DOW Q2 2024 Earnings Call Transcript

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Provided by Quartr
July 25, 2024

Key Takeaways

  • In Q2, Dow delivered sequential top- and bottom-line growth and a third consecutive quarter of year-over-year volume gains, with net sales of $10.9 billion and operating EBIT of $819 million, up $145 million sequentially.
  • The Packaging & Specialty Plastics segment saw operating EBIT decline by $215 million year-over-year due to lower integrated margins, higher planned maintenance, and reduced non-recurring licensing sales.
  • Performance Materials & Coatings generated operating EBIT of $146 million, up $80 million year-over-year, driven by broad-based volume growth across all businesses and regions.
  • Dow expects Q3 earnings to be slightly above Q2, with modest sequential top-line growth in polyethylene offset by planned turnaround activity in its U.S. Gulf Coast crackers.
  • Startup of the Glycol II facility in Louisiana will ramp through Q3, providing an estimated $75 million sequential EBITDA tailwind.
AI Generated. May Contain Errors.
Earnings Conference Call
DOW Q2 2024
00:00 / 00:00

There are 16 speakers on the call.

Operator

Thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dow Inc. 2024 Earnings Report. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. Thank you. I will now like to turn the conference over to Andrew Ryker. Andrew, the floor is yours.

Speaker 1

Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I'm Andrew Reicher, Dow's Investor Relations Vice President. Leading today's call are Jim Fitterling, Dow's Chair and Chief Executive Officer and Jeff State, Chief Financial Officer.

Speaker 1

Please note our comments contain forward looking statements and are subject to the related cautionary statement contained in the earnings news release and slides. Please refer to our public filings for further information about principal risks and uncertainties. Unless otherwise specified, all financials, where applicable, exclude significant items. We will also refer to non GAAP measures. A reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in the earnings news release and slides that are posted on our website.

Speaker 1

On Slide 2 is our agenda for today's call. Jim will review our Q2 results and operating segment performance. Jeff will then share an update on the macroeconomic environment and modeling guidance, followed by a discussion on how our proven playbook will advance our near term priorities and support growth. Jim will then provide more color on key milestones for our long term strategy, including how we will capture earnings upside as macroeconomic conditions improve. Following that, we will take your questions.

Speaker 1

Now, let me turn the call over to Jim.

Speaker 2

Thank you, Andrew. Beginning on Slide 3. In the 2nd quarter, TeamDAO delivered sequential top and bottom line growth as well as the 3rd consecutive quarter of year over year volume growth. We achieved this despite a slower than expected global macroeconomic recovery, particularly in areas like building and construction and consumer durables. Net sales were $10,900,000,000 down 4% versus the year ago period and up 1% sequentially, driven by gains in packaging and specialty plastics and performance materials and coatings.

Speaker 2

Volume increased 1% versus the year ago period with gains led by the United States and Canada. Excluding hydrocarbons and energy sales, which were down primarily due to lighter feed slate cracking in Europe, volume increased 4%. Sequentially volume increased 1% with gains in all regions except Asia Pacific, which was flat. Local price decreased 4% year over year. Sequentially, local price increased 1% led by gains in Europe, the Middle East, Africa and India or EMEA.

Speaker 2

Operating EBIT was $819,000,000 up $145,000,000 sequentially, reflecting gains in Packaging and Specialty Plastics and Performance Materials and Coatings. Cash flow from operations was $832,000,000 on higher earnings and an efficient release of working capital, resulting in an 85% cash flow conversion on a trailing 12 month basis. Our focus on cash flow generation enabled $691,000,000 in returns to shareholders, including $491,000,000 through dividend and $200,000,000 in share repurchases. In June, we published our 2023 Intersections progress report. This report showcases the positive impact that we are making on the environment and society and importantly how those actions support long term profitable growth.

Speaker 2

Now turning to our operating segment performance on Slide 4. In the Packaging and Specialty Plastics segment, operating EBIT was $703,000,000 down $215,000,000 year over year. This was driven by lower integrated margins, higher planned maintenance activity and lower non recurring licensing sales. Local price declines were due to lower downstream polymer prices, primarily in Asia Pacific. Volume decreased year over year as higher demand for functional polymers and polyethylene was more than offset by lower merchant hydrocarbon sales, primarily due to lighter feed slate cracking in Europe.

Speaker 2

Sequentially, operating EBIT increased by $98,000,000 primarily due to higher integrated margins behind both price and volume gains. Moving to the Industrial and Immediates and Infrastructure segment, operating EBIT was $7,000,000 an improvement of $42,000,000 versus the year ago period. Results were driven by improved equity earnings, partly offset by lower integrated markets. Local price declined year over year, but volume was up driven by gains in polyurethane and construction chemicals. Sequentially, operating EBIT decreased $80,000,000 driven by higher planned maintenance activity and higher equity losses as well as lower volumes.

Speaker 2

And in the Performance Materials and Coatings segment, operating EBIT was $146,000,000 up $80,000,000 compared to the year ago period, driven by broad based business and geographic volume growth. Local price declined year over year, but volume was up, driven by gains in both businesses and all geographic regions. Sequentially operating EBIT increased $105,000,000 driven by volume and price gains in both businesses and lower planned maintenance activity. Now I'll turn it over to Jeff to review our outlook and share some examples of our playbook in action.

