Dow (DOW) Q1 2025 Earnings Call Transcript

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DATE

Thursday, Apr 24, 2025

CALL PARTICIPANTS

Jim Fitterling: Chair and Chief Executive Officer

Jeff Tate: Chief Financial Officer

Karen S. Carter: Chief Operating Officer

Andrew Riker: Investor Relations Vice President

RISKS

Net sales declined 3% year-over-year to $10.4 billion, reflecting declines in all operating segments due to margin pressures.

EBITDA decreased to $944 million as volume gains were more than offset by margin compression.

Cash flow from continuing operations fell to $104 million in Q1 2025.

The company expects "a higher probability of a lower for longer earnings environment" impacting capacity needs.

Dow anticipates "additional margin pressure" from uncertain trade flows, particularly affecting North American consumer demand.

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Cost Reductions: At least $1 billion in annualized non-GAAP savings, including elimination of approximately 1,500 roles.

Capital Expenditure: 2025 CapEx reduced to $2.5 billion from $3.5 billion plan, delaying Fort Saskatchewan project construction.

Asset Review: Expanded European asset review, identifying three initial assets for potential idling or shutdown, announced on April 24, 2025.

Infrastructure Transaction: Sale of minority stake in select U.S. Gulf Coast assets to Macquarie, expecting approximately $2.4 billion in initial proceeds by May 1.

Legal Proceeds: Anticipates over $1 billion from the NOVA litigation ruling, with proceeds expected later this year.

Volume Growth: Achieved a sixth consecutive quarter of year-over-year volume growth in Q1 2025.

Dividend Payment: Returned $494 million to shareholders via dividends in Q1 2025.

Silicones Performance: Expecting seventh consecutive quarter of year-over-year volume growth in downstream silicones.

SUMMARY

Dow Inc. faces prolonged industry downturn amid geopolitical uncertainties, implementing strategic actions to improve near-term cash flow and long-term competitiveness. The company's delay of its Fort Saskatchewan project aligns capacity expansion with market recovery expectations, while European asset rationalization addresses regional demand challenges.

Management cites "one of the most protracted down cycles in decades" with a third consecutive year of sub-3% GDP growth expected.

"greater than 95% of our North American volume is USMCA compliant" potentially providing a competitive edge amid tariff uncertainties.

Dow's annual benchmarking results show performance "in line or ahead of peers across more than 80% of the metrics we track most closely." These results highlight Dow's performance relative to industry peers.

The company expects Q2 2025 EBITDA, a non-GAAP measure, to be "roughly in line with first-quarter levels," despite seasonal improvements and cost reduction benefits.

Management anticipates $6 billion in near-term cash support from strategic actions, cost savings, and reduced capital expenditures.

INDUSTRY GLOSSARY

USMCA: United States-Mexico-Canada Agreement, the trade agreement replacing NAFTA.

MDI: Methylene diphenyl diisocyanate, a key component in polyurethane production.

MEG: Monoethylene glycol, used in polyester fibers and antifreeze production.

Path to Zero: Dow's project in Fort Saskatchewan, Alberta, Canada, aimed at expanding ethylene and derivatives capacity.

Full Conference Call Transcript

Operator: A brief question and answer session will follow the formal presentation. If you would like to ask a question at that time, please press star followed by one on your telephone keypad. As a reminder, this conference is being recorded. I'll now turn it over to Dow Investor Relations' Vice President, Andrew Riker. Mister Riker, you may begin.

Andrew Riker: Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I'm Andrew Riker, Dow's Investor Relations Vice President. Leading today's call are Jim Fitterling, Chair and Chief Executive Officer, Jeff Tate, Chief Financial Officer, and Karen S. Carter, Chief Operating Officer. Please note our comments contain forward-looking statements and are subject to the related cautionary statement contained in the earnings news release and slides. Please refer to our public filings for further information about principal risks and uncertainties. Unless otherwise specified, all financials, where applicable, exclude significant items. We will also refer to non-GAAP measures. A reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in the earnings news release that is posted on our website. On Slide two is our agenda for today's call. Jim will review our first quarter results and further actions we are taking to navigate the prolonged downturn. Karen will provide an overview of our operating segment performance and actions we are taking to improve business results through more efficient resource allocation. She will also provide details around how our advantage footprint once again demonstrated relatively strong performance versus our peers in our full year 2024 benchmark. This includes how we expect it to provide mitigation levers that are unique to Dow against the recent geopolitical volatility we have seen. Jeff will share an update on the macroeconomic environment, our modeling guidance, and details around the progress of our unique cash levers in the near term. We will close with additional comments about our strategic focus areas. Following that, we will take your questions. Now let me turn the call over to Jim.

