Dow Inc. (DOW) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day and welcome to Dow’s 2Q 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 second 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, Dow Investor Relations Vice President, 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. Starting on Slide 3, Dow continue to capture strong demand across our value chains during the second quarter. Team Dow is focused on execution, cost discipline and balanced capital allocation, enabled us to deliver our strongest quarterly earnings performance in the company's history, both pre and post spin with substantial growth in net sales and earnings year-over-year and sequentially. We achieved double-digit sales gains in all operating segments and businesses. A 66% increase in sales relative to the year-ago period, was led by local price improvement of 53% combined with a 9% volume increase. Robust demand and the recovery of the global economy continues from the onset of the COVID-19 pandemic. Sales increased 17% sequentially, underpinned by tight supply and demand fundamentals across all of our value chain. We delivered higher operating EBIT of $2.8 billion year-over-year and $1.3 billion sequentially, with improvements in all segments and businesses. These gains were fueled by strong top line growth and margin expansion. We also benefited from increased equity earnings, up more than $370 million year-over-year, led by higher margins at Sadara and the Kuwait joint ventures. Sequentially, equity earnings were up $54 million primarily from the Thai joint ventures. Howard Ungerleider: Thank you, Jim, and good morning, everyone. Moving to our third quarter modeling guidance on Slide 5, strong consumer demand trends continue in retail, housing and the manufacturing sectors, and inventory levels remain low across most of our value chains. We expect these dynamics to continue to support price strength in the third quarter as the industry continues to work to fulfill pent-up demand. Jim Fitterling: Thank you, Howard. Turning to Slide 7. Dow's consumer driven portfolio is uniquely positioned to benefit from the demand trends that Howard outlined a moment ago, which continued to translate into an attractive $650 billion addressable market with approximately 1.3x to 1.5x GDP growth across our packaging, infrastructure, mobility and consumer care and markets. 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. Our first question comes from P.J. Juvekar with Citi. P.J. Juvekar: Yes, good morning. Jim, the arbitrage is between U.S prices for polyethylene and other commodities versus Asia are growing. And this was evident in your pricing where U.S pricing was 2x that of that in Asia. So how much of this is driven by the shipping tightness? And is the shipping tightness or logistical challenges impacting your business? Thank you. Jim Fitterling: Good morning, P.J. Thanks for the question. Obviously, days sales and inventory in North America went down. And I think what you saw was ourselves and most producers actually exported less into China. That was part of it. Also, you had a big rise in the cash flow part of the cost curve. So even though the arbitrages are where they are, most of the producers and China are running at cash flow breakeven. So our outlook is that demand here and around the world continues to be strong. I don't think you'll see a chance for us to build any inventory through the third quarter, there are still a fair number of planned turnarounds. And our view is with these GDP growth rates, or 6% for this year, and currently forecasted at 4.5%, maybe 5% for next year. There's going to be quite a demand for polyethylene. Operator: We'll take our next question from David Begleiter with Deutsche Bank. David Begleiter: Thank you. Good morning. Jim, consultants are calling July to be the peak for integrated ethylene, polyethylene margins and then erosion to the rest of the year. What's your view on these margins and the cadence of declines in the back half of the year? Jim Fitterling: Thanks, David. Good morning. Right now, the July order book is stronger than we saw through the second quarter. I expect that we'll continue to stay that way through the quarter. In some views, we probably had our highest raw material prices in the second quarter, because of the ethane crack spreads went up fairly dramatically. I do expect we'll see some of that soften as we move forward. I think long-term we expect natural gas prices to be between $2.75 and $3 a million DTU. So that that's positive. And with these oil to gas ratios, I think we're going to see that continue. One of the things that happened with oil, obviously, as everybody looked at the oil supply coming on, but I think they failed to look at demand for oil. And as the economy reopens, there's going to be another step up in demand. So I think some of that supply is just necessary to get ready for the increase in demand that's coming. Operator: We'll take our next question from Frank Mitsch with Fermium Research. Frank Mitsch: Good morning, folks and congrats. Jim and Howard, you guys have previously spoken that peak EBITDA at Dow would be $12 billion or greater. And as I look at the first half of the year, we're essentially at that run rate. So question is, are we at peak? And if so, how sustainable is it or would you like to take this opportunity and offer a -- offer an upgrade there? Jim Fitterling: Good morning, Frank, and thanks. Look, we're at a pretty good run rate right now. Our expectation for third quarter is fairly similar. We really only have a couple of items that are negative on third quarter, just a couple of more turnarounds and some one-time cap, a