Dow Inc. (DOW) Q4 2025 Earnings Call January 29, 2026 8:00 AM EST
Company Participants
Andrew Riker – Vice President of Investor Relations
James Fitterling – Chairman & CEO
Karen Carter – Chief Operating Officer
Jeffrey Tate – Chief Financial Officer
James Fitterling Chairman & CEO
Thank you, Andrew. Beginning on Slide 3. Team Dow continued to execute with discipline during a year marked by persistent macroeconomic challenges and trade and policy volatility as well as anticompetitive behaviors by certain industry players. In the face of external pressures, we managed what was within our control.
Our fourth quarter operating EBITDA was $741 million, reflecting an expected sequential decline from lower seasonal demand and typical margin compression across many end markets.
Looking across 2025, we accomplished several impactful near and longer-term milestones, all while the market wasn’t providing many tailwinds.
We identified more than $6.5 billion in near-term cash support items and delivered well over half in 2025, including the accelerated delivery of our in-year cost savings from our $1 billion cost out program.
And we further strengthened our global manufacturing footprint. This includes our announced plans to shut down upstream high-cost assets as well as the completion of our remaining incremental growth investments, which serve downstream higher-value markets that are growing above GDP.
We were also once again recognized as one of the world’s best workplaces. This reflects direct feedback from our employees about the culture and talent that continues to drive Dow forward.
As we move into 2026, we recognize that many markets are fundamentally shifting. Geopolitical dynamics, rapid advances in AI and automation and economic volatility require new breakthrough approaches, greater agility and continued technological adoption. That’s why we announced our Transform to Outperform program earlier today. This work builds on our track record of taking proactive measures to help Dow, and it represents a fundamental change in how we will operate and serve our customers. We believe this will strengthen our long-term competitive position through every part of the economic cycle.
And lastly, we have finalized a value-maximizing path forward for our Path2Zero project in Fort Saskatchewan. We’ll share more details on all of this later in the call. But before that, Karen will cover our fourth quarter operating segment performance.
Karen Carter Chief Operating Officer
Thank you, Jim, and good morning to everyone joining today. Dow cost savings measures gained significant traction across every business in the second half of 2025, which is reflected in our fourth quarter performance. Despite continued industry pressures, we are delivering on our commitments and self-help actions.
Next, turning to our Industrial Intermediates & Infrastructure segment on Slide 5. Overall demand for industrial applications remain challenged, which continues to pressure the industry and our businesses. Net sales for the segment were $2.7 billion, down 9% versus the same period last year.
Sequentially, net sales decreased 5%, mainly due to lower local prices and seasonally lower building and construction volumes. Volume decreased 1% year-over-year, primarily driven by lower volumes in polyurethanes and construction chemicals. This was partly offset by higher than typical seasonal demand for deicing fluids which have continued into 2026.
Operating EBIT decreased $285 million versus the same quarter last year and $154 million sequentially, driven by lower integrated margins. Our cost savings in both businesses helped offset some of the decline.
We also completed the shutdown of our higher-cost upstream propylene oxide unit in Freeport, Texas, rationalizing approximately 20% of North American PO industry capacity.
Jeffrey Tate Chief Financial Officer
Thank you, Karen. Good morning to everyone participating on today’s call. Slide 7 shows that across the broader macroeconomic landscape, there are mixed signals in several of our end market verticals and key geographies. Recent developments are showing some encouraging signals in response to structural industry challenges as well as trade and tariff uncertainties.
This includes several announcements of further ethylene capacity rationalization as well as the elimination of VAT export rebates on select products in China.
Across the infrastructure sector, building and construction conditions are likely to gradually improve as interest rate cuts over the past 12 months gain traction. Housing starts and existing home sales remain well below historical averages, but there are some signs of positive momentum with existing home sales increasing for 4 months in a row. Consumer confidence has improved slightly but remains near historic lows, continuing to weigh on overall demand. At the same time, U.S. retail spending is holding steady in several categories with resilient sales of electronics as a bright spot.
Moving to Industrial Intermediates & Infrastructure. We expect normal seasonal improvements in building and construction end markets. Additionally, positive demand momentum for deicing fluids should continue into the first quarter, providing a tailwind for the segment. Our cost savings efforts will provide an additional $10 million tailwind, while approximately $15 million for planned maintenance activity throughout the quarter is expected to offset these gains. And in the Performance Materials & Coatings segment, we anticipate typical seasonal improvements for Architectural Coatings as well as higher siloxane pricing following the increased market prices that happened in China late last year. Collectively, this will provide roughly $80 million of sequential tailwinds this quarter.
James Fitterling Chairman & CEO
Thank you, Jeff. Slide 9 outlines the key areas where we’re focused on strengthening Dow’s earnings power to ensure that we remain resilient through every cycle. First, we expect to deliver the remaining more than $500 million in cost savings by the end of this year from our previously announced $1 billion program. We’re also executing a series of strategic moves that will uniquely position Dow to win. This includes the start-up of our remaining incremental growth investments in cost-advantaged regions as well as our announced shutdowns of upstream higher-cost assets.
Additionally, Transform to Outperform is expected to deliver at least $2 billion in near-term EBITDA improvement. About 2/3 of that will come from productivity gains and the remaining 1/3 from growth. This work will radically simplify how we operate, streamline our end-to-end processes, reset our cost structure and modernize how we serve our customers. We anticipate the outcomes to deliver step change improvements in productivity, more growth with our customers and greater shareholder returns.