Speaker 3

Thank you, Jim, and good morning to everyone joining our call today. Moving to Slide 5. In the near term, we expect macro dynamics to remain largely unchanged. While global manufacturing PMI has been positive

Speaker 2

since February

Speaker 3

2024, the pace of the global economic recovery has decelerated slightly. This is primarily led by China where economic in the Q2 was lower than the market expected. Overall, we continue to keep a close eye on the weight of inflation on the U. S. Consumer, global interest rates and geopolitical tensions.

Speaker 3

Looking across our 4 market verticals, packaging demand is seeing global growth, primarily in the U. S. And Canada as the industry experiences robust domestic and export demand for polyethylene. In Europe, soft demand across the value chain is reflected in manufacturing PMI levels, which despite stabilizing remained in contractionary territory. And in Asia, packaging demand has remained steady, but the region has been impacted by poor congestion and rising transportation costs.

Speaker 3

Infrastructure demand, primarily residential construction, continues to be soft across most regions. In June, existing U. S. Home sales, which tend to drive residential paint sales from both buyers and sellers, were below prior year levels, and building permits were down slightly year to date through June. Eurozone construction PMI remains a contractionary territory and declined to 41.8 last month, down from 42.9 in May.

Speaker 3

And in China, new home prices were down 4.5 percent year over year in June. Consumer spending has shown resilience in most regions except Europe where consumer confidence remained negative in July. In the U. S, retail sales are up 2.3% year to date through June, but furniture and bedding sales remain low. In China, retail sales increased by 2% year over year in June, but marked the 1st month of deceleration since July 2023.

Speaker 3

And in mobility, China auto production was down 2.1% year over year in June amidst the potential for tariff increases and flow to materialize incentives. In the U. S, auto sales were down year over year in June after increasing by more than 2% in May. Against this backdrop, we delivered the 3rd consecutive quarter of year over year volume growth and will continue to leverage our differentiated portfolio to capitalize on areas of demand strength, while maintaining operating and financial discipline. And I'll touch on these actions in more detail shortly.

Speaker 3

Now turning to our outlook on Slide 6. We expect 3rd quarter earnings to be slightly above 2nd quarter performance, continuing our strength of sequential improvement. We experienced minimal disruption from Hurricane Barrel in the U. S. Gulf Coast and we expect the positive sequential signals in some markets will continue.

Speaker 3

In the Packaging and Freshly Plastics segment, we expect modest top line sequential growth. Domestic and export demand for polyethylene in North America will remain robust and EMEA will experience typical lower demand seasonality from the summer holidays. In addition, the completion of our cracker turnaround in Sabine, Texas in the 2nd quarter will be offset by another planned turnaround at our St. Charles, Louisiana cracker in the 3rd quarter. In the Industrial, Intermediates and Infrastructure segment, market conditions remain mixed.

Speaker 3

Demand in energy and pharma end markets remains resilient, but consumer durables demand has not shown any significant signs of inflection. We expect an approximately $25,000,000 headwind due to the planned maintenance activity in the U.

Speaker 2

S. Gulf Coast. Importantly,

Speaker 3

at the end of June, we successfully started up our Glycol II facility at Louisiana Operations, which will ramp through the quarter and provide a sequential tailwind of $75,000,000 In the Performance Materials and Coatings segment, we continue to see growth in downstream silicone applications across most end markets, but siloxane prices are still under pressure. Lower seasonal demand for building and construction end markets are expected to be a headwind of approximately $50,000,000 while lower planned maintenance activity will contribute a $25,000,000 tailwind. Moving to Slide 7. As we navigate the current market conditions, we are focused on executing our proven playbook to deliver increased value over the cycle. We benefit from our global asset footprint with leading positions in every region.

Speaker 3

This is particularly true in the cost advantaged Americas, where approximately 65% of our global production capacity is located, and we expect to reach 70% by 2,030. With leading low cost feedstock positions, plus our industry leading feedstock flexibility, Dow is well positioned to capture growing global demand for our products. And supported by our solid financial position, we remain on track to deliver our countercyclical growth investments. TeamDao continues to operate with discipline as we maintain our low cost to serve mindset, focus on maximizing cash flow and further strengthen our financial position. Our actions include continued de risking of our pension liabilities with minimal, if any, cash outlay.

Speaker 3

In fact, this month, we initiated the termination process for 2 of our U. S. Pension plans by the end of 2025. While not impacting previously earned benefits, Dow is able to provide a secure, cost effective way of paying pension benefits and reducing administrative costs and risk to the company. Lastly, in the near term, we expect to enhance our cash flow generation by executing over $1,500,000,000 in unique KDAO levers.

Speaker 3

We plan to use the proceeds to support our strategic growth investment, including our Path to Bureau project in Fort Saskatchewan. In addition, we expect to receive more than $1,500,000,000 in cash and tax incentives by 2,030, which is closely aligned with our CapEx deployment for the project. With that, I'll turn it back to Jim.

Speaker 2

Thank you, Jeff. Moving to Slide 8. Our expectations for 2024 reflect a slower pace of recovery in certain end markets. Dow is positioned to capture more than $3,000,000,000 in EBITDA upside as we return to mid cycle earnings levels. We are encouraged by the positive top line signals across our portfolio.