Jim Fitterling: Thank you, Andrew. Beginning on Slide three, in the face of volatile macroeconomic conditions, team Dow focused on operational discipline while taking actions to reduce costs and align capacity to the slower GDP conditions that are impacting our industry. We delivered our sixth consecutive quarter of year-over-year volume growth and net sales were $10.4 billion, down 3% versus the year-ago period. This reflects declines in all operating segments largely due to margin pressures. Sequentially, net sales were flat. This reflected lower pricing in industrial intermediates and infrastructure and performance materials and coatings, which was offset by downstream growth in silicones as a result of improvements in home and personal care and electronic end markets, as well as seasonally higher demand in building and construction and DIC. EBITDA was $944 million, which is down compared to the same period last year as volume gains were more than offset by margin compression. Cash flow from continuing operations was $104 million and returns to shareholders totaled $494 million of dividends in the quarter. We are taking targeted actions to further reduce costs and support near-term cash flow in response to the ongoing macroeconomic weakness. Our actions include at least $1 billion in annualized cost reductions by 2026 in areas like purchase services, contract labor, and the elimination of approximately 1,500 Dow roles. We're also delaying construction at our path to zero project in Fort Saskatchewan, Alberta, Canada. This will accelerate our CapEx spending reductions this year reflecting a total decrease of $1 billion for an enterprise spend of approximately $2.5 billion versus our plan of $3.5 billion. In addition, we are expanding the scope of our previously announced review of select European assets primarily in polyurethanes. Today, we announced that we have identified three initial assets that we expect to idle or shut down. We remain on track to complete the full review by mid-2025, including the best options for our polyurethanes business. We also received regulatory approval from the Committee On Foreign Investment In The United States for a strategic transaction with Macquarie Asset Management for the sale of a minority stake in select US Gulf Coast infrastructure assets. We expect to receive proceeds of approximately $2.4 billion upon closing, which is on track to be completed by May 1, with the potential for an additional $600 million later this year. And lastly, we received a final ruling on the pending NOVA litigation for which we expect to receive more than $1 billion later this year. The reality is our industry has been one of the most protracted down cycles in decades, facing a third consecutive year of below 3% GDP growth. This has been further exacerbated by geopolitical and macroeconomic concerns which are weighing on demand globally. In response, Team Dow remains agile, taking quick and decisive actions to reduce our cost, adjust our supply chain, and protect and improve our margins. These proactive actions will help us to outperform our peers and ensure long-term competitiveness. We also remain committed to a balanced capital allocation approach over the cycle. Let me delve deeper into the actions that we announced today beginning on slide four. Team Dow remains focused on disciplined execution, improve profitability, and support cash flow. As evidenced by the additional actions we announced today. First, following a comprehensive review, we have made the decision to delay construction at our path to zero project in Fort Saskatchewan until market conditions improve. This decision supports our near-term cash flow and adjusts the project timing to align with the market recovery. We remain committed to the long-term strategic rationale of the project and the growth upside that it will enable in targeted applications like pressure pipe, wiring cable, and food packaging. However, we now see a higher probability of a lower for longer earnings environment which changes our expectations for when the capacity from this project will be needed. We are steadfastly focused on ensuring returns for the project are above our cost of capital, and because of that, now is the time to delay construction before spending ramps up. As a result of this decision, we now expect our 2025 capital expenditures to be $2.5 billion compared to the original plan of $3.5 billion. In addition, we are expanding our European asset review to address the ongoing demand challenges and regulatory environment in that region. We have identified three initial upstream assets across each of our operating segments where we expect to either idle or shut down capacity. These actions will help to further enhance Dow's near-term cash flow and align our asset base to the realities of our participation in the region. And importantly, they are additive to our previously announced plans to determine the best strategic option for our polyurethanes business in Europe. The assets we announced today include an ethylene cracker in Bohlen, Germany, and chlor-alkali and vinyl assets in Schopau, Germany, that will likely result in an idle or shutdown. Additionally, we expect to shut down our upstream siloxanes plant in Barrie, The United Kingdom, to focus that site on specialty downstream silicones production. Each of these assets represents a meaningful portion of our regional capacity, which is either not fully integrated resulting in excess merchant sale exposure or is high on our cost curve. Where we have better options to supply derivative demand and optimize margins. Next, I'll turn the call over to Karen who will unpack our first quarter performance across Dow's operating segments. She will also provide an overview of our business in regard to the current tariff environment.

