Q3 2024 Earnings Summary
- Dow has a strong liquidity position with $13 billion in total liquidity and no substantive debt maturities until 2027, providing financial flexibility to facilitate growth into 2025.
- Dow is poised for recovery in construction and durables markets, which will drive demand in their polyurethanes business, a good business with diverse downstream markets where Dow has strong positions.
- Silicones downstream applications are growing well, up 6% year-over-year, and strong growth in electric vehicles (up 13-14%) is driving silicones demand, positioning Dow for future growth.
- Dow is undertaking a strategic review of select European assets, primarily in the polyurethanes business, due to soft demand and regulatory challenges in the region. This may lead to asset shutdowns or divestitures, potentially impacting future revenues. ,
- The coatings business has been slow, with reliance on a housing market pickup to drive growth. Additionally, the monomers segment "needs to tighten up", indicating potential oversupply or weak demand, which could pressure margins.
- Despite reporting cash flow from operations of $800 million, this was down year-over-year, primarily due to higher inventories and labor-related supply chain disruptions, which may continue to strain cash flow and working capital.
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
EBITDA | Q3 2024 | “Relatively flat” vs. Q2 2024 (~$1,384MM = $819MM+ $565MM) | ~$1,218MM = Operating Income of $641MMPlus D&A of $577MM | Missed |
Net Income | Q3 2024 | “Slightly above” Q2 2024 ($458MM) | $24MM | Missed |
Working Capital Usage (Free Cash Flow) | Q3 2024 | $600MM–$800MM usage range | $1,158MM usage | Missed |
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P&SP Margins Outlook
Q: How will P&SP margins and EBITDA trend into 2025?
A: Despite issues at Texas-8 in Q3, Dow expects strong volume growth in Packaging & Specialty Plastics into 2025, with about 3% organic volume growth. Higher operating rates and add-backs from unplanned events are projected to add about $1 billion in EBITDA, increasing from a consensus of $5.6 billion in 2024. -
European Asset Review
Q: What is the status of the European asset review in polyurethanes?
A: Dow is reviewing its European polyurethanes assets, which are EBITDA positive and have good cost positions. The company is considering portfolio options to invest more in businesses with higher returns and downstream growth. The European polyurethanes assets make up about 20% of EMEA sales. -
Earnings Impact of Asset Changes
Q: How will asset closures affect future earnings?
A: Dow is tightening its footprint by moving capacity to lower-cost assets and running them at higher rates, which is expected to improve operating rates and positively impact the bottom line as it moves into 2025. -
Saskatchewan Project Returns
Q: Are Fort Saskatchewan production costs higher than Freeport?
A: The Fort Saskatchewan project will be advantaged on ethane, with ethylene costs among the best globally. Despite higher costs from the autothermal reformer, benefits from CO₂ sequestration and selling ethylene with zero Scope 1 and 2 emissions result in returns equal or higher than Texas-9, Dow's lowest-cost asset. -
Tariffs Impact
Q: How will increasing tariffs affect Dow's business?
A: Dow acknowledges tariffs in some businesses but remains a net exporter from the U.S. Gulf Coast due to strong competitive advantages. Increases in tariffs, like Brazil's rise from 12.5% to 20% on polyethylene imports, are seen as measures to protect domestic manufacturing. -
Feedstock Costs Outlook
Q: What is the outlook for U.S. ethane costs?
A: Dow expects ethane prices to range between $0.19 to $0.23 per gallon in the quarter, with frac spreads at $0.50 or below. Despite some fluctuations, Dow maintains very cost-advantaged positions. -
Cash Flow and Unique Cash Levers
Q: How does Dow view its cash flow outlook into 2025?
A: Dow generated $800 million in cash from operations in Q3, with a cash conversion cycle of 42 days. The company maintains total liquidity of $13 billion and commits to delivering at least $1 billion annually through unique-to-Dow cash levers. -
Polyurethane Market Outlook
Q: How is the polyurethane market expected to evolve?
A: Dow anticipates recovery in construction and durables markets, which drive polyurethanes. Destocking has run its course, and the company awaits an economic turn to stimulate these segments. -
Siloxanes Market Trends
Q: What is the outlook for the siloxanes market in 2025?
A: Dow has observed some tightening and pricing improvement in siloxanes but expects further rationalization. Growth in electric vehicles and eventual recovery in construction are anticipated to drive demand. -
Circularity and Long-term Contracts
Q: Can Dow secure long-term contracts for low-carbon polyethylene?
A: Dow remains confident in generating at least $500 million of additional earnings by 2030 from its "transform the waste" strategy, indicating strong customer demand for circular solutions. -
Licensing Income Timing
Q: Was the higher licensing income expected?
A: The higher licensing income was due to timing on engineering package deliveries and milestones; it was relatively small in terms of the beat on P&SP. -
II&I Segment Performance
Q: Why did the II&I segment's EBITDA soften?
A: The segment faced price pressure on PO polyols and lower MDI volumes due to a third-party outage. The MDI issue is a one-time event expected to correct itself. -
Coatings Market Outlook
Q: Do you see improvement in operating rates for coatings?
A: Despite a slow market, Dow reported strong volume growth by growing with strategic customers. Recovery in the housing market is expected to be a significant driver for the coatings business. -
Policy Impact on Plastics Treaty
Q: How is Dow positioning regarding the UN Global Plastics Treaty?
A: Dow continues to advocate focusing on plastic pollution solutions rather than production caps or bans and is surprised by recent shifts in U.S. administration positioning. -
Chlorine Integration in Europe
Q: Are polyurethane decisions separable from chlorine assets?
A: Decisions regarding European polyurethanes assets are not separable from chlorine integration; Dow will closely coordinate with its chlorine assets and partners. -
Devon JV Expansion
Q: Is there appetite to expand the Devon JV?
A: Dow is pleased with the Devon partnership, which helps offset feedstock exposures, and continues to ramp up activity, suggesting potential for expansion.