Speaker 2

This is demonstrated by our year over year volume improvement in the last three quarters as well as price stabilization across the entire enterprise over that same period. In Packaging and Specialty Plastics, we anticipate supply demand fundamentals to continue improving as the recent polyethylene capacity builds in North America have been fully absorbed by growing global demand. We're also starting to see rationalization of higher cost assets, particularly in Europe. And going forward, we do not expect to see any new capacity in the cost advantaged Americas until the 2026, 2027 timeframe. In Industrial, Intermediates and Infrastructure, we've maintained a disciplined approach to our inventory management.

Speaker 2

The beginning of an interest rate cutting cycle will accelerate demand in our polyurethanes business. In Industrial Solutions, the majority of our U. S. Gulf Coast capacity is aligned to higher value EO derivatives. With the successful restart of our Glycol II facility Louisiana, we will see positive impact in consumer, mobility, pharma and energy end markets.

Speaker 2

And in Performance Materials and Coatings, industry siloxane capacity additions are expected to slow due to prolonged negative cash margins impacting non integrated players. And lastly, our coatings business is highly correlated to existing home sales with market demand forecasted to see pre pandemic levels by next year.

Speaker 4

With

Speaker 2

these positive indicators combined with an economic recovery, Dow is positioned to capture significant annual earnings upside at mid cycle levels. Next on Slide 9, the work we've done to strengthen our financial foundation has allowed us to invest counter cyclically in lower risk, higher return projects that will drive more than $3,000,000,000 in annual earnings growth by 2,030. Our near term investments are progressing and remain on track to deliver more than $2,000,000,000 of underlying mid cycle EBITDA by mid decade. To date, we have added the capacity to deliver $800,000,000 of that $2,000,000,000 So far this year, we've enhanced our product mix to produce higher value elastomers for photovoltaic films and ethylene copolymers at our site in Tarragona, Spain.

Speaker 4

We're

Speaker 2

also advancing multiple downstream silicones debottlenecking projects to support growth for liquid silicone rubber and it eases. Our team in Fort Saskatchewan is making solid progress on our path to 0 project. Phase 1 startup is expected in 2027 and Phase 2 will start up in 2029. The project will deliver an additional $1,000,000,000 of EBITDA annually at full run rates by 2,030. Construction continued in the Q2 where we started our piling program, which will anchor the foundation of our new net zero cracker.

Speaker 2

Major foundation work is expected to begin in the Q3. We're also advancing our transform the waste strategy to deliver more than $500,000,000 in incremental underlying EBITDA by 2,030 through partnerships and direct investments. In June, we announced the Dow signing agreement to acquire Circulus, a leading U. S.-based mechanical recycler. This will help us accelerate our goals, while enabling more high performance circular products that brands and customers are demanding.

Speaker 2

We expect the deal, which includes 2 facilities with combined capacity of 50,000 metric tons of recycled materials annually to close in the Q3. Consistent with our best owner mindset, we also announced in the Q2 that we reached an agreement with Arkema to sell our Laminated Adhesives business, which is part of the Packaging and Specialty Plastics portfolio. That transaction is expected to close by the Q4 of 2024. And lastly, in the second half of the year, we're planning to commercialize products with greater circularity using offtake from both the Valorigen mechanical and URA advanced recycling facilities. In closing, on Slide 10, Dow remains focused on driving earnings growth by executing our playbook, delivering on our capital allocation priorities and closely managing costs as we advance our long term strategy.

Speaker 2

We're committed to operational and financial discipline. We've delivered returns and cash generation better than our peer benchmark, and we will maintain our low cost to serve mindset while capturing high value demand and optimizing margins. Our financial flexibility allows us to invest counter cyclically in higher value areas that will raise our underlying earnings and drive circularity. With all of this, Dow is well positioned to create significant upside in comp and bottom line growth as cycle dynamics improve and we unlock the full benefit of these investments enabling higher shareholder returns. With that, I'll turn it back to Andrew to get us started with the Q and A.

Speaker 1

Thank you, Jim. Now let's move on to your questions. I would like to remind you that our forward looking statements apply to both our prepared remarks and the following Q and A. Operator, please provide the Q and A instructions.

Operator

Thank you. We will now begin the question and answer session. Your first question comes from Hassan Hammad with Alembic Global. Please go ahead.

Speaker 5

Good morning, Jim and Jeff. Just a question around Q3 sequential guidance. Particularly as I sort of take a look at some of the commentary around P and ST, it seems that you guys are looking for relatively flat EBITDA sequentially. Obviously, I understand you guys have the St. Charles cracker sort of planned maintenance, but I'm just trying to get a better sense of what's baked into that guidance from an underlying fundamentals perspective.

Speaker 5

Meaning, obviously, you guys, the industry has North American Q3 price hikes on the table. It seems inventory levels are down. It seems exports have been sort of steadily picking up. So just if you could give me a sense of beyond your planned maintenance, what you guys have baked into those fundamentals for the Q3 guidance?

Speaker 4

As we look at the outlook for P and L at the end of the Q3, I do expect

Speaker 2

You got a combination of ways with

Speaker 4

the macro numbers and directions correct.

Speaker 2

We do expect and we have in

Speaker 4

the plan that we expect ethane to be up

Speaker 2

$0.01 or $0.02 is not instantaneously

Speaker 4

as we sit here today.

Speaker 2

But I do expect it will

Speaker 4

be. One of the reasons not gas and ethane so low is because

Speaker 2

you have free flow and free flow due to Hurricane Farrell and that backs up volume here in the Gulf Coast. That's going to reverse itself. But I

Speaker 4

think when that happens, our expectation is you'll see some ethane pricing move up.