Karen S. Carter: Thank you, Jim. We are moving with urgency to deliver strong operational and financial results through this persistent down cycle. We are taking a hard look at everything across the enterprise with a sharp focus on driving volume growth, capturing price, and taking actions in the near term that will enhance profitability and improve margins. We will continue to accelerate our cost savings actions and are looking for additional opportunities to build on what we are already delivering. Now turning to packaging and specialty plastics results on slide five. During our January earnings call, we acknowledged that higher feedstock and energy prices would be a headwind for us in the first quarter. Although we expected these prices to moderate throughout the quarter, they remained elevated leading to margin compression across the segment. Net sales in the quarter were down compared to the year-ago period, driven primarily by pricing pressures in functional polymers, from increased competition in Asia Pacific. And the return of our PEH unit drove a 4% volume improvement. Sequentially, net sales were flat. While we benefited from higher olefins prices in the quarter, polyethylene sales were down. Primarily driven by lower sequential export sales following record high industry exports in November and December of last year. Operating EBIT was $342 million reflecting a decrease compared to the year-ago period. This was primarily driven by lower integrated margin. Sequentially, operating EBIT decreased as higher input costs pressured margins. This was partly offset by higher equity earnings at our principal joint venture. Next is our industrial intermediate and infrastructure segment on slide six. Looking at first quarter results, net sales declined both year-over-year and sequentially as market conditions in the segment remained difficult. Particularly in our polyurethanes and construction chemicals business, which has a high exposure to durable demand. The segment was able to deliver a 1% volume gain year-over-year primarily driven by improved supply availability, in our industrial solutions business. Sequentially, volume increased as a result of seasonally higher building and construction, and de-icing fluid demand. We continue to experience stable demand across the energy and pharma end markets, these are key markets, where we are positioning our business for growth. This includes our new alkoxylation expansion in Cedars, Texas, which we expect to be fully operational by mid-2025. We anticipate the project will provide earnings upside the second half of the year delivering margins in excess of 1,000 basis points higher than MEG. Operating EBIT for the segment decreased $215 million versus the year-ago period. Results were primarily driven by lower prices and higher energy costs, which compressed integrated margins as well as lower equity earnings. On a sequential basis, operating EBIT decreased driven by margin compression and higher planned maintenance activity which were partly offset by volume gain. Moving to the Performance Materials and Coatings segment, on slide seven. We delivered a sixth consecutive quarter of downstream silicones growth, however, overall volume decreased for the segment. This was driven by lower volumes in upstream siloxanes and acrylic monomers. Net sales in the quarter decreased 4% versus last year. Local price also decreased year-over-year, due to continued siloxanes pricing pressure. Sequentially, net sales increased primarily driven by seasonally higher demand in building and construction end markets, which comprises a significant portion of the segment's sales. We also experienced higher demand for electronics and personal care applications which have been resilient in markets for us. Operating EBIT was up compared to a year-ago period, driven by lower fixed costs, which were partly offset by lower prices. Sequentially, operating EBIT increased. Driven by seasonally higher demand for architectural coatings, which was partly offset by higher planned maintenance activity in North America in preparation for the advanced High Point of the painting season. Now turning to slide eight. In addition to the comprehensive set of actions underway, we are adjusting our business to current market realities by leveraging our strategic asset footprint global reach, low-cost position, and unmatched feedstock flexibility. More specifically, we have a leading or low-cost position and world-class manufacturing sites in every geography, with well-developed, agile regional supply chain. And a deep understanding of the needs of our customers. And are the only company with integrated polyethylene production on four continents. In addition, Dow's unique feedstock flexibility allows us to optimize our assets based on regional advantages. We have the ability to crack the most optimal fee slate. And have the widest range to take advantage of dynamic periods. This ability to capitalize on preferred feedstocks, paired with our breadth of process technologies, enables Dow to optimize what, where, and how we produce our products to best serve our customers. And while the tariff environment remains fluid, we estimate greater than 95% of our North American volume is USMCA compliant which is an advantage for Dow. There are also areas of our portfolio mainly MDI and silicones in North America, or we expect additional margin support from our local production. As significant Chinese oversupply has forced local markets to go long. Lastly, we have engaged in rigorous scenario planning to identify potential additional cost pressures and mitigation strategies. Altogether, our unmatched cost position and feedstock flexibility superior product mix, and geographic diversity are strong differentiators that give Dow a competitive edge today and throughout the cycle. Turning to Slide nine. The proof of Dow's competitive edge is in our annual benchmarking results. Our industry-leading feedstock flexibility translates to value, through our ethylene and propylene derivatives. This is coupled with our leading SAR deficiency and Dow's portfolio advantages which enable higher margins. This is clearly illustrated in terms of EBITDA per pound of polyolefins to pack which continues to deliver superior results versus competition. The breadth of our portfolio also stands out in downstream silicones, where we grew volume year-over-year in 2024 and outperformed peers on EBITDA growth. This is just one highlight from our annual benchmarking efforts, which we published on our investor website today. These results once again highlight Dow's performance relative to industry peers. We performed in line, or ahead of peers across more than 80% of the metrics we track most closely. This underscores the power of our competitive advantages and track record of solid execution in various market conditions. Now I'll turn the call over to Jeff who will provide an overview of the macros and our outlook.

