Meant to demand disruption in China, which drove local selecting prices to new record lows with prices declining throughout the second quarter.
Jeff: In summary with expanded margins and polyethylene, earnings Tailwind from our recent organic Investments and our accelerated cost reduction ramps. We expect to deliver sequential earnings Improvement, despite the slow growth environment. We're navigating
Jeff: Now turning to slide 9.
Jeff: We remain committed to financial discipline and flexibility.
Jeff: As evidenced by the near-term cash and operational improvements. We already have underway to provide significant support.
Jeff: For example.
Jeff: We are now last quarter that we expect our total Enterprise, 2025 capex to be approximately 2.5 billion, reflecting a 1 billion dollar reduction, compared to our original plan of 3.5 billion.
Jeff: This is largely attributed to our decision to delay. Our passage zero projects in Canada until market conditions improved.
Jeff: And consistent with our best owner mindset. We also announced 2 non core product line devices, totaling, approximately, 250 million, at attractive, eval multiples of approximately 10x.
Jeff: This includes completing the sale of our tone soil. Fumigation product line to a strategic buyer.
Jeff: And we announced that Dao was sell our 50% ownership in the Dow access joint venture, which is expected to close in the third quarter of this year following customary regulatory approvals.
Turning to our cost reduction efforts. We are on track to deliver at least 1 billion dollars in targeted cost savings on an annual run rate basis by 2026
Jeff: We deliver an approximately $50 million sequential tailwind and the second quarter and are on a faster pace. And we initially anticipated,
Jeff: in fact, we now expect to deliver approximately 400 million dollars of the reductions this year.
Jeff: We also executed a debt neutral 1 billion dollar bond this year to take advantage of tight spreads and extend our material debt maturities passed 2027
Jeff: In addition, we continue to make solid progress on our unique to dial items that support our near-term cash generation.
Jeff: In may we finalized our strategic partnership with McQuarrie asset management for the sale of a minority Equity stake and select us Gulf Coast, infrastructure assets.
Jeff: Receiving approximately 2.4 billion dollars in initial cash proceeds from the transaction.
Jeff: The new entity Diamond infrastructure Solutions. Recently announced a deal with the climate tech company named again to build a first of its kind plant to recycle waste field to emissions from an on-site tenant in our Texas City Industrial Park.
Jeff: This agreement is 1 of many growth opportunities. The diamond infrastructure solution, business model is set up to enable with both new and existing customers.
Jeff: And as a reminder, McQuarrie has the option to increase their safe to 49% within 6 months of closing.
Jeff: Which would occur no later than November.
Jeff: Out this year.
Jeff: Looking into the second half of the year. We also expect to receive cash proceeds of approximately 1.2 billion dollars from the resolution for damages related to the jointly-owned ethylene asset with Nova chemicals.
Jeff: So in total, we expect these actions to provide more than 6 billion dollars in their term cash support.
Speaker Change: In building on this carol will Now cover the work. We're doing to drive execution and ensure, strong operational performance and enable higher near-term returns.
Jeff: Turning to slide 10.
Jeff: We are executing several strategic moves that will uniquely position down to win as the industry recovers. This includes moving aggressively on all fronts to protect and expand our industry-leading positions.
Jeff: For example in packaging and Specialty Plastics we completed the startup of our poly 7, world-scale, polyethylene, train and Freeport Texas.
Jeff: Using dowels proprietary solution. Technology, poly 7 is designed for lower costs and increased production capacity as well as improved efficiency and flexibility.
Jeff: Probably 7 will support customer-driven demand and specialty, packaging, health, and hygiene, and Industrial, and consumer, packaging application.
Jeff: This new asset will also absorb Dow's ethylene length in the US Gulf. Coast maximizing, integrated margins and enabling production of higher value. Functional polymers at other assets.
Jeff: Additionally, the completion of our new alox capacity in cidra. Texas will support growth in industrial Solutions which serves attractive in markets, such as Home Care, Pharma and energy.
Jeff: After completing, this project Dao will have no holding on capacity producing Meg.
Jeff: We're also Transforming Our performance materials in coding, segments to Downstream silicones capacity expansions, which support high-value applications in attractive and markets, growing above GDP such as infrastructure, Electronics, mobility and consumer.