Speaker 2

In Europe, we have still positive pro naps spread, but

Speaker 4

it's a little bit less than what

Speaker 2

it was in the second quarter, but it's still very advantageous for us to crack propane. I mentioned cracking light. We cracked light in the quarter, which led to less byproduct sales for cracker byproducts in Europe. But the derivative demand is good. If you look at derivatives volumes, across the board they've been up.

Speaker 2

Asia was a little bit low in the Q2 mainly because Asia was pushing a lot of export volumes out, especially in China to get ahead of some tariff barriers. And that kind of caused some congestion over there. I think that's working itself out and I think we'll see continued strong export environment out of

Speaker 3

the U. S. Gulf Coast.

Speaker 2

As you mentioned, inventories are low right now. Inventories are right in line with where they've been historically and exports are very strong. So I do think the environment is there for pricing to take hold in

Speaker 4

the Q3. I expect the

Speaker 2

derivative volumes to be strong. We've got advantaged cost positions and operating rates are strong for us. So I think net turnarounds won't be any more than they were in the Q2. I think you'll see some slight improvement in Q3.

Operator

Your next question comes from the line of Vincent Andrews with Morgan Stanley. Please go ahead.

Speaker 6

Thank you and good morning everyone. Jim, I'd love to get your sort of high level thoughts on 2 things that might have opposite reactions. 1, it does seem like we're finally going to get into a period where interest rates are going to come down, which I would expect to be broadly positive for your business, particularly your exposure to building and construction. But politically, we may be also reentering a period geopolitically with tariffs and duties and things like that. So I'm wondering if you can compare and contrast sort of what the impact of both of those dynamics could be for Dow as we look into 2025?

Speaker 4

Good morning. Thanks. Happy to

Speaker 2

do that. On interest rates, we had expected that by this time we probably have seen 2 or 3 interest interest rate cuts in the year. We haven't seen the 1st one yet. I do think the expectation is coming. If you look at the housing market, I think you're seeing the weight right now

Speaker 4

of the higher interest rates on

Speaker 2

a housing. You're seeing it on new builds, you're seeing it on

Speaker 4

inventories that are kind of stacking up out there.

Speaker 2

And part of it's

Speaker 4

because people are unable to qualify for mortgages as you see is high rate. So I think when we start to see mortgage rates get something like a 5 handle on it, you're going to see a couple of things happen. We're going to see

Speaker 2

people who

Speaker 4

finance mortgages at these higher rates of selling customers that will get some advantage to do a refinance. You're going to see people who've been sitting on the sidelines with properties they want to sell, move in to start to sell

Speaker 2

them because people can get qualified for the mortgages and you're going to start

Speaker 4

to see building credits increase. In polyolethanes and construction chemicals, when that starts to happen, you get a domino effect that happens. You get both existing ones there and you don't start anything.

Speaker 2

That drives volume.

Speaker 4

And then of course, anytime you have that, you've got

Speaker 2

appliances, carpets,

Speaker 4

all the other things that go on with it. And so that tends to rise about pretty quickly. We haven't seen that yet. Obviously, things we're managing it closely, but

Speaker 2

we haven't

Speaker 4

seen that tick up.

Speaker 2

On the geopolitics side, yes, I think on what you

Speaker 4

view on both sides on the political spectrum, you're expecting a more percutaneous tone that we're going to come out from both sides. I would say that the big driver behind that is in many cases where a lot of capacity has been built internally. So

Speaker 2

enough data to suggest that

Speaker 4

they're being subsidized and those products have been flooded into other markets. And we're starting to see antidumping cases being brought against China around the world in different areas. And so I think you are going to see activities that are going to

Speaker 2

try to halt some of that from happening

Speaker 4

in concert with trying to bring manufacturing back to date. Most of the manufacturing and restoring them into Mexico. If you think about it

Speaker 2

from our perspective,

Speaker 4

we haven't had time to see the impact from semiconductors and other things being invested. So that will take a few years to get to market. But I think we're going to see increased rates on a whole host of things, most of them in the 25% to 50% range. And most of that is what people believe is the

Speaker 3

amount of subsidies going on

Speaker 2

to those markets today. So we're prepared for whatever case we get depending

Speaker 4

on the outcome of the election. And as always, we just have to get in there and make sure that even side understands the supply chains, how product flows and what's important to keep industry moving, not just here, but in Europe and around the world.

Operator

Your next question comes from the line of Steve Byrne with Bank of America. Please go ahead.

Speaker 7

Yes. Thank you. And Jim, if you change your audio in some way, it would really be helpful. We're having a really hard time hearing you. I have a couple of questions regarding your Slide 9.

Speaker 7

With respect to your Fort Saskatchewan project, that $1,000,000,000 EBITDA on a per pound basis, is that comparable to what you would expect mid cycle for your existing assets, EBITDA per pound for polyethylene? Or is this an expansion? And do you have customer commitments that give you that confidence in that in the profitability of that? And maybe just an extension on this that the 3,000,000 tons of transform the waste, the incremental EBITDA on that per pound, I think there must be a huge range depending on the type of product there because you have a competitor that has a similar objective and the incremental EBITDA per pound is 3 times this. And I would assume that it's relevant to how much is mechanical versus how much is, say, paralysis driven?