Jeff Tate: Thank you, Karen, and good morning to everyone joining our call today. Moving to Slide 10. From a macroeconomic perspective, global demand remains well below historical average GDP levels. Recent disruption from tariffs has weighed on expectations for global economic growth, as it has on business and consumer sentiment. We are closely monitoring these factors as they're increasing the probability of a longer timeline to mid-cycle earnings. This vigilant monitoring is crucial as we navigate the fluctuating market conditions and ensure our actions are aligned with the evolving economic landscape. We still expect demand to be positive for the year, however, the impact from uncertain trade flows could create additional margin pressure for our portfolio. Most notably against the one area where we've seen resilience for some time, the North American consumer. Looking across our four market verticals, in packaging, domestic demand continues to grow in North America. Although as mentioned, we are closely monitoring it for changes due to growing inventory, and inflation. We are not seeing any significant pattern changes in Chinese economic activity, and we see continued softness in Europe. Dow's global footprint with low-cost assets in all regions should position us well to navigate current market dynamics. Across infrastructure markets, have yet to see any meaningful inflection in housing demand, including in China as well as Europe. In The US, mortgage rates remain high, resulting in subdued demand and the fourteenth consecutive year-over-year decline building permits in March. Increasing risk to the global economy including the potential for retaliatory tariffs between multiple countries, is also impacting consumer markets. In March, US consumer confidence declined to its lowest level in more than four years. And while retail sales were up in China, supported by government stimulus, prices have been deflationary for two consecutive months. And in mobility, higher tariffs are expected to create further affordability concerns in The US, although we saw a temporary spike in auto sales in March ahead of these implementations. In The EU, new car registrations in February are their largest year-over-year decline in six months. China auto sales benefited from government incentives and were up 8% year-over-year in March. Now turning to our outlook on Slide 11. In today's world, there's a high degree of uncertainty in the market. Which makes this a difficult quarter to project. Until negotiations on tariffs are finalized, we expect to see delays in both purchase and investment decisions from consumers, as well as corporations. Our outlook today is based on everything we have line of sight to. Understanding that we're operating through a very dynamic market and geopolitical times. Should we gain insights into substantial changes during the quarter, we're committed to maintaining transparency, and we'll provide timely updates accordingly. Before I get into the details by segment, let me share a couple of enterprise-level drivers. Our cost reduction actions will ramp as the second quarter progresses. Providing approximately $50 million of overall benefit versus the first quarter across all three operating segments. Additionally, we expect $50 million in sequential upside following recent winter storms. Primarily Enzo. That required us to proactively take units down, resulting in lost production. We will see start-up costs related to our incremental higher return growth projects in the second quarter as well as higher planned maintenance activity in packaging, and specialty plastics industrial intermediates and infrastructure. We expect these to be completed through the end of the second quarter creating an earnings tailwind in the third quarter. With our continued commitment to running our plants safely and reliably, we expect full-year plant maintenance activity to be roughly in line with 2024 levels. Next, I'll turn to our outlook and second-quarter guidance by segment. In packaging and specialty plastics, we expect sequential EBITDA to be approximately $50 million lower. This is primarily driven by higher planned maintenance activity and lower integrated margins including fewer merchant sales which we expect to be partly offset by the initial benefits of our cost reduction actions. In the industrial, intermediates, and infrastructure segment, we expect second-quarter EBITDA to be roughly flat with the first quarter. While we expect to see modest seasonal demand improvements and higher margins for MDI, some of this will be offset by lower anticipated pricing for MEG, driven by increased competition in Asia Pacific as naphtha prices come down with oil. In addition, we will have costs in the quarter related to a planned turnaround and the start-up costs associated with our new alkoxylation capacity Seadrift, Texas. This new capacity is one of the near-term growth investments we've spoken about and should support higher earnings beginning in the third quarter. And in the Performance Materials and Coatings segment, we expect higher sequential EBITDA. This will be driven by a $75 million benefit from seasonal demand improvements for coatings end markets. We also expect continued growth for downstream silicones where our current expectation is to deliver the seventh consecutive quarter of year-over-year volume growth. In summary, we expect second-quarter EBITDA to be roughly in line with first-quarter levels. We anticipate improved volumes primarily from seasonality and improved margins in certain product chains. With that, higher plant maintenance and one-time startup cost of our new assets are expected to be an offset. Now turning to Slide 12. Dow's commitment to financial discipline provides important flexibility in the midst of this low-growth environment, and increased macroeconomic and geopolitical uncertainty. We've outlined today several proactive actions we're taking to effectively manage this extended down cycle. In total, we expect these actions to provide approximately $6 billion in near-term cash support. This includes our strategic infrastructure transaction, unique to DowCash levers, additional cost saving, and reduced CapEx. More specifically, our signed agreement with Macquarie Asset Management represents a strategic partnership that has been several years in the making. Dow's sale of a minority equity stake in select infrastructure asset is expected to generate $2.4 billion of initial cash proceeds with closing expected by May 1. Macquarie has the option to increase their stake 49% for an additional $600 million within six months of closing which would increase total cash proceeds to approximately $3 billion for Dow 2025. The newly formed infrastructure-focused company named Diamond Infrastructure Solutions is comprised of assets that support a wide range of services from energy and environmental, to infrastructure and pipeline for more than 70 long-standing customers. With improved operational efficiencies, we expect it will drive growth with new and existing customers while providing near-term financial flexibility for Dow. In addition, the Court of Kings Bench in Alberta, Canada issued a ruling awarding Dow additional compensation for damages incurred through 2018 related to the jointly owned ethylene asset with Nova Chemicals in Joffrey, Alberta, Canada. We expect the final resolution to come this year with cash proceeds exceeding $1 billion allowing Dow to recover costs from a decade-long legal process. And as Jim mentioned earlier, we now expect our total enterprise 2025 CapEx to be $2.5 billion a $1 billion reduction compared to our original plan of $3.5 billion. This new target builds on the approximately $400 million reduction that we announced in January. And lastly, we also announced in January that Dow would deliver at least $1 billion in targeted cost savings an annual run rate basis in response to the ongoing macroeconomic challenges. And we continue to push the number higher and faster. The cost savings actions aim to improve our margins, and long-term competitiveness across the economic cycle, and we expect approximately $50 million of end-period savings supporting the second quarter. As previously shared, we achieved the majority of these cost savings through a reduction in direct cost of 500 to $700 million. Primarily focused on purchase services, and third-party contract labor. We're also implementing a workforce reduction of 1,500 roles globally. Our collective actions to navigate the realities of the current macroeconomic environment and deliver $6 billion in cash support over the next two years, enable Dow to maintain our financial flexibility. Our balance sheet remains solid, with no substantive debt maturities due until 2027, Aligned to our debt towers, we also recently completed some debt-neutral liability management to take advantage of tight spreads, and extend our maturities at lower rates. We will continue to seek options where Dow can proactively take action to improve our capital structure through this type of activity or derisking as we've done in the past. We remain focused on delivering on our balanced capital allocation approach over the cycle. We will continue our practice of managing Dow's capital structure and priorities in order to better position the company to create additional shareholder value. Now I'll turn the call back over to Jim to close things out.