couple of more turnarounds, and some one time catalysts sales that don't repeat. But given that, that looks good. In addition, I talked a little bit about incremental growth projects. Those projects, some of which are already starting up this year give us the ability to add another $1 billion of EBITDA to those numbers. So I think we're showing with the work that we've done on the balance sheet with the work that we've done on reliability, and the incremental expansions that we're making, as these other geographies come out of the pandemic like India, Brazil and Southeast Asia. And we see personal care, plus the industrial and service markets come back. I think there's a potential for more. Howard Ungerleider: Frank, this is Howard. I would just add to that there's also self help. So we've got the restructuring from last year, that's going to continue to be a tailwind for us this year and into next year. That's a $300 million tailwind total over the 2-year period. And then the investments we're making in digital, we expect will be at least another $300 million. So if you had that the Jim's numbers, you're talking about more than $1.6 billion of organic indoor self help regardless of the macros. With the macros, as Jim talked about earlier, are very, very strong and we don't see that abating in the near-term. Operator: We'll take our next question from Vincent Andrews with Morgan Stanley. Vincent Andrews: Thank you, and good morning, everyone. Just looking at Slide 8 on the PE, MDI and siloxane S&D and utilization rates, the three utilization rate ranges that you have, I just look at siloxane, and it is very narrow, the range of outcomes on S&D in '22 and it gets wider as you get out to '26. Whereas it looks like it's the opposite for PE and MDI. So what is it about siloxane that creates more of an uncertain medium term outlook from an S&D and capacity utilization perspective? Jim Fitterling: Yes. Thank you, Vince. The siloxane business hasn't seen a lot of recent capacity as obviously we've been working on reliability and doing some turnaround work in our own assets. I think a lot of it is really end market driven and the positive side on the demand for downstream silicones is that you've got a tremendous draw as you move into things like electric vehicles. We're still seeing strong growth in housing, and also in large building projects around the world. So I think that's going to continue. My other thought is that our sustainable portfolio from our standpoint, when you look at the sourcing of our silicone metals, is going to allow us to be able to meet some of our brand owners sustainability demands, and that's going to be positive for Dow. You've got some older assets out there. you've got to keep an eye on that about 4% to 5% of the industry capacity is older, high cost and has a pretty high CO2 footprint. And so we're keeping an eye on that. Operator: We'll take our next question with Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: Thanks very much. Also on Slide 8, you talked about a Canada cracker expansion. In the old days you used to talk about expanding PE by 600,000 tons a year, which was supposed to happen in the second half of 2022. Is that what that is, or is that something different? And when you did previously talk about a 600,000 ton expansion, is that still going through? And then secondly, on Slide 14, you said your turnarounds this year were $500 million higher than last year. Is that a normal number? What's your normal turnaround costs in a year? Jim Fitterling: Thanks, Jeff. Two good questions. In Canada, that expansion is an addition of another furnace and some work on the debottlenecking of the backend of the cracker up there. And we have the available capacity in Canada to convert that to polyethylene. So that add is probably about half of that 600 kt that you're talking about in terms of available pounds. There was a project that we had slated to build in the U.S Gulf Coast of 600 kt. And when COVID hit, we pushed out and we're dusting that off right now and we're going to make a decision on that sometime this year. So we are continuing to look at expanding in the plastics portfolio downstream. And with the work we've done on reliability, we've got the ethylene within our portfolio to be able to fuel that and make that happen. On turnarounds, again, with cash flow being tight last year, we pushed some into this year. Maybe, Howard, you can comment on what is a more normal number going forward? Howard Ungerleider: Yes, I mean, look, Jeff, last year, as Jim says, we pushed a lot of turnaround. So 2020 versus 2019 was down about $200 million. We expect this year, as you said, to be up about $500 million. It really does depend. I mean, we've got cracker assets around the world, as you know. And I would say in a typical year, we do between one and three. And so if you want to say on average, it's two a year. That would tell you that the average turnaround is probably in the range of $1 billion plus or minus. And this year, it's going to be a little bit above trend line because of push out from last year. Operator: Our next question comes from Duffy Fischer with Barclays. Duffy Fischer: Yes. Good morning. Just wanted to triangulate if I could. Pricing for polyethylene is up about 6% as we exited the quarter versus the average for Q2. But when you gave your guidance for the sales growth from Q2 to Q3 for that segment, it's flat up 2%. So if you just flat line price and you kept the volume the same, you should be up roughly 6%. Can you just triangulate back that 4% as missing? Is that a lack of volume? Or do you see the price rolling over in the back part of the quarter that would get us to equal