Dow Inc. (DOW) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day and welcome to Dow’s First Quarter 2021 Earnings Call. I would now like to turn the call over to Pankaj Gupta. Please go ahead, sir. Pankaj Gupta: Good morning. Thank you for joining Dow’s first quarter earnings call. This call is available via our webcast and we have prepared slides to supplement our comments today. They are posted on the Investor Relations section of Dow’s website and through the link to our webcast. I am Pankaj Gupta, Investor Relations Vice President for Dow and joining me on the call today are Jim Fitterling, Dow’s Chairman and Chief Executive Officer and Howard Ungerleider, President and Chief Financial Officer. Jim Fitterling: Thank you, Pankaj and thanks to everyone for joining us today. Before we begin, I would like to recognize and thank Colleen Kay, who announced her retirement from Dow after over 31 years of outstanding service and also to welcome back Pankaj Gupta, who many of you already know. Starting on Slide 3, our results for the first quarter once again demonstrated the focus and agility of Team Dow which enabled us to quickly recover from the impact of winter storm Uri on the U.S. Gulf Coast. This event had a far-reaching impact across our industry and broader market. Our colleagues quickly and safely got our units back online some of which began coming up within a week of the storm. All impacted Dow units are back online and we have reached pre-storm operating rates by the end of March ahead of plan. Our team’s efforts, combined with improving demand and tight industry supply conditions, drove results higher than the updated guidance we shared last month at the JPMorgan Investor Conference. At the company level, Dow achieved double-digit growth on the top and bottom lines, both year-over-year and sequentially. A few highlights in particular. Sales were up 22% year-over-year, with gains in all operating segments and in every region. We continued to benefit from strong price momentum with improvements in all segments, businesses and regions. Volume was in line with the year ago period as gains in construction, mobility, electronics and consumer durables end markets as well as higher energy demand were offset by supply constraints from the storm and we continue to improve our working capital efficiency with a net improvement of 3 days. Sales were also up sequentially with growth in all segments and regions. This top line growth and our continued focus on cost discipline led to bottom line growth and our highest EBIT quarter since spin. We achieved more than $700 million of EBIT growth from the year ago period and $500 million sequentially. Howard Ungerleider: Thank you, Jim. Moving to Slide 5, as we turn to the second quarter, market demand remains robust in packaging, electronics, mobility, architectural coatings as well as consumer durable end markets. While sectors like home care have begun to normalize, we do expect additional upside on continuing economic recovery in the industrial sector. And as travel, workplace and social activities resume, they will also provide a boost in demand for higher margin personal care applications as well as across the service sectors of the global economy. These constructive market trends will continue to support top and bottom line growth across all Dow operating segments in the second quarter. We are entering turnaround season in the Northern Hemisphere and we expect increased spending of approximately $125 million sequentially, particularly in the U.S. Gulf Coast, including a turnaround at one of our crackers in Louisiana. We also expect an additional $100 million from outages, including a third-party supply disruption on the U.S. Gulf Coast. Collectively, robust demand, tight supply, low inventories and increased raw material costs are providing support for prices across many of our value chains. We expect the constrained industry inventory levels to continue in the second quarter, preventing inventory builds until later this year as we focus on clearing the growing backlog of customer orders. All combined for the second quarter, we expect approximately $750 million to $800 million in higher earnings versus the prior quarter from a combination of earnings momentum in our key chains and lower sequential costs from winter storm Uri. This earnings growth will be partially offset by approximately $200 million to $250 million in higher costs from turnarounds and the third-party outage I mentioned. Altogether, we expect second quarter to be our strongest performance since spin. Moving to Slide 6, we are also updating a few key items in our full year modeling guidance. The positive momentum I just mentioned will also benefit our joint ventures, particularly Sadara. We also expect to see slightly higher turnaround spending than previously anticipated as winter storm Uri has put some upward pressure on the cost of materials and labor in the U.S. Gulf Coast. Finally, our decision to freeze our U.S. pension plan accruals and contribute $1 billion to the U.S. pension plan, along with the subsequent remeasurement, provides an approximately $200 million tailwind to pension expense year-over-year. Overall, for the remainder of the year, we continue to see broad-based economic momentum, recovery from winter storm Uri and elevated consumer demand. Jim Fitterling: Thank you, Howard. Moving to Slide 8, before discussing the market outlook, I want to reinforce how sustainability continues to be another growth driver for Dow. Last quarter, we shared our roadmap to achieving our 2030 carbon reduction targets. And this past week, Columbia University and the Nature Conservancy announced our partnership to better account for the role of the materials and sustainable applications play in achieving emissions reduction, including plastics. Pankaj Gupta: Thank you, Jim. Now let’s move on to your questions. I would like to remind you that our forward-looking statements apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions. Operator: