The paragraph is an introduction to the Dow Fourth Quarter 2024 Earnings Conference Call. The call, which is being recorded, begins with a brief introduction by the operator and then Andrew Riker, Dow's Investor Relations Vice President, introduces the participants, including Jim Fitterling, the CEO, Jeff Tate, the CFO, and Karen S. Carter, the newly appointed COO. It outlines that the call will contain forward-looking statements and use non-GAAP financial measures, with relevant reconciliations available on their website. The agenda includes Jim reviewing the company's quarterly and yearly results, Karen discussing the operating segment performance, Jeff providing macroeconomic environment updates and Q1 guidance, and concluding with Jim addressing the company's strategic actions during the economic downturn. A Q&A session will follow.

In the fourth quarter, Dow reported its fifth consecutive quarter of year-over-year volume growth despite challenging macroeconomic conditions. Net sales decreased by 2% to $10.4 billion due to pricing pressures, with local prices down 3%. Operating EBITDA remained flat at $1.2 billion, and free cash flow was $44 million. The company returned $492 million to shareholders in dividends and had capital expenditures of $767 million. Dow took actions to optimize its portfolio by increasing operations at Texas facilities, selling its flexible packaging laminating adhesive business to Arkema for $150 million, and entering an agreement with Macquarie for a $3 billion minority stake in U.S. Gulf Coast assets. Additionally, Dow initiated a strategic review of European assets in its polyurethanes business, which has faced low demand and high costs.

The paragraph discusses Dow's strategic actions in response to prolonged economic challenges, including postponing maintenance at a European ethylene cracker and cutting costs by $1 billion with reduced capital expenditures. In 2024, Dow focused on advancing its strategy, achieving $43 billion in net sales, and began a significant project in Alberta expected to enhance EBITDA by 2030. The company received industry accolades and overcame various challenges, implementing proactive measures amid weak European demand. The narrative expresses confidence in Dow's ability to drive sustainable growth and improve shareholder value, with COO Karen S. Carter set to discuss segment performance next.

The paragraph discusses the newly appointed Chief Operating Officer of Dow, who expresses enthusiasm for engaging with company stakeholders and highlights their extensive 30-year experience in various leadership roles within Dow. As COO, their priorities include strengthening customer engagement, advancing Dow’s innovation commercialization, and enhancing productivity. The paragraph then shifts to discussing the challenging market conditions impacting Dow’s Packaging & Specialty Plastics segment, including a decline in local prices due to competitive pressures and decreased demand amid ample supply and high feedstock costs. Despite increased demand for flexible packaging outside Latin America, segment volume decreased by 1% year-over-year, largely due to reduced third-party hydrocarbon sales and non-recurring revenue, resulting in a $217 million drop in operating EBIT compared to the previous year.

The paragraph discusses the performance of various business segments, highlighting increased operating EBIT in the Industrial Intermediates & Infrastructure segment due to strong global energy demand and improved supply availability. The Performance Materials & Coatings segment also saw a volume increase, driven by gains in architectural coatings and downstream silicones, despite weak building and construction markets. Karen notes that local prices declined by 1% year-over-year while volumes increased by 1%, partly offset by softness in other areas. Jeff then shares an economic outlook, stating that while global GDP is expected to grow similarly in 2024, economic activity is led by service sectors, with global manufacturing showing contraction and challenges in housing and durable goods spending due to affordability issues.

The paragraph discusses the current state of the global economy, highlighting a "two-speed" development across various markets. It notes the influence of interest rate cuts in the US and Europe, and China's stimulus measures on inflation and market demand. The packaging sector is seeing strong demand, particularly in North America, while manufacturing in China and Europe remains weak. Infrastructure demand is soft worldwide, and high mortgage rates in the US are impacting the housing market. Consumer spending is constrained by inflation, affecting consumer confidence in the US and Europe, though retail sales in China grew slightly. The automotive sector shows mixed results, with higher sales in the US and China but a decline in Europe. The outlook for the first quarter predicts earnings of around $1 billion, a decrease due to rising feedstock costs from extreme cold weather.

