Dow Inc. (DOW) Presents at 16th Annual Wells Fargo Industrials & Materials Conference Transcript
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Jeffrey Tate Chief Financial Officer
Great. Yes. Thanks, Mike, and I appreciate the opportunity to be here. So before we get into the Q&A, I’d just like to share some insights on the current macroeconomic backdrop, as well as Dow’s execution, as well as our financial position. So on the macro side, global demand across our key end markets remains largely consistent with our prior updates and the supply picture continues to favor both Dow as well as the industry. On execution, all three of Dow’s operating segments are performing well as the second quarter progresses. And as it relates to our financial position, Dow’s balance sheet is solid, and our self-help actions were designed to build a more agile and resilient company that outperforms peers across the cycle.
So turning to Slide 2. Let me start with the macro backdrop. We’re continuing to characterize the current environment as relatively stable on the demand side, but increasingly constrained and more complex on the supply side.
So far this quarter, we are seeing higher volumes when compared to the same period over the past several years. And specific to global polyethylene, which goes into essential applications like packaging for food preservation, demand remains resilient. And this is evidenced by our strong pricing actions continuing to take hold. Additionally, we are seeing stability in both consumer and infrastructure applications, largely due to typical seasonal demand uplifts that we expected. And while some reports are showing subdued consumer confidence in many regions, purchasing patterns tell a different story. Retail spending for do-it-yourself and coatings-related applications is stable going into traditionally high seasonal periods.
Now the one area that is showing signs of declining demand since April is across automotive markets as consumers continue to delay large purchases. And while high fuel prices are driving some increased interest in electric vehicles, we have not yet seen that translate into increased sales.
Now in terms of supply dynamics, a meaningful portion of global oil, ethylene and polyethylene capacity remains off-line, constrained or otherwise disrupted as a result of the ongoing conflict in the Middle East. Now given the scale of these supply constraints, we believe the fundamentals are increasingly supportive of tighter near- to medium-term markets. So a conflict resolution and subsequent reopening of the Strait of Hormuz would begin to restore supply, but the impact would not reverse overnight. With capacity disruptions and inventories depleted, it will take several quarters for supply chains to normalize and inventories to rebuild.
Additionally, significant infrastructure across the Middle East has been damaged, prolonging the impact of the conflict further out than the timing of any potential resolution. Rapidly escalating petrochemical prices have led to cautious buying behavior in select areas, which is to be expected. Global oil inventories are also rapidly declining, reaching multi-year lows following a large build throughout 2025. And as we enter peak demand season, stockpiles are being drawn down at a record pace and the world is quickly approaching operational floor levels. The Americas, however, remain advantaged. Dow continues to benefit from strong feedstock availability in the region, well-supplied natural gas markets and elevated oil-to-gas spreads, reinforcing the region’s structural cost advantage and increasing export opportunities.
So in summary, demand remains largely stable and supply dynamics remain constructive. Over time, this combination should further support the current constructive pricing and margin environment.
Now turning to Slide 3. Constructive industry dynamics paired with our differentiated portfolio positions Dow well to capture meaningful earnings upside, both from an operational and commercial standpoint. We’ve already seen positive momentum from our global pricing actions, but with that, it’s important to note that pricing still remains below prior peak levels despite what we would characterize as an unprecedented supply environment. So there is a disconnect between supply disruption and full price realization, which we expect to continue improving over time.
And this was evidenced in April when pricing in many parts of the portfolio settled stronger than consultant forecast. In our largest operating segment, Packaging & Specialty Plastics, roughly 80%, 8-0, of our portfolio is tied to higher value, more resilient applications. Global polyethylene demand remains robust, especially in the Americas. And while we saw some prebuying activity in Asia and Europe, it has been followed by normal customer purchasing behavior. Additionally, we have seen no change globally in our order books regarding order cancellations, which is a positive sign of underlying demand and support for future margin stability.
In addition to the price increase that was implemented in April, we have a $0.20 price increase announced for the month of June, supported by industry market dynamics and historically tight supply. At the same time, we’re maintaining flexibility on our asset base, including progressing planned maintenance on our Terneuzen 3 cracker, our lowest cost asset in the European region, which we anticipate restarting this month. The work was completed on budget and on an adjusted time line that supported both idling of the asset in mid-2025 and a subsequent restart in line with the regional market demand.
And in our Industrial Intermediates & Infrastructure segment, supply-demand dynamics remain constructive, supporting positive pricing momentum across key value chains, and our order books for the segment are strong relative to prior periods.
Performance Materials & Coatings is entering a seasonally stronger demand period, especially in coatings, where we expect both near-term volume growth and margin expansion. Additionally, we are making significant progress against one of our largest near-term self-help actions, the shutdown of our higher-cost siloxanes unit in Barry, United Kingdom, which we began last month. The team executed the work safely, on budget and several weeks ahead of schedule.
So looking across the entire Dow portfolio, our key differentiators continue to be our feedstock flexibility in Europe, our geographic and asset integration, especially in the cost advantage Americas and the agile regional supply chains we built in every business that allow us to adapt and respond quickly. That combination allows us to capture upside when conditions improve while maintaining discipline during periods of volatility. Going forward, we’re focused on executing with discipline, driving pricing in every business and in every geography and leveraging our structural advantages to deliver consistent performance.
So with all the puts and takes, we expect to deliver second quarter earnings of approximately $2.2 billion, which is above current consensus and roughly 10% above our prior guidance. This is largely driven by continued resilience in polyethylene demand and pricing as well as margin upside in Industrial Intermediates & Infrastructure.
Michael Sison Wells Fargo Securities, LLC, Research Division
But anybody on the webcast, I am live on Bloomberg Messenger, if you do have a question, just send it to me. But I guess just let’s start with the better-than-expected 2Q, a little bit $200 million better than your initial guidance. Any color between the segments or the business units that is driving that upside?
Jeffrey Tate Chief Financial Officer
Sure, Mike. Even when we announced our earnings back at the end of April, one of the things that we did highlight is that we saw more potential upside than we did downside to our original guide, which was $2 billion. And in that original guide, there were two key things that we felt like there could be that upside that will come to fruition. And we’re seeing this materialize really across the entire portfolio, but two things really stand out. Obviously, the strong pricing momentum that we captured not only from the $0.10 in March, but also the $0.30 in April that we were capturing, which was higher than consultant forecast at the time. Consultant forecast were projecting $0.20 for April. And so capturing that $0.30 gave us a little bit more upside.
But we also, in our Industrial Intermediates & Infrastructure segment because of tightness that you continue to see in the industry on supply, have seen both polyols and MDI, really capture some of that upside for 2Q as well. So when you think about it, consensus right now is at $2.1 billion, which more than likely captured a lot of that polyethylene pricing for April. But then that additional upside that we’re seeing above consensus right now is really driven by what we’re seeing coming out of our II&I segment for both polyols and MDI.
Michael Sison Wells Fargo Securities, LLC, Research Division
Okay. We’ve seen price increases in MDI and the polyols side. Benzene is up though a lot. Is it the spread that has improved? Or is demand a little bit better?
Jeffrey Tate Chief Financial Officer
Well, I would say, obviously, we’re going into a higher demand season, right, here. And for us, and this is more of an overall Dow statement, for second quarter, June is really that peak demand month for us, where we capture about 40% of our volume during the month of June for the second quarter. So we’re going to be going into that ramp of the high seasonal volumes in June, while at the same time, capturing a lot of the pricing activity that we had already in the marketplace for II&I, A lot of that driven again by the tightness of supply.