Speaker 7

Can you comment on where do you see the most profitable outlook in your Circular Plastic platform?

Speaker 2

Yes. There could be

Speaker 4

some debt that we're going to sustain in that effort. But in general, mainly because in terms of capital, our flexible funds, we believe because of the high quality, which is what you need to go towards margins,

Speaker 2

you guys

Speaker 4

have the inventory cycle. On the cannabis side, in the surplus investment, that's a great position.

Speaker 2

We're focused on

Speaker 4

to take the company out of circulation and move the quality of that 50,000 tons per year of waste up allows us to get

Speaker 2

the kind of

Speaker 4

margin upward over ROADMTE that we need to deliver about 500 And so it's going to be different by different markets, but it's all going to be driven by the quality of the material that we produce out of those assets. It certainly is a demand that they are ready to be presented to supply, multiply and supply and high quality recycle content.

Operator

Your next question comes from the line of David Begleiter with Deutsche Bank. Please go ahead.

Speaker 8

Thank you. Good morning. Jim, your run rating at roughly $6,000,000,000 of EBITDA, Consensus for next year is $7,300,000,000 How much of that earnings ramp is in Dow's control?

Speaker 2

David, the biggest will be what we see in terms of the durable goods market and the housing market coming back. Plastics right now, PNSP, silicones and coatings, I think we have a pretty good line of sight. And with glycol 2 coming back and I99, we feel good about that. The real question mark will be how quickly does polyurethanes come back. And that's going to be driven by what happens with interest rates and what happens in housing and construction.

Speaker 2

That's not just here, that's Europe and Asia as well.

Operator

Your next question comes from the line of Jeff Zekauskas with JPMorgan. Please go ahead.

Speaker 9

Thanks very much. Maybe a couple of questions for Jeff. Your corporate expense was $30,000,000 this quarter and you forecast $30,000,000 versus $60,000,000 in the year ago

Speaker 4

and

Speaker 9

you forecast 60 for the Q3 versus 40 in the year ago period. Why that higher increment? Why doesn't it stay at the $30,000,000 level? And second, you've been repurchasing shares and Dow's share price has been pretty flat since its inception as a public company. What criteria will you use to determine whether share repurchase is a good use of capital for Dow?

Speaker 9

How will you judge that?

Speaker 3

Yes. Good morning, Jeff. Appreciate the questions here. Starting on the corporate side, when we look at the Q2, you're right, it was slightly lower, more favorable than what we traditionally add. I would say as you're thinking about the second half of the year, it's going to be pretty much in the range of $60,000,000 to $65,000,000 of negative EBITDA, which we've delivered on past times.

Speaker 3

And what we had in Q2 was we had actually some gains from our insurance operations as well as some lower environmental cost accruals as well. But when you think about the second half of the year, you can expect it to be in that $60,000,000 to $65,000,000 range. In relation to share repurchases, you're right, we have continued to trend to cover dilution and that's one of the things from a capital allocation perspective that we've been consistent with. And as we think about the CapEx ramp up that we have and our commitment to deliver overall 65% more back to our shareholders, We're going to stay consistent with that at this point because of the cash flow expectations as well as our ability to be able to manage all of those capital allocation priorities. But we will look at from a criteria perspective, what will give us the greatest return over that time period in comparison to the commitments that we have for our capital allocation prioritization.

Operator

Your next question comes from the line of Mike Sison with Wells Fargo. Please go ahead.

Speaker 10

Hey, good morning. In the first half, your free cash flow didn't generate a lot. Could you give us a feel of how much free cash flow you generate in the second half and maybe for the full year?

Speaker 2

Jeff, you want to take that?

Speaker 3

Yes. Good morning, Mike. Thanks for the question. From our perspective, first of all, when you look at the Q2, we saw some really positive signs. We delivered over $800,000,000 in cash from operations.

Speaker 3

Our conversion rate was at 55% and our free cash flow was a positive one $109,000,000 All of those are sequential improvements over what we delivered in the Q1. So we're really trending well. As we think about the full year, Mike, one of the things that we would expect is from a working capital standpoint, you can expect the use of cash anywhere from the $600,000,000 to $800,000,000 range. You've seen in our slide deck here, we've got some guidance on some of the other key levers related to full year cash flow. But one of the areas that we're pleased about is our ability in the joint ventures to be able to get greater dividends out of that, which we're focused on moving forward.

Speaker 3

As well as our looking at our liquidity right now, we're in a really good position. We've got well over $3,000,000,000 of cash and cash equivalents and total liquidity of $13,000,000,000 And right now, we don't have any debt maturities of substantive levels until 2027. And the other thing I'd also like to remind you of as well is the fact that over the past several years, Dow has done a solid job of being able to deliver what we like to call unique to Dow cash levers of anywhere from $1,000,000,000 to $3,000,000,000 And our expectation is that we'll deliver at least $1,500,000,000 of those levers here in 2024.

Operator

Your next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please go ahead.

Speaker 2

Thank you and good morning. Can you comment, as you look across your portfolio on the monthly cadence in June as well as your order books in July, were there any businesses that stood out varied versus your prior expectations through that period? And on a related note, can you comment on the barrel hurricane impact in the 3rd quarter and whether you're expecting that to have a net positive or negative or neutral impact on the quarter? Thank you. Yes.