The paragraph discusses challenges expected in the first quarter, including pressure on margins due to higher plant maintenance activity across three segments and an operational tax rate anticipated between 25% to 29%, reflecting improvements from the previous quarter. In Packaging & Specialty Plastics, higher feedstock and energy costs are expected to outpace price increases, resulting in lower global integrated margins and headwinds due to planned maintenance. The Industrial, Intermediates & Infrastructure segment anticipates lower margins from higher energy costs and reduced catalyst sales, alongside planned maintenance at a Texas asset to support future growth. In Performance Materials & Coatings, demand remains weak due to high US mortgage rates and ongoing sector challenges in China.

The paragraph outlines the company's expectations for a $75 million positive impact from seasonal demand in the first quarter and a $25 million negative impact from maintenance at its monomers assets on the US Gulf Coast. It also mentions that the company is monitoring the effects of a recent winter storm, although current guidance does not account for any impact from it. The company plans to reduce costs by $1 billion annually by 2026, including eliminating 1,500 roles and cutting back on third-party labor and services. It is also reviewing its European asset strategy, with an update expected by mid-2025, and aims to adjust capital expenditure in response to economic conditions, reducing 2025 spending by $300 million to $500 million.

Dow plans to maintain its capital expenditure levels until a market recovery is evident. They have agreed to sell a 40% stake in certain US Gulf Coast infrastructure assets to Macquarie Asset Management, forming Diamond Infrastructure Solutions. This transaction, expected to close by mid-2025, will generate $2.4 billion in initial proceeds, with the potential for $3 billion if Macquarie increases its stake to 49%. Dow will retain operational control and use this partnership to enhance financial flexibility, enabling continued investment and shareholder returns.

The paragraph outlines Dow's strategy to manage an extended economic downturn by postponing maintenance on an ethylene cracker in Europe and aligning supply with demand. This decision, along with reduced capital expenditures and additional cost-saving actions, aims to enhance cash flow and margins while supporting long-term strategic goals. The company anticipates generating up to $3 billion in cash proceeds through a deal with Macquarie Asset Management, improving financial flexibility. Dow expects demand growth in key markets such as packaging, energy, and electronics and remains committed to investments that promise high returns and quick paybacks. This approach is aimed at sustaining its capital allocation priorities, maintaining its dividend, and driving long-term shareholder value.

The paragraph is part of a corporate Q&A session. Jim Fitterling begins by expressing condolences for a recent passenger plane crash near Washington, DC, highlighting the company's focus on people and sympathy for those affected. The Q&A session then kicks off with Vincent Andrews from Morgan Stanley asking Jim about three key business areas previously discussed: operating rate improvements, the impact of year-over-year planned maintenance, and the startup of Dow projects expected to contribute by 2025. Jim responds, noting some improvement in the company's operating rate in the fourth quarter but indicates that industry levels, especially in Europe, are still below pre-COVID figures.

The paragraph discusses the current state of various sectors and projects within the Americas, highlighting strong operating rates, particularly in the high 80s to low 90s percent range. It notes that the ethylene chain is performing better than the propylene chain, with issues in siloxane due to increased capacity in China. The company is managing operational costs by deferring maintenance on a European cracker, which should bring cost savings and improve regional balance. Several Dow projects are set to start this year, including those in polyethylene and Industrial Solutions, while a larger, longer-term "Path2Zero" project in Alberta is still on track for completion in 2027. Additionally, market conditions in 2025 are not expected to improve significantly compared to 2024, with challenges like higher feedstock and energy costs on the horizon.

In the discussion about financial outlook for 2025 versus 2024, Jim Fitterling highlights that their $1 billion cost-saving measures aim to improve EBITDA in 2025, despite uncertain demand. Volume growth is expected, supported by new projects, but pricing power remains a key concern. The strength in the ethylene chain, particularly PNSP and ethylene oxide derivatives, is seen as a positive indicator for Industrial Solutions. While challenges are anticipated in Europe due to weak downstream demand, strategic actions will be taken to address this. Additionally, careful cash management is emphasized, including CapEx reductions to maintain strong cash flow and prioritize dividend stability.

