Yahoo Finance Dow Inc (DOW) Q1 2024 Earnings Call Transcript Highlights: Navigating Market Challenges with ...
Net Sales: $10.8 billion, down 9% year-over-year, up 1% sequentially.
Volume: Increased 1% year-over-year; excluding Hydrocarbons & Energy, up 5%.
Local Price: Decreased 10% year-over-year, flat sequentially.
Operating EBIT: $674 million, down $34 million year-over-year, up $115 million sequentially.
Cash Flow from Operations: $460 million for the quarter.
Shareholder Returns: $693 million returned to shareholders.
Performance Materials & Coatings Segment EBIT: $41 million, up $6 million year-over-year.
Industrial Intermediates & Infrastructure Segment EBIT: $87 million, down from $123 million year-over-year.
Packaging & Specialty Plastics Segment EBIT: $605 million, down $37 million year-over-year.
Release Date: April 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Jim, a quick question around global ethylene and polyethylene supply-demand fundamentals. On the surface, as I sort of take a look at global utilization rates, they seem relatively slack. But then as one sort of thinks through marginal producer economics, I mean, they seem pretty weak right now and we're obviously hearing more and more announcements of capacity closures, out in Europe. So how do you see utilization rates pan out in '24 and beyond? A: Hassan, good question. I would say, obviously, there are differences around the globe depending on the cost positions. And we have a footprint that is very highly advantaged in North America and Latin America and the Middle East. Europe is right now where you've seen most of the focus on supply reductions with a couple of announcements of crackers being shut down. I'd also say China, there's a lot of pressure on operating rates there because the cash margins are negative and have been negative for some time and there's a big arbitrage window open between the United States and China. And so all of those things have really led to much higher operating rates in the cost-advantaged regions.
Q: Jim, last quarter, you gave a bit of an earnings walk up to about $6.4 billion, $6.5 billion of EBITDA this year. Do you still believe that number is achievable, if not beatable, given the solid Q1 results? A: David, I think with the first quarter results and the $200 million that Jeff mentioned on the call, we're right on track. I would add that, as you go into third quarter, now that we'll have another $100 million from the restart of Glycol 2 in Plaquemine, so $100 million third quarter, $100 million fourth quarter kind of numbers. So we're starting to see that run rate and that run rate right in line with what we need to deliver that $6.4 billion.
Q: If I could just ask, in the PSP guidance for 2Q and that step up to $150 million, can you just walk us around the world and tell us sort of how you're bridging that $150 million? A: Yes. Vincent, thank you. And it's mostly a step-up in integrated margins. I think we're looking at about $0.03 a pound globally in integrated margin increase. North America -- Europe may be a little bit more than [3], rest of the world is pretty flat. We've got, obviously, kind of a one-time improvement. We had Bahia Blanca down, as mentioned, in the first quarter -- for part of first quarter to the -- beginning of it because of the storm they had in December. But it's back. And so you'll see a $25 million improvement there. So those 2 positives are $175 million.
Q: And let me also echo my congratulations to Pankaj. Best wishes in Industrial Solutions. Jim, I was wondering if you could talk about operating rates across the Dow portfolio in general. How has that -- that appears to be one of the positives in the quarter. If you could offer some commentary on your expectations for the Dow engine in 2Q and beyond on the operating rate front. A: Sure. Yes, happy to do that, Frank. I'd say globally, at a high level, we were at about 6% which is up quarter-over-quarter. It's -- higher demand obviously drove that, lower energy costs in Europe were a big driver of that as well. The United States Gulf Coast, Argentina, Canada have been running at well north of 80%, some as high as 90% kind of rates. Europe saw the biggest individual step-up, as I mentioned previously but all regions saw a step up in rates. And so I'm optimistic that, that's just a sign of underlying demand coming. So you'd probably think -- I think I mentioned like about 10 percentage points up. That's good ballpark for the whole global number with North America, Latin America being -- continue to be strong and high rates and Europe being a big part of that step up.
Q: I wanted to ask a question about the hydrogen-fueled cracker you're building in Alberta. And then you also have the investments with the Mura pyrolysis feedstock. For those investments, how would you expect the unit costs of those downstream crackers to compare to, say, Texas-9 on a unit cost? And to drive the return on those projects, do you have sales agreements for the product at a premium price? A: Steve, on the hydrogen-fueled cracker, we recover part of the higher unit costs there through the price on carbon. And the team is working on as well, trying to get the premium pricing for that offtake. And I would say our view on that is that it will be there. There's a strong demand for low-carbon emission products, ethylene-based materials. And so we're working on that right now. But the returns on that project are going to be equal or greater than Texas-9 all in. And so when you take a look at it, we are very optimistic about where we're going to be with that project.
Q: I was wondering if you could share some thoughts on free cash flow for '24 since you kind of reiterated your expectations there on EBITDA. How do you see that tracking? And any update you can provide on any of the nonoperating items that you thought could bridge free cash flow for this year as well? A: Jeff, do you want to walk through what you think the free cash flow outlook is for the year? And I would just say, Josh, the one thing we have to remember, as we're turning the corner here, December was the low point from a pricing standpoint and we've seen successive improvements January, February, March. So we go from a use of cash -- a source of cash in the fourth quarter to use of cash in the first quarter. But as we make that turn and earnings improve, we'll start generating the free cash flow out of higher earnings.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