Thank you. And we will move to our first question from David Begleiter with Deutsche Bank. David Begleiter: Thank you. Good morning. Jim and Howard, in plastics, how are you thinking about sequential earnings improvement here given the price margin growth we are seeing, can you get to $2 billion of EBITDA in Q2, is that possible? Jim Fitterling: Good morning David, as you noted, obviously, we continue to see strong demand growth in plastics. And if you look at our sales, we are looking at 3% to 7% higher sales in the quarter. And obviously, operating rates should be much improved given that we won’t have the impact of winter storm Uri. We do have some turnarounds, as Howard mentioned, so we have a Louisiana Cracker that’s down. But having said that, it looks like supply is going to be greater than demand for the foreseeable future. I don’t anticipate we will be looking at any kind of an inventory build until probably the fourth quarter. And so with that, kind of a year that feels like 13 months of demand and 11 months of supply, and it looks like raw material costs are going to continue to remain low. Operator: And next, we will move to Bob Koort with Goldman Sachs. Bob Koort: Thanks. Good morning. I appreciate the benchmarking information. That was helpful. I am curious you showed already a pretty considerable cash flow yield, and that’s before the ramp in earnings. I think you have outlined a couple of projects, handful there that would get you maybe an incremental $1 billion of EBITDA. Can you give us a sense of the cost and cadence of that incremental earnings growth? And then how are you going to deploy all the excess cash given those industry outlook slides that was on Page 9? Look pretty darn good for quite a while. So are you going to change your capital deployment strategy here? What are your plans there? Jim Fitterling: Yes. Thanks Bob for the question and a lot in that question. And I feel good, given that we had about a $400 million impact from winter storm Uri in the quarter, we delivered $750 million of cash from operations. Obviously, we took an elective pension contribution in the quarter, but our cash flow generation continues to remain strong. We stepped up CapEx this year to a little over $1.6 billion to get our growth CapEx coming back up. And all of that is on faster payback types of projects. So for example, we started up a polyethylene glycol facility in the first quarter down in the Gulf Coast, which will be accretive this year. We also just brought on another furnace in Fort Saskatchewan. The furnace part is active. So about half of the benefits of that will start now, and we will do some work on the back end of the cracker towards the end of the year and bring on the other half of that capacity. So, if you think about the incremental projects that we have to deliver that $1 billion, I feel like we can be increasing capital towards depreciation and still be able to deliver that $1 billion of EBITDA growth. And then obviously, we want to continue to support the dividend. And if you think about our capital allocation priorities, they are in order safely and reliably operate the plants, continue to support that industry leading dividend, the growth CapEx, I mentioned, some incremental gross deleveraging. So, we have got another $1 billion of targeted gross deleveraging to get our net debt to EBITDA ratios where we targeted them. And then share buyback to cover dilution. And right now, that’s where we will stop on share buyback. Anything you want to add, Howard? Howard Ungerleider: You covered it. Operator: And next, we will move on to Jeffrey Zekauskas with JPMorgan. Jeffrey Zekauskas: Thanks very much. Are you satisfied with your returns in Performance Materials & Coatings? And what does that segment need to do to raise its operating output? And secondly, on pension expense, you talked about a $200 million pension tailwind, what exactly is your pension expense roughly in 2021? Jim Fitterling: Yes, let me take Performance Materials & Coatings, and I will have Howard talk about the pension expense. Both businesses in Performance Materials & Coatings had some downtime and some maintenance costs in the first quarter. So, I think when you are looking at first quarter results, that isn’t reflective of the market demand in the marketplace. We had the siloxanes plant in China down, and we had the Deer Park facility down for maintenance. And then, of course, the winter storm really lengthened that maintenance. The demand for both of the products is improving and the pricing for siloxanes, which has been one of the bigger drags on consumer solutions, is starting to move in the right direction. And a lot of that is because automotive demand is coming back and construction is coming back. And we have yet to see personal care, which I think is going to come back through the year. And on top of coatings and monomers, monomers were strong in the quarter. Architectural coatings and specialty do-it-yourself continues to be strong. Industrial is starting to show improvement as automotive comes back. And of course, as air travel begins, we will start to see a big part of industrial come back as well. Howard, on pension? Howard Ungerleider: Yes. Jeff, good morning, pension expense, when you look at pension and OPEB, it’s around $100 million is our expected expense this year, which is going to be down a couple of hundred million dollars as we talked about in the prepared remarks. Operator: And next, we will move to P.J. Juvekar with Citi. P.J. Juvekar: Yes. Hi, good morning, a couple of quick questions on polyethylene, the peak like margins that the industry is seeing today in that $0.40, $0.50 range per pound. If that remains elevated, could you see incentive to add more supply, particularly in China? And then just on sticking to polyethylene, Jim you guys have done a great job on circular economy and alliance to in plastic waste. On bioplastics, there are these small companies coming up. You had