Dow (DOW) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 22, 2026

CALL PARTICIPANTS

• Investor Relations Vice President - Andrew Riker
• Chief Executive Officer - Karen S. Carter
• Executive Vice President and Chief Financial Officer - Jeffrey L. Tate

TAKEAWAYS

• Net Sales -- $11.3 billion, representing a 13% increase from the year-ago period driven by higher pricing across all operating segments.
• Operating EBITDA -- $1.553 billion, up from $868 million versus the prior year, reflecting pricing actions and self-help measures that offset higher raw material and logistics costs.
• Non-GAAP Operating EPS -- $0.71, compared to a loss of $0.19 in the third quarter of 2025.
• Local Price -- 14% growth, led by gains in the Packaging & Specialty Plastics segment.
• Volume -- 1% decline, as impacts from the Middle East conflict in Asia Pacific offset volume gains in other regions.
• Packaging & Specialty Plastics Net Sales -- $5.8 billion, a 18% increase year over year driven by higher polyethylene and functional polymer prices.
• Packaging & Specialty Plastics Operating EBIT -- $585 million, up $386 million from last year due to higher integrated margins and self-help benefits.
• Industrial Intermediates & Infrastructure Net Sales -- $3.1 billion, up 8% versus the year-ago period reflecting a 16% increase in local price.
• Industrial Intermediates & Infrastructure Operating EBIT -- $176 million, improving from a loss of $47 million last year due to higher margins and the suspension of Sadara equity loss recognition.
• Performance Materials & Coatings Net Sales -- $2.3 billion, up 8% year over year driven by price and volume improvements in downstream silicones.
• Performance Materials & Coatings Operating EBIT -- $154 million, an increase of $74 million from the prior year following the shutdown of the Barry siloxanes unit.
• Free Cash Flow -- $1.1 billion, with the company reporting a trailing 12-month cash flow conversion rate of 84%.
• Liquidity -- $14 billion, with the company noting no substantive debt maturities until 2029.
• Working Capital Release -- $400 million, contributing to a total projected cash release of more than $500 million for the second half of 2026.
• Self-Help Net Benefits -- $1.3 billion for the full year 2026, with an additional $1.3 billion in net benefits targeted for 2027.
• Transform to Outperform Gains -- $700 million targeted for 2026, which is higher than initial projections.
• Headcount Reduction -- 4,500 roles, with approximately 70% of the planned reductions already implemented.
• Debt Retirement -- $1.4 billion, including $300 million repurchased in the third quarter and a planned $200 million in the fourth quarter.
• Fourth Quarter EBITDA Guidance -- approximately $1.5 billion, with anticipated polyethylene price gains and lower turnaround spending expected to offset seasonal slowdowns.
• Polyethylene Integrated Margins -- 2 cents per pound expected sequential improvement in the fourth quarter.
• Ethane Feedstock Assumption -- mid to high 20s per gallon range for the fourth quarter, according to management projections.

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RISKS

• Tate stated, "In Europe, persistently high energy costs continue to challenge industry economics," noting that these costs are expected to remain elevated through the winter months.
• Tate indicated that regional supply chains and logistics face significant disruption from record low water levels on the Rhine River.
• Management warned that higher interest rates and weaker consumer confidence continue to pressure demand for products tied to the housing market.
• Carter noted that some assets in the Middle East are running at reduced rates due to the ongoing conflict and persistent logistics constraints.

SUMMARY

Management at Dow Inc. (NYSE:DOW) reported third-quarter results characterized by double-digit revenue growth and significant earnings improvement driven by aggressive self-help measures and higher global pricing. The company completed its $1 billion 2025 cost savings program and is progressing through its "Transform to Outperform" initiative, which includes substantial headcount reductions and asset optimization. While the macroeconomic environment remains volatile, particularly in Europe due to energy costs and in Asia due to geopolitical conflict, the company stated it is prioritizing debt reduction and working capital efficiency to maintain financial flexibility. Management reported that strong demand in AI infrastructure, energy applications, and mobility is helping to offset persistent weakness in the building and construction sectors.

• The company is advancing its Path2Zero project in Alberta, with CEO Carter stating, "We are about 45% of the way through" and noting that phase one remains slated for completion at the end of 2029.
• Management reported that electric vehicles contain approximately threefold the amount of silicone used in traditional internal combustion models, driving double-digit growth in downstream silicone applications.
• Dow has established a financial boundary around the Sadara joint venture, limiting its funding commitment to approximately $1.3 billion while continuing negotiations with Aramco for a long-term solution.
• The restart of the company's lowest-cost cracker in Terneuzen enabled record liquefied petroleum gas consumption in Europe during the third quarter.
• Management noted that every 3 cents per gallon change in ethane costs typically requires a 1 cent per pound change in polyethylene pricing to maintain margins.
• The company reported that 80% of its transformation headcount savings will come from manufacturing and support functions, with 15% coming from selling, general, and administrative roles.

INDUSTRY GLOSSARY

• Alkoxylation: A chemical process used to produce surfactants and other intermediates for home care, pharmaceutical, and energy markets.
• Cracker: A large-scale industrial facility that breaks down heavy hydrocarbons into lighter molecules like ethylene and propylene.
• Ethane: A natural gas liquid used as the primary feedstock for ethylene production in North America.
• MDI (Methylene Diphenyl Diisocyanate): A chemical used primarily in the production of polyurethanes for insulation, automotive parts, and footwear.
• Naphtha: A crude oil-based feedstock used for chemical production, primarily in Europe and Asia.
• Path2Zero: Dow's project to build the world's first net-zero Scope 1 and 2 emissions integrated ethylene cracker and derivatives facility.
• Polyethylene: The most common plastic in the world, used extensively in packaging, pipes, and consumer goods.
• Siloxanes: The building blocks for silicone products used in electronics, mobility, and consumer applications.