there? Jim Fitterling: Yes. Thanks, Duffy. Inventories are real tight right now. And as I mentioned, we haven't been able to really build anything. So with turnarounds in front of us in this quarter, we've been a bit conservative on the volume that’s in that third quarter outlook. Obviously, we are going to try to be able to beat that. And I would say on pricing, we are still seeing some positive upward price movement on certain grades of product. High density, for example, right now is pretty tight. And so I think you're going to continue to see some price movement upward there. But overall, as we get through the turnarounds in the third quarter, I think you're going to see that we are going to have plenty of available volume to move, and that will start to add toward the end of the quarter and into the fourth quarter. Operator: We'll take our next question from Hassan Ahmed with Alembic Global. Hassan Ahmed: Good morning, Jim and Howard. As I heard your commentary, it seems, obviously, the fundamentals are looking very strong, near to medium term at least. Obviously, that’s reflected in your strong cash flow. And then again, you made a comment about no sort of significant debt payments due until 2025. So my question is, how are you guys thinking about share buybacks? I mean, you guys did around $200 million of buybacks in Q2, enough to offset dilution. But with the way the balance sheet is right now, the way the fundamentals seem to be, are you guys thinking about a more significant buyback program? Jim Fitterling: Good morning, Hassan. Let me take a shot at that, and I'll ask Howard to chime in as well. As of the end of second quarter, we've paid out about 88% of net income in dividends and share buybacks since the spin. So that’s well above our 65% through the cycle guideline. And we just brought back buybacks in the quarter to start to cover dilution. And what we bought was about $200 million worth of shares during the quarter. So that's our priority. I would also say that, remember, we have organic growth in front of us, and so we're going to need some money to go into incremental growth CapEx. This year, we will be at $1.6 billion. We need a couple more years to get up to depreciation levels, which is about $2.2 billion and we have the projects, and they're good projects, lined up to do that. Howard, any other comments? Howard Ungerleider: Yes. The only other thing I would say, Hassan, you saw we reinitiated in the second quarter, as you said, with the $200 million. I would say that for modeling purposes, that's a good quarterly run rate for the back half of the year. And then as we get to the end of the year, at Investor Day, we will talk more about 2022. Operator: We'll take our next question from John McNulty with BMO Capital Markets. John McNulty: Yes, thanks for taking my question. Just a quick one. With regard to the impact in PSP and I&I around the Uri volumes, can you give us a little clarity on how much that nicked you in 2Q? Because I assume that’s all in the rearview mirror and we should be kind of look to 3Q? And is that right? Jim Fitterling: Good morning, John. I think your assumption is right. They were impacted pretty hard in 2Q, and we should see that come back. And the assets are running very hard right now. The only caveat to that, I would say, is that there are still a couple of lines where some raw material supply limitations, small raw materials are important in making those products, sometimes cause us a little bit of a backlog. I think most of that capacity was out during the month of April. And so as you think about it and go forward in Q3, I would say you'll have three solid months of production, where last quarter we had two, and we pulled hard out of inventory. And so I don't think that we are going to have a chance to rebuild inventories until maybe the end of the year. And that would all depend on if the economy slows down. As Howard mentioned, we’ve customers, and most of them in those chains that have 45 to 60-day backlog. So our view is we're going to be running hard through the end of the year and right into 2022. Operator: Our next question comes from John Roberts with UBS. John Roberts: A little bit related there, Jim and Howard, but Dow and the industry had a much harder time recovering from Winter Storm Uri. If we had a similar situation again, would the impact likely be the same? Or has there been some learnings or changes that would mitigate the effect if we had a repeat of this? Jim Fitterling: Yes. That's a good question, John. We do like we do after a hurricane, we -- after every hurricane or weather event, we get the team together and we take a look at what worked well and what didn't work so well. Uri was a little bit different in that it was so widespread. And it was not just us, but it was everything upstream and downstream of us, gas production, electricity, water. The biggest damage, obviously, was freeze-ups. And so you can't winterize everything to prepare for that, but you can winterize some things. And if you have some advanced notice, you can actually take some things down and protect them. And so the team has gone through that. And we've got an updated game plan on what we would do in the face of a situation like that again. I think the whole industry is going through it. I know ERCOT is going through that on the power side. Winterization is a big part of what they're doing and what they're requesting us to do as well because we are a supplier into ERCOT. So I do think there's some positive developments since Winter Storm Uri. And the widespread nature of it is what caught everybody and has taken so long to work through. Operator: Our next question comes from Michael