The operator welcomes listeners to the Dow Third Quarter 2023 Earnings Conference Call and introduces the speakers. Pankaj Gupta, Dow Investor Relations Vice President, provides a reminder about forward-looking statements and non-GAAP measures. The agenda for the call is outlined, with Jim Fitterling discussing third quarter results and Howard Ungerleider providing updates on cost savings and financial position. Jim concludes by discussing the company's long-term growth and sustainability roadmap and taking questions.

Dow is implementing targeted actions to achieve $1 billion in cost savings and has seen a sequential improvement in operating cash flow of over $300 million. Net sales were down 24% compared to the previous year, mainly due to slower global macroeconomic activity. However, volume and operating EBIT improved sequentially in some operating segments. The company continues to focus on cash flow generation and working capital management, resulting in a cash flow conversion of 129% for the quarter. They have also returned $617 million to shareholders through dividends and share repurchases. Dow's balance sheet remains strong, with investment-grade credit ratings and no significant long-term debt maturities until 2027.

The Packaging & Specialty Plastics segment saw a decrease in operating EBIT due to lower prices and volume, while the Industrial Intermediates & Infrastructure segment also saw a decrease due to lower prices and an unplanned event. The Performance Materials & Coatings segment saw a decrease in operating EBIT due to lower prices and volume, but an increase compared to the previous quarter. The company expects challenging economic conditions to continue in the fourth quarter, including sluggish industrial activity and weak demand in Europe and China.

The article discusses the current state of inflation, monetary policy, and economic indicators in various regions around the world. While there are some positive signs, such as improved manufacturing PMI and rising automotive sales, there are also challenges, such as weak demand and declining consumer confidence. The company remains committed to financial and operational discipline, achieving cost savings and improving cash flow. They are also focused on improving their working capital and maintaining financial flexibility.

As a result of the company's actions to strengthen their balance sheet and derisk their pension plans, their cash conversion cycle has improved and they have unlocked $600 million in cash from working capital. They plan to continue derisking their pension plans and expect to record a one-time charge in the fourth quarter of 2023. The company is able to continue investing in growth while delivering a high percentage of operating income back to shareholders. In the fourth quarter, they expect a tailwind from higher polyethylene prices and a planned maintenance activity, but a headwind from a planned turnaround at a joint venture in Thailand.

The company expects seasonal demand increases in deicing fluid to offset volume declines in the Industrial Intermediates & Infrastructure segment, but also anticipates headwinds from elevated energy and feedstock costs and limited consumer spending. In the Performance Materials & Coatings segment, margin pressure and a seasonal decline in building and construction demand are expected to result in a $75 million headwind. The company is also making progress on their Decarbonize and Grow, and Transform the Waste strategies, which aim to reduce greenhouse gas emissions and commercialize circular and renewable solutions. They have recently achieved startup of a new facility in Texas that will expand supply and reduce emissions, and are on track for a final investment decision on a project in Alberta.

Dow has made progress in its sustainability efforts, including a solar power agreement in Argentina and a partnership in the Netherlands for carbon capture and clean hydrogen. The company is also advancing its Transform the Waste strategy, with plans for recycled and bio-based products. These initiatives are expected to generate $500 million in incremental EBITDA by 2030. Dow remains focused on sustainable growth and achieving carbon neutrality by 2050. The Path2Zero project in Fort Saskatchewan, Alberta is also on track to help the company meet its emissions reduction targets.

Dow is planning to begin construction on a key growth project next year, with Phase 1 expected in 2027 and Phase 2 in 2029. They will be spending an average of $1 billion annually on this project and are committed to keeping their CapEx within DNA. They are also partnering with brand owners and leaders to enable and scale waste management transformation, with the goal of becoming a major off-taker of circular feedstock. This is expected to result in more than $500 million in incremental earnings by 2030. Dow's partnerships also enable them to deliver innovative solutions, such as recyclable e-commerce packaging for P&G China.