In the paragraph, Hassan Ahmed from Alembic Global asks about the polyethylene and ethane pricing assumptions in PNSP's guidance and notes a potential margin squeeze due to rising costs. Jim Fitterling introduces Karen S. Carter to address the query. Karen explains that polyethylene prices declined in the previous quarter due to market trends and contract resets, resulting in low starting prices for 2025. Meanwhile, input costs, including ethane and natural gas, increased. Although they are attempting price hikes of $0.7 and $0.12 per pound in the fourth quarter and further increases in January and February, these are outpaced by rising costs. She emphasizes their firm stance on implementing these price increases due to unsustainable margins.

In the paragraph, Jim Fitterling discusses short-term cost increases due to the onset of winter and expects them to soften over time, highlighting strong natural gas production and a favorable ethane frac spread. He notes a slight improvement in the propane naphtha advantage in Europe, emphasizing the importance of balancing the cracker fleet there. Jeff Zekauskas from JPMorgan questions the necessity of adding capacity in the already oversupplied global polyethylene industry, considering closures of European assets due to low profitability. He also inquires about a significant drop in cash flow compared to last year and the potential share issuance for management compensation. Jim Fitterling addresses the ethylene capacity question, while Jeff will respond to the cash flow query.

The paragraph discusses the company's efforts to produce 3.5 million metric tons of zero Scope 1 and 2 emissions ethylene in Alberta, highlighting its competitive advantage over Europe, where energy costs and competitiveness remain issues. The company is pursuing favorable negotiations for material offtake and emphasizes its cost-effective investments, such as a zero-emission ethylene cracker. On the financial side, Jeff Tate notes that the company generated $800 million in cash from operations in the fourth quarter, with a cash conversion rate of 67%. Additionally, they intentionally built up inventory in anticipation of heavy turnaround activities in the first quarter of 2025, especially in high-growth business areas.

In the paragraph, David Begleiter from Deutsche Bank asks Jim Fitterling about the nature of the cost savings announced, whether they are permanent or temporary, and the specifics of the 1,500 roles being reduced. Jim Fitterling responds that the aim is to make structural cost reductions as permanent as possible, with 75% being third-party cost savings and 25% direct costs. These savings are expected to reach a 60% run-rate by the fourth quarter and a full run-rate by mid-next year. The job reductions and cost-saving measures primarily target regions under economic pressure, like Europe and Asia, as well as functions lacking productivity improvements. There haven't been many site closures announced, though a European asset review is ongoing.

The paragraph discusses the financial outlook for the company, focusing on key factors affecting 2025 versus 2024. It highlights that while first-quarter margins may be squeezed, improvements are expected by the end of the first quarter as polyethylene prices increase and feedstock costs decrease. For the full year, the company anticipates maintaining similar maintenance spending and having cost reductions of about $300 million. Growth is expected from the ramp-up of Texas 8 and Glycol-2 units, along with some economic growth support. Additionally, the impact of polyethylene price adjustments in January is considered against proposed contract price increases. Overall, while first-quarter challenges are noted, improvements are anticipated throughout the year.

In the paragraph, Karen S. Carter discusses expectations for the first quarter regarding price and non-market factors. She anticipates contract resets and non-market moves but highlights that feedstock costs are outpacing the rate of price increases, affecting margin compression. Price increases are planned for January and February, but higher feedstock costs began at the year's start. There's also anticipation of turnarounds in energy and functional polymers. Josh Spector from UBS asks about risks and mitigation tactics concerning tariffs, particularly with Canada. Jim Fitterling responds, emphasizing engagement with the administration to provide data and gain better understanding, while also mentioning ongoing discussions about controlling immigration and fentanyl flow into the U.S.

The paragraph discusses the trade relationship between the US and Canada, noting a relatively balanced exchange, although slightly more finished products come into the US. The focus is on understanding the energy and petrochemicals landscape to avoid negative economic impacts, with an emphasis on fostering investment and growth without harming the global economy. The conversation then shifts as Chris Parkinson from Wolfe Research questions Jim Fitterling about the strategic developments concerning EU assets, particularly in the Netherlands and Germany. Fitterling emphasizes the energy competitiveness challenge in the EU, noting Spain's current advantage and efforts to reduce costs with Repsol. He clarifies that the recent idling of a cracker in the Netherlands is a short-term measure, not a definitive strategic decision for Europe.

