The operator, Krista, welcomes everyone to the Dow Inc. 2024 Earnings Report and introduces the speakers, Jim Fitterling and Jeff Tate. Andrew Riker, Dow's Investor Relations Vice President, provides an agenda for the call and mentions that the accompanying slides are available on the website. Jim discusses the second quarter results and operating segment performance, while Jeff gives an update on the macroeconomic environment and modeling guidance. They also mention that their comments contain forward-looking statements and non-GAAP measures, and refer to their public filings for more information. Jim then discusses the company's near-term priorities and long-term strategy, followed by a Q&A session.

In the second quarter, Dow's team delivered growth in both top and bottom line, despite slower global economic recovery. Net sales were $10.9 billion, down 4% from the previous year but up 1% sequentially. Volume increased 1% led by the United States and Canada, with a 4% increase when excluding hydrocarbons and energy sales. Operating EBIT was $819 million, up $145 million from the previous quarter, and cash flow from operations was $832 million. Dow also published their 2023 Intersections Progress Report, highlighting their positive impact on the environment and society.

The third paragraph discusses the performance of the company's packaging and specialty plastic segment, with a decrease in operating EBIT due to lower margins, maintenance activity, and licensing sales. The Industrial Intermediates & Infrastructure segment saw an improvement in operating EBIT, while the performance materials and coating segment showed growth in both volume and price. The outlook for the company remains stable in the near-term.

The global economic recovery has slowed down slightly, with China's economic growth lower than expected. Packaging demand is strong in the U.S. and Canada, but soft in Europe and impacted by transportation costs in Asia. Infrastructure demand, particularly in residential construction, remains low in most regions. Consumer spending is resilient, except in Europe. In the U.S. and China, retail sales have increased, but furniture and auto sales have been low.

The company has delivered consistent volume growth and will continue to capitalize on areas of demand strength while maintaining discipline. They expect third quarter earnings to be slightly above the second quarter, with minimal disruption from Hurricane Berly. The packaging segment is expected to have modest top-line growth, while the industrial and intermediates segment remains mixed. The company successfully started up a new facility in June, which will provide a tailwind for the quarter. The performance materials and coating segment is seeing growth in downstream applications, but siloxane prices are still under pressure.

The company expects lower demand in certain markets to have a negative impact of $50 million, but lower maintenance costs will provide a $25 million benefit. The company is focused on executing their proven playbook to deliver value over the cycle, with a strong global asset footprint and leading positions in every region. They are well positioned to capture growing global demand for their products. The company is also taking actions to strengthen their financial position, including de-risking pension liabilities and utilizing unique-to-Dow levers to generate cash flow. They also plan to receive cash and tax incentives to support their strategic growth investments.

Dow expects a slower recovery in certain markets in 2024, but is positioned to capture over $3 billion in EBITDA as it returns to mid-cycle earnings. The company has seen positive signals in its top line, with volume improvements and price stabilization. In packaging, demand is expected to continue improving with no new capacity expected until 2026-2027. In industrial intermediates and infrastructure, Dow has maintained disciplined inventory management and expects a boost in demand for polyurethane with interest rate cuts. In industrial solutions, the restart of a facility in Louisiana will have a positive impact on various markets. In performance materials and coatings, capacity additions are expected to slow, and the coatings business is correlated to existing home sales. Overall, with an economic recovery, Dow is poised for significant earnings growth.

The company has made investments in lower risk, higher return projects that will drive $3 billion in annual earnings growth by 2030. They have already added the capacity to deliver $800 million of this goal and have made progress on several projects, including enhancing product mix and advancing downstream silicones debottlenecking projects. They are also working on their Path to Zero project, which is expected to deliver an additional $1 billion annually by 2030. The company is also focused on their "Transform the Waste" strategy, which aims to deliver $500 million in incremental EBITDA by 2030 through partnerships and direct investments. In June, they announced a deal to acquire Circulus, a leading mechanical recycler, which will help them achieve their circular product goals. The deal is expected to close in the third quarter.

Hassan Ahmed from Alembic Global asked about Dow's third quarter sequential guidance during the Q&A session.

The speaker is discussing the outlook for the third quarter for the company ENSD. They expect a $0.02 margin improvement, with ethane prices increasing by $0.01 or $0.02. The speaker also mentions that Hurricane Beryl has caused a backup of volume at the Gulf Coast, leading to lower gas and methane prices. However, they expect this to reverse and for ethane prices to increase. The speaker also notes that there has been positive demand for derivatives, with volumes increasing.

The Asia market was affected by export congestion due to tariff barriers, but this is expected to improve in the third quarter. The company's strong cost positions and operating rates are expected to result in a slight improvement in the third quarter. The analyst asks about the potential impact of both lower interest rates and geopolitical tensions on the company. The CEO responds that they had expected interest rate cuts by now, but have not seen any yet. He believes that the expectation for interest rate cuts is still present.

The speaker discusses the impact of high interest rates on the housing market, stating that it has led to a decrease in new builds and an increase in unsold properties. They predict that when mortgage rates decrease, there will be a rise in refinancing and property sales, leading to an increase in building activity and a domino effect on related industries. The speaker also mentions the potential for increased tensions in geopolitics due to perceived subsidies in Chinese products.

Steve Byrne asks about slide nine, specifically regarding the Fort Saskatchewan project and its $1 billion EBITDA per pound. He asks if this is comparable to mid-cycle EBITDA for existing assets, and if there are customer commitments that give confidence in the profitability. He also asks about the incremental EBITDA per pound for the 3 million tons of transform waste, and notes that there may be a wide range depending on the type of product, as a competitor has a similar objective with an EBITDA per pound three times higher.