Jim Fitterling: Closing on slide 13. As our industry weathers the current challenging conditions, we're executing several proactive and decisive actions to improve margins support near-term cash flow, and optimize our global portfolio. We're doing so today in a manner that is consistent with our best owner mindset and a balanced capital allocation approach. Our purpose-built asset footprint and our low-cost feedstock positions primarily in The Americas and The Middle East, create a meaningful cost advantage for Dow and provide industry-leading flexibility to navigate global trade dynamics. We're focused on improving our margins by reducing our spending and matching regional supply to profitable demand. As we've outlined throughout today's call, we have line of sight to $6 billion in near-term cash flow improvement. Including completing the launch of Diamond Infrastructure Solutions our strategic and growth-focused transaction with Macquarie, for up to $3 billion. Receiving proceeds from the NOVA judgment which is expected to be more than $1 billion, delivering at least $1 billion in cost savings by 2026 delaying construction at our path to zero project in Fort Saskatchewan, to align with market realities which will result in reducing our total 2025 enterprise CapEx by approximately $1 billion and expanding the scope of our strategic review of our polyurethanes asset in Europe by identifying three additional assets that we expect to idle or shut down in the region. In addition, are nearing the completion of our higher return incremental growth investments in regions where we have energy and feedstock advantages. Three of these projects one in packaging and specialty plastics, and two in industrial solutions, will begin to come online at the end of the second quarter and show benefit in the third quarter and beyond. The Dow team is closely monitoring the current uncertain macro environment and we're taking the necessary actions to further improve our competitive position including looking for additional ways to reduce costs, and increase our competitiveness. Our near-term strategic priorities are focused on navigating the challenges our industry is facing. By delaying the Alberta project, maintaining financial flexibility, protecting our balance sheet, rationalizing assets in high-cost regions, reducing costs, and focusing on profitable growth, we are positioning Dow for long-term success through the cycle. With that, I'll turn it back to Andrew to get us started on the Q and A.

Andrew Riker: 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 and A.

Operator: Please provide the Q and A instructions. As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Vincent Andrews with Morgan Stanley. Please go ahead.

Vincent Andrews: Thank you, and good morning, everyone. Jim, I'd like to ask you on Alberta. To contextualize a couple of things. First, you noted in your prepared remarks a lower for longer environment. So I'm curious if the board came to that conclusion sort of before or after April 2. And sort of as a follow-up to that, when you talk about taking the delay on Alberta off when market conditions improve, how would you define market conditions improving? Is that a function of where spreads are? Is it a function of your S and D outlook? Is it a function of oil prices? What are the sort of KPIs you're looking for there?

Jim Fitterling: Morning, Vincent. Thank you. Good question. Yeah. So when we look at the market outlook, our original plan for Alberta was to come up in two phases. First phase of 2027, second phase of 2029. And our view had been that we would be seeing a cycle recovery when that first phase come up. I think with the situation that we're in now, with the uncertainty around where tariffs are gonna land, with the impact that's having on demand, that's driving our lower for longer outlook on the environment. And we're at a point right now where we can make this decision to have minimal impact on the project. So we've done a lot of groundwork. We're finishing our engineering work. We've got our long lead time items ordered. We can pause now before we have a big ramp up in labor in the field. And then we can push some of that work out until we see how things land with tariffs. So we're gonna revisit it on a regular basis. I'd say we won't revisit it until or the end of this year. Trying to make a call if wrapping up next year is the right answer or if we wait after that. But I'd say we have to start seeing things moving up, and the supply-demand balance is tightening up a bit. And understand how the supply chains are gonna work as we adjust to this tariff environment.

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

Mike Sison: Hey. Good morning. I know it's difficult to give an outlook for the full year, but if you're gonna do one eight, one nine or so in the first half, you know, how could EBITDA get better in the second half? I know you have some cost savings. You know, maybe talk about what volumes, what demand environment could be worse, could be better, but what could happen in general to have a better second half EBITDA than the first half? Directionally?

Jim Fitterling: Good morning, Michael. Another good question. So I mentioned on the call that we have obviously three projects that are completing in the second half of the second quarter. And so those will start to be accretive third quarter, fourth quarter. Capacity and packaging and specialty plastics. And also two additions in industrial solutions. And both of those are going into markets where we have a need for those products. And so I think you'll start to see that come through. One of the pressures we saw in the first quarter was the fact that all the input costs were higher than we'd because of the winter weather. And the drawdown on inventories. We're starting to see that normalize in the second quarter, which you would assume. So I think you're gonna see some energy cost advantages roll through the back half of the year. I would assume, you know, next winter, depending on what the weather forecast looks like, we're gonna see the same pattern again. We're gonna have cost reductions. We've got $50 million of cost reductions coming in the second quarter. Our target for the year is $300 million. Karen continues to push for more and faster. But you're gonna start to see that ramp up to where we get to the run rate for next year, which is full billion dollars. So that's gonna step in. And then the wildcard, I would say, is having some visibility to where the supply chains are land. We have an advantage in that we have footprint Canada, US, Argentina, Middle East. We have the ability to flex the supply chain and to mitigate tariff impacts on where we export our materials. So it's very positive. We also have the advantage that greater than 95% of everything we move between The United States and Canada is USMCA compliant. So I think those things will have a positive impact. But we just need a little bit better clarity on where these tariffs land and what that impact is on overall demand.

Operator: Your next question comes from the line of David Begleiter with Deutsche Bank. Please go ahead.

David Begleiter: Thank you. Good morning. Jim, on the issue of tariffs, how are you thinking about the impact of the Chinese tariffs on imported U.S. Polyethylene and how that might impact domestic polyethylene prices going forward if we do lose that export market for US-produced polyethylene? Thank you.