Sison with Wells Fargo. Michael Sison: Hey, guys. Nice quarter. I think PE prices are at all-time highs and obviously, demand is strong and supply is super low. Just curious, though, do you think there's a fundamental change in demand for polyethylene on a structural basis, maybe post the pandemic? Is it possible that we're really going to be above that one three to one five GDP going forward? And then just curious what you think would need to happen for prices to fall. Jim Fitterling: Yes, Michael. Thanks for the question. We’ve seen a change in buying behavior from customers. And so there are some areas that really drive a lot of packaging-like e-commerce activity, which I don't think it is going to go backward. I also think that the fact that plastic packaging is so lightweight and so strong and it is the lowest carbon footprint package out there, you are going to continue to see a drive toward that. For most companies, the shipping costs and the CO2 footprint, and the shipping cost will drive that. And so I just use a paper versus plastic scenario in a grocery store. One truckload of plastic shopping bags would take four to five truckloads of paper bags to replace it. So I think you're going to see as carbon comes into the equation that it advantages plastics greatly. I don't think there's something that's going to see it long-term move above 1.5. For many, many decades, it's been in that 1.5 type of GDP growth rate. I think that will stay. There are some functional polymers that are made out of ethylene and polyethylene derivatives that are continuing to grow, materials for construction that are positive. You're going to see growth in some other applications like products that go into alternative energy, both solar panels for encapsulation, wind blades, and other types of applications. So I think we can sustain that over a long period of time, which is positive. Operator: We'll take our next question from Bob Koort with Goldman Sachs. Bob Koort: Thanks very much. Jim, I wanted to ask you, maybe it dovetails on Mike's question, but in terms of PE demand growth in that multiplier, the Dow and the industry is also embracing the circular economy. Just curious what effect you think the recycling initiatives and circular initiatives out there? What that might do to virgin demand growth rates relative to that sort of 1.5 times GDP multiplier? Jim Fitterling: Yes. Good question, Bob. We are seeing a real demand pull from consumers and brand owners that want more post-consumer recycled material in there or they want more material that’s made from either a biosource to ethylene or something that is made from advanced recycling to get back to feedstock and back to a product. I think the drivers that are going to help on the virgin side of things are obviously redesign of packaging types on flexible packaging, many packages are complicated and hard to recycle. I think one of the positives of our portfolio right now is the greater than 80% of our portfolio is fully recyclable or reusable today, and the research team and the tech service team are working hard to get the rest of that to 100%. All the brand owners are working on redesigns right now of different packages to move away from complex structures into simpler structures. We use that bare naked granola example with Kellogg's, where that package has been redesigned. This is going on across the value chain. We are seeing the investments in mechanical recycling and advanced recycling pick-up. We are seeing the number of states that are approving advanced recycling projects pick up. And I think our next big impact is going to be on infrastructure at the state and local level to allow more collection of curbside recycling of more products. And that will be the next drive north. We still have a long way to go even to catch up with Europe. In the United States, we’ve a long way to go to get to that 35% of recycling. We set a target by 2030 to collect or reuse or recycle 1 million metric tons of plastic through our own actions and partnerships. And I can tell you, I’m pushing the team to always pull that number forward and get that done faster. And I think we're seeing real demand in taking recycled packaging products into some things that are more durable and longer lived, building materials, using recycled plastics in aggregate for roadways, architectural decking, all kinds of things that are upgrading the use of end-of-life plastics. So I think over time, it's going to be a real positive. Operator: The next question comes from Laurence Alexander with Jefferies. Laurence Alexander: Good morning. What price of carbon do you currently use for evaluating growth projects? And is it high enough that you are actually seeing it skew the types of projects that you're considering from what you would have considered otherwise? Jim Fitterling: Yes, that’s a good question. I would say today the price is around €50 to €55 a ton. I mean, that's what we see today in the EU on the market and translate that back into dollars as well. I would say that is not a high enough price of carbon to drive the change that needs to be made because the lower carbon technologies are much more expensive than that. But it is enough to put pressure on us to make sure that all of our projects have lower carbon approaches to them. And one of the things we will talk about at Investor Day is the work we did to kind of outline the next 20, 30 years of how we would get there. I think carbon capture, as we talk about, as we get beyond this infrastructure build that's in front of Congress right now and we get to the next step, you’ve got to look at advanced technologies. And carbon capture and blue hydrogen are two that