Jeff: In addition, our industry continues to face difficult market dynamics in Europe, including an ongoing challenging cost and demand landscape.
Jeff: That's why earlier this month, we announced the shutdown of 3 Upstream Assets in Europe across each of our operating segments and response. To the structural challenges, the region continues to face
Jeff: Each of these assets represents a meaningful portion of our regional capacity, 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 optimized margins.
Jeff: These shutdowns are cash accredited and expected to result in an annual event. Dot uplift of 200 million dollars by 2029 with Benefits, beginning in 2026, and half of that achieved by 2027.
In summary our teams are driving execution, helping doubt, and navigate the realities of the current macroeconomic environment. While also enabling higher returns in the near term.
We are closely monitoring industry, Dynamics and remain committed to taking all necessary actions to drive shareholder value creation.
Jeff: Now, let me turn the call back to Jim to share more on our consistent disciplined and balanced Capital, allocation approach.
Jim: Thank you, Karen. Now, turning to slide 11.
Jim: In response to 1 of the longest downturns, our industry has experienced. It is critical that we maintain Financial flexibility and a balanced approach to Capital allocation.
Jim: With the earnings pressure. The industry downturn has created
Jim: the fixed dollar amount of our dividend without size.
Jim: This limited, our flexibility to navigate this cycle and optimize total shareholder returns.
Jim: Therefore, after significant and detailed analysis, house board of directors, determined that a 50% reduction in the dividend is the right move for our company and shareholders at this time.
Jim: Importantly, our approach to Capital allocation over the cycle remains unchanged.
Jim: Our number 1, priority remains safely and reliably running. Our assets. While we prepare for the market rebound.
In addition, we will continue to Target a strong investment grade credit profile with a 2 to 2.5 times. Net debt to ibida ratio across the cycle.
Jim: Targeting shareholder return of at least 65% of operating net income. Over the cycle. Via a combination of dividends and share repurchases.
The actions we are taking today help to ensure that we're well positioned for the Industry Recovery.
Jim: Closing on. Slide 12.
Jim: Our near-term, strategic priorities are clear and we are working hard to mitigate the current environment and improve our competitive position.
Jim: This includes the strict focus on operational and financial discipline and driving execution. Not only to restore our core earnings but grow them.
Jim: This is evidenced by the multiple near-term, cash support items where already delivering and the reduction in our dividend.
Jim: In addition, the completion and startup of our near-term. Growth projects will further unlock both the value of integration and capitalize, on our low-cost asset footprint in the Americas.
Jim: We're also taking necessary steps to right-size. Our footprint where we see structural challenges.
Jim: Increasingly we are seeing anti-competitive oversupply activities particularly when it comes to Imports into Europe and Latin America.
Jim: our teams are actively engaged in these regions to aggressively defend our local asset footprint and to ensure that a fair trade environment remains
We are engaging in positive and productive conversations with the governments around the world, as it relates to trade and tariff uncertainties. And we're confident that we're in a strong position to mitigate the impact.
Jim: Our diverse product portfolio.
Jim: Strategically advantaged asset footprint in global scale position down to capture demand and attractive and markets growing above GDP.
Jim: This is also evident in our annual benchmarking results where we're generating higher poly open margins than our peers over the cycle.
We are taking the right actions and delivering several near-term improvements while staying focused on our long-term, strategic priorities.
Jim: We're well positioned to deliver profitable growth as we unlock the full benefit of our growth Investments improve margins. Implement cost, reductions and further strengthen our competitive advantages with that. I'll turn it back to Andrew to get us started with the Q&A.
Andrew: 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.
Jim: Operator. Please provide the Q&A instruction.
Speaker Change: Thank you. The floor is now open for questions if you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Jim: If you would like to withdraw your question, simply press star 1 again.
Jim: If you are called upon to ask your question entering via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Your first question comes from the line of Vincent Andrews of Morgan Stanley. Your line is open
Vincent Andrews: Uh, thank you and good morning, everyone. Um, Jim. I'm wondering if you can contextualize, um, you know, the the dividend, uh, and, and your operating net income, uh, on a go forward basis. Just, you know, just thinking back and in 2019 when you, when you spun, you know, you obviously have the same percentage Target for the dividend of 45% of operating net income, but of course, operating, net income was was a lot higher back then than it is today. Um, so I'm just wondering how you you're, you're, you're, you're thinking about that particularly over the next 3 to 5 years in terms of, you know what you think. Mid-cycle. Operating net income could get back to. Um, and just, you know, sort of why the the 45% ratio remained, uh, the correct ratio today versus 2019. Thank you.
