Dow Inc. (DOW) Q1 2023 Earnings Call Transcript

Apr. 25, 2023 11:15 AM ETDow Inc. (DOW)

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Q1: 2023-04-25 Earnings Summary

EPS of $0.58 beats by $0.20 | Revenue of $11.85B (-22.36% Y/Y) beats by $516.33M

Dow Inc. (NYSE:DOW) Q1 2023 Earnings Conference Call April 25, 2023 8:00 AM ET

Company Participants

Pankaj Gupta – Investor Relations, Vice President

Jim Fitterling – Chairman and Chief Executive Officer

Howard Ungerleider – President and Chief Financial Officer

Jim Fitterling

Thank you, Pankaj. Beginning on Slide 3. In the first quarter, Team Dow demonstrated its agility, delivering sequential earnings improvement in what continues to be a challenging environment. These results reflect our competitive advantages and operating discipline as we leveraged our structurally advantaged feedstock positions, proactively aligned our operating rates with market demand and focused on higher-value products where pockets of demand remain resilient, such as pharmaceutical applications, energy, commercial building and construction and mobility end markets. Additionally, our actions to deliver $1 billion in cost savings in 2023 are progressing with $100 million achieved in the first quarter. These actions will ensure we continue to focus on cash flow generation through our low-cost to serve operating model.

Turning to the details of the quarter. Net sales were $11.9 billion, down 22% year-over-year. Declines in all operating segments were driven by continued soft global macroeconomic activity. Sales were flat sequentially, as gains in performance materials and coatings and packaging and specialty plastics offset declines in industrial intermediates and infrastructure. Volume decreased 11% year-over-year, led by declines in Europe, the Middle East, Africa and India or EMEA. However, volumes increased 2% sequentially on gains in performance materials and coatings and packaging and specialty plastics.

Local price declined 10% year-over-year and 4% quarter-over-quarter, due to industry supply additions in some businesses amidst soft global economic conditions. Operating EBIT for the quarter was $708 million, down year-over-year due to lower local prices and volumes. Sequentially, operating EBIT improved by $107 million, with gains primarily driven by performance materials and coatings. Cash flow from operations was $531 million in the quarter. On a trailing 12-month basis, cash flow conversion was 85%.

Moving to the Industrial Intermediates & Infrastructure segment. Operating EBIT for the segment was $123 million compared to $661 million in the year ago period. Results were driven by lower pricing and demand, as well as higher energy costs, particularly in EMEA. Sequentially, operating EBIT was down $41 million. Lower energy costs were more than offset by decreased demand and pricing for propylene oxide, its derivatives, and in isocyanates, in polyurethanes and construction chemicals. Industrial Solutions experienced lower volumes due to weather-related impacts and a third-party supply outage combined with lower demand in industrial end markets.

hristopher Parkinson

Okay. Thank you so much. It’s obviously been a few years with China now finally emerging from COVID. But can you just kind of give us your latest and greatest thoughts on your three main segments regarding the potential for new Chinese supply across polyethylene, MDI, and then just the remainder siloxanes, which you’ve already been mentioning. Just given that they’re finally emerging from this, just any update on your thought process there will be incredibly helpful. Thank you so much.

Jim Fitterling

Sure. Let me try to do this MDI and siloxanes. Look, on siloxanes, there were about four additions in China last year on siloxanes capacity. You had each one of them range, they were between 100,000 and 200,000 tons each. And so — there are some more planned additions coming throughout this year. But I think the net total — the biggest year was last year that we saw about 650,000 tons added. So I think we’re through that.

MDI, I think, is a timing game, as we’ve said before, I feel good about where supply/demand is with MDI. In the short term, the operating rates have been between 75% and 80%. And it’s all depending on your view of how fast the Chinese capacity is going to come on. We think it’s going to be spread out a little bit more over time versus all coming on in 2023. And so, our view is that, the industry operating rates should hold up in that high 70s, almost 80% range, which historically is a constructive range for MDI.

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