Speaker 2

Good morning, Kevin. We've seen pretty solid order book at the beginning of every month. I would say as we finished the Q2, you'd see then some softness toward the end of the month. July order book looks pretty solid as we move forward. Hurricane Beryl, we ran most of Freeport through the hurricanes, all the power plants and all the crackers ran through.

Speaker 2

We obviously had damage to electrical lines and cooling towers and things. But within a week, we were back up. So I expect it is not going to have a significant impact on volumes. There will be some cost impact to it. We're insured for it, but there's a deductible.

Speaker 2

And I don't remember how much that is, Jeff. 50. 50,000,000 on the deductible. But barrels, Freeport is back up and running. And I'd say the we've gotten most of the issues identified and we're fortunate, no impact to our employees, there are no impact to people other than the normal things that impact their homes.

Speaker 2

But we jump in and help them out so that they're able to focus on what

Speaker 3

they need to do.

Operator

Your next question comes from the line of John McNulty with BMO Capital Markets. Please go ahead.

Speaker 8

Yes. Thanks for taking my question. Maybe just a follow-up on barrel. It didn't hit the way some of the major hurricanes necessarily take down lots of capacity for long periods, but it does look like a lot of assets were taken down, including your own for at least a week or so. Can you speak to what that did to the market for you and in terms of inventory levels and how you're thinking about what that might mean for pricing in the next couple of months or

Speaker 2

so? Yes. Good question, John. I think it's I think you can already see in the market that it's starting to have some impact of firming things up because it happened early in the hurricane cycle and early August or early July is typically not when we would tend to see the first hurricanes come through. We tend to see them more in the August timeframe.

Speaker 2

And so I think what you're seeing is that's firming up the sentiment that there will be price increase moves. I think what you're going to see in terms of impacts are going to be different grade by grade. So depending on what derivatives are down and what grades are going to become a little bit tighter. And then you've got some planned downtime that's happening on the Q3 as well. So you've got some planned outages for Q3.

Speaker 2

I'd say we're back up and running hard, trying to catch up to those volumes and get customers stock back up at this point. And there is a little bit of concern starting to come through the market from customers about being ready for the next impact. Hats off to our team for moving product out in railcars and other areas ahead of it. So we were able to get things positioned to be able to react so that we could keep product moving to customers. And we always do a good job of preparing for that and doing things in advance.

Operator

Your next question comes from the line of Josh Spector with UBS. Please go ahead.

Speaker 11

Yes. Hi, good morning. I was wondering if you could give some early thoughts on Q4. So a couple of quarters ago, you thought that there'd be some maybe unseasonal improvement as volumes improve. As we sit today, would you think about a normal seasonal in Q4, call it down $100,000,000 $200,000,000 in EBITDA sequentially?

Speaker 11

Or are there other factors you call out that would buck that trend? Thank you.

Speaker 2

I think plastics is going to continue to see solid volumes and we've got cost advantage. So I think you're going to continue to see plastics deliver through Q4. Silicones is positive. You could see the impact on volumes in the derivatives part and because we're fully integrated, we have an advantage there. So silicones, I would think is going to hold up well.

Speaker 2

IINI is going to improve because we've got glycol II back. We've got $75,000,000 of tailwind in 3rd quarter. I think that will ramp to closer to $90,000,000 for 4th quarter and get up to the $100,000,000 which is kind of full run rate by 1st quarter. And so that's good. I think the coatings had a really solid second quarter.

Speaker 2

And even though I talked earlier about housing and some of the issues in housing, our volumes were very solid there. I think what's working in housing right now is obviously higher value homes and some of the big homebuilders you can see are actually delivering pretty good numbers. That tends to go through the contract side of the business. So the contract painters are doing better than say the do it yourself business that you would see. And so that's a big chunk of the market and that's moving positively.

Speaker 2

We're benefiting from that and we're also getting some share gains there. So I think Q3 will continue to be good for coatings, maybe a little bit less than second quarter. Q4 is typically low season for coatings anyway. And that's when we start to get ourselves prepared with maintenance and other activities. So we're ready to run-in to next year season.

Speaker 2

But on those businesses, I would expect you're going to continue to see strength On polyurethanes and construction chemicals, volumes are improving. You even saw that even with some limitations that we had from turnaround downtime in the quarter. You saw volumes improving. Inventories are well under control. So I think if there are interest rate cuts that happen this quarter and next quarter, you're going to see some positive impact there.

Speaker 2

And then it will be a question of how much of that will flow to the bottom line.

Operator

Your next question comes from the line of Frank Mist with Forumium Research. Please go ahead.

Speaker 8

Thank you. Good morning. And happy to hear that the price increase, obviously June didn't go through, but I'm curious as to what your thoughts are with respect to July and Q3 in general in terms of polyethylene pricing and margins? And then also on the Glycol II restart, there was an expectation that it would add about $100,000,000 in the Q3 and $100,000,000 in the 4th quarter. You're indicating today that it's $75,000,000 in the 3rd quarter, which makes sense as it ramps up.

Speaker 8

Would you anticipate that $100,000,000 coming through in the 4th quarter? Thank you.

Speaker 2

Yes. Good morning, John. Thanks. They brought me another microphone here. So I'm sorry about if the first question wasn't answered or understood well.

Speaker 2

On pricing, we've got prices out around the world everywhere except Argentina for July. In August in North America, we've got plus 5+5 out in the market. That is going to you're going to see price stick in the quarter. So price is going to come through. Now the question is how much of all that comes through.