Jim: Good morning, Vincent. Yeah, a lot of analysis and a forward-looking uh, modeling of what we thought. The economic recovery was going to look like, went into that dividend reduction and I, I would also say also a clear mindset that we weren't trying to solve this equation.
Solely with the dividend. We also have a lot in Flight in terms of cost reduction actions and restoring earnings growth. That said, I I don't think the the mid cycle earnings of the company has changed. I think the timeline is what's changed. We're
Jim: in the third year of this downturn and um, with the, you know, trade negotiations and
Jim: Like we are reaching conclusion of these negotiations, which I think is the first step.
Jim: And we're also seeing Dynamics as Karen mentioned on the call. Uh, where we think we're going to start to see some pricing power in the Plastics as well as our near-term incremental growth Investments. So I think the the mid-cycle number itself is still the same. The question is, how long will it take us to get back to that level?
Speaker Change: Thank you. Your next question comes from the line of Hassan Ahmed of Olympic Global advisors. Your line is open.
Speaker Change: Morning Kim. Um, you know a 2-part question um 1 on the dividend um you know, just trying to sort of philosophically understand why even keep a fixed dividend. You know, you know, industry as we all know and you know have seen over the decades continues to be cyclical. Why not? Just make it a variable dividend. So that's part 1 and part 2 is just from the polyethylene side, you know, obviously we continue to hear about, um, you know, capacity closures and shutdowns in the like uh, but alongside, you know, the new sort of project announcements keep happening as well. So if you could also comment on, you know, how you're thinking about supply and demand, fundamentals there.
Speaker Change: Good morning. It's on. Thanks for the question. I just write in it down, so I get both parts of it here.
On dividend. Um, a dividend yield has been an important part of our stock ownership when you think about our institutional investors and our retail investors, the dividend is very significant for them. And so having a a leading dividend and a competitive dividend through the cycle, has always been more 128 years of Dow part, and parcel of the investment thesis,
And we do generate good cash. Obviously this is a prolonged down cycle so I don't think it's fair to extrapolate where we are at this point in time.
Speaker Change: A good competitive dividend, a leading dividend which I think is what our investors are looking for. But also earnings growth and our Focus internally right now is on our cost positions. We have to establish low cost at the bottom of this cycle and on restoring earnings growth in the near term.
Speaker Change: I'm Paulie athlete. Um,
Speaker Change: That's the closures. Primarily have been announced in Europe. Uh I think so far about 15% of the European capacity has been announced.
Speaker Change: There are announcements and new capacity coming on and we still need to remember that polyethylene continues to grow above, GDP rights. And so, you are going to need new capacity coming into the market around the world, to support the growth of of all the products that the Plastics go into.
Speaker Change: Questions timing and Supply demand, balances and how we manage all that. So I don't think you're looking at an environment where it's the end of investing. In Plastics. I think you're looking at an adjustment to all the tariffs and trade situations that are going on.
Speaker Change: And then, where do we go from there? And What's the timing of the new capacity coming on?
Speaker Change: your next question comes from the line of Michael Cezanne of Wells, Fargo, your line is open
Michael Cezanne: Hey, good morning. Um I guess the first question is, you know, I think Consultants have noted that industry operating rates should get back to 90% for polyethylene in the third quarter. Um, you know, pricing is integrated margins. Uh, you know, how do you get adjusted ebit better? Uh, it just seems like it could be a little bit better. I just want a little bit of color on that and then as a quick follow-up to him, I think you've noted that, you know, Dow sees an opportunity to leverage its you know, 10 gigabyte power portfolio um for AI data centers. Maybe through the the new partnership you have, can you maybe um expand on that a little bit and what the opportunity is.
Michael Cezanne: On on operating rates.
Speaker Change: There's a big difference between operating rates in the Americas, uh, and the Middle East where you have very low cost positions and Europe and Asia Pacific. So we need to keep that in mind. And sometimes the Consultants when they refer to 90% operating rates may be referring to the lowcost assets.