Jim Fitterling: Morning, David. Take a shot at that, and then I'll maybe ask Karen to comment on some of the things that we're doing. That's, I think, the big question is all trade, you know, not just polyethylene, but all trade between US, China, where is that gonna land? Have a very active tariff and trade team that is engaged on all sides of that. And, of course, a lot comes down to what's gonna be on an exemption list, and what isn't gonna be on an exemption list. So we're optimistic that some discussions will start, and we'll get some clarity around that as the quarter develops. In the meantime, we're doing things that we need to do to flex that supply chain. You wanna speak to that, Karen?

Karen S. Carter: Yeah. Sure. I mean, we are well on our way on reconfiguring our supply chain. The team has been working since really, you know, the middle of the first quarter. On this. And so we are able to export quite a bit more product out of Canada. And then, of course, in The United States, our low-cost position enables us to produce for the local demand. As a matter of fact, the growth project that Jim alluded to, Poly seven, that's going to start up in the second quarter is going to provide us even more flexibility to supply even more of that U.S. demand right here. And then, of course, we've got, you know, four on four continents sprayed a polyethylene production. So think about The Middle East as well. As an opportunity for us to supply demand around the world but also direct in China. So we are well positioned. We feel good about where we are. And able to mitigate the tariffs directly. But, again, I just wanna reiterate that the indirect impact is really the biggest concern on overall demand. So we'll continue to watch that as we go forward.

Operator: Your next question comes from the line of Chris Parkinson with Wolfe Research. Please go ahead.

Chris Parkinson: Thank you so much for taking my question. So on one hand, the China situation, so a corollary of Dave's question. On one hand, you know, one could argue that the current situation could potentially incentivize the Chinese to further let's say, you know, push a little bit harder in domestic capacity over the intermediate to long term. And on the other hand, in the near term, there's been a lot of debate about Chinese, you know, NGL imports, you know, given that's where a decent amount of their capacity has also been growing and there's a debate on, obviously, the feedstock side of it. So, you know, as far as Dow's view, understanding there are various scenarios here, how would Dow come out in terms of, like, those two, you know, the facets that we're all kind of pondering these days?

Jim Fitterling: Yeah. Good question, Chris. Let me I'll start with the second half of that first. I think the NGL imports into China, if you look at that today, you have to look at the context of what's happened with oil price. So I would say the advantage right now would be oil. And using naphtha in China. If once you look at NGL price here exported landed in China, converted to ethylene, you've really driven up the cost of the ethylene. So that's not gonna be a very competitive position. Think they're gonna have better options there. I think on the other hand, in terms of incentivized to make more capacity, a lot really is going to depend on grades of product. I think our experience is we haven't looked at moving commodity grades of polyethylene into China for quite some time. We move more specialized grades in, so I think there's a limit to the ability to be able to produce that in the country. There's also a need for those materials to make the finished products that they have to export around the world. And so this is a balance between, you know, being able to have access at a reasonable cost to the things that they need to be able to produce finished goods for their own export demand or which is global demand, not just US demand. And that's the thing people are trying to navigate right now. The domestic outlook in China isn't really driving any big support for additional capacity to be added. It's moderate at best. And so, you know, there's not a big consumer-driven uptick in China. So I think we continue to watch those two angles that you talked about. And try to see where that's gonna land.

Operator: Your next question comes from the line of Josh Spector with UBS. Please go ahead.

Chris Perella: Hi. Good morning. It's Chris Perella on for Josh. Could you go in a little more detail about the moving parts of II and I and its outlook for the second half of the year? I know there's some projects coming online, but underlying weakness there and what's, you know, how does that play into the strategic review of the business as well?

Jim Fitterling: I think the biggest pressures on II and I in the first quarter really were related to pricing pressures because demand is slow. And higher energy costs both in The United States and Europe. The energy costs, as I've said, are moderating. Maybe ask Karen to give a little bit of color on the outlook and what we see happening in II and I.

Karen S. Carter: Yeah. Thanks for the question. I mean, if you talk about it from a polyurethane perspective in particular, we expect the challenging macro to continue. I mean, think about soft demand on durables. Automotive, you know, that's a direct impact to us as well. Automotive growth is slowing. You also see the EV transition starting to slow as well, and particularly in North America and in Europe. And tariffs, should, however, provide support for selected US-produced products. You mentioned this earlier before, like MDI, where, of course, the global market has suffered from Chinese oversupply. And so, you know, that could provide a bit of a tailwind, but the headline really on the outlook for polyurethanes and construction chemical is that we'll continue to lean into a pretty challenging macro. Let me switch quickly into our industrial solutions business because there, although we are seeing softening demand, we are seeing awful pockets of stability. Markets like energy, home care, and pharma end markets. Data centers, an example, is a significant growth opportunity for us, and our solutions there are used in things like thermal management. I do just, though, just wanna double down the new asset that we're gonna start up there here in the second quarter. In The U.S. For new alkoxylation capacity. That unit is going to focus on growth and attractive end markets for us. So home and personal care and pharma. And, really, the good news around that asset is about 50% of that capacity is already contracted for. We expect that to provide us with a tailwind going into the second half.

Jim Fitterling: On the question about portfolio, Chris, we're gonna come back at the end of the quarter with some guidance on where we think the best option is for those European assets, that polyurethanes enterprise. I think, you know, one thing to remember is we have low-cost positions there. We have some very strategic positions. And full integration for that whole polyurethanes chain. So that's gonna be the result of just looking at what we think the best option is in the marketplace.

Operator: Your next question comes from the line of Jeff Zekauskas with JPMorgan. Please go ahead.