The paragraph discusses the competitive position of the Netherlands in the ethylene and propylene markets, highlighting the country's focus on adding nuclear power to manage energy costs. It contrasts this with Germany's situation, noting that the outcome of an upcoming election may lead to governmental changes that could impact energy strategies. After Russia stopped supplying gas post-COVID, Germany quickly adapted by opening five LNG import facilities, although these imports are costly. The paragraph suggests that reducing energy costs in Germany will likely require state intervention rather than EU actions. The discussion shifts to a question from Frank Mitsch about anticipated headwinds in a business segment, specifically regarding the polyurethanes and Construction and Industrial Solutions segments, with a mention of potential impacts from a US Gulf Coast freeze on the de-icing business.

In the first quarter, the demand for polyurethanes and construction chemicals remains low despite interest rate cuts in the US and Europe, as these sectors are sensitive to interest rates. US home affordability is at historic lows, and automotive inventories are at 10-year highs, contributing to a strategic review of the company's European footprint. In contrast, demand for DIS remains stable, with positive signs in global energy and pharmaceutical markets. The company is also dealing with seasonal de-icing demand and increased turnaround activities at their Seadrift unit, creating a potential tailwind for Industrial Solutions with the return of Glycol-2. Overall, the polyurethane market faces challenges, while Industrial Solutions is expected to see some positive momentum.

In the paragraph, Jim Fitterling and Karen S. Carter discuss recent trends and expectations in the automotive and siloxane markets. Fitterling notes that the automotive sector started strong last year but faced inventory challenges by year-end, with potential for similar patterns this year. Regarding the siloxane market, Patrick Cunningham from Citi inquires about China's oversupply issues, which Fitterling says are slowly improving. Fitterling and Carter highlight significant growth in downstream markets, particularly in electronics and home and personal care, with expectations for continued growth above GDP into 2025.

The paragraph discusses expectations for cash flow in 2025 for a company, covering various sources and uses of cash. Key points include a 70% cash conversion rate based on EBITDA projections, capital expenditures estimated between $3 billion and $3.2 billion, and $2 billion allocated for dividends. Anticipated proceeds from an infrastructure deal are between $2.4 billion and $3 billion. Additionally, the company predicts net interest expenses of approximately $600 million for the year. The context includes an ongoing strategic review of assets in Europe and possible litigation outcomes with Nova.

The paragraph features a Q&A session from a call, where Jeff Tate and Jim Fitterling respond to questions from analysts. John Roberts from Mizuho Securities asks about the EBITDA and minority interest related to a new joint venture with Macquarie. Jeff Tate clarifies that there will be no EBITDA impact as the enterprise will be consolidated, but the non-controlling interest line and dividend impacts will be evident post-transaction closure around midyear. Another analyst, Duffy Fischer from Goldman Sachs, inquires about cash flow, particularly concerning working capital and other assets and liabilities. Jim Fitterling addresses these questions, indicating that working capital was affected last year despite decreased sales and COGS, and seeks clarity on the potential of working capital release this year and the $1.1 billion negative impact in the other assets and liabilities line, questioning whether it could eventually be recovered.

The paragraph discusses Dow's priorities for cash management in light of investor concerns about maintaining its industry-leading dividend amid current cash generation challenges. Jim Fitterling and Jeff Tate explain that maintaining the dividend is a priority because a significant portion of shareholders rely on it. Furthermore, they highlight the company's strong position with no major debt maturities until 2027 and manageable obligations in 2025, suggesting Dow can support debt repayments without compromising dividend payouts.

In the paragraph, Jim Fitterling clarifies that the $1 billion cost-reduction target does not include upcoming European actions, which will be additional. While there might be some overlap, the European asset discussions are separate. The call concludes with Andrew Reiker thanking participants and mentioning that a transcript of the call will be available on Dow's website within 48 hours. The operator then ends the meeting.

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