Full Conference Call Transcript

Operator: Greetings, and welcome to the Dial Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If you would like to ask a question at that time, please press *1 on your telephone keypad. As a reminder, this conference is being recorded. I will now turn it over to Dow Investor Relations Vice President, Andrew Riker. Mister Riker? You may begin.

Andrew Riker: Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I am Andrew Riker, Dow's Investor Relations vice president. Leading today's call are Karen S. Carter, chief executive officer, and Jeffrey L. Tate, chief financial officer. 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 risk and uncertainty. 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 that is posted on our website. On slide 2 is our agenda for today. Karen and Jeffrey will begin with a review of our third quarter performance and the progress we are making through our self help actions. We will cover the near term operating environment and fourth quarter outlook. As well as details about how our priorities are building a more competitive Dow. Throughout the discussion, you will hear a consistent theme. We are acting decisively on levers we control to strengthen earnings, cash generation, and long term value creation.

And as always, we will ensure ample time near the end for your questions. With that, let me turn it over to Karen starting on slide 3.

Karen S. Carter: Thank you, Andre. Our solid third quarter performance reflects the discipline and focus of team Dow as we build a stronger company while navigating a dynamic market environment. We continue to partner with customers in attractive growth markets, while also improving productivity, and strengthening cash generation. And our collective self help measures which include the completion of our $1 billion 25 cost savings program, the beginning of our previously announced European asset shutdowns, and our transformation, are all delivering tangible results. In the third quarter, that execution translated into meaningful progress and strong performance in many areas of our portfolio. Net sales were up 13% year over year with growth in every operating segment.

Operating EBITDA was more than $1.5 billion as pricing actions and self help measures more than offset higher raw material and logistics costs to drive year over year growth. Together, our actions and the results they are delivering help reinforce Dow's earnings power. They strengthen our financial position, while also enabling us to build a more competitive company for the long term. Transform to outperform continues to deliver benefits ahead of our initial schedule. And we remain on track to achieve approximately $700 million in growth and productivity improvements this year. We also completed significant planned maintenance during the third quarter, which will support stronger production and earnings performance heading into the fourth quarter and beyond.

And we are optimizing our working capital and actively prioritizing debt reduction with excess cash. This reinforces our continued focus on financial discipline, and operational execution. Next, turning to the portfolio, let me highlight the greatest areas of strength. First, in the packaging and specialty plastics segment, we are maintaining higher pricing for polyethylene and functional polymers in all regions and we delivered sequential volume gains. In the industrial intermediates and infrastructure segment, increased demand for energy applications and AI infrastructure is supporting improved pricing and margins. We are seeing growth in the Performance Materials and Coatings segment driven by consumer, electronics and home care applications.

This quarter, we also saw volume gains in Europe, as well as in Latin America, and the United States and Canada all while the macro conditions remained dynamic. Moving forward, our focus remains on improving shareholder returns through self help actions, better cash generation, and a stronger balance sheet. With that, Jeffrey will share a more granular look at the quarter and our near term outlook.

Jeffrey L. Tate: Thank you, Karen. Starting with our Packaging and Specialty Plastics segment on slide 4. Net sales were $5.8 billion. Up 18% versus the year ago period. Operating EBIT was approximately $585 million, which represents an increase of more than $385 million compared with the same period last year. This was primarily driven by higher polyethylene prices improved integrated margins, and benefits from our self help initiatives. The packaging and specialty plastics business delivered higher net sales, driven by polyethylene, and functional polymer price gains in all regions. Polyethylene prices rebounded in the second half of the quarter supported by elevated feedstock costs. And demand remained resilient.

As evidenced by year over year volume growth excluding supply constraints related to the Middle East conflict. Polyethylene volumes were notably strong in pipe applications. Led by gains in infrastructure related applications in Europe, the Middle East, Africa, and India. Higher net sales in the hydrocarbons and energy business were driven by increased pricing. We also saw increased olefins volumes after restarting our lowest cost most flexible cracker in Terneuzen, following an idling due to planned maintenance. As a result of having this asset back online, we delivered record LPG consumption in Europe in the third quarter. Capitalizing on feedstock dynamics. Next, I will turn to Slide 5.

Which outlines the strong year over year earnings improvement in our industrial, intermediates, and infrastructure segments. Net sales were $3.1 billion. Up 8% versus the year ago period. Driven by 16% increase in local price. This reflects gains across both businesses and all regions. Operating EBIT improved to $176 million. Reflecting an increase of $223 million versus the same quarter last year. This was driven by higher margins and benefits from our self help initiatives. Polyurethanes and construction chemicals recorded higher sales. Driven by stronger pricing in MDI, and propylene oxide derivatives across Europe and the United States and Canada. Reflecting constrained supply dynamics in the period.

Additionally, volume and EBITDA growth in industrial solutions was fueled by robust demand for AI infrastructure, and energy applications where favorable trends continue to support the segment's momentum. Moving to Performance Materials and Coatings on Slide 6. We saw solid top line and EBITDA growth in the third quarter. Net sales were $2.3 billion, up 8% versus the same quarter last year. This included volume improvements in both businesses which was led by downstream silicones. Operating EBIT was $154 million. The team delivered both price and volume gains, as well as benefits from our self help initiatives. Including cost savings associated with the second quarter shutdown of our Barry siloxanes unit.