that PLA technology down in Brazil. Does that still exist within Dow now? I know that was shutdown. And can you revive that if the demand takes off in biopolyethylene? Jim Fitterling: Good morning P.J., and the margins in polyethylene, I think, are reflective of a couple of things; improved spreads in ethylene, and that obviously has been driven by the fact that ethane costs remain low, natural gas costs remain low, and oil has recovered from kind of an unreal scenario a year ago today. And that’s raised, obviously, the naphtha pricing and that’s raised the floor around the world. The other thing that’s happened though is we had growth in plastics and packaging, even through COVID. And so most people were expecting businesses to be down during that time. And I think they underestimated how much growth is there. We are seeing growth over 2020 in plastics. We would have seen in the first quarter without the winter storm. And so we are going to see that continue to grow. So, I think we have got continued outlook for high earnings through the year on plastics. On bioplastics, we are doing some work right now on biomaterials to make plastics, really looking at wood byproduct derivatives that we can use to blend in with naphtha. We are doing some work with Fuenix Ecogy Group to bring recycled materials back in. One of the challenges with bioplastics is not so much the degradability that everybody in the market likes, but it’s their thermal stability in terms of being able to form them and do what you need to do with them, and then have them have the kind of durability you need for food packaging. But we are open to collaborations in those areas, and we are always looking for new things that we can do in that space. Operator: And we will move on to Frank Mitsch with Fermium Research. Frank Mitsch: Hey, good morning and good to hear your voice again, Pankaj. As I look at these results, pretty impressive results, and you had 14% price improvement in the first quarter versus the fourth quarter. How does April stand relative to the first quarter? And just more generally, what’s your expectations on price throughout 2021? Jim Fitterling: Good morning Frank, we have got $0.09 up for April and another $0.05 up for May in the U.S. and the April order book is very solid. So, I think that’s a strong, strong probability. Look, in most of our businesses beyond even plastics, the order book for the first quarter is very solid. A combination of some backlog that got created from the winter storm and just the normal demand by the year-over-year improvements we see in construction, we see in automotive, we see in consumer durables, we see in electronics. So, my feeling is that it’s constructive for the year and our outlook for raw materials costs are going to continue to remain low throughout the year. Operator: And Steve Byrne with Bank of America will have our next question. Steve Byrne: Yes, thank you. Jim, you made a few remarks earlier about outages, you have got turnarounds, you have got new supply coming, a lot of moving parts in industry operating rates. And I just wanted to ask you to put that into perspective on your – on the Slide 9 that has your multiyear outlook on industry operating rates for polyethylene, MDI and siloxane. How would you compare those forecasts to current industry operating rates? Jim Fitterling: Yes. Good morning, Steve. It’s a good question because I think most of the third-party views out there are kind of taking the worst case scenario. And so that would be the bottom end of what we think the ranges of operating rates are. We are going to be in the 90s in both ethylene and polyethylene for the quarter, unless there is some unplanned event. And as we sit here today, there is probably about 15% of that capacity off-line, which is well in excess of what we normally have. We normally have probably 6% to 8% off-line. Same is true for polyurethanes and isocyanates. You see the downstream demand pull is very strong. And siloxanes pricing improvements is all driven by downstream demand improvements. So, my sense is that we are going to be in strong operating rate territory for the entire year. I don’t think we will be building inventory until maybe possibly the end of fourth quarter, which – and that all depends on whether we have a slow fourth quarter or not. But there is upside in automotive, there is upside in travel, there is upside in construction and home, there is backlog in appliances and long lead times. Everything is pointing in the direction of high operating rates. Operator: And next, we will hear from Hassan Ahmed with Alembic Global. Hassan Ahmed: Good morning Howard and Jim. I wanted to sort of quickly ask you about the sequential guidance you guys gave. If I heard Howard correctly, it sounds as if he is talking about a sort of between the positives and negatives, around a $600 million uptick sequentially. So call it $2.8 billion, $2.9 billion in Q2 EBITDA. So, my question is that if that is the guidance, what sort of pricing is being baked into that guidance? Meaning, obviously, you guys talked about around of April price hikes, there seems to be another round of price hikes on the table for May. So that guidance that you are giving, is it capturing both April and May price hikes, meaningful realization of those hikes? Jim Fitterling: Yes. If you look at IHS forward view on pricing, they have got $0.12 a pound quarter-over-quarter for the United States. And in Europe, they have actually got a reduction, a slight reduction, and Pacific they have got a slight reduction. My sense is that the U.S. margins are going to see that and I think we’re going to continue to see demand strong in China. We’ve seen a good rebound there. And then in Europe, we’ve seen good demand. It hasn’t been as strong as the rest of the world. Obviously, the virus, it’s had a little bit more impact. And Latin America has been similarly hit a little bit hard with the virus. But I think as the quarter progresses, I think we have the