Speaker Change: But longer term, we do see them getting back to that stage Karen you want to comment on?
Karen: What we see coming in third quarter and Beyond. Yeah, absolutely. And um, and thank you for the question. We we do see integrated margins and polyethylene getting better. Um, in third quarter and that's primarily because of where we ended the second quarter. Um, and so if you think about second quarter, April started off really rough where you saw the export, um, frankly evaporate, um because of the uncertainty around Terrace, when the China and and US trade started to escalate, and before Liberation day, we actually thought that prices were going to go up because you saw industry inventories, come down in April. But of course, we saw a polyethylene crisis decline by 3 cents per pound again primarily because, uh, exports evaporated out of the UFO, us Gulf Coast and then going into May the market started to stabilize. You saw industry inventory, come down again, um, and exports started to resume. So June is really when we start to see the recovery. Um, you saw industry inventories, go down for a third consecutive month. June from an industry. Demand perspective was the best.
Karen: Month of the year and that created the favorable backdrop for prices to go up. Um, but because of the April, um, down 3 cents per pound for the quarter. Um, ebit da was not great and integrated polyethylene margin. Um, were extremely low. Um, so we, we are, uh, um, capitalizing on that momentum coming into third quarter and there's a few reasons why, um, we see integrated margins and therefore ebit da, getting better in the third quarter for for polyethylene. Um, the first thing is that the industry has 5 to 7 cents per pound of price increases on the table for July. Um, we expect to get those because again, um, the current, uh, integrated margins are low and unsustainable. Um, the second thing for Dow is that, of course, you know that we commissioned our poly 7. Um, polyethylene trained down and Freeport Texas. At the end of second quarter uh that train is fully sold out. Um we are targeting that volume to higher value market segments on what food and specialy, packaging and health and hygiene. Um, that train also absorbs the
Karen: Last uh, length of of merchants, um, ethylene that we have on the market. And since we started up that train we've seen spot ethylene improved uh the price is improved their and then they'll and then the last piece is that because we started up that capacity, we have more flexibility to produce higher value, functional polymer so we fully expect um ebit doc integrated margins to improve and the third quarter and therefore we will have uplift both um on margins but also on volume because of poly 7.
Karen: And on diamond infrastructure Solutions. Um, you know, we we're early days but I'd say the range of opportunities there.
Karen: Are um all infrastructure related. Uh we have an extensive pipeline Network that connects the US Gulf Coast from Brownsville Texas, to New Orleans. And several of our sites along the way, we have a 4 or 5,000 acres of land, which would be available for co-location. We've had Outreach from people who are interested in everything from battery storage systems for grid stability and reliability. Uh Jeff mentioned, a new investment project on 1 of the sites.
Karen: now, a lot of the growth that's coming in data centers and Tech and AI,
Karen: Is companies that don't have a lot of infrastructure and utilities capability and sometimes an interest to build behind the meter power, which is the way that we operate.
Karen: And having said that, you know, there's no big project that I could put out in front of you right now on data centers, but I think positioning ourselves to have the capability to capture some growth, there is important keeps our costs down as well and leverages our scale.
Karen: Um, additionally, I think there's some opportunities with, um, environmental operations. We think about Waste Water treatment, and the management of that. That's a unique capability, the chemical industry as we have in particular. And I think that's 1, that's a can be very challenging for a new entrant.
Karen: And can also take an awful long time permit.
Karen: Your next question comes from the line of Jefferson of JP Morgan. Your line is open.
Jefferson: Uh, thanks very much.
Jefferson: Um,
Jefferson: With the Alberta project may maybe your capex annually would be 3 and a half billion and you still have a billion dollars in dividend payments.
Jefferson: so if there's no improvement in the operating environment,
Jefferson: Through the first half of 2026, is that project off the table or would you reduce your dividend further?
Jefferson: How do you feel about that in a world? Where
Jefferson: The operating environment doesn't improve.
Jeff: And for Jeff.
Jefferson: The working capital use was 1.5 billion for the first half.
Jefferson: Um, where do you think working capital? Um, use or benefit will stand by the end of the year?