Consumer solutions had double digit sales and EBITDA growth in the Americas. This was largely driven by downstream silicones volume gains in all regions. In the coatings and performance monomers business, delivered higher sales across all regions. Led by price and volume gains in both acrylic monomers and architectural coatings. So next, I will move to slide 7. Here, we are providing a new view of how the benefits from our intentional actions are flowing through the P&L, to ultimately strengthen Dow's underlying earnings power. We delivered a sequential improvement of more than $150 million in self help benefits in the third quarter.

This includes the various siloxanes unit shutdown, cost savings actions, and the growth and productivity benefits from our transformation. And while self help is structurally improving Dow's underlying earnings base, the benefits in the third quarter were mainly offset by margin pressures. Primarily in packaging and specialty plastics. More specifically, the situation in The Middle East drove significant second quarter price hikes, and subsequent declines in July, we began to see signs of stabilization as the quarter progressed. Including a price increase in September. Looking specifically at our transformation we have already delivered approximately $450 million of year to date improvements. Including approximately $250 million in the third quarter.

Importantly, and I wanna really emphasize this, everyone at Dow owns self help. It has become a part of our everyday mindset. And we remain focused on our commitment to implement approximately $1.3 billion in net benefits this year as well as $1.3 billion in 2027. We are holding our teams accountable for maintaining this mindset. Ensuring we continue to be relentless in driving growth, productivity, and efficiency. All to reinforce Dow's competitive advantages while also improving our earnings, and our cash position. Next on slide 8, I will walk through some details that support our overall view that underlying demand is steady. While the macroeconomic environment remains challenging.

We continue to see resilience in packaging globally, as well as electric vehicle growth in Asia, and Europe. At the same time, higher interest rates and weaker consumer confidence continue to pressure demand for products tied to housing. Across regions, Dow's footprint in the Americas remains advantaged. Supported by our favorable feedstock position and continued high operating rates in the US Gulf Coast. In Europe, persistently high energy costs continue to challenge industry economics. And broad based petrochemical closures are accelerating. In Asia, demand remains mixed. Strength in electronics is helping offset softer consumer spending and real estate markets.

Lastly, in the Middle East, while oil supply concerns have eased from levels we saw earlier this year, risk to trade flows in energy markets remain elevated. As do freight, and other transportation costs with increased pressure on tanker and diesel prices. Against this backdrop, slide 9 provides details on our fourth quarter expectations. Including both our market assumptions and the contributions we expect from the actions within our control. As we look ahead, there is still quite a bit of uncertainty in the market. Including the situation in The Middle East that I just mentioned. Therefore, forecasting the quarter continues to be more challenging than usual.

As always, we will monitor conditions closely and provide updates if external factors change meaningfully or affect our initial guidance. For the fourth quarter, we expect EBITDA of approximately $1.5 billion Recent polyethylene price gains should improve our margins. This builds on the momentum we saw late in the third quarter. And we expect those higher prices to take effect before the impact of increased raw material costs. We anticipate the seasonality that we typically see in the fourth quarter will be largely offset by more than $100 million of lower sequential turnaround spending. Additionally, we expect to deliver approximately $100 million of sequential uplift from our self help actions.

Including our transformation and ongoing benefits from the closure of our Barry, UK siloxanes unit. In Europe, we expect energy cost to remain elevated as we head into the winter months. In addition, regional supply chains and logistics are still experiencing significant disruption. Including the impacts from record low water levels on the Rhine River. These supply constraints are creating additional pricing opportunities for Dow. Which should help offset some of the headwinds Looking briefly at our expectations for each segment, and packaging and specialty plastics, we anticipate global polyethylene integrated margins to improve by approximately 2 cents per pound compared to the third quarter. That should offset normal year end seasonality.

In addition, we expect lower turnaround spending and self help to provide sequential tailwinds. In our 2 other segments, we anticipate a typical seasonal slowdown in building and construction activity to reduce earnings in the period. Karen together, our intentional actions help to support a roughly flat sequential outlook. With that, I will turn the call back over to Karen to talk more about our self help, and our near term priorities.

Karen S. Carter: Thanks, Jeffrey. Above all, our focus is on building a more competitive Dow that delivers improved long term value. That comes down to 3 priorities. Winning with customers in attractive growth markets, strengthening our portfolio's competitiveness and maintaining a balanced approach to capital allocation. And importantly, our self help commitments underpin all 3. I will start with our progress on transform to outperform on slide 11. Then we will walk through how these priorities guide our growth investments, portfolio decisions, and financial discipline. Dow's transformation is contributing significant gains as part of our overall approach to continued self help. These efforts are effectively resetting our cost structure and establishing a more targeted approach to sustained growth.

As I mentioned earlier, we expect to deliver approximately $700 million this year which is higher than our initial projections. Let me highlight a few timely examples of where this work is having an impact. As the way we work continues to evolve, so do our expectations for where and how work gets done. We are enabling faster decision making and putting the right roles in the right areas of the company. This includes the reduction of approximately 4.5 thousand Dow roles. To date, we have implemented approximately 70% of those reductions, and we expect to substantially complete this phase of the transformation by year end.