potential to see that firm up a little bit. Howard Ungerleider: Hassan, this is Howard. The only thing I would add is your math that you articulated in your question is spot on. Operator: And John Roberts with UBS will have our next question. John Roberts: Thanks. Good morning guys. Could you talk a little bit about the Sadara restructuring? I think Dow’s exports from Sadara was a key part of Dow’s Asia growth strategy. So do you need something else now to backfill as you lose a little access here to some of the Sadara output? Jim Fitterling: Yes, I’m going to ask Howard to talk about that because he and the team did a lot of heavy lifting to get that done. But on the growth side, that’s where we will be looking at some incremental investments, including on the ground in China for specialty hub to be able to convert differentiated PU and alkoxylates for high-growth in Asia Pacific. And we’re also looking at incremental expansions that we could make in the U.S. to be able to supply more material over there. Howard? Howard Ungerleider: Yes. John, good morning. The Sadara re-profiling is done. As you know, it was – it took us about 2 years to get it all done, but we got it done within the timeframe that we committed to. The maturity date is now extended out to 2038. There was no upfront or prepayment of any of the outstanding debt. There is a grace period until June of 2026 on any principle, and the guarantees were significantly reduced. When you look at Sadara’s operating performance, it really was a standout. I mean, all of our joint ventures did well in line with our core earnings growth that we reported. But when you look at the threee joint ventures, Sadara actually had the best earnings growth, both year-on-year, as well as sequentially. And if they keep up this pace, they likely will be paying off some additional principal still this year, which was not expected when we did the re-profiling. So really strong performance from Sadara. Operator: And next, we will move to Laurence Alexander with Jefferies. Laurence Alexander: Good morning. On the plans that you sketch out for advanced recycling, can you – do you have initial thoughts on likely capital intensity or where they’ll fit on the cost curve? Would it be competitive of naphtha? Jim Fitterling: Yes, Laurence, and thanks for the question. This is one of the things I think that everybody is trying to wrestle with, and it’s a very local issue because it gets into a variety of moving parts, including what’s the cost to landfill materials. I would say that the demand pull is there from the brand owners and from the marketplace for more recycled content, and that’s what’s driving the investments. To date, most of the investments have been around mechanical recycling because it’s very low cost, and it’s also low energy intensity. And so the growth in those applications is great. But there is a limit to what that can do. So when you get into flexible packaging and a few other areas, you need advanced recycling. And there you get into technologies like pyrolysis and gasification to make that happen. And that’s a little bit more expensive. So as we move forward, I would think we’re going to need to see a market-related price on carbon, which has been discussed in the EU and is also going to start being discussed here in the United States to help create that gap and that value will drive that return. And it’s a little bit early to get into huge capital numbers or return numbers. What we’re doing today is piloting different technologies, trying to prove out business models that work. And then once we see what works and we can replicate it, we will come back and we will talk more about what the investment looks like. Operator: And Vincent Andrews with Morgan Stanley will have our next question. Vincent Andrews: Thank you and good morning. Just a quick housekeeping for Howard. What is the unfunded pension liability post the $1 billion contribution? And then maybe, Jim, just a follow-up on the prior discussion, you put this press release out by the partnership between yourselves and Mura on a new game-changing advanced recycling solution. I’ve just been eyeballing it, and I can’t tell if you’re making a financial contribution or if you’re just taking the off take and sort of what you think the time frame and scalability of it is, but maybe you could give us just a little bit more discussion of this new partnership. Thank you. Howard Ungerleider: Hi, Vince. Good morning. This is Howard. So our underfunded status on the pension plan at the end of the quarter was $6.4 billion, and that was a decrease or an improvement of $2.3 billion versus year-end 2020, which is a combination of the voluntary contribution plus the remeasurement that we took at the end of the quarter. Jim Fitterling: Yes, and on Mura, it’s really taking advantage of their technology to use all forms of plastic waste, some of which I mentioned are unrecyclable today. So we will make an investment, it’s not a material investment in terms of dollars to help scale the technology, but we will also increase the amount of advanced recycled material as feedstock for our own assets. The pilot facility is going to be in the UK and it’s a hydrothermal plastic recycling solution that is developed by Mura. And we will continue to work with them to prove that out. And to help develop products that will perform in the marketplace to drive growth in that sector. Operator: And we will move on to John McNulty with BMO Capital Markets. John McNulty: Yes. Thanks for taking my question. I guess, maybe two quick ones. Just on the equity line, it looks like you’re guiding to $400 million to $500 million for the year, you just did just about two and quarter in the first quarter. Is there some seasonality or some one-time thing that we should be thinking about in that? And then just on the inventory side, I think you mentioned specialty or packaging, specialty plastics is going to be really tight through into the fourth quarter. I guess, can you