Kevin McCarthy Vertical Research Partners, LLC
Your II&I segment trended a little bit weaker than I think you and I both expected 2 or 3 months ago. So maybe a 2-part question. Can you talk about the variances that manifested in that segment versus your prior expectations? And then the second part would be on polyurethanes. I think in the past, you had discussed the strategic review of that business. Is there any update on the efforts there? Is it active or dormant? I appreciate any color there.
James Fitterling Chairman & CEO
Karen, do you want to touch on II&I and then I can come back on polyurethanes.
Karen Carter Chief Operating Officer
Sure. In the fourth quarter, we did see normal seasonal demand declines, particularly in the building and the construction market. And the reality is that, that market just continues to be under pressure, not just domestically, but around the world. And of course, that is putting down more pressure on pricing. But also, if you think about housing, if you think about automotive, those markets are just weak around the world.
And so as we went into fourth quarter, we saw that we had some lower fixed costs as well as lower planned maintenance, but the building and construction end markets and durables just really offset that.
And we think about first quarter, we do expect to see some modest seasonal demand improvements and also tailwinds from cost actions. But we have a bit of planned maintenance that’s going to offset that and again, just continued downward pressure, particularly in the building and construction market.
James Fitterling Chairman & CEO
On Polyurethanes, we continue to look for the best options, Kevin, on a go-forward basis for the Polyurethanes franchise. We’re obviously making a lot of changes. We noted that we took out 20% of North American PO capacity at the end of first quarter. So we’re having some rationalization in the industry on higher cost assets to kind of address the oversupply situation there. I would say, additionally, the team has been very busy on the trade front. I mentioned anticompetitive practices before, but Europe, especially has been hit very, very hard from dumping of material into the European continent. And this comes from regions that don’t have any particular cost advantage to bring it in.
And so we’ve seen some actions, I think, are going to have positive impact. In China, for example, the announcement that the 13% duty drawback for exports out of China is going away; at the end of first quarter in April, I believe, is when it goes away. So there were companies that don’t have the cost position to be able to export under free trade, fair trade rules that were getting 13% duty drawbacks for all their exports. That’s going to go away. And you’ve got a whole host of cases on antidumping that are starting to take hold. There’s been more traction in the Americas than there has been in Europe. Europe is a bit slower to respond, but it is on the radar screen and it is getting attention in Europe.
Patrick Fischer Goldman Sachs Group, Inc., Research Division
Maybe I can sneak in 2. First one, I believe Sadar is up for its debt refi midyear this year. So can you just give us some details about operationally, how Sadara is looking? And what does that debt refi mean for Dow? And then just the second one is, you gave us $1 billion on the Canada project at mid-cycle. What would that project be making in today’s environment?
James Fitterling Chairman & CEO
Yes, on Sadara, we continue to keep a close eye on Sadara it’s running safely and reliably. I’d say we had one small incident at the cracker this year. But the assets are in a good position on the global cash cost curve. Most of it has been around the financial structure. And Dow and Aramco are conducting an ongoing strategic review of Sadara, which is targeted to be completed during the first half of 2026.
The JV obviously operates very safely and very reliably. And we’ll look at the — and evaluate the opportunities to enhance the long-term resilience of the joint venture. I don’t anticipate any cash payments to Sadara lenders in 2026. Sadara has got ample liquidity through their facilities and including some that they utilized in the fourth quarter. And of course, Dow and Aramco have support behind that, bearing guarantees behind that.
Yes. Frank, it’s a good question. And I just want to make sure that we’re clear that it’s not all AI. So there are also going to be some fundamental changes. We’re going to look at all of our integrated work processes from end to end and simplify those. So for example, in previous changes, we’ve looked at trimming third-party costs. We’ve looked at — obviously, always look at procurement and what we can do to do better procurement and bring costs down for what we pay out to third parties.
But in this case, we’re looking at how things are built into our system and how we do our work end-to-end and how can we take steps out, how can we automate things that are done either manually or handoffs within the system to date. And AI is going to give us a lot of possibilities there. Over the last couple of years and in the first — we had not in 2025, but we had $1 billion cost-out program before that. And some of the money from that program actually went into digital capabilities and IT.
So one of the things that we have is we have a lot of high-quality data. We’ve got an intelligent data hub that we’ve built inside the company that AI on top of that will allow us to take a look at these work processes and really take steps out and streamline the whole thing. So we call it a reengineering or a rewiring of the way we do business globally. And then that can be baked into the system and automated. And that’s one of the ways we’ll keep cost out as we go forward.
We’re seeing progress in many functions right now. Many different functions are using AI in ways that are speeding things up or reducing the cost to do things. We see it in legal, for example, patent research work. I’m doing discovery on cases on legal; there is a big cost savings there. We’re seeing it in a lot of other applications. So I think it’s going to be there. And we haven’t really started to get into yet robots and AI and robotics together. I think at some point, we will.
On traditional AI, we’ve seen great progress, obviously, from using technology to make things safer and eliminate certain costs from turnarounds and things like cost of scaffolding is a big cost in a turnaround by using drones and crawlers with cameras and other kinds of technologies, we can eliminate big costs out of having to scaffold parts of plants to go in and do those turnarounds. So they’re real numbers, and we’re pretty confident that we can bring it to all of that to the bottom line.
On the growth side, also be some refocus on where we have our people position. I would say the focus will be on still boots on the ground on the sales side, sales, tech service application development. Our model is you’ve got to be at the design table with your customers, and you got to be on the ground to do that. So we’ll look at how those are deployed. Are they in the right geographies and the geographies that are growing and then how we support that from behind the scenes inside the shop, see what we can do to automate to help them and bring better data to their fingertips.