At the same time, we are driving productivity improvements of approximately $150 million in benefits in the second half of this year. This includes deploying a repeatable site transformation playbook at our largest sites which remains focused on maintenance productivity, energy efficiency, and asset utilization. For example, recent improvements at 1 US Gulf Coast site helped a cracker achieve durable record high production which ultimately adds low cost capacity and strengthens supply reliability for downstream customers. On the growth side, we are establishing platforms and teams that bring Dow technologies and expertise together around attractive end markets like AI infrastructure and mobility.

By pairing Dow's materials science expertise technical service, and digital tools with customers' own innovation goals, that move us from supplier to partner. This helps customers innovate better and faster while earning Dow higher value and more stable growth. And we are using data more efficiently to ensure stronger commercial pipeline discipline. As a result, our teams have earlier visibility into customer opportunities and stronger insights allowing us to quickly prioritize the opportunities that have higher value potential. This also helps us decide sooner which opportunities not to pursue allowing us to focus Dow's resources where we are best positioned to win.

These are just a few examples and we remain committed to advancing all of our self help measures to deliver material improvements in the near term. We are doing so while also executing on each of our priorities beginning with focused growth and innovation, on slide 12. Dow's downstream silicones business illustrates our approach well. We are investing in applications and projects that serve fast growing markets. Many of the incremental growth investments we have made in silicon specifically are expected to pay back in 2 to 3 years. For example, our closed loop liquid cooling systems and advanced thermal fluids are serving markets that are growing at double digit rates.

Our technologies are helping to solve important challenges for hyperscale servers and our thermal interface materials and engineered silicones are used in semiconductor packaging and power electronics. In mobility, the opportunities for Dow are driven by a growing EV market in Europe and Asia, as well as the amount of silicone used in each vehicle. EVs contain approximately 3x as much silicone as a traditional internal combustion model. Endow materials are used in critical applications that protect cameras and sensors, as well as support battery pack assembly and thermal management. When it comes to how we think about growth and innovation, the bottom line is this. Dow teams are advancing.

From expanded customer development capabilities to new production capacity in key markets. And we are doing so with a clear focus on capital discipline and faster payback projects. Turning to slide 13. We are strengthening the competitiveness of Dow's portfolio by intentionally shifting our investments toward differentiated applications and advantaged production, while also exiting higher cost upstream capacity. And while this particular slide does not provide a completeness, I would like to share some key examples. First, we are improving the cost position of our manufacturing footprint. We restarted our lowest cost and most flexible cracker in Europe in the second quarter, while also completing the shutdown of our higher cost energy intensive Barry siloxanes unit in The United Kingdom.

Both actions contributed to improved third quarter earnings. At the same time, we are investing in downstream applications where our differentiation matters to customers. More specifically, our Poly-7 polyethylene unit in the U.S. Gulf Coast supports specialty packaging as well as health and hygiene applications where demand remains resilient. And our alkoxylation investments in the United States and Europe support growth in our industrial solutions business, which serves home care, pharmaceutical, and energy markets. And silicones, we are expanding capabilities across the US, China, and Japan to serve electronics and mobility markets including engineered silicone and silicone rubber capacity expansions. Our asset actions include both, closures, and prudent growth investments. Taken together, they form 1 integrated portfolio strategy.

We have completed a number of key actions and expect to advance more through next year. Next, Jeffrey will discuss our third priority, balanced capital allocation, and the actions we are taking to strengthen Dow's financial position for the long term.

Jeffrey L. Tate: Thank you, Karen. On slide 14, our approach to financial discipline remains consistent. With a clear focus on maintaining both strength and flexibility. We are prioritizing debt reduction with excess cash, while also taking actions to release working capital and maintain ample liquidity. Let me start with the balance sheet. We have approximately $14 billion of liquidity and no substantive debt maturities until 2029. Providing significant financial flexibility. And we are actively directing excess cash toward deleveraging. This year, we repurchased approximately $300 million of debt in the third quarter. With plans for an additional approximately $200 million in the fourth quarter.

Together with the March 2027 Eurobond maturity, these combined actions are expected to retire approximately $1.4 billion of debt. And as Karen mentioned at the top of the call, we are making prudent operating trade offs to improve working capital, and have already released more than $400 million of cash in the third quarter. Keeping us on track for a more than $500 million cash release in the second half of this year. As we close out the year, our focus will remain on continuing to strengthen our balance sheet. We have consistently taken decisive and prudent actions to preserve Dow's financial flexibility and will continue to do so through every phase of the cycle.

With that, Karen will share some closing remarks before we open the call for questions.

Karen S. Carter: Thanks, Jeffrey. Slide 15 brings these priorities back together. To show how we are building a more competitive Dow that is positioned to deliver long term value for our shareholders our customers, and our people. We continue to operate through a dynamic period. The geopolitical and macro conditions remain volatile, and demand signals are mixed. This is not unique to Dow. Through focused growth and innovation, we are directing capital and resources toward fast growing markets and stronger commercial execution in areas where we can sharpen our competitive edge and solve more with our customers.

And we are making our portfolio more competitive by investing in advantaged businesses differentiated technologies, and low cost assets, while also moving decisively where we no longer have a clear path to sustainably compete and win. Our focus areas around capital allocation are straightforward. Strengthen the balance sheet improve cash flow, and preserve financial flexibility so that we can act as conditions and opportunities evolve. These priorities backed by the expertise and execution of team Dow, are how we will build a stronger, more competitive company today and over the long term. So now we will use the rest of the time we have today to address your questions. Andrew, please get us started.