Dow's SPECFLEX CIR foam system uses recycled waste from the automotive industry to produce circular polyurethane-based materials, which has led to successful collaborations with companies like Mercedes-Benz and LVMH Beauty. This has also allowed Dow to make its first sales of bio-based and advanced recycling polymers in the third quarter. Since the company's Spin, they have shown financial and operational discipline and their balance sheet is the strongest it has ever been. Dow's global scale, leading positions, cost-advantaged assets, and industry-leading feedstock flexibility have positioned them well to respond to market trends and drive above GDP demand growth. Howard will be retiring after 33 years of service and Jeff Tate will take over as CFO on November 1, 2023.

The paragraph discusses the transition of CFOs at Dow from Howard Ungerleider to Jeff Fettig. Howard expresses his gratitude for his years of service and his excitement for Jeff's return to Dow. Jeff has previous experience at Dow and will officially take over on November 1st. Howard will stay on to support the transition until early January when he will retire. Howard reflects on his time at Dow and praises the company's accomplishments and culture.

Howard is retiring after 33 years at Dow and is passing the finance reins to Jeff Tate. He is excited for his next chapter and will always support Dow. The company is expecting a $100 million EBIT tailwind due to expanding oil to natural gas ratios, with an expected increase in packaging sales.

The third quarter saw a turnaround for Charles and an increase in polyethylene volumes in all regions. The fourth quarter is expected to have a little bit of a headwind from the Thailand turnaround, but integrated margins are expected to be up due to pricing. Volumes are expected to be good and the company will be back in the merchant ethylene market. The outlook for next year's EBITDA growth will depend on factors such as ethane prices, inventory levels, and exports.

The company has been in an economic slowdown for about 12-15 months, but they expect things to start turning around in the next 12-18 months. Inflation is a concern, but they are investing in organic growth and managing costs. They have made investments in all three segments and expect to add $400-500 million to their bottom line. They have seen strength in areas like telecommunications and automotive, and their cost positions are good. They have taken $1 billion of costs out since Spin. They have managed to meet their capital requirements and improve operating cash flow, and have also been able to buy back shares. They are focused on making organic investments to benefit in the next up cycle. Additionally, they have a strong cash position.

The speaker discusses the company's cash flow improvements over the past few years and their ability to cover all capital allocation priorities, including buying back stock. They also mention potential future cash flow levers from various sources. The speaker then addresses a question about the company's CapEx plans and explains that there is a range for 2025-2027, with Alberta being a major factor. They do not provide a specific range, but mention that there may be some variability in the cadence of CapEx during those years.

Jim Fitterling discusses the upcoming Alberta project and expects peak construction to occur between 2025 and 2027. During this time, CapEx is expected to reach 3 to 3.5 billion dollars, similar to the Gulfstream project. The company is also funding growth in Industrial Solutions and Consumer Solutions. In regards to cost-cutting, about half of the costs will come from structural operating costs, including SG&A and R&D. The share count is currently 7.10 and is expected to increase slightly in the fourth quarter.

In the third quarter, the company saw a decrease in share count and plans to continue buying shares and making investments. The third quarter also saw an increase in volumes, which is expected to continue in the fourth quarter. Demand for polyethylene, telecommunications, and industrial solutions is positive, but there may be a slowdown in the fourth quarter for coatings. Overall, the company has seen an improvement in volumes compared to the previous year.

The speaker discusses the third quarter performance of the company, mentioning that without merchant ethylene sales and with the cracker down in St. Charles, the underlying downstream demand for all three segments was better than last year. They are optimistic about the resolution of the automotive strike and expect a rise in demand. In China, there was a good quarter-over-quarter demand in P&SP and slight increases in polyurethanes and Consumer Solutions. The speaker also mentions strong operating rates in regions such as Canada, the U.S. Gulf Coast, Argentina, and the Middle East. They are not building inventory and are able to meet demand and export.