Speaker 2

I think what we put into the estimate is we put in that we're going to see $0.02 per pound margin improvement. So net of price and as I mentioned, I think ethane costs will come up through the quarter. I think it will come up $0.01 or $0.02 through the quarter, if you look quarter over quarter. So I think net of that ethane cost increase, you're going to see a $0.02 per pound margin increase in North America. I'd say volume on derivatives around the world supports that, inventory levels support that.

Speaker 2

And I think there's the outside things that we can't predict like will we have more hurricane activity. But inventories in the chain are low. So I would expect that it's going to go through. When it comes to glycol, the startup was smooth and as expected on glycol-two. Obviously, we've got to get through the product mix and we've got to get some safety stocks build back up and that's part of the ramp up that happens from $75,000,000 to $90,000,000 to $100,000,000 Could it ramp up more than $90,000,000 in the Q4?

Speaker 2

I guess it could. I mean, usually year end, there's a little bit of seasonal slowness. So our expectation is it would probably ramp more into the Q1, which is when we tend to get into some higher volumes across some of the markets. But that's what we've got in the estimate right now.

Operator

Your next question comes from the line of Laurence Alexander with Jefferies. Please go ahead.

Speaker 2

Good morning. I just wanted to follow-up on your discussion around potential tariff structures and how they might evolve. How do you think the response function in the industry with your customers has shifted? That is if there is movement towards new tariffs, how significant of restock cycle do you see that triggering in advance? I don't think anything has started yet, Lawrence, on people doing stocking in advance of tariffs.

Speaker 2

And I think primarily because there's all the uncertainty around the election and what policies are going to actually stick. I think on the same by the same token, I think there's a little bit of view that China doesn't know what it's going to do yet from an incentive standpoint for its own economy until it gets a better feel for what's going to happen with the U. S. Presidential election. We're doing scenario planning here to look at the impacts.

Speaker 2

As I mentioned, there are antidumping activities going on in different parts of the world because of challenges that we see from things being volumes being dropped into markets. And so there's a lot of work going on behind the scenes. I think that we'll get a clear picture for that by the end of the year. But right now, I would say I haven't seen any uptick in volumes that are stocking because of that.

Operator

Your next question comes from the line of John Roberts with Mizuho. Please go ahead.

Speaker 12

Thank you. Jim or Jeff, I'm looking at Slide 8 in the top exhibit on volumes. You've had relatively easy year over year comparisons the last three quarters and then you have that in the Q3 as well. But the Q4 begins, I think, more challenging year over year comps. If we have normal seasonality, will the Q4 be down in volume?

Speaker 2

I still think you're going to see strength, John, in plastics. I don't remember if silicones had turnaround time in Q4 last year. It should be up based on the downstream demand forecast that we've seen. Normal seasonality, I would expect out of coatings. But I think in plastics and silicones, you're going to see up and in I, I and I because of industrial solutions and glycol tube being back, you're going to see up.

Speaker 2

And the question mark will be how much do we see in terms of demand uptick on durable goods and that will be what determines whether PU is up or not.

Operator

Your next question comes from the line of Duffy Fischer with Goldman Sachs. Please go ahead.

Speaker 13

Yes, good morning. Two questions. First, Jim, you made a comment that you thought your coatings raw material business did quite well in Q2. A lot of the paint companies have come out and their volumes seem weak. So can you just kind of triangulate that?

Speaker 13

And then for Jeff, the other assets and liabilities on the cash flow statement has eaten almost $1,000,000,000 of cash so far this year, which is much higher than normal. What is that and what happens to that going forward?

Speaker 2

Yes, Duffy, I'll take coatings. On coatings, mix is part of it. So in addition to architectural coatings where, as I mentioned, I think in the contractor space and with the customers who are in that space, we've done quite well. We also saw traffic paint improvements and that's been driven by infrastructure projects that have gone along. And also continue to see good response on the innovation side there.

Speaker 2

The team has done a great job of getting their assets running well, had great uptime and I think has been delivering on market share gains across that taking advantage of their good cost position. Jeff, on the cash side?

Speaker 3

Yes, good morning, Duffy. In terms of other assets and liabilities, you're right, the primary driver there is we had a reduction in long term tax payables related to some of our tax audit reassessments over the period. And you may recall, even in Q1, we had a significant item more specific to one of our regions as well. So those things were somewhat unique from that vantage point here. So it should stabilize here moving forward.

Operator

Your next question comes from the line of Patrick Cunningham with Citi. Please go ahead.

Speaker 2

Hi, good morning. I'm just curious on siloxane's pricing in Asia. Would you characterize this as lingering oversupply issues or it's just the pace of demand recovery not as strong as expected? I think there was maybe a bit more confidence on the pricing environment in the Q2. Did that revert over the past couple of months?

Speaker 2

Thank you. Yes. Good question, Patrick. I mentioned on the call the difference between integrated and non integrated players. I think some of the weakness you see in phenoxanes in Asia is from the non integrated players and as you say the capacity overhang that is there.

Speaker 2

Capacity additions have slowed. So we do think we're going to start to see as we move into next year some pricing improvement on siloxanes. We've been working to make investments in downstream silicone products, which have all been doing well. We continue to move that way, really trying to drive that volume growth for those down stream derivatives and sell less into that merchant siloxanes market and more into the downstream derivatives. And you're seeing that start to come through in the volume in the second quarter.