Jeff Zekauskas: Thanks very much. On slide 15, you say that your expected corporate expense for the year is $3.20? And I think your corporate expense was $33 million in the first quarter. So you're annualizing at $1.30. Why is that number $3.20? Second, cash flow from operations was $90 million in the quarter. And you did have a working capital increase. But the cash flows were low. So what's the cash flow that you expect in the second quarter? You know, is it low, or is there something that's unusually depressing things? And then lastly, what do you do about your agreement with Linde? You know, that's a $2 billion outlay that they would make. Do you have to take a charge to settle that? Or and if it is, is it large? Is it small? Can you fill us in on some of those issues?

Jim Fitterling: Morning, Jeff. Let me take the last question, and I'll ask Jeff to cover the first two. On Linde, have had contact with Linde and we have a contract that covers that. And so a lot of that is gonna depend on the length of the delay. And so we're in active engagement with them, and the answer to your question is I don't expect that we'll have to take a charge right now in order to do that. Jeff, you wanna comment on the first two?

Jeff Tate: Sure. Good morning, Jeff. First, on the corporate segment, you're right. It is seasonally lower in 1Q. We had some credits that we would not expect to occur in the second quarter or beyond, Jeff. You know? And as a reminder, there are a number of different activities that take place in our corporate segment, whether it be related to the bench general operations, some of our financial assets, gain and losses, as well as some of our nonbusiness aligned litigation and severance costs associated with some of our programs. So there are a number of different puts and takes that we will have from one period to the next that can create a somewhat of a level of volatility. But the guide that we're providing right now, I would say, would be what we would expect for the full year. In the corporate segment. Moving to your second point around cash flow. For the first quarter, we did have our use of cash from a net working capital which is typically the case in the first quarter. We would normally have that as we look at the seasonal build for higher sales for the quarter as well as preparing for our planned maintenance activity. That we'll have not only in the first quarter, but also we'll expect to have in the second quarter. So that creates some level of additional use of cash. Between those two quarters, but I also would recognize that our cash conversion cycle continues to be, you know, eight days of improvement versus pre-COVID levels. And from a liquidity standpoint, we're still in a really good position at well over $11 billion. At this time.

Operator: Your next question comes from the line of Matthew Blair with Tudor Pickering. Please go ahead.

Matthew Blair: Thank you, and good morning. I was hoping you could expand a little bit more on how you're thinking of the security of the dividend. In this environment. You know, you have $4 billion of extra cash coming in this year. You're implementing some cost reductions. You've also reduced your spending for the year. Does that make the dividend secure for this year and probably next? And then after that, we'll have to see? Or are you thinking about it differently? Thank you.

Jim Fitterling: Yeah. Good morning, Matthew. You know, I'm tracking dividend yield is something that's always been a priority for Dow. We're well aware of the pressures of the current environment, places on the capital structure certainly, the $6 billion in the near term. And of that $6 billion, as Jeff mentioned earlier, the vast majority of that will come in in 2025. That will help support the dividend. But as the macro evolves, we'll have to continue to monitor and act in alignment with our capital allocation framework. As you know, from the quarter, we're going every lever we can to manage cash through a difficult time. And I think we'll have better certainty once we see how tariffs are gonna settle out. We're just in an environment right now where in the marketplace, if you look at downstream demand, it doesn't matter if it's a consumer or one of our customers or somebody in the b-to-b world. They're all just kind of taking a wait-and-see approach. And that has an impact on what we think the long term is gonna look like. I'm hopeful that we get some better clarity before the end of the quarter when this ninety-day pause ends. That'll help us a lot be able to have better visibility.

Operator: Your next question comes from the line of Hassan Ahmed with Alembic Global. Please go ahead.

Hassan Ahmed: Morning, Jim. You know, I just wanted to revisit the Chinese sort of feedstock imports. From The US in particular. I mean, if we could get a little more granular about things. I mean, if I take a look at ethane, it seems over 90% of the ethane that the Chinese import is from The US. And, you know, call it almost half of their LPG. Imports come from The US as well. So when I sort of drill that down, at a cracker level, you know, thinking about the ethylene polyethylene facilities over there, certainly, the ethane-based facilities, you know, in the current tariff regime, would need to shut. And then certain LPG facilities, would need to shut as well. So, you know, I totally understand that it's a wait and see right now in terms of what happens after the ninety-day pause. But if there is some semblance of a continuation, maybe at 30, 40, 50% of these tariffs, how do you see the Chinese react to that sort of a tariff regime? Would they continue those running those facilities? Would some of them just shutter? I mean, I'm and I guess part of the broader question is, will we start seeing a more aggressive rationalization globally?

Jim Fitterling: I think the line of reasoning, Hassan, that you have is similar to the way that we look at it. I mean, you have to look at, you know, the landed cost and then the ability to reexport. I think the challenge is, you know, with oil coming down, obviously, you've got some different dynamics there as well. But there is pressure. And currently, those assets are operating at negative cash margins. So, you know, you would have to see some activity, you would think, in that area. I think it's fundamentally one of the reasons that, you know, there's pressure on these tariffs and this tariff discussion right now. Is it's not a fair and not a level playing field. And so that's the way we viewed it. We're seeing that pressure, you know, come into other markets now. And so we have to see that resolved. I think over time, you're still gonna have an advantage in The US Gulf Coast and in Canada and in Argentina. Where you have those domestic supplies, and they're continuing to grow. The LNG exports are gonna continue to grow. The amount of ethane that's available here and the amount of propane that's available here. That's an advantage to us. I think the big question mark is where's the demand? And right now, all this activity on tariffs is just stifling the demand.