give us some color as to what you’re seeing in the Performance Mats and Coatings area and the II&I area if it’s equally as tight on the inventory front or if there is a little bit more cushion there and maybe can be made up quicker? Thanks very much. Jim Fitterling: I think on – when you get into Polyurethanes and II&I, Polyols is very tight right now, and I expect that to continue to be the case. And isocyanates will have good operating rates through the year as this demand in construction and also automotive continues to grow. If you looked at coatings, I expect monomers to be tight through the year given the improvements in downstream coatings. And obviously, architectural has been strong. If we see a boost up in the do-it-yourself or the contract side of coatings market, then we could see another leg up and some more tightness in that sector. Howard Ungerleider: Yes. And I would just say on, John, on the equity earnings line, your math is right. There is some seasonality to think about MEG out of equate, but also there is higher turnaround expenses. So you got a higher turnaround expenses in Sadara this year, as well as Thailand, as well as the Kuwait. So you’ve got to subtract that extra $100 million plus from the turnaround as well. Operator: And next, we will move to Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Yes. Good morning. If I look at your second quarter guide, it seems to imply for the first half that you would earn somewhere north of $5 billion in EBITDA and annualized that, of course, would be more than $10 billion. How would you compare and contrast that sort of level versus your view of Dow’s future peak earnings power when you take into account your price margin outlook, the organic investments that you talked about and other sources of growth? Jim Fitterling: Thanks, Kevin. And I think normally, when we go into the year, second quarter and third quarter tend to be our peak quarters. Obviously, things tighten up in first quarter, and so we saw a really strong first quarter result as well. So my sense is we had gone into this year, trying to get back to mid-cycle earnings. I think we’re ahead of that in some sectors and we will be that way. And with our spending on really these fast payback projects, some of them which have payback less than 3 years. I think that has the ability to move the top side up. Howard, do you want to comment on the range on what peak earnings could look like? Howard Ungerleider: Yes. Kevin, look, when we came out at spin, we were looking at the capital structure and that whole discussion. We talked about trough earnings around $6 billion. Last year, it was $5.6 million. So we were definitely in a trough. We got there because of the pandemic more than anything else. And peak earnings with the portfolio at spin was between $12 billion and $13 billion. And now we continue to add additional incremental growth projects from there. So you pick a number, but we still have a significant amount of upside as you head into, hopefully, a continued economic up cycle from here, even with that first half annualized that you talk about. Operator: And next, we will move to Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Great. Thanks for taking my question. Congrats on the strong results here. I guess, similar question. When you think about the segments here, first off with PM&C, obviously, continues to struggle. What is it really going to take to get that business back to normal? Is it just a resumption of personal care and mobility as you discussed earlier? And then similarly, with II&I, we’ve seen a pretty strong move in MDI, especially in China and in Asia earlier. Do you expect that to kind of come over to North America and Europe in the coming months? Thanks. Jim Fitterling: Good morning, Arun. Look, I just want to go back to the first quarter comment on PM&C. So I don’t think the first quarter is reflective of the market for PM&C. And I don’t think the business continues to struggle. Downstream silicon is the high-margin part of Silicones downstream got hit pretty hard during COVID, obviously, personal care applications. But also we saw construction down really last year, and it’s starting to come back. So right now, you’re starting to see strength in siloxane, you’re starting to see strength in construction. Mostly it’s been residential construction, but it’s moving back into high rise buildings. Again, consumer electronics is driving it. Industrial manufacturing is driving it, and mobility, as Howard mentioned. EVs is really positive for us on a Dow overall standpoint. We get about twice – 50% more content on an EVs than an internal combustion engine. On a silicon standpoint, we’ve got about 3 to 4x more than an internal combustion engine. So we’re seeing surges there. So I think you’re going to see PM&C improve as the year goes through. And obviously, we’d had a much better quarter without the Deer Park downtime and the extension of that due to the winter storm Uri. So I would say, let’s look at PM&C as the year progresses. I think you’re going to see a good story coming out of that business. Howard Ungerleider: The other point on PM&C is really the Zhangjiagang asset. So we have three big pillar plants that produce siloxanes around the world, one in the U.S., one in Europe and one in China. And the one in China was out for a big chunk of the first quarter. So obviously, we were unable to produce, and we had all that fixed cost that was – that went unabsorbed that dropped to the bottom line as a negative impact, as you saw. Operator: And next, we will hear from Alex Yefremov with KeyBank. Alex Yefremov: Thank you. Good morning everyone. Jim, you just mentioned capital costs could start trending towards depreciation. Just to clarify, do you mean D&A that I think you’re guiding to about $2.9 billion or just the depreciation part of it? And also, how quickly do you think you’ll get there? Is it something you should consider for next year already or over the next 2, 3 years, perhaps? Jim