we have to keep an eye on. Those are the lowest cost next step for us to get our industry to low CO2. But they're a lot more than €55 a ton to deliver that. And so without the right tax incentive or support from government in terms of investment in those technologies, you would need a market price on carbon that is much higher than that. We are right on top of that and we are very attuned with that. And that’s one of the things that we're piloting in Terneuzen. That's the 40% reduction that I talked about by 2030, is we are looking at blue hydrogen and carbon capture to try to make an improvement at that site. Operator: We'll take our next question from Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Great. Thanks for taking my question. Congrats on the strong results here. You had mentioned some comments on supply additions being at the high-end of the cost curve. Could you just maybe remind us what your assumptions are on how much polyethylene capacity is being added in the rest of '21 and where that is coming, whether it be in, again, China or other regions? And also for '22, what do you expect on that side? And have you seen any changes as far as projects being accelerated that were potentially pushed out during COVID or returning back to the table? And then longer term, do you expect new projects to be announced? It sounds like the market -- it sounds like you're indicating the market is going to be very tight for a little while and you don't see any letup in demand. So looks like we would potentially need some more capacity and North America looks like an interesting place for that addition. So is that kind of within your thinking as well? Thanks. Jim Fitterling: Thanks, Arun. Good question. I will try to remember all of that so that I can get it all out. About 50% of the global polyethylene adds through 2025 are higher-cost naphtha or coal to olefins or methanol to olefins. About 35% are naphtha, about 15% are coal to olefins, methanol to olefins. 60% of the capacity adds through 2025 are in Northeast Asia. And when you think about the Chinese projects that are in construction or in start up phase, about 50% of those will come to market around the announced dates. And so that’s -- in 2021 to 2023, that’s about 12 million metric tons out of 24 total. Capacity increases are going to obviously reduce some imports into China. And so that will be domestic. And we don't see China as being an exporter at those levels. I would also say that you’ve got some existing crackers that are considered unreliable due to some trade risk, but it's only in the neighborhood of 2 million to 3 million metric tons. Long-term, right now, there are supply demand -- there are supply additions that are about 31 million metric tons on the books. In our view, on delays or cancellations, are in the 6 million to 15 million metric tons on delays or cancellations. Demand growth is going to be 25 million metric tons. So we're going to be balanced to short by about 9 million metric tons during that time frame. And in the near term, with these GDP growth rates, things are going to be tight. So we're looking at growth. I mentioned to Jeff's question earlier a 600 kt expansion on polyethylene, that's in the cards. Incremental expansions on ethylene, those are in the cards. We are doing work on our own FCDh technology and our EDH technology in the Gulf to try to have low carbon moves forward. I think one of the things that has to be resolved before you see a next wave of announcements is what are the policies going to be in the United States around carbon, carbon border adjustment mechanisms, carbon tax, perhaps a voluntary emissions trading scheme. And we have to know what those are. We have to know how China is going to play on the global footprint. And we have to see how Europe is moving forward. All of those have to be resolved before we can see what the right place is to make that next step. But we are working on projects, and we're looking for the right opportunity. Operator: Our next question comes from Alex Yefremov with KeyBanc Capital Markets. Alex Yefremov: Thank you. Jim, just to continue on the subject, you mentioned that the price of carbon in Europe is currently not high enough to really provide incentive to implement these technologies. As this price rises and Europe implements the tax to help domestic industry sort of absorb these higher carbon prices, do you think that ultimately amount to something neutral for Dow Chemical? Because having capacity in Europe you will directly or indirectly benefit from these import taxes? Jim Fitterling: I think it -- thanks, Aleksey. I think it can be done. And I’ve said before and I will continue to say it, we need to have a real constructive and open dialogue about how much it costs to do this. I think, idealistically, everybody is in agreement that we want to make improvements and we want to reduce carbon emissions and we want to get to net zero. But nobody's yet, at a government level or any level, having the educated discussion that we need to have about the cost of doing this. What will happen in Europe is Europe has -- the way the emissions trading game works in Europe is they have price for carbon, but they also have allowances for energy -- for emissions emitters. And if you are under your allowances, you can trade those carbon credits. What they will do over time is they will ratchet back the allowances and they will start to put everybody over their allowances and that will start to drive the prices up and that will drive the incentives to make the conversion. So Europe is less concerned right now with what the cost is to everybody and more concerned with trying to drive that number up