Andrew Riker: Thank you, Karen. 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&A. Operator, please provide the Q and A instructions.

Operator: Thank you. Ladies and gentlemen, we will now begin our Q&A session. If you have dialed in and would like to ask a question, please press *1 on your telephone keypad. If you would like to withdraw your question, please press 1 again. We kindly ask that everyone limit themselves to 1 question. Please stand by while we compile the Q&A roster. Your first question comes from the line of Hassan Ahmed from Alembic Global Advisors. Please go ahead.

Hassan Ahmed: Morning, Karen and Jeffrey. A 2 part question on polyethylene pricing. If I heard you guys correctly, you are talking about a 2 cents a pound sequential margin improvement sort of embedded in your Q4 guidance. I mean it seems there is been a series of price hikes for October as well as November. So the first part of the question is, why are you guys only factoring in a $0.02 a pound margin improvement? And then as you look at 2027, how sustainable are the current sort of higher prices particularly sort of in a scenario where The Middle East normalizes, Let's assume sort of more Chinese capacity comes online as well.

Karen S. Carter: Thanks, Hassan, for the question. Good to hear from you. Let me talk about the 2 cents per pound global integrated margin improvement first. So that assumes, that the September price increases averaged throughout the quarter. And you are absolutely right. We have additional on the table, and we believe that the market dynamics that we are currently facing you know, we will get those in. Into the books. I mean, you think about the higher feedstocks. So I am not just talking about oil, but naphtha. We are seeing ethane a bit on the rise as well.

And so if we are able to achieve the 7 cents that we have on the table for October and the 5 cents in November, that will provide an upside to our fourth quarter guide. I mean. And that is going to also, you know, depend on how far the feedstock costs rise. So if we are able to get all of that, and get additional margin, think about that upside in the range of $200 million. So 1 cent per pound price increase is about $50 million per quarter. Let me go to the second part of your question, and then, Jeffrey, if you have any other comments that you want to make. Listen.

We are planning to end the year with momentum. We came out of third with momentum. You know, we think about September getting the 5 cents. But also ACC data. You know, DDI, the declined by more than 5 days. Inventory declined by over 400 million pounds. China's back in the market. And so from a Dow perspective, our sales grew double digits from a polyethylene perspective as we ended third quarter. We are getting more growth, in the fourth quarter as well. Spot prices are also on the rise. So we expect that we are gonna end the fourth quarter with momentum going into 2027.

And that is also why our guide in fourth quarter is flat with the first quarter. So it is not just about polyethylene price and market dynamics. But the story is also about our self help. So the reason that we have a guide of flat to third quarter is because lower turnarounds, but also our self help is going to offset, the typical seasonality that we So we should go into 2027, you know, with that momentum. And we expect from an oil to gas ratio that will. It will remain constructive. And, of course, we are gonna continue to double down on our advantaged feedstock capacity here in North America. Jeffrey, anything else you wanna say about 2027?

Jeffrey L. Tate: Yeah. Good morning, Hassan. The only other thing that I would add to 2027 is the fact that our self help actions will be a key tailwind going into the new year. You heard in my prepared remarks our expectation is that our tailwind purely on self help deliver about $1.3 billion in 2027. So that will be something that we can control as Team Dow. That will be part of our bottom line value generation going from 2026 to 2020 Your next question comes from the line of Vincent Andrews from Morgan Stanley.

Operator: Please go ahead.

Vincent Andrews: Thank you, and good morning, everyone. I wanted to follow-up on the feedstock cost side of the equation. Karen, you did mention ethane had a bit of a move it is propane and butane in the US. Wonder if you could just sort of put some characterization around that move What do you think is causing it? And how durable is it versus a slightly lower move up in natural gas prices? And just what in particular do you have baked in for the fourth quarter?

Karen S. Carter: Hi, Vincent. Thanks for the question. So you are right. US ethane prices have moved higher in recent weeks, and it is actually outpacing natural gas. that is driven by a few factors. First of all, you know, growing at exports. You got the new cracker capacity on the US Gulf Coast, preparing to start up. You know, that is another reason. But, also, you are seeing that international crackers are leaning more heavily on ethane, in their mix given elevated oil prices. But I do wanna highlight that even with that, current levels really do remain below the peaks that we saw back in 2022. And, also, it is roughly in line with 5 year averages.

So, you know, the market here remains really well supplied. You are seeing US production of 2.3 million barrels per day. that is record. And inventories also still remain above historical norm. So our guide, our fourth quarter guide, contemplates that ethane will be in the mid to high 20s per gallon range. So that is marginally lower than where we sit today. Maybe just a rule of thumb, every 3 cents per gallon of ethane translates to about 1 cent per pound of polyethylene price needed to cover that cost. And as you heard on my last answer, we have much larger price increases on the table for fourth quarter.

So that is the 7 cents per pound in October. And the 5 cents per pound in November. Maybe just another important point is global polyethylene prices, of course, are set by naphtha-based production. And so with oil and naphtha still elevated, that oil to gas spread is gonna remain constructive, and it continues to sit well above, you know, prior year averages. So that makes, of course, ethane the lowest cost feedstock in the world. And that is where, you know, the majority of our capacity sits. So it is an advantage for now.

Operator: Your next question comes from the line of Patrick David Cunningham from Citi. Please go ahead.