Fitterling: Yes, good question. And I think we will ramp into it. A lot depends on what we see in downstream demand. And if we continue to see these downstream demand pools, we’re going to have to ramp into that post this year. We’ve also got to look at investments that we’ve been talking about on sustainability as well. Our depreciation level is about $2.2 billion. And so I think our first ramp would be to that level. And then we have discussions here and with our investors as we get opportunities to go beyond that. And obviously, you have to look at the value creation of that. Operator: And we will move on to Mike Sison with Wells Fargo. Mike Sison: Hey, good morning. Nice quarter and outlook. In terms of the $1 billion of earnings you talked about on Slide 9, how much of that can hit in ‘22? And I know it’s a little bit early, but given some of these incremental investments, and your outlook relative to the industry consultants, should EBITDA in ‘22 continue to grow from ‘21? Jim Fitterling: Yes, I think when it comes to additional capacity, I think the answer to that is yes. I think the demand is going to continue to grow. Obviously, you can see the leverage that we have to the upside on margins. So I’ll leave that – what the margin spread for ‘22 looks like out of the equation. But we probably got $100 million, maybe $150 million of additional accretive earnings based on these new incremental expansions in ‘22. And these things that I mentioned earlier, polyethylene glycols came online in first quarter, just about a month ago. And the furnace at the Fort is up and has half of its rate already, and it will get the other half of its rate at the end of the year. And then we’ve got some other alkoxylation investments that will come on next year in II&I. We’ve got some investments in, obviously, silicones. Last year, we did more than 15 incremental investments. This year, we’ve got another 15 for high-margin downstream Silicones materials. And so those will come on. And then we’ve got miscellaneous debottlenecking going on everywhere to try to get incremental growth out. Operator: And we will move on to Duffy Fischer with Barclays. Duffy Fischer: Yes. Good morning. Two kind of housekeeping questions. First is the Sadara marketing agreement winds down to the new terms, how visible will that be in your P&L and cash flow? And then on the pension voluntary, how did you think about the return on that $1 billion? And should we expect more voluntary cash to go into the pension over the next several years? Jim Fitterling: My expectation on the PMLA changes, Duffy, will be that you’ll see that gradual over time. I think it will take a number of years. For our marketing to reflect our equity stake and obviously, for the Aramco side to do the same. So it won’t happen overnight. I think it will happen over time. And I think you’ll see it more on the revenue side than you will on the earnings side. Any other thoughts about that, Howard? Howard Ungerleider: Yes. If anything, Duffy, I would say you should see our unit margins improve, because right now, we’re marketing 90% plus of the Sadara volume, but we obviously only own 35% of the equity. So that really – and we get a very – we only get a very, very small marketing fee on those volumes. So as that shifts more to our equity ownership in the JV, our unit margin should actually increase just because of that dilution. And remind me what your pension – what was the specific pension question, we might not – going back. Duffy Fischer: Do you think you will put more voluntary cash into the pension over the next 2, 3, 4 years? Howard Ungerleider: Yes, so I mean, look, with the pension smoothing that went in with the last bill, we don’t have really any mandatory pension payments that we need to put in, in the U.S. plans for the next several years. So that was about – it’s probably about a $300 million to $400 million savings. From a voluntary standpoint, look, I am a believer that interest rates will move up over time. And so it doesn’t take much from an interest rate perspective and maybe 1 year of additional EROA to really get that plan close to fully funded. So with that said, we will be opportunistic. And if it makes sense economically, I mean that $1 billion voluntary pension payment was a very good economic decision for the company. And so we will continue to look at that year-by-year from an economic perspective. And if it’s value creating, we might do it, but we will compare that to the other capital allocation priorities that Jim laid out earlier on the call. Operator: And that we will conclude today’s question-and-answer session. At this time, I would like to turn the call back over to Pankaj Gupta for any additional or closing remarks. Pankaj Gupta: Thank you. Thank you for everyone. Thank you to everyone for joining our call. We appreciate your interest in Dow. For your reference, a copy of our transcript will be posted on Dow’s website within 24 hours. This concludes our call. Thank you very much. Operator: And that will conclude today’s call. We thank you for your participation.
DOW (NYSE:DOW) Downgraded by BMO Capital Amid Market Volatility
- BMO Capital downgraded DOW to "Underperform" with a stock price of $28.73.
- Despite the downgrade, DOW's stock price slightly increased to $28.77, showing resilience.
- The broader US stock indices, including NASDAQ, S&P 500, and Dow Jones, are expected to experience some softness, potentially impacting DOW's performance.
Dow Inc. (NYSE:DOW) Quarterly Earnings Preview: A Closer Look at Financial Metrics and Investor Concerns
Dow Inc. (NYSE:DOW) is a leading materials science company that provides a wide range of products and solutions in sectors such as packaging, infrastructure, and consumer care. As Dow prepares to release its quarterly earnings on April 24, 2025, Wall Street anticipates an earnings per share (EPS) of -$0.02 and revenue of approximately $10.26 billion. This release is closely watched by investors and analysts alike.