Jefferson: Morning Jeff. Thank you on, on path to zero. We will come back to that project as we indicated earlier toward the end of the year as we look forward and up 26 and Beyond capex plans are. Um but you're you're point is noted and that was obviously the reason that we delayed was the environment that we're in and we want to see a return to core earnings growth. Um, before we make a decision and make the move on that. I do think, as we mentioned in the previous question long term, you do need growth in polyethylene and given the capacity that we've got up there being very
Jefferson: Very low cost.
Speaker Change: Uh, it's important for us to continue to move our footprint lower down the cost curve but affordability is front. First and foremost we got to take a look at Jeff. Do you want to take working capital? Absolutely good morning Jeff in terms of working capital, the team continues to do a really solid job of managing inventories and all 3 aspects of working capital in the first half. What we have been managing through is obviously a heavy plant maintenance scheduled throughout the first half of the year uh which will continue into third quarter. And then start to tell off in fourth quarter as well. We've also been managing uh the 2 new growth Investments as they come online as Karen mentioned in her prepared remarks earlier. So first half versus second half Jeff we would expect to see work in capital improved and the second half versus what we've seen in the first half.
Speaker Change: Your next question comes from the line of David big, lighter of Deutsche Bank Securities. Your line is open.
David Biegalski: Hey, good morning.
David Biegalski: Uh, Jim just on mid cycle, ibida. Can you remind us what you think that number is and how do you get there from this year's levels?
David Biegalski: Using a comments on anti-competitive behavior in in Latin and Europe. How do you go about mitigating? Those impacts?
Speaker Change: Thank you.
David: Morning, David. Um, our average e but um, from the period of 18 to 21 was about 8.6 billion dollars.
David: Our near-term growth Investments, uh, are about 1 and a half billion dollars from growth in the free segments. Uh, you had another billion from uh, our sorry. Another half a billion from transformed, the waist targets that were in there.
David: Alberta was a billion dollars, of course, Alberta is we just talked about, will will depend on timing?
David: And so, I think the Quantum of those numbers is still intact. It's the timing that's in question as far as anti-competitive Behavior.
David: You know, I I think it's, um, important that people understand that, you know, 1 of the things that's making us a little bit lower for longer.
David: Is the fact that you've got product moving around the world differently than you did before, uh, product that might have been dusted for the US. And I'm not, I may not be talking particularly here chemicals. But derivative demand?
David: Uh, that's not going to the US, that's going to other markets and it's uh, flooding other ports and other markets. And obviously it's suppressing pricing and depressing demand around the world. So we have to work through that.
David: We have 2 things going on. We have a very active trade, international trade operations team. That's well connected with a government at all levels here and abroad. Um, and they're managing the Tariff trade negotiations that are going on.
David: And then we've got to work through the normal course of business. WTO rules around how product is moved and, and defending fair trade. And that's a separate, uh, action that we've got going on, sometimes industry, associations lead those activities, sometimes it's individual companies, that lead them.
David: Fact.
David: Of tariffs, being implemented, markets, being closed to some imports. And then the redirection of those exports to other markets.
Speaker Change: Your next question comes from the line of Matthew Blair of Tudor, Pickering. Your line is open.
Matthew Blair: Uh, good morning and thanks for taking my question. Could you talk a little bit more about what you're planning to do with the cash saved from the dividend? So, you know, I think in today's market, it's probably safe to assume that that, that cash would simply support the balance sheet, but when you get back to a mid-cycle environment,
Matthew Blair: Um, is that cash saved? Would that be more earmarked for uh, organic growth Investments? Or do you think that would be your marked for share BuyBacks? Thanks.
Speaker Change: Um, I'll take a shot at this and then I'll ask Jeff to comment as well, but the reduction in the dividend was to keep our cash flexibility through the bottom of the cycle.
Jeff: And we're trying to keep capex low and bring capex down until we see Improvement in the cycle. So it wasn't our intent.
Jeff: To be able to take that cash and and redeploy it in campus, it was to have some flexibility.
Jeff: We're not doing share BuyBacks right now, for example, um, but our stocks that are priced where you would want to be doing that, what looking at the intrinsic values.
Jeff: And so we had no flexibility to do it if we're paying everything out to fix dividend.