and drive the conversion. And we are in the middle there trying to talk to them realistically about what the price is to do this, what the technologies are today, and scale up the ones that we think are the most cost effective going forward, blue hydrogen, carbon capture to be able to do that. So I think as we work through that over the next 2 or 3 years, we will start to make some progress to that. And I would say all heavy industry and the power and utility sector are taking a look at this, but with eyes wide open that it's not free. And the other thing to remember on hydrogen, is as you move to a hydrogen economy, the most effective way to make most of that hydrogen is through steam methane reforming which uses natural gas, which means you are going to need a lot more natural gas production to make that hydrogen. And that’s one of the other discussions that is difficult to get on the table right now. Operator: Our next question comes from Steve Byrne with Bank of America. Steve Byrne: Yes. Thank you. So, Jim, you are really leading this initiative on net zero. I mean, you are the -- you are clearly one of the few that have a net zero greenhouse gas emission target for 2050. I'm curious to hear your view as to what’s driving that? I mean, clearly, there's not U.S. government policy driving that. You are describing a carbon tax in Europe that’s insufficient to incentivize that. Is there any opportunity that you see that downstream revenue could be enhanced from it? I'm not sure how, but there's clearly ways for you to premium price for a recycled product or renewable product. But a low carbon footprint product, is there a revenue potential that could help drive a return on that CapEx, or is this all really self motivated? Jim Fitterling: Good question, Steve. We are starting to see consumer preference drive the brand owners for lower carbon and more recyclable products. And clearly, both the brand owners and ourselves are in the space, that we want to make investments in that area, but we want those investments to be value accretive. So as you say, the policies are not there right now. And what we are trying to work through are the right set of policies that we need to make value creating investments going forward. I would say the consumer drive and the consumer preference on this is going to be the thing that makes it happen. The other reality is, I believe that the market premiums are starting to show up in some of the plastics today. When it comes to post-consumer recycled materials into packaging, we are seeing a strong pull from the brand owners and we are starting to see premiums. If you go back a decade, we had not seen that. And so you've got brand owners who are announcing that they're allocating premiums for recycled materials to address circularity, I think that’s a sign that their customers want it. And when you get it down to a per package basis, it's very small. The problem comes through the value chain and the cost to manufacture the materials. But if you take it down to a per package basis on the shelf at a supermarket, it might add $0.01 to the cost of a product that you buy. It isn't significant at the consumer level. It's significant through the value chain. Operator: And we'll take our next question from Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Yes. Good morning. Jim, I wanted to ask you about industrial intermediates where your operating income more or less doubled sequentially. Two parts. Can you talk about the upside relative to your expectations 3 months ago? How much might have been polyurethanes versus other industrial chemicals? And then given that momentum and your sales forecast of flat to up 3%, do you have a strong view today as to whether third quarter could be flat, up or down profit wise sequentially? Jim Fitterling: Good -- that’s a good question. In Industrial Intermediates & Infrastructure on the polyurethane side, we saw strong demand for both polyols and isocyanates in the polyurethane side and in construction chemicals for chemicals that are made from those raw materials going into not only single-family homes, but also larger construction like commercial construction. I think those demands are going to continue to stay strong and the supply demand will continue to be tight. You saw strong pricing in both PO as well as isocyanates. There's not a lot of new capacity coming on in that space. And then additionally, in ethylene oxide and ethylene oxide derivatives in the industrial solutions business, those end markets are continuing to grow. And on top of that, we’ve several new capacity adds that are coming for things like pharmaceutical incipient, a product called polyethylene glycol that we just made an expansion on, we’ve got some other materials coming through there. And we have a host of low VOC solvents in that portfolio that go into the coatings sector. So around the world, as coatings move away from traditional organic solvents into waterborne or lower VOC solvents, that benefits our portfolio. That same trend, by the way, helps us in cleaning chemicals or cleaning products that you might use in your home, and we see that both from a brand owner and an industrial side as well. So I think those will continue our expectation on third quarter in those businesses are very similar to second quarter. Pankaj Gupta: Very good. Thank you. That concludes our call today. We appreciate your interest in Dow. For your reference, a copy of our transcript will be posted on Dow's website within 24 hours. Thank you. Operator: And that does conclude today’s conference. We thank you for your participation. You may now disconnect.
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.