In this paragraph, Jim Fitterling discusses the profitability outlook for their circular plastic platform. He mentions that the upside is the ability to get additional value out of the process and that they are focused on improving data and knowledge to achieve circularity. He also mentions that they expect two-thirds of their volume to come from mechanical recycling, as it produces the high-quality material needed for better margins. Fitterling also discusses their investments and their ability to improve the quality of their material, which will drive demand for their products.

In the paragraph, Jeff Zekauskas asks two questions to Jeff Tate. The first question is about the increase in corporate expenses from $30 million in the second quarter to a projected $60 million in the third quarter, and why it doesn't stay at the $30 million level. The second question is about the criteria Dow will use to determine whether share repurchases are a good use of capital, considering that the share price has been relatively flat since the company went public. Jeff Tate responds by stating that the second quarter corporate expenses were lower due to gains from insurance operations and lower environmental cost accruals, but the second half of the year is expected to be in the range of $60 million to $65 million, as in past times.

The company expects to generate $60 million to $65 million in the second half of the year and will continue to prioritize share repurchases. They anticipate a working capital use of $600 million to $800 million for the full year. In the second quarter, they saw positive results with $800 million in cash from operations and a conversion rate of 55%. They expect to see improvements in the second half of the year.

The company is pleased with its ability to generate dividends from debt and has a strong liquidity position. There are no major debt maturities until 2027 and the company expects to deliver unique cash levers in 2024. The order book for June and July has been solid, with some softness towards the end of June. Hurricane Beryl did not have a significant impact on volumes, but there will be some cost impact.

The company is insured for the damages caused by Hurricane Beryl, with a deductible of $50 million. Most of the issues have been identified and there was no impact on employees or people, but the company has helped those affected. The hurricane has had an impact on the market, with prices starting to firm up. The timing of the hurricane was earlier than expected and it will likely lead to price increases for different grades of products. There are also planned outages for the third quarter.

The company is back up and running after the impact of COVID-19 and is working hard to catch up on volumes and restock customers. There are some concerns about potential future impacts, but the team has done a good job of preparing and keeping product moving. The speaker then addresses a question about their expectations for the fourth quarter, stating that they anticipate solid volumes and cost advantage in plastics, positive performance in silicones, improvement in II&I due to the return of Glycol-2, and strong performance in coatings despite some challenges in the housing market.

The speaker discusses the current state of the housing market, noting that higher value homes and contract work are doing well. They expect the third quarter to be good for coatings, with some strength in polyurethanes and construction chemicals. They also mention potential interest rate cuts and their impact on the bottom line. The speaker then addresses the issue of polyethylene pricing and margins, mentioning the previously forecasted April price increase and uncertainties for July and the third quarter.

The speaker discusses the expected impact of the Glycol-2 restart on the company's finances. They mention that pricing has been set for July and August, with an expected margin improvement of $0.02 per pound. They also anticipate an increase in ethane costs, but believe that the overall margin will still improve. The Glycol-2 start-up went smoothly, but the company is still working on building up safety stocks and ramping up production. They suggest that the production could potentially increase even more in the fourth quarter.

The company expects to see an increase in volumes in the first quarter due to higher market demand, but there has been no evidence of stocking in advance of potential tariff changes. The company is doing scenario planning and expects to have a clearer picture by the end of the year. Year-over-year comparisons have been relatively easy for the past three quarters and are expected to continue in the third quarter.

In the fourth quarter, there may be challenges due to year-over-year comparisons, but the plastics and silicone sectors are expected to see growth. The coatings business has performed well, driven by mix and innovation. The cash flow statement has been impacted by other assets and liabilities, but the team has managed to maintain good uptime and cost position.

In response to a question about other assets and liabilities, the speaker explains that there was a reduction in long-term tax payables due to tax audit reassessment. This was a unique situation and should stabilize in the future. The next question is about siloxanes pricing in Asia, and the speaker mentions that there may be lingering oversupply issues for non-integrated players. However, they are working on investing in downstream silicone products to drive volume growth and sell less into the merchant siloxanes market. This strategy has already shown positive results in the second quarter, with increased volume and improved downstream demand for products such as consumer electronics. They expect to see pricing improvement for siloxanes in the future.

The speaker discusses the performance of various sectors in the company, noting a strong automotive business and solid growth in the health and personal care sector. They also mention the company's investments for future growth, but acknowledge that the current economic climate may cause some hesitation. However, they believe that long-term trends, particularly in the plastics sector, support continued growth.

The company is focusing on areas with higher growth and differentiation, such as silicones, plastics, and specialty EO derivatives. They are also rationalizing their footprint in polyurethanes and focusing on downstream and less commodity-like products. The company expects a $3 billion step-up in earnings at mid-cycle and another $3 billion at peak, with mid-cycle margins typically running at $0.27 globally and peak margins at $0.48.

The speaker, Jim Fitterling, is discussing the $2 billion of upside in the company's financials. He explains that $800 million of this is from additions and improvements to make higher-value products available, and the rest will come from margin expansion. He then answers a question about North American polyethylene demand, stating that it has been consistent in recent years but he expects it to increase due to a rise in domestic demand and exports. He concludes by thanking the participants for joining the call and apologizing for any technical issues.

The speaker reminds listeners that a transcript of the investor call will be posted on the company's website. The call is now ending and the operator thanks participants for their time and interest in the company. The operator then provides instructions to disconnect from the call.

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