Jeff: So, that's the way we went into it. The view we went into it with obviously maintaining our credit ratings and other important part of that Jeff? Yeah. Matthew, the only thing that I would add if you look at this more in the near term is absolutely about navigating this lower for longer maintaining that flexibility continuing to focus on balance sheet strength as we think, more medium and longer term. But we want to do is ensure that we can continue to look at the most value creating opportunities that will have across our balance Capital, allocation framework. Uh, 1 thing, I would note in regards to that, you know, because of a lot of the good work that's been done over the past few years around the balance sheet. We don't have any substantive debt maturities that come due before 2027. So we're in a really good position from that perspective to maintain that flexibility in the near and medium term.
Speaker Change: Your next question comes from line of uh Kevin McCarthy, a vertical research Partners, your line is open.
Kevin Mccarthy: Yes, thank you and good morning. Um Jim and listening to your your comments. It sounds as though you believe um that normalized earnings power is not changed very much but but the timing
Speaker Change: Uh or the cycle shape has changed. So I was wondering if you could elaborate on that over the near term and the medium-term you know for for example you're guiding up sequentially in 3 Q. So do you think 700 million could be a durable trough for quarterly earnings and then over the medium-term I recollection is dating back to the capital markets day in May of 24. You were looking at a a peak period sometime between 2027 and 30. So is it the case that we're we're flexing uh more toward 2030 at this point and any updated thoughts? There would be appreciated
Good morning, Kevin. Um, both both good questions. I I do think it's flexing toward the end of that time period, as you had mentioned.
Speaker Change: I, I will resist any Temptations to call the trough given the environment that we're in, but, you know, we're taking actions to improve the core earnings and some of them are are things that we wanted to do intentionally, which is invest for growth during the bottom of the cycle. Um, because those are the things that get us
Speaker Change: In a position to maximize the upcycle when we come out and you know this business, it it takes a while to get in position to be able to capture that. You just can't
Speaker Change: Think that the Cycles coming next year? I know it's time to start working on a project. You have to have that already underway in flight or finishing Construction.
Speaker Change: Um, so that's that's the way we're looking at it. Um, the market has to is absorbing and has to continue to absorb some of the capacity that's come on. And then you started to see, um, at least an understanding and awareness.
Speaker Change: And some rhetoric and China about the amount of capacity that they built and the amount of over capacity that's there and the impact that's having even on the domestic Market. Um, especially Amplified, when they're limited on the export from that material.
Speaker Change: Some discipline into things that we haven't seen.
Speaker Change: And we need more discipline.
Speaker Change: Your next question comes from the line of Josh Spectre of UPS. Your line is open.
Yeah. Hi, good morning. Um, I was wondering if you talk about just operating rates for Dao within polyethylene. I mean, our understanding is some of the lower ibadan. 2q was that you guys took down operating rates and the industry did as well. So if you could help size what that penalty was in 2q and it doesn't look to me that you're assuming much improvement in 3Q. I guess. Is, is that the right framing or would you characterize that differently? Thanks.
Speaker Change: Yeah, let me let me ask Karen to take a shot at that.
Karen: Yeah, thanks for the question.
Karen: so, so operating
Karen: And, and second.
Karen: That we had uh if you know, keep in mind that the uh industry the overall industry in North America experts about 40% of its capacity on a monthly basis.
Karen: And so, as I mentioned before, you know, before Liberation day there, there was, uh, fertile ground for prices to go up because inventories had come down in April. Um, I do want to make a comment though, on third quarter because we actually are going to see, uh, Eva dot Improvement in the third quarter because of how we exited, um, second quarter. And so operating rates, from an industry perspective are above 90%. Um, it is the low cost region, um, and so, you know, from a doubt perspective, we fully expect to get the price increases.
Karen: That we have on the table for third quarter, starting in July. And the second part, the reason we're going to have uplifted is because of our poly 7 train that just came on. Um, as I mentioned before, it's fully sold out. Um, and we are going to move that volume, um, in the third quarter and you'll see an earnings uplift from that. So, our operating rates, um, are up. There's a a very small percentage of the industry capacity that is offline in the third quarter. Um and we expect to deliver earnings Improvement. Um you know, from those perspectives,
Speaker Change: Your next question comes from the line of Duffy Fisher of Goldman Sachs. Your line is open.