Patrick Cunningham: Hi. Good morning. Just on free cash flow, you know, very, very strong results in 3Q, but can you help us with expectations for conversion into 2027, particularly we have expectations for higher or longer PE margins? I am trying to get a sense of some of the trade offs you have made on working capital this year. And any incremental restructuring expense you expect to incur next year.

Jeffrey L. Tate: Hi. Good morning, Patrick. This is Jeffrey. I appreciate the question. So a couple of comments I would make there. Yeah. First of all, you know, the third quarter free cash flow performance, you know, $1.1 billion was something that team did an excellent job of really focusing on working capital discipline. For 1, and this is 1 of the things that we did signal even coming out of our second quarter call that our anticipation around working capital is gonna see a significant swing. So the sequential improvement that we saw from second quarter to third quarter purely on working capital was about $1.3 billion, so a really strong tailwind there from quarter to quarter.

1 of the things that we did make the commitment on in the second half the year was at least a $500 million release of working capital. And so to deliver over $400 million of that in the third quarter puts us in a really good position to be able to meet that target. By year end. As we go into 2027, as I mentioned, earlier, you know, 1 of the things that we are, you know, definitely looking forward to in planning is around the self help, delivering the $1.3 billion. As we think about our cash conversion going into the next year, we are going to maintain that discipline around working capital which would.

Should continue to give us a cash conversion rate that is gonna be in the range of anywhere from, let's say, 70% to 80%. As we go through next year, which will position us well to be able to support our capital allocation framework.

Operator: Your next question comes from the line of Abigail Eberts from Wells Fargo. Please go ahead.

Abigail Eberts: Hi there. Thank you for taking my question. Another 1 on polyethylene price increases. There had been talks of a split settlement because of outsized tightness for low density. Has that changed? It sounds like you are not going for that anymore.

Karen S. Carter: No. No, thanks. And, Abigail, it is good to hear you on the call this morning. No. You know, we are we are moving forward with all of the polymers at the same time. So, again, 7 cents per pound in October and then another 5 cents in November. Again, we are seeing spot prices go up around the world. We are also seeing spot prices go up on all of the polymers. And so, you know, that is our plan in terms of executing those price increases as we get into the fourth quarter.

Operator: Your next question comes from the line of Jeffrey Zekauskas from JPMorgan. Please go ahead.

Jeffrey Zekauskas: Thanks very much. You are earning at a rate of about $1.5 billion a quarter, so call it $6 billion a year. So is the meaning of the incremental cost savings of $1.3 billion for next year is that if business conditions remain the same, your earning. Your EBITDA would go from $6 billion to $7.3 billion or do you mean something else?

Karen S. Carter: Thanks, Jeffrey, for the question. Listen. I do wanna highlight that when we enter. As we enter 2027, to your point, you know, $1.3 billion of earnings tailwinds are gonna be firmly in our control. And that is largely driven by the self help actions, as you mentioned. So that is $1.2 billion of incremental to outperform uplift in 2027. And then about another $100 million of in. Incremental gains from our asset actions And that includes both the shutdown of Barry siloxanes in Europe, so the additional uplift from that. But then also the growing impact of our recent incremental growth investments. So that is alkoxylation. Capacity, here in the US as well as in Europe, and Poly-7.

Maybe to your point, you know, global pricing dynamics are obviously not completely in our control. But we do see factors that could provide some support in 2027. So polyethylene market dynamics have momentum going into fourth quarter, as I mentioned. Higher oil baseline. You know you know, our view is that there is gonna continue to be a risk premium on the price of oil going forward. And so, you know, I am not going to call a 2027 number here. But what I can tell you is that we are gonna continue to navigate the market with disciplined execution and double down on our self help that we are committed to delivering next year as additional EBITDA uplift.

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

David Begleiter: Thank you. Good morning. Karen and Jeffrey, just on the $1 billion for 2027, can you just break down the benefit by segment? And are there any other tailwinds or headwinds that you would call out, either maintenance, higher or lower, or other costs that could be in 2027 that you know about today? Thank you.

Jeffrey L. Tate: Hi. Good morning, David. This is Jeffrey. You know, for us right now, continuing to work through the 1.3 billion as we go through the transform to output outperform again, which is the key driver of that tailwind that we anticipate from 2026 to 2027. You know, 1 of the things that we are really, really pleased about is that it is impacting every function. Every business, and every geography across the enterprise. And as I mentioned in my prepared remarks, the self help ownership and accountability is something that we have. From a cultural perspective. So we have a great level of confidence in the 1.3 billion for 2027.

As we get into the early part of next year, we will have more details to share around the breakdown of that as we move forward here. But at an enterprise level, the 1.3 is the tailwind.

Karen S. Carter: And, David, maybe just to tack on to that, you should think about it probably in 50% in P&SP, and 25% in the other 2 is how I would categorize it. Today.

Operator: Your next question comes from the line of Matthew DeYoe from Bank of America. Please go ahead.

Matthew DeYoe: Sorry. I was on mute there. Corporate overhead looks better quarter over quarter, but you know, probably somewhat in line year over year. 1, I am assuming some compensation accruals came back in 3Q given the big 2Q move. But I why is not there more evidence of like, the dramatic cost cuts moving through overhead? Like, R&D and SG&A. And I appreciate the doubt has a heritage in material science, but, like, what do you think the right absolute dollar spend is for R&D at Dow? Because it kinda feels like 700 is 2 I.

