The operator welcomes participants to the Dow Fourth Quarter 2023 Earnings Conference Call and reminds them that the call is being recorded. Dow's Vice President of Investor Relations, Pankaj Gupta, introduces the speakers and mentions that the accompanying slides are available on the website. The speakers will discuss forward-looking statements, non-GAAP measures, and provide an update on the company's financials, macroeconomic environment, and long-term growth and sustainability roadmap.

In the fourth quarter, the company faced challenges due to a dynamic macroeconomic environment, resulting in a 10% decrease in net sales compared to the previous year. Volume and local prices also declined, leading to a decrease in operating EBIT. However, the company was able to generate strong cash flow and reduce costs, while also pursuing de-risking opportunities for their pension plans. They also made progress on their long-term strategy and returned funds to shareholders. The full year performance will be discussed on the next slide.

The 2023 results for the company demonstrate strong execution and financial discipline, with $5.2 billion in cash flow from operations and $2.6 billion returned to shareholders. The company also received industry recognition and continues to outpace peers in leadership diversity. In the Packaging & Specialty Plastics segment, operating EBIT increased by $9 million compared to the previous year, driven by lower input costs and higher operating rates. In the Industrial Intermediates & Infrastructure segment, operating EBIT was down from the previous year due to lower prices and reduced supply availability. Sequentially, operating EBIT was down $6 million due to seasonally lower volumes in building and construction, but partially offset by higher demand in other areas.

In the Performance Materials & Coatings segment, operating EBIT improved due to lower costs and reduced maintenance activities, with increased demand in certain end markets. The CFO, Jeff Tate, is excited to be back at Dow and is committed to maintaining a balanced approach to capital allocation. The near-term outlook is still uncertain due to inflation and other factors, but there are some positive indicators, such as moderating inflation and low inventory levels. Industrial activity in the US remains moderate.

Industrial production and consumer spending have shown growth in the U.S., but remain weak in Europe. The American Coatings Association expects market demand to increase in the next few years. China is seeing improvements in industrial production and auto sales, while other regions around the world have mixed activity. The company's competitive advantages, investments, and operational discipline position them well to take advantage of a recovery and support global demand growth. Their differentiated portfolio and cost advantage make them well-positioned to capture margin momentum.

The company has taken actions to position itself for profitable growth, including investments and cost savings. They have a strong balance sheet to navigate through the current economic downturn and are expecting headwinds and tailwinds in different segments in the first quarter. They anticipate a $150 million tailwind in the Performance Materials & Coatings segment due to increased demand in building and construction.

Dow expects to see increased earnings in the first quarter due to higher planned maintenance activity and their sustainable and circular solutions strategies. They have reached a key milestone in their Path2Zero project and continue to advance their Transform the Waste strategy through partnerships and agreements. Dow has also established a Green Finance Framework to align their funding with their sustainability goals and provide opportunities for investors to support their strategy.

The company is confident in their long-term earnings growth and is focused on a more sustainable future. Demand for polyethylene is expected to continue growing due to population growth, regulations, and consumer preferences. The company is well positioned to capture this demand with their existing assets and partnerships. They are also investing in low-carbon emissions infrastructure, such as the Fort Saskatchewan project, which will take advantage of Canada's feedstock cost advantage. The total CapEx spend for this project is expected to be $6.5 billion, with the company remaining committed to keeping their CapEx within D&A levels.

The company expects to receive $1.5 billion in government support for their project, bringing the total capital outlay to $5 billion. Construction will begin in 2024 and the first phase is expected to start in 2027. The company has strengthened their balance sheet and increased cash flow since the spin, allowing them to allocate capital for dividends, share repurchases, and growth investments. They have no significant debt maturities until 2027 and have returned 90% of their net income to shareholders since the spin. The company is well positioned for growth opportunities as economic conditions recover.

In response to a question about inventory restocking, the speaker explains that there are two different perspectives on the potential impact of restocking. Some believe that restocking will be significant due to destocking in the second half of 2022, while others argue that changes in buying behavior may result in a less impressive restock. The speaker notes that December sales were strong, but this was likely due to low inventories and resilient consumer demand, rather than restocking.

The speaker discusses the current state of inventory levels and demand in various industries, noting that there is not an excess of inventory and that demand is driving purchases. They also mention that their own company has been able to set a record due to their advantageous position in the market. They believe that a restocking cycle may not yet be occurring, but as energy costs and demand rise, it may become a consideration. The speaker then takes a question about volume growth and operating rates for polyethylene, and responds by saying that they had good volume growth in the fourth quarter and expect it to continue into the first. They also mention that they anticipate improvement in operating rates for polyethylene throughout the year.

The company has seen strong operating rates in advantaged regions and expects continued growth in P&SP volume. Industrial Solutions is holding up well, but there was a self-inflicted issue with a plant that is expected to be resolved in the second quarter. The company is monitoring demand in construction chemicals and durable goods, with some optimism in consumer electronics. There are project starts planned for 2024-2026, and the company has recently completed pension changes.

In the fourth quarter, there was a 30% increase in MDI distillation and a reduction in footprint at the La Porte site. The company's CDF alkoxylation and Terneuzen expansions support growing demand in energy, consumer solutions, and pharma. The amines business for carbon capture is also growing. In the plastics industry, there is no new capacity coming out except for one train at the Shell plant in the US. Overall, the outlook for plastics in 2024 looks positive. However, there is an oversupply of polyurethanes and propylene oxide due to recent capacity additions in China. The company is closely monitoring the housing and automotive markets, which drive demand for propylene. Additionally, the company has been working on derisking their pension plans, resulting in a reduction of $1.7 billion in liabilities in the fourth quarter.