Yeah, good morning. Um, 2 questions, 1 Jim. Can you just talk about on the anti-competitive stuff? Which product chains are being most impacted there? And then where his legal actions been taken already and where should we expect it going forward? And then, could you just clarify how much of the July price increases actually baked into your Q3 guide?
Speaker Change: Um, although it's not a particular area for us. You see it in um, chlorine aromatics and if you spot like that, um, you see that same kind of an impact, um, we're starting to see a bit of it in polyethylene. Uh, so we've seen Brazil take action, some of Latin America. Uh, we're starting to see a little bit of that potentially in Europe.
Speaker Change: Uh, although I don't think it's been as prevalent in Europe, on the plastic side.
Speaker Change: Um, where eyes wide open, uh, in all areas for that. And then I think you're you're obviously you've seen it um in electric vehicles, in Europe, that was 1 of the early cases, where there was a lot of pressure in Europe on on EVS. So it's not just a chemical industry but in the chemical industry, there's a significant activity here and you want to talk about the pricing and how much is in that estimate. So all of our July price increase that we have on the tables, um, is incorporated into our results. And again, you know, the we fully expect to to achieve that. Um, we are pushing to achieve that because again the the current integrated margins are not only low but they're unsustainable. So we are, I'm fully baking in integrated margin expansion as we get into third quarter.
Speaker Change: Your next question comes from the line of Patrick Cunningham of City. Your line is open.
Patrick Cunningham: Hi, good morning. Thanks for taking my question. Yeah, with Equity earnings continuing to Trend lower. Do you see any need for further portfolio? Restructuring actions on your JVS and then specifically on sedara, I believe the principal grace period is through 2026, that current earnings levels. Would there need to be a, a reprofiling of that debt or any additional cash? Burden from Dao. Thank you.
Patrick Cunningham: Morning Patrick. Um, no there obviously Equity earnings are are depressed in the JBS because they're in the same markets that we're in. So I think we're dealing with that. Um, Kuwait Thailand, I feel like relatively good position balance sheet wise. We have an active team, uh, working together with a ramco on the refinancing, before we reach that time period, where those uh grace period ends. And so we're looking to mitigate that, that way. So I think so far, uh, we're in good shape there, but it's always something that's front and center. Uh, the Jeff and I are keeping a very, very close watch on.
Speaker Change: Your next question comes from the line of Frank. Mitch for me research, your line is open.
Hey good. Uh good morning. Um I wanted to come back to tnsp sequential decline in uh 2 Q versus 1 Q. Uh the guide uh that you gave out 3 months ago, suggested that you'd see a fifty million dollar headwind tied to turnaround, but cost reductions would mitigate that by 25 million.
Speaker Change: So the net of those 2 would be a 25 million dollar decline. Obviously, we're down to 70. Uh, can you can you kind of size the buckets?
Speaker Change: For us, in terms of how much that was the 3 Cent decline. Uh, from April, how much is that is operating rates? How much is that? Might be something else that that we haven't discussed right now but I'm trying to get a better handle as to you know, that that that large sequential decline. Thank you.
Karen: Now, let me, let me ask Karen to comment on that.
Uh, you know, we didn't talk about
Karen: um, was the 3 sets per pound price to climb that we saw in April and then subsequently the operating drop because of that. So I I would say it's about 50/50 between 50% the price decline, 3 cents and then 50% the operating rate decline.
Speaker Change: Your next question comes from the line of John Roberts of mizuho Securities. USA. Your line is open.
John Roberts: Um, thank you. Um, do you think the duration of the overcapacity in polyethylene, sloanes and polyurethanes are all in sync? Or do you see 1, or, or another of these chains actually improving before the others.
John Roberts: That's a good question, John. I think um you know I think Isis cyanides is in relatively decent shape within the polyurethane portfolio po uh will take longer. We we've got the probably the biggest adjustment in Poe coming into the year with reduction of a train uh here in the US Gulf Coast.
Well.
John Roberts: and so, I think that
John Roberts: That looks good, but the drag is on. So I've seen, I think, uh, polyethylene ethylene because of the demand that's out there in the size of the market will recover quicker.
John Roberts: This concludes our Q&A session. I'll now turn the conference back over to Andrew reker for closing remarks.
Andrew Reker: 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
Andrew Reker: this concludes today's conference call, you may now disconnect