Jeffrey L. Tate: Hi. Good morning, Matthew. This is Jeffrey. I will I will I will take that question. You know, for us, first of all, on the overall SAR, we continue to be very pleased with the progress we are making on our SG&A as percent of revenue. Versus best in class peers. I mean, right now, we are at 5% of revenue versus best-in-class-- best in class pure median of 12%, so we are top quartile overall. On our cost structure from that perspective. If you look at quarter over quarter, so sequentially, our SG&A was actually down $130 million excluding significant items. A lot of that is reflected in our transformation.

Savings as well as, to your point, the performance based compensation adjustment as well. You know, we expect our cost savings to continue to build through the remainder of this year as well as through 2027. As we continue to change how we are working across the operating model that spending will be lower not only in our SG&A line items, but also in our cost of goods sold.

You know, obviously, being a manufacturing company, over 80% of the headcount savings that we expect to get from our transformation will come from not only manufacturing, but those support functions such as supply chain, procurement, and about 15% of those headcount savings will actually come out of SG&A, which we are starting to see reflected net.

Operator: Your next question comes from the line of Frank Mitsch from Fermium Research. Please go ahead.

Frank Mitsch: Thank you. I was curious if you could update us on Sadara. There were obviously press reports early last month that suggested you were looking to exit the partnership. So I was wondering if you could comment on what the future is of Sadara within Dow's portfolio? And also, if you could provide any update in terms of how those assets are running given the current conflict? Thank you.

Karen S. Carter: Yeah. Thanks, Frank, for the question. You know, I think our message is the same as we shared on the call. Last quarter. We remain really engaged with Aramco. He is leading that negotiation team in his new role as exec chair. You know, we have been really clear, I think, on the last call that we have established a financial boundary around Sadara. And we are working diligently to identify the best long term solution. Obviously, we have already made progress on 2 really important fronts in the first quarter, as you know, we suspended further recognition of Sadara equity losses. And then we also limited our funding commitment to about $1.3 billion, and that continues to come down.

So we think about that at $100 million a year. As we move that down. So that is that is where we are. And, again, those negotiations continue. What I would say about the asset there is that they are running, not all of them. Some of them are running at reduced rates as you can imagine for the obvious reasons.

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

Kevin McCarthy: Yes. Thank you, and good morning. Maybe a 2 part question on your Path2Zero project in Canada. Can you maybe provide an update on the execution and the next milepost we should be looking for? And then secondly, at 1 time, I think there was interest on the part of Dow to explore the notion of bringing in a partner for that project. Is that still the case today, or perhaps as the sense of urgency diminished given, you know, the improvements in the markets that we have seen in recent quarters as well as your balance sheet So on Alberta, we are squarely in the middle of-- Our focus remains on completing that project.

Karen S. Carter: You know, not only on time, but also on budget. So we are about 45% of the way through. You know, there is a lot of long time. Long lead time equipment that is already on the site. And most of the rest has been ordered. We are gonna move into the, really, the peak of construction as we get in. Into 2027. So there. We will we will move from about 3 thousand that are on-site today to about 6 thousand that will be on-site, next year.

And so we are maintaining that really sharp emphasis on execution discipline, holding our ourselves accountable to the timeline with that first phase slated to come up at the end of 2029 and then the second phase coming up in 2030. You know, we are we are really confident at this point in the project on both the timeline and the budget because it is really grounded in tangible progress that we have already made. Of course, we are leveraging the learnings from other projects, that we have completed in recent history. In terms of a partner, listen. We are very open to all value-creating options as we go forward. I think I have mentioned that before.

But what is really important is that it clears the hurdle on returns and that it clears the hurdle on value creation. And so what I would say is that, you know, right now, what the team is working on doing and is prepared to do is to move the project over the goal line, you know, as ourselves. But we remain open to any options that are available.

Operator: Your next question comes from the line of Matthew Blair from TPH. Please go ahead.

Matthew Blair: Hey. Good morning, Karen, and thanks for the update on the Sadara operations. Could you share the operational update on the rest of your Middle East and Asia crackers Which ones are fully running? Which ones are still constrained? Thanks.

Karen S. Carter: Sure. Thanks for the question. So I will start, you know, with Equate. So, of course, that is our JV that is in, Kuwait. And so we do have assets that are up and running, there, but they remain constrained. So there we have 1 cracker running at full rates, and several derivative units are idled due to storage limitations. You asked about the JV that is in Thailand. So 1 cracker was restarted, and it is recovering as feedstock-- to feedstock availability before. And then we have a planned turnaround for the second cracker that is that is there.

And I already mentioned, from a Sadara perspective, it is partially restarted, with a cracker and polyethylene plastic trains that are online, but the liquids remain down. And that is really part due to the logistics constraints that persist.

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

John Roberts: Yeah. Maybe if we could kinda roll that answer into kind of a quantitative. Could you have sold a lot more volume in the quarter if your JVs had been running normally and your export? From many of the JVs. Is it such that the markets just are not strong enough that even if the JVs were running normal, you have kind of made up for that. From your other operations, and you could not have sold much more.

Karen S. Carter: Yes. We could have. And even if you look at our third quarter results, I know that press release said that we were down 1% in volume year over year. That is in part because we were constrained on the capacity and the product that was coming out of the Middle East. But if you take that out just in P&SP alone, that business grew 2%. And so, yes, there is. There was more demand out there to be had. And we were constrained by the amount of capacity each I think that, you know, 1 of the proof points was in the September ACC data, and you see where we landed at the end of third quarter.

