Dow Inc. Morgan Stanley's 14th Annual Laguna Conference

Jeff? Great. Thank you, Mark.

Good morning, everyone, and thank you for having me today. Before we get into your questions, I'd like to begin with just a few remarks to paint a picture of how the third quarter has evolved. I'll share Dow's views on the external factors and market conditions that have the greatest impact on our business, as well as an overview of our self-help actions, continued financial discipline, and our near-term priorities. I'll start on slide 2 with the current environment. The macro backdrop remains dynamic and largely unchanged from what we outlined in July at our earnings. Specific to Dow, our strategically advantaged global footprint and local supply chains in every region continue to be differentiators for us.

The oil to gas spread remains elevated as geopolitical tensions in the Middle East continue, supported by recent material escalation of crude pricing while gas remains largely unaffected. This reinforces the competitive advantage of Dow's purpose-built asset base and feedstock position that we've developed over decades. While the tariff landscape has become more complex, Dow's direct exposure remains minimal. That said, continued volatility and uncertainty in the early part of the third quarter have created some headwinds that we're working to offset. Several market developments are working in our favor, which we expect to at least partially offset some of the impacts, but we've got more work to do. More specifically, July polyethylene prices in the Americas settled down $0.10 per pound.

This reflected declining feedstock prices and margins in the early part of the month, when initial expectations for a durable solution to the Middle East conflict began to surface. In August, however, widespread reporting indicated those expectations were not realistic in the immediate term. In the month, we saw some improvement in the global operating environment, along with higher oil prices. This ultimately led to polyethylene prices selling flat month-over-month. So far in September, we are seeing a strengthening order book, including in Asia. Along with the recent sharp escalation in global feedstock costs, this supports our announced global price increases globally, including $0.10 to $0.12 per pound for polyethylene in the Americas. With a rapidly rising cost environment, we are implementing these price increases with urgency.

Looking at some of the key markets that Dow serves across our portfolio, consumers remain selective, with spending trends favoring essential items. Additionally, the building and construction and automotive markets continue to face challenges amid a cautious monetary policy environment. Shipping through the Strait of Hormuz and other regional waterways also remains constrained, tightening global supply further. Low water levels in Europe, including the Rhine, are constraining competitor supply across several products, which is leading to higher market prices across our Industrial Intermediates & Infrastructure segments. To summarize, the geopolitical and macro backdrops remain volatile and demand signals are mixed. While polyethylene price declines early in the quarter represent a headwind, Dow continues to lead with deliberate actions, and we remain focused on controlling what we can control.

Our self-help actions and the breadth of our portfolio are helping to partially offset this impact, and we now expect to deliver EBITDA of $1.5 billion-$1.6 billion for the third quarter. This represents our best estimate based on what we see today, recognizing that a continued volatile environment this month could ultimately influence the outcome. Next, I'll share some examples on slide 3 that outline the ways in which we are taking decisive actions to improve our financial strength. First and foremost, we continue to enhance Dow's balance sheet and near-term financial performance. To start, our major planned maintenance for the year is now complete at several of our largest assets, which should provide a tailwind in the fourth quarter. In addition, we received the remaining tax withholding related to the NOVA Chemicals litigation settlement earlier this quarter.

We're also actively prioritizing deleveraging with excess cash, and we expect to release more than $500 million of net working capital in the second half of this year. Looking longer term, we have no substantive debt maturities until 2029. Importantly, we continue to deliver our self-help actions, including our recently upsized in-year target for Transform to Outperform. With this, we now expect to deliver $1.3 billion in total benefits from self-help in 2026. Our intentional actions continue to strengthen Dow's credit profile as improved earnings, balanced capital allocation, and self-help actions drive higher cash generation and lower leverage. This was evidenced by a recent rating agency outlook upgrade. Next, on slide 4, I'll unpack some additional details on how Transform to Outperform is delivering value as a significant contributor to our self-help improvements.

We expect Transform to Outperform will deliver an upsized benefit of approximately $700 million this year, clearly demonstrating the early value we're capturing. Importantly, we remain confident in the more than $2 billion total opportunity that our transformation will deliver, and we're seeing significant early results from every work stream. A broad range of actions will contribute to the benefits we expect in the second half of this year. Let me highlight just a few examples. We already implemented approximately 70% of the total Dow role reductions, and we expect to implement nearly all of them before the end of this year. This is expected to contribute more than $200 million of EBITDA uplift in the second half. We're also leveraging advanced technology, which has identified more than 50 opportunities to streamline and strengthen our end-to-end processes, leading to improved decision quality, discipline, and profitability.

Additionally, we have completed our site transformation playbook at six of our largest sites, with three additional sites started this quarter. In total, this is expected to deliver approximately $50 million in the second half of this year. The actions we are taking include improving production yields, driving maintenance productivity and energy inefficiency, and optimizing third-party spending. Our strategic sourcing and contract renegotiation initiatives are also delivering structural cost savings of more than $70 million in the second half of this year. This includes implementation of targeted RFPs across consumables, labor, corporate services, and raw material purchasing contract renegotiations. In our logistics and network optimization initiatives, we are reducing costs while also improving network efficiency and strengthening utilization of our logistics fleet. All of which we expect will deliver more than $30 million in benefit by the end of 2026.

On the growth side, we are seeing initial results from accelerated market focus strategies. Our commercial teams are delivering increased profitability, supported by strong execution and business models that enable us to access markets that Dow has historically deprioritized. We are also evolving to serve fast-growing segments with a One Dow approach and sharpening our focus to win even greater share with existing customers in markets we know well. We remain encouraged by these early wins and the value they are generating. These examples give us great confidence in the magnitude of the opportunities and our ability to deliver against them. Closing on slide 5. Given the external factors I described, we are staying focused on the areas that we can control. Self-help, like our transformation, will continue to underpin how we work, and our sights remain firmly set on the three priorities that we outlined in July.

We will continue to hold ourselves accountable to deliver on our commitments and demonstrate tangible examples of our progress, all to ensure we are consistently creating value and that is grounded in that principle. First, we will drive focused growth and innovation in the high-value markets where Dow can win and create differentiated values with our customers. We will prioritize targeted innovation, technology, and commercial excellence to strengthen our competitive position, deepen customer relationships, and accelerate growth where we have the greatest opportunity to lead. Second, we are enhancing our portfolio competitiveness. This means operating with a best owner mindset. We are investing in our businesses and our technologies where we can grow and create value, and where we cannot, we will continue to take actions like the non-core divestitures and asset shutdowns we have recently completed. Third, we will continue to hold ourselves accountable for taking a balanced approach to capital allocation.

This includes using consistent principles to strengthen our balance sheet, driving a focus on cash flow, and ensuring maximum financial flexibility. The key takeaway is this: Team Dow is executing with discipline. We are doing so in an uncertain environment and taking bold actions within our control to deliver lasting competitiveness. We have a strong portfolio, a world-scale global asset base, deep customer relationships, and exceptional talent. We have a clear path to creating long-term value with greater earnings durability and stronger cash flow throughout the cycle. Thank you for listening. Mark, I will be happy to take your questions.