Speaker 2

That was one of the big drivers. So that was a big driver plus the fact that you've seen an improvement in downstream demand and things like consumer electronics. You saw a pretty strong automotive business and still good on the commercial construction side of things, which drives a lot of volume of products. Health and Personal Care has been pretty solid. I'd say we see good volume growth year over year, kind of 3%, a little bit more than 3%.

Speaker 2

Mix is under a little bit of pressure because consumers are trading brands and trading quality maybe a little bit as they're trying to balance their spending at the grocery store and at the pharmacy.

Operator

Your next question comes from the line of Mike Leithead with Barclays. Please go ahead.

Speaker 6

Great. Thanks. Good morning. Jim, just a bigger picture question. Dow is obviously investing a lot for medium term growth.

Speaker 6

You've laid out a lot of 2025 and 2030 expansion targets. But at the same time, the overall demand backdrop since about mid-twenty 22 has probably been materially worse than you or anybody has thought at that time. So is that timing gap between near term weakness, medium term growth sort of closes, I mean 2025 is only 5 months away now, does that give you any pause at

Speaker 2

all in some of your investments?

Speaker 6

Do you need to rethink or pivot any

Speaker 3

of these expansions in sort of

Speaker 6

a slower for longer economic scenario?

Speaker 2

It's a good question, Mike. But I would also ask you to think about it and even a longer term timeframe. It takes years to plan and make these investments and we have to look at what's happened to plastics take for an example. Since 2019, we've seen a 20% increase in volumes in plastics. You can't obviously respond to the market when you see the increase and start to get this capacity in place.

Speaker 2

You got to get in place to take advantage of the mid cycle and the up cycle ahead of time. So typically, when we're at this point in the cycle, it's a common question that everybody asks, but we've got to look through at the long term trends. And the long term trends for plastics, say, the growth is going to continue to be there. We've tried to move into the areas where there is differentiation and there's higher growth rates, whether that's silicones, whether that's plastics, whether that's industrial solutions on the higher value specialty EO derivatives where we're investing. That's where the dollars are going.

Speaker 2

So those three markets are consuming most of your capacity expansion. What we've been doing in polyurethanes is more rationalizing the footprint around the higher value markets, more downstream less commodity like PO, more MDI containing components. And on coatings obviously being able to move with the market as the housing market improves. So I feel good about the long term direction. We're not back at mid cycle yet.

Speaker 2

As we get back to mid cycle, there's a $3,000,000,000 step up in earnings at mid cycle margins. And then once path to 0 comes on in the 20 27, 20 29 timeframe and you get to peak, there's another $3,000,000,000 step up to peak.

Operator

Your next question comes from the line of Chris Parkinson with Wolfe Research. Please go ahead.

Speaker 14

Great. Thank you so much. Jim, in your $2,000,000,000 of mid cycle upside for PNSP, I understand there are obviously a lot of moving factors there. But if we stick to the U. S, can you just offer some insights in terms of what you're expecting in terms of integrated PE margins, just given where the current SD dynamic is, export trends, NGLs?

Speaker 14

Just any color in terms of the kind of getting that back would be especially helpful. Thank you.

Speaker 2

Yes. So mid cycle margins typically run-in the range of $0.27 globally, but that can run from in Europe maybe $0.20 mid cycle margins to America's $0.32 When we've gotten to peak, the global average on peak would tend to be more like $0.48 and maybe that range would run from Europe being in the 40 range, dollars 38 to $40,000,000 and Americas being as much as $56,000,000 So that's kind of what the outlook is. And of the $2,000,000,000 of upside, I'd say some of that is capacity, debottlenecking and things that we're adding. So about $800,000,000 of the $2,000,000,000 is from additions and tweaking on making some more higher value products available like we announced we've done with elastomers and things in Tarragona. And then the rest of it will come from margin expansion.

Operator

Your next question comes from the line of Alexey Yefremov with KeyBanc. Please go ahead.

Speaker 15

Good morning, everyone. Jim, looking at ACC numbers, North American polyethylene demand this year is roughly at the same level as in 2018, 2019. Do you have any thoughts on this observation? Do you think there's another leg up for U. S.

Speaker 15

Polyethylene demand?

Speaker 2

I do. I think when we look at North American demand, we're starting to see the total domestic demand plus exports getting north of £5,000,000,000 So this is a step up. Obviously, exports have been a big driver. Historically, 30% of total demand was export. You run it about 45% of that demand in 2023.

Speaker 2

Also, I would tend to look at not just U. S. Data, but I would also look at Mexico. I mean, we move product into Mexico the same way we move into the U. S.

Speaker 2

Market. And as I mentioned, one of the biggest consumption increases has been in Mexico with manufacturing reshoring moving into that area. So I think we're seeing good volumes this year in the U. S. I think we're going to continue to see that improve at a steady rate.

Operator

Your next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please go ahead. Arun, your line is open.

Speaker 1

Andrew? Yes. Thank you everyone for joining our call and we appreciate your interest in Dow. Also we understand there were some technical issues and audio issues to start the early part of the Q and A. We do apologize for this.

Speaker 1

As a reminder, we do post the transcript to our investor website and we'll do so as quickly as possible today to make sure everything is addressed. This concludes our call. Thank you for your time and thank you for your interest in Dow.

Operator

This concludes today's conference call. Thank you for your participation and you may now disconnect.

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