The execution of recent transactions did not require additional cash and resulted in a one-time non-cash non-operating settlement charge of $640 million. There was no penalty for the recent cold snap in Texas, and the company has improved plans to be ready for such events. The impact of the freeze was lower than previous years, and the company expects to recover quickly. The first quarter estimates were not affected by the cold snap, but there will be some impact from turnarounds and margin changes.

In the first quarter of 2024, the company expects to see $1 billion in cost savings, with 50% in P&FP, 20-25% in the other two segments, and some in corporate. They ended the year with a $1.4 billion run rate and anticipate another $400 million in cost savings for the full year of 2024. However, earnings in PM&C were lower than expected due to oversupply and decreased volumes and pricing in both siloxanes and monomers segments. Coatings and monomers saw a larger decrease in volumes compared to silicones.

The company's silicones and coatings business held up well in the fourth quarter of last year, with a 3% increase expected for this year. The company is keeping an eye on the impact of electric vehicle production on demand for silicones. In terms of polyethylene price assumptions, the company is expecting flat pricing globally, with some increases in EMEA and Asia Pacific.

The speaker discusses the integrated margins for the Americas and Europe, stating that they should be around the same as in the fourth quarter. They also mention that input costs are in line, with competitive natural gas and ethane costs, and slightly higher propane costs due to heating demand. The next question addresses the increase in chemical railcar loading, which the speaker attributes to a strong start to the quarter and increased industrial production in the US. They also mention that destocking has likely ended and that there is growth expected in all three segments, with plastics already seeing growth and construction-related demand for polyurethanes expected in the latter half of the year.

The company is expecting growth in mechanical recycling and advanced recycling due to demand drivers. They are also discussing a global plastics treaty and focusing on enhanced producer responsibility and recycled content mandates. They have projects in place to make bio-based materials from waste and there is strong demand from downstream. The company has already started implementing these strategies in Europe.

The speaker discusses the potential for global focus on low-carbon fossil approaches, advanced recycling, and mechanical recycling in the plastic industry. They also mention the increase in polyethylene export prices and potential for strong demand in the first quarter.

The company had strong export sales in December, especially in the United States, Canada, and Argentina. They ran at high rates on crackers in the fourth quarter and expect to continue running at high rates if there are no constraints. The company saw double-digit volume growth in plastics going to China and slight growth in P&SP and Consumer Solutions, but a slight decline in Industrial Solutions due to an outage. The company is taking actions to improve margins and expects to see $300 million in margin expansion, $800 million in volume growth, and $100 million in equity earnings in JVs for 2024. They anticipate a soft landing scenario in the United States will help the domestic market.

Jim Fitterling discusses the mid-cycle earnings projections for 2024, stating that the projects started up in 2022 and 2023 should contribute around $800 million. He clarifies that mid-cycle returns will likely be seen from the second half of 2021 to 2025. In addition, he mentions that equity income is expected to improve by $50-100 million, with the Sadara JVs and Kuwait JVs contributing positively and the Thai JVs potentially seeing a decline.

The speaker discusses the pressure on naphtha cracking and predicts a decrease in revenue of $20 million from it. They also mention a potential decrease of $30 million from other sources, resulting in a net increase of $100 million. The speaker also mentions potential infrastructure divestments and expects to gain over $1.5 billion in cash proceeds from transactions. They also mention a $500 million settlement from the Nova litigation and highlight their focus on improving structural working capital.

The speaker discusses the potential for sequential earnings improvement in the II&I segment throughout the year, with a focus on the second and third quarters. They mention the potential impact of turnarounds, the return of Glycol 2 in Plaquemine, and increased demand for isocyanates in construction and durable goods markets. They also mention efforts to stimulate demand in China and the US to further drive growth.

The analyst asks about the impact of interest rates and China on the company's performance in the second half of the year. They also inquire about the Sadara joint venture and whether recent reports of feedstock price increases will affect the JV's costs. The company's CEO responds that they have not needed to make any cash contributions to Sadara and are focusing on cost-saving measures. The JV is heavily impacted by oil prices and may see improvement as demand increases and supply lags.

The speaker discusses the potential impact of rising oil prices on the bottom-line of Sadara. They also mention the possibility of increased demand for siloxanes, leading to potential margin uplift in the upstream silicones market within the next 12 months. Factors such as delayed projects in China and lower silicon metal prices could contribute to this growth in demand. The speaker also notes that the use of siloxanes in construction projects could further drive demand.

The speaker discusses the strong demand for EVs, 5G, and data centers, as well as the continued demand for consumer goods. They are optimistic about the company's growth, expecting to reach mid-cycle by 2025. They also mention the lack of new capacity in Packaging & Specialty Plastics and high operating rates in cost advantaged regions.

The speaker discusses the company's export opportunities in China and other countries, such as India and Mexico. They also mention a mixed outlook for Europe due to energy costs, but express confidence in navigating through it. The company expects growth in the second half of the year and plans to manage cash and maintain a strong balance sheet. They also mention upcoming projects and plans to be a first mover in the industry. The call ends with closing remarks from the speaker.

The speaker thanks everyone for joining the conference call and expresses appreciation for their interest in Dow. They inform the participants that a transcript of the call will be available on Dow's website in 48 hours. The speaker concludes the call and the operator thanks everyone for their participation and disconnects the call.

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