The expected weak earnings are attributed to increased maintenance expenses and rising feedstock costs. These factors have led to a significant year-over-year decline of 103.6% in EPS, as highlighted by Wall Street analysts. Despite these challenges, Dow has implemented cost-cutting measures, offering some optimism for investors.
The company's revenue is projected to be $10.27 billion, a 4.6% decrease from the same quarter last year. A major concern for investors is the sustainability of Dow's high dividend yield, especially if a global recession prolongs the current downturn in the business cycle.
Despite these economic challenges, Dow's price-to-book ratio of 1.10 suggests it remains a viable long-term investment. The company's price-to-earnings (P/E) ratio is approximately 18.29, indicating the price investors are willing to pay for each dollar of earnings. Dow's financial metrics provide insight into its valuation and performance. The price-to-sales ratio of 0.48 suggests investors are paying 48 cents for every dollar of sales.
The enterprise value to sales ratio is 0.83, reflecting the company's valuation compared to its sales. Additionally, the enterprise value to operating cash flow ratio is 12.31, showing how the company's valuation compares to its cash flow from operations. The company's debt-to-equity ratio of 0.99 indicates a balanced use of debt relative to its equity, while a current ratio of 1.61 suggests a good level of liquidity to cover short-term liabilities.
With an earnings yield of 5.47%, Dow offers a return on investment based on its earnings, making it an attractive option for long-term investors despite the current challenges.
Dow Inc. (NYSE:DOW) Quarterly Earnings Preview: A Closer Look at Financial Metrics and Investor Concerns
Dow Inc. (NYSE:DOW) is a leading materials science company that provides a wide range of products and solutions in sectors such as packaging, infrastructure, and consumer care. As Dow prepares to release its quarterly earnings on April 24, 2025, Wall Street anticipates an earnings per share (EPS) of -$0.02 and revenue of approximately $10.26 billion. This release is closely watched by investors and analysts alike.
The expected weak earnings are attributed to increased maintenance expenses and rising feedstock costs. These factors have led to a significant year-over-year decline of 103.6% in EPS, as highlighted by Wall Street analysts. Despite these challenges, Dow has implemented cost-cutting measures, offering some optimism for investors.
The company's revenue is projected to be $10.27 billion, a 4.6% decrease from the same quarter last year. A major concern for investors is the sustainability of Dow's high dividend yield, especially if a global recession prolongs the current downturn in the business cycle.
Despite these economic challenges, Dow's price-to-book ratio of 1.10 suggests it remains a viable long-term investment. The company's price-to-earnings (P/E) ratio is approximately 18.29, indicating the price investors are willing to pay for each dollar of earnings. Dow's financial metrics provide insight into its valuation and performance. The price-to-sales ratio of 0.48 suggests investors are paying 48 cents for every dollar of sales.
The enterprise value to sales ratio is 0.83, reflecting the company's valuation compared to its sales. Additionally, the enterprise value to operating cash flow ratio is 12.31, showing how the company's valuation compares to its cash flow from operations. The company's debt-to-equity ratio of 0.99 indicates a balanced use of debt relative to its equity, while a current ratio of 1.61 suggests a good level of liquidity to cover short-term liabilities.
With an earnings yield of 5.47%, Dow offers a return on investment based on its earnings, making it an attractive option for long-term investors despite the current challenges.
BofA Cuts Dow Rating to Underperform, Shares Drop 4%
Dow (NYSE:DOW) saw its share drop by 4% on Tuesday after BofA Securities downgraded it from Buy to Underperform and sharply lowered its price target to $28 from $44, citing mounting macroeconomic challenges, growing trade restrictions, and rising U.S. feedstock costs.
The firm had previously been bullish on Dow’s potential to benefit from a petrochemical and broader economic recovery. However, that recovery now appears delayed, and BofA has trimmed its 2025 and 2026 EBITDA forecasts by 17% and 23%, respectively, to $4.8 billion and $5.4 billion.
Adding to the concern is Dow’s $2 billion annual dividend, which now looks vulnerable as free cash flow shortfalls are projected to balloon to $2.6 billion over the next two years—more than double earlier estimates. Net leverage is also expected to remain near 3x through 2027.
Despite the stock already falling 19% since the April 2nd tariff news, BofA believes further downside remains given the deteriorating earnings outlook, valuation concerns, and heightened balance sheet pressure.
BofA Cuts Dow Rating to Underperform, Shares Drop 4%
Dow (NYSE:DOW) saw its share drop by 4% on Tuesday after BofA Securities downgraded it from Buy to Underperform and sharply lowered its price target to $28 from $44, citing mounting macroeconomic challenges, growing trade restrictions, and rising U.S. feedstock costs.