The speaker discusses the performance of various segments within the company, including construction-related ones. They mention seeing lower operating rates in certain areas, but overall feel confident in their ability to meet demand. The speaker also mentions factors that may impact the construction industry, such as fiscal stimulus and rising interest rates.

The speaker believes that the uncertainty surrounding interest rates will limit growth in residential construction. However, there is movement in the infrastructure sector, but permitting remains a potential limitation. The speaker is optimistic about future growth, especially if there is positive growth in construction markets in China and the US. The questioner asks about the impact of destocking on the company's businesses, and the speaker explains that they rely on industry data and reports from downstream customers. They note that there has been some sequential improvement in demand, but it is unclear how much of the decline was due to destocking versus underlying market weakness.

The company's II&I segment performed better than expected due to strong demand in the energy and mobility sectors. However, durable goods are still lower than they were in the previous year.

The speaker discusses the improved performance of Sadara due to lower operating rates and increased focus on cost management. They also mention the pressure on polyurethanes and the positive impact of new isocyanates capacity. The speaker also addresses the siloxane business within PMC, which has been under pressure due to increased supply. They expect this pressure to continue in the near future, but to moderate in 2024 and beyond. Prices for siloxanes are at their lowest levels in Europe and Asia, but are starting to increase due to higher demand and upstream pricing.

The speaker discusses the potential impact of the weaker macroeconomic environment and slower progress on green transition on the company's long-term decarbonization strategy. They mention the supportive factors in Canada, such as carbon pricing and investment credits, but also emphasize the importance of making investments that are financially viable in the long-term.

The speaker discusses the importance of long-term partnerships for advanced and mechanical recycling projects and mentions the potential for FID before the end of the year. The next question asks about the situation in China, and the speaker notes that GDP growth is expected to be 5%, driven by consumer demand. There may be some pressure for government stimulus due to slowdown in the housing construction market. September showed positive growth in manufacturing PMI and automotive sales.

In September, retail sales increased by 5.5%, with a rise in the sale of clothing, textiles, and refined oil products. The price of MEG, which is influenced by the operating rate of polyester plants, has also increased. The volume of sales has been good, particularly in the packaging sector, which tends to hold up well during economic slowdowns due to its use in essential items. During the previous quarter, pricing was down in both the PMC and iCube segments, but EBITDA was up due to cost savings and equity earnings from Sadara. The Louisiana outage was a headwind for II&I, but there were also turnaround tailwinds and cost savings. In PM&C, there were tailwinds from the turnaround and cost savings.

The speaker discusses the factors that contributed to the swing in the PMC segment's performance, including seasonality, lower siloxane prices, improved supply availability, and opportunistic monomer sales. They also mention positive signs in downstream demand for consumer solutions and silicones, and mention potential improvements in the residential construction market. They note that automotive is a bright spot globally, but mention potential issues with the UAW strikes.

During a conference call, Laurence Alexander of Jefferies asked about inventory levels and working capital days for the next mid-cycle. Howard Ungerleider, the working capital team leader, mentioned that the organization has made a big change in managing cash and has structurally taken out about eight days since the spin-off. He also stated that they have taken out about $1 billion of cash in this down cycle period, but they expect to use cash when the macro and cyclical peak out in the future. He believes that they can take out another day or two structurally under Jeff's leadership.

The speaker discusses a target of 10 days cycle-to-cycle for the company's structural standpoint and the implementation of OMP in their businesses. The operator interrupts to take one last question, which is about the packaging segment's drop in EBIT due to being out of the merchant ethylene market, a turnaround in the third quarter, stronger equity earnings, and a surge in feedstock and energy costs. The speaker expects a $0.02 integrated margin improvement in the fourth quarter. The call is then turned over to Mr. Gupta for closing remarks.

The speaker thanks everyone for joining the call and expresses their appreciation for their interest in Dow. They mention that a transcript of the call will be posted on Dow's website and the call is now concluded. The operator then gives permission for participants to disconnect.

This summary was generated with AI and may contain some inaccuracies.