Again, inventories declined. You know, delivering the largest draw in over a year, but total sales So domestic plus exports, you know, rose in September. They increased over 3% month-over-month, and that was the second highest month of the year. But also the third highest month on record. So I think that those are those are important proof points that there is more demand to be had. And if we have more capacity, we would have sold it.

Operator: Your next question comes from the line of Christopher Parkinson from Wolfe Research. Please go ahead.

Christopher Parkinson: Hey. This is Harris Fine on for Christopher. Just a quick 1 on II and I. Just thinking about the outlook for 40 of the NDI end market is around building and construction, and that continues to be the weakest end market for us across the company.

Karen S. Carter: And so our expectation is in fourth quarter, we do expect to move back to a longer market with the resolution of industry supply disruptions. But also the recent startup of new capacity here in North America. So you know, the bottom line on MDI is that the market still remains challenging. Mainly driven by the weak demand in building and construction. And just a low, you know, demand environment you know, overall for that segment, which is exacerbated by the new capacity additions. And so, you know, longer term, we expect gradual operating rate improvement through 2030, but that is our view on the fourth quarter right now.

Operator: Your next question comes from the line of Arun Viswanathan from RBC Capital Markets. Please go ahead.

Analyst: Great. Thanks for taking my question. I guess I just wanted to get your thoughts on maybe global utilization rates across your 3 main chains. Polyethylene, polyurethanes, and silicones. It appears that we are maybe in the mid eighties. And there has not really been any material closures. Would you would you agree with that? And would you also agree with the statement that China has increased their production pretty significantly in most of those chains, and that is that is also impacting pricing negatively. Thanks.

Karen S. Carter: So let me start with ethylene. And polyethylene. You know, we do feel like and believe that operating rates today are in the low eighties. And so. And I think I have said this before, you know, we believe that we get back to mid cycle rates by the end of the decade. And there is a couple of reasons for that. You know, based on even where we were before the conflict, you needed about 10% of capacity to come out in order to materially get back to mid cycle operating rates. 5 to 6% of that has already been announced, and that includes our cracker in Europe. there is another about 8% that is being speculated.

Most to all of that are in high cost regions. And so Asia as well as Europe, recently heard in the last couple of months there is another million tons that is been confirmed to come out, from Karen. So you are you are seeing the rationalizations. And, of course, we know that capacity that is coming online. But the other part of the story is that polyethylene continues to grow at a factor above GDP. So I would call industry operating rates on the ethylene side today in the low eighties. And, again, we believe that we can get back to mid cycle operating rates by the end of the decade.

Which also aligns, by the way, with the timing of our Alberta asset that, again, the first phase will come up in 2029. On the siloxanes and the silicone side, you know, it is a bit of a tale of 2 cities. So up you are you are absolutely right. China has added a significant amount of capacity. it is it is 1 of the reasons why we took out our high cost siloxane capacity in Barrie UK in the second quarter of this year. Just as a reminder, that is gonna add $60 million of EBITDA in the second half of the year alone. But it is really important to emphasize that downstream silicones continues to grow significantly.

You know, directly aligned with the number of megatrends, you know, whether you are talking about electric electrification, but also, obviously, AI infrastructure. So, you know, we are seeing that. You know, most of our end markets in silicones are growing double digits. And that is showing up not only on our order books, but also on the bottom line. And then I think I just talked about, you know, MDI, you know, 1 of the. Of course, 1 of key value chains where you are seeing, overcapacity, for sure, being built in Europe. We have taken out, both in, you know, PO in particular. We taken out assets there as well.

But, again, working to right size our capacity across the entire portfolio, with the profitable demand on. Particularly on the downstream. But we continue to see strength in ethylene and polyethylene in particular. And in downstream silicones and a number of other ethylene, derivatives.

Operator: Your next question comes from the line of Yefremov from Barclays. Please go ahead.

Analyst: Thank you, and good morning, everyone. U. S. Polyethylene export prices seem to have been lagging strength in Asia recently. So related to that, could you discuss if there are any logistics constraints for your P&SP exports or any dynamics with freight rates that are relevant?

Karen S. Carter: No. We are not seeing any logistics constraints coming out of the US Gulf Coast as a matter of fact, you know, operating rates there remain above 90%. I have highlighted the ACC data a couple of times, on this call. And, again, I think that is yet another proof point of both feedstock advantage that we have here in North America, and the fact that we, you know, are not seeing any constraints there. Again, our order books are strong. We are seeing know, China's come back. You have seen that 6 cents, week-over-week of spot prices go up.

But spot prices are going up around the world, and that is why we have price increases on the table and believe that the current market dynamics will support us achieving those.

Operator: This concludes our Q&A session. I will now turn the conference back over to the Dow team for closing remarks.

Karen S. Carter: Thank you very much. And listen, Jeffrey and I both really appreciate all the questions that we got this morning. I just wanted to end the call, you know, with 1 key message for you to take away, and it is this. We are not standing still. The Dow team is not standing still. Obviously, the market remains, incredibly volatile. But we have the right priorities and we have the momentum to see it through. Our collective actions are delivering really solid results. We saw them in the third quarter, and we firmly believe we are gonna deliver that again in the fourth quarter.

And at the same time, you know, we are focused on creating long term value for our customers. For our shareholders, and for all of Team Dow. So thank you for your continued interest in our company, and we appreciate you joining us today.

Operator:

Andrew Riker: Thank you, everyone, for joining, for your reference. A copy of our transcript will be posted on Dow's website within 48 hours. This concludes our call.

Operator: Thank you, Dow team. You may now disconnect.

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