The firm had previously been bullish on Dow’s potential to benefit from a petrochemical and broader economic recovery. However, that recovery now appears delayed, and BofA has trimmed its 2025 and 2026 EBITDA forecasts by 17% and 23%, respectively, to $4.8 billion and $5.4 billion.
Adding to the concern is Dow’s $2 billion annual dividend, which now looks vulnerable as free cash flow shortfalls are projected to balloon to $2.6 billion over the next two years—more than double earlier estimates. Net leverage is also expected to remain near 3x through 2027.
Despite the stock already falling 19% since the April 2nd tariff news, BofA believes further downside remains given the deteriorating earnings outlook, valuation concerns, and heightened balance sheet pressure.
BMO Capital Downgrades DOW (NYSE:DOW) Amid Market Performance Concerns
- BMO Capital downgraded DOW (NYSE:DOW) from "Market Perform" to "Perform" with a current stock price of $40.09.
- The Dow Jones Industrial Average, including DOW, is expected to underperform compared to the S&P 500 and Nasdaq Composite despite its appeal for stability and dividends.
- DOW's market capitalization stands at approximately $27.72 billion, with a recent price decrease reflecting market volatility.
On December 25, 2024, BMO Capital downgraded DOW (NYSE:DOW) from "Market Perform" to "Perform," with the stock priced at $40.09. This change was reported by Benzinga in an article titled "Top 7 Blue-Chip Stocks With The Best Return Potential Going Into 2025." DOW is a part of the Dow Jones Industrial Average, a collection of blue-chip stocks known for their stability and dividends.
As 2024 ends, the Dow Jones Industrial Average is expected to underperform compared to the S&P 500 and Nasdaq Composite. Over the past five years, the Dow has returned 68.2%, which is lower than the S&P 500's 102.8% and Nasdaq's 132.7%. Despite this, Dow stocks remain attractive for their stability and dividends, appealing to investors seeking quality blue-chip companies.
DOW's current price on the NYSE is $39.60, reflecting a decrease of approximately 1.09% from the previous day. The stock has seen a decline of $0.44 today, with a trading range between $39.23 and $39.92. Over the past year, DOW's price has fluctuated between a high of $60.69 and a low of $38.85, indicating some volatility.
The company's market capitalization is approximately $27.72 billion, with a trading volume of 5,158,785 shares. Despite the recent downgrade and price fluctuations, DOW remains a part of the Dow Jones Industrial Average, which includes industry leaders like McDonald's, The Home Depot, and Chevron. These companies are valued for their stability and potential to generate passive income through dividends.
For investors interested in passive income, dividend stocks like McDonald's, The Home Depot, and Chevron are worth considering. An investment of $3,500 in each of these Dow stocks could yield over $325 in passive income in 2025. This highlights the appeal of Dow stocks for those seeking steady returns in uncertain markets.
BMO Capital Downgrades DOW (NYSE:DOW) Amid Market Performance Concerns
- BMO Capital downgraded DOW (NYSE:DOW) from "Market Perform" to "Perform" with a current stock price of $40.09.
- The Dow Jones Industrial Average, including DOW, is expected to underperform compared to the S&P 500 and Nasdaq Composite despite its appeal for stability and dividends.
- DOW's market capitalization stands at approximately $27.72 billion, with a recent price decrease reflecting market volatility.
On December 25, 2024, BMO Capital downgraded DOW (NYSE:DOW) from "Market Perform" to "Perform," with the stock priced at $40.09. This change was reported by Benzinga in an article titled "Top 7 Blue-Chip Stocks With The Best Return Potential Going Into 2025." DOW is a part of the Dow Jones Industrial Average, a collection of blue-chip stocks known for their stability and dividends.
As 2024 ends, the Dow Jones Industrial Average is expected to underperform compared to the S&P 500 and Nasdaq Composite. Over the past five years, the Dow has returned 68.2%, which is lower than the S&P 500's 102.8% and Nasdaq's 132.7%. Despite this, Dow stocks remain attractive for their stability and dividends, appealing to investors seeking quality blue-chip companies.
DOW's current price on the NYSE is $39.60, reflecting a decrease of approximately 1.09% from the previous day. The stock has seen a decline of $0.44 today, with a trading range between $39.23 and $39.92. Over the past year, DOW's price has fluctuated between a high of $60.69 and a low of $38.85, indicating some volatility.
The company's market capitalization is approximately $27.72 billion, with a trading volume of 5,158,785 shares. Despite the recent downgrade and price fluctuations, DOW remains a part of the Dow Jones Industrial Average, which includes industry leaders like McDonald's, The Home Depot, and Chevron. These companies are valued for their stability and potential to generate passive income through dividends.
For investors interested in passive income, dividend stocks like McDonald's, The Home Depot, and Chevron are worth considering. An investment of $3,500 in each of these Dow stocks could yield over $325 in passive income in 2025. This highlights the appeal of Dow stocks for those seeking steady returns in uncertain markets.