Operator: Your next question comes from the line of Kevin McCarthy with Vertical Research. Please go ahead.

Kevin McCarthy: Yes. Good morning, and thank you. Jim, I was wondering if you could speak to a few related questions on the subject of Europe. First would be, can you elaborate on how and why, I guess, you've expanded your scope of strategic review there with emphasis on polyurethanes. And then secondly, on slide four, I think you referenced idling or shutdown. For a few different assets there. So what will inform those decisions? And then more broadly and lastly, Dow is not alone. Right? We've seen so many other announcements of capacity rationalizations recently from Total in Belgium, but versus sale, Sabik, ExxonMobil. As I add these up, you know, we're now in the teens. In terms of percentage destruction of ethylene capacity in the European region. And so I'd welcome your thoughts on that. Are we nearing stability looking out a year or two, or how do you view that?

Jim Fitterling: Morning, Kevin. How and why we expanded the scope Polyurethanes, we looked at the region and felt there was a better owner, and so that's the work that we're gonna complete, by the end of the quarter. And I think there's an opportunity there. In terms of ethylene and look at siloxanes and what has happened around the world and then chlor-alkali chlor-vinyl. These all require energy cost competitiveness, which is gone in Europe. They require downstream demand. Downstream demand in Europe is still 20% below pre-COVID levels. I structurally can't imagine that coming back. We're starting to see continued pressure on downstream customers. We heard it in the automotive sector. That has a knock-on effect too. Other big industries that we sell to. The things that are holding up relatively well are packaging, and the consumer goods there. A little bit as well on some of the durable goods, not, you know, durable goods like appliances and a few other things that are under some pressure. But there's still some base business there. So I think these moves, I agree with you, we're into the teens. Probably headed towards 20% of that capacity coming out on ethylene. I think that probably gets us more much more balanced. Our announcement in siloxanes takes about 200 kt of siloxanes capacity out. There's a fair amount of length there, but I think that brings a balance. It really allows us to focus very on specialties. Which have been growing and doing well but that's all been masked by the pressure. On siloxane. And why idle or shut down? We just have to work through the cost. And the trade-offs of the two and make sure we make a move that we would regret longer term. I'll share a story that goes back to before the shale gas days. You've been around for a long time. You remember a lot of stuff. Before shale gas days, we were approaching a big capital expenditure for a lifetime extension down at our Saint Charles crackers. And we just couldn't afford to do it. You know, natural gas, I think, costs were relatively high. And we had the same decision. Do we idle it, or do we shut it down? And we decided to idle it and idle it in a way that if the market changed, we could come back and we could do the enhancements and the lifetime extension at that time. Shale gas happened. A couple of years later. And the market changed dramatically. The first project off the ranks was a rehab project on the Saint Charles cracker. And it was immediately accretive, and it's run-in been positive ever since. We know what we know, and there are sometimes things that we don't know. And that's the real crux of making a good strategic decision here on whether it's idle or shut down.

Operator: Next question comes from the line of Frank Mitsch with Fermium Research. Please go ahead.

Frank Mitsch: Hey, good morning. A couple one follow-up and then question. A follow-up talking about cash flow. Since you're guiding to similar EBITDA in 2Q relative to 1Q, I was wondering if you could comment on the free cash flow expectations for 2Q relative to negative five eighty for January. And then, among the biggest positives for the second quarter relative to the first quarter, pertains to downstream siloxanes. Was wondering if you could and then you also mentioned that the Chinese market is still very much in oversupply. So I was wondering if you could provide some insights into the profitability trends that you're seeing in siloxanes in the first quarter and, and so far, here in the second quarter. Thank you.

Jeff Tate: Yeah. Good morning, Frank. Just a couple of comments I'd make on two cash flow. As we mentioned in the prepared remarks, we do expect the infrastructure asset transaction to close on May 1. So we'll have approximately $2.4 billion of cash that we would expect to come in during the quarter. In relation to, you know, working capital, we would expect to see similar types of uses of cash in February. As we continue to have a heavy turnaround season in the quarter as well. So pretty similar in terms of the cash from operations, but as you start to get deeper into the bridge around getting through, you know, the full cash flow performance, you know, expect to get that $2.4 billion coming in around the Macquarie Asset Management transaction.

Karen S. Carter: So maybe I'll just quickly comment on silicones because that, for sure, has been a bright spot for us even going back to the first quarter. You know, we continue to see growth downstream, and particularly in consumer electronics. Application. That, of course, go into data centers, but also AIoT, of course, are the artificial intelligence sustains applications. And we continue to see that coming into the tech quarter. I mean, if I look ahead, you know, we'll continue to see that downstream growth. Also, some of the seasonal uplift that we normally get may be a bit muted by tariffs. But overall, the trend is still low. I will also, you know, just indicate that the announcement on the upstream siloxane is going to bring us back into better balance. And so we really look forward to continuing to leaning into downstream.

Jim Fitterling: I think on siloxanes, Frank, we've seen obviously, some positive pricing moves from the first quarter going into the second quarter here. And North America and Asia demand for the downstream as well as the siloxanes product is still good. Europe, the driver for demand there is mostly specialty silicones going into health, personal care, some into the automotive sector. As well. So they don't have as many upside drivers to demand there. And that kinda gets back to our decision on the Berry side.

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

Andrew Riker: Thank you, everyone, for joining our call, and we appreciate your interest in Dow. For your reference, a copy of her transcript will be posted on Dow's website within forty-eight hours. This concludes our call.

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

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