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Dow Urethane Comments from Investors Call

Dow Inc. (DOW) CEO Jim Fitterling on Q2 2021 Results – Earnings Call Transcript

Judging by the questions, it seems that the analysts are mainly interested in polyethylene . . .

Jim Fitterling

Thank you, Pankaj and thanks to everyone for joining us today. Starting on Slide 3, Dow continue to capture strong demand across our value chains during the second quarter. Team Dow is focused on execution, cost discipline and balanced capital allocation, enabled us to deliver our strongest quarterly earnings performance in the company’s history, both pre and post spin with substantial growth in net sales and earnings year-over-year and sequentially.

We achieved double-digit sales gains in all operating segments and businesses. A 66% increase in sales relative to the year-ago period, was led by local price improvement of 53% combined with a 9% volume increase. Robust demand and the recovery of the global economy continues from the onset of the COVID-19 pandemic.

Sales increased 17% sequentially, underpinned by tight supply and demand fundamentals across all of our value chain. We delivered higher operating EBIT of $2.8 billion year-over-year and $1.3 billion sequentially, with improvements in all segments and businesses. These gains were fueled by strong top line growth and margin expansion.

We also benefited from increased equity earnings, up more than $370 million year-over-year, led by higher margins at Sadara and the Kuwait joint ventures. Sequentially, equity earnings were up $54 million primarily from the Thai joint ventures.

Cash flow from operations was $2 billion and free cash flow was $1.7 billion, up significantly both year-over-year and sequentially. This enabled a valid execution of our capital allocation priorities. We continued our proactive liability management actions by reducing gross debt by more than $1 billion in the quarter, and reducing our annual interest expense by $35 million. Today Dow has no substantial long-term debt maturities due until the end of 2025.

We also returned more than $700 million to shareholders in the quarter through our industry-leading dividend and we resumed our share buyback program to cover dilution. Finally, we continue to advance Dow’s ESG priorities by releasing our consolidated ESG report, INtersections, which provides enhanced transparency on our environmental, social and governance priorities. The interactive digital report can be found at the top of our corporate website.

In summary, Team Dow maintained a relentless focus on meeting increasing customer demand despite lingering supply impacts across many value chains and marking a strong rebound from Winter Storm Uri. We continue to execute on our operational and financial playbook, delivering another strong quarter and a solid first half performance.

The Polyurethanes & Construction Chemicals business increased net sales compared to the year-ago period on strong local price in all value chains, demand recovery and durable goods and appliances and construction end markets and currency tailwinds. Despite industry supply chain challenges across a number of end markets, including mobility, the business delivered sequential sales growth on increased local price and volumes.

Howard Ungerleider

Moving to Industrial Intermediates & Infrastructure, strong consumer demand for durable goods continues underpinned by order strength throughout the value chain. Housing and construction markets particularly in the U.S continue to support robust demand for polyurethane applications. Industrial and oil related and markets are expected to continue to see gradual recovery sequentially, providing additional support for solvents and other industrial solutions. We also expect $30 million of additional planned maintenance turnaround spending at our joint ventures in the quarter.

Kevin McCarthy

Yes. Good morning. Jim, I wanted to ask you about industrial intermediates where your operating income more or less doubled sequentially. Two parts. Can you talk about the upside relative to your expectations 3 months ago? How much might have been polyurethanes versus other industrial chemicals? And then given that momentum and your sales forecast of flat to up 3%, do you have a strong view today as to whether third quarter could be flat, up or down profit wise sequentially?

Jim Fitterling

Good — that’s a good question. In Industrial Intermediates & Infrastructure on the polyurethane side, we saw strong demand for both polyols and isocyanates in the polyurethane side and in construction chemicals for chemicals that are made from those raw materials going into not only single-family homes, but also larger construction like commercial construction. I think those demands are going to continue to stay strong and the supply demand will continue to be tight. You saw strong pricing in both PO as well as isocyanates. There’s not a lot of new capacity coming on in that space.

And then additionally, in ethylene oxide and ethylene oxide derivatives in the industrial solutions business, those end markets are continuing to grow. And on top of that, we’ve several new capacity adds that are coming for things like pharmaceutical incipient, a product called polyethylene glycol that we just made an expansion on, we’ve got some other materials coming through there. And we have a host of low VOC solvents in that portfolio that go into the coatings sector.

So around the world, as coatings move away from traditional organic solvents into waterborne or lower VOC solvents, that benefits our portfolio. That same trend, by the way, helps us in cleaning chemicals or cleaning products that you might use in your home, and we see that both from a brand owner and an industrial side as well. So I think those will continue our expectation on third quarter in those businesses are very similar to second quarter.