Dow Inc. (DOW) Earnings

Management highlights

### Core Strategic Priorities - Drive focused growth and innovation in high-value markets where Dow has competitive advantages, prioritizing targeted innovation, technology, and commercial excellence to deepen customer relationships and accelerate growth. - Enhance portfolio competitiveness with a best-owner mindset: invest in leading businesses, technologies, and low-cost positions, while exiting non-competitive assets. - Maintain a balanced capital allocation approach focused on strengthening the balance sheet, prioritizing deleveraging with excess cash, and preserving maximum financial flexibility. ### Completed Operational & Strategic Actions - Fully completed the $1 billion 2025 cost savings program, delivering over $300 million in Q2 2026 benefits from self-help initiatives. - Shut down the high-cost upstream siloxanes unit in Barrie, UK (representing 25% of European siloxane industry capacity), reshaping the PM&C portfolio to focus on higher-value downstream silicones for mobility, electronics, and healthcare end markets. - Restarted the idled lowest-cost, flexible Ternusin cracker in the Netherlands, improving Dow's European cost position and margin flexibility. The shutdown of the Bowling cracker remains on track for 2027 completion, and the Alberta growth project is progressing as planned. - Launched the Dow Coolant Care Network, an integrated service model for data center thermal management, capturing new growth in the fast-expanding data center end market. - Secured long-term supply agreements with P&G and Univar for low-carbon products across beauty, personal care, home care, food, pharma, and industrial markets, locking in durable high-quality demand. ### Self-Help Program Update - Upsized 2026 total expected self-help benefits to over $1.3 billion, a $200 million increase from the prior target. The Transform to Outperform program is expected to deliver $700 million in 2026 benefits, up from the prior $500 million target. - 55% of planned headcount reduction for Transform to Outperform is complete, expected to deliver over $200 million in EBITDA uplift in H2 2026. - Completed site transformation playbooks at 6 of 18 planned largest sites, expected to deliver $50 million in EBITDA uplift in H2 2026, from improved yields, maintenance efficiency, energy efficiency, and optimized third-party spending. - The $2 billion total Transform to Outperform opportunity (two-thirds productivity, one-third growth) remains on track for full delivery by end of 2027, with early results already exceeding expectations.

Guidance

- Full year 2026 total self-help benefits are now guided to over $1.3 billion, an upward revision of $200 million from the prior target. The $2 billion total Transform to Outperform benefit target by end of 2027 is maintained. - Third quarter 2026 operating EBITDA is guided to approximately $1.7 billion, a sequential decline from Q2 2026 that accounts for anticipated margin compression from the June North American polyethylene price settlement and normal post-peak seasonal demand trends. - $130 million in sequential tailwinds from self-help efforts (including Transform to Outperform and the Barrie siloxanes shutdown) are expected to more than offset headwinds from planned Q3 maintenance and the non-recurring Q2 land sale gain. - For Packaging & Specialty Plastics: The June polyethylene price decline will average through Q3, with no further price movement assumed in guidance. Self-help benefits will more than offset higher planned maintenance at U.S. Gulf Coast assets. U.S. Gulf Coast operating rates are expected to be above 90% after the planned maintenance turnaround is completed. - For Industrial, Intermediates, and Infrastructure: Normal seasonal demand declines in building and construction, plus expected European margin pressure, will be partially offset by ongoing self-help actions. Supply-driven margin gains from peer disruptions in Q2 are expected to normalize in Q3. - For Performance Materials and Coatings: Typical seasonal demand slowdown in coatings and a planned turnaround will drive sequential declines, partially offset by self-help benefits from the Barrie shutdown. - A minimum of $500 million in working capital release is expected in H2 2026. Dow expects to receive the remaining ~$300 million from NOVA litigation compensation in early Q3, following the $1 billion received in Q1.

Segment performance

1. Packaging & Specialty Plastics (PNSP): Net sales of $6.4 billion, a 27% year-over-year (YoY) increase. Operating EBIT was approximately $1.3 billion, up YoY. The growth was driven by higher polyethylene and olefins pricing, which offset lower volumes from U.S. Gulf Coast planned plant maintenance. Operating rates for related Hydrocarbons and Energy operations declined to 84% due to maintenance. The lowest-cost, most flexible European cracker at Ternusin was successfully restarted to optimize margins. This segment contributed ~53% of total company net sales for Q2 2026. 2. Industrial, Intermediates, and Infrastructure (IINI): Net sales rose 14% YoY, driven by a 15% increase in local prices across all regions and businesses. Operating EBIT improved YoY to $246 million, supported by higher margins, self-help initiatives, and lower plant maintenance activity. The segment got incremental Q2 earnings from a non-core land sale in Taiwan, aligning with portfolio optimization efforts. Growth investments serving end markets like home care, pharma, and energy continue to deliver improved sales. This segment contributed ~30% of total company net sales for Q2 2026. 3. Performance Materials and Coatings (PM&C): Net sales grew 11% YoY, supported by both increased volume and price. Volume gains were led by growth in downstream silicones, plus improvements in acrylic monomers and architectural coatings. The consumer solutions business saw gains in high-value end markets including consumer, electronics, and home care. Operating EBIT was $133 million, down YoY, due to higher costs from planned maintenance and the shutdown of the Barrie siloxanes unit, which offset price/volume gains and self-help benefits. This segment contributed ~17% of total company net sales for Q2 2026.

Risks & headwinds

- Geopolitical tensions in the Middle East remain elevated, with logistics constrained and Strait of Hormuz shipping traffic below historical levels, disrupting global supply chains and supporting elevated risk premiums for energy and feedstock prices. - Persistent structural high operating and labor costs in Europe continue to pressure margins, despite recent supportive policy measures. - Macroeconomic uncertainty persists globally, with mixed demand signals: the U.S. housing market remains soft due to affordability concerns and high mortgage rates, and Asia Pacific regional consumer demand remains weak despite improving industrial production. - Recent commodity price volatility (including the $10 per barrel jump in crude oil in early July) and Red Sea shipping disruptions create uncertainty for near-term margins and pricing. - Feedstock supply constraints in some regions could impact operating rates for third-party facilities and joint ventures.

Analyst Q&A

• Q: What recent crude price increases and Chinese destocking mean for Q3 polyethylene pricing, and could Chinese restocking drive upside to guidance?

  A: The $1.7 billion Q3 EBITDA guidance assumes a 10 cent per pound decline in global integrated polyethylene margins from Q2, reflecting the 15 cent June North American settlement working through the quarter, with no further price movement assumed. Recent crude price increases, Red Sea disruptions, declining Chinese polyethylene inventories, and rising spot polyethylene prices in China have already lifted near-term order volumes, and Dow has announced a 5 cent per pound price increase in North America. If current upward price trends hold, this will be upside to the current Q3 guidance, though volatility remains high.

• Q: What is the progress update on the Alberta project, and is Dow open to adding a partner to the project?

  A: The Alberta project is 60% complete by CapEx, progressing on the revised timeline, with all critical labor contracts awarded and project incentives intact. Dow's primary focus remains disciplined, safe execution to deliver the committed returns on the investment. Dow has evaluated potential partners previously and remains open to partnership opportunities, but only if they are financially accretive and meet Dow's return thresholds.

• Q: Why did PNSP Q2 results come in below prior guidance, even after overall guidance was upgraded earlier in the year?

  A: The June 15 cent per pound polyethylene price decline was not incorporated into prior guidance, and unplanned outages (UPEs) additionally impacted Q2 PNSP volumes and earnings. Lower-than-expected PNSP results were fully offset by better-than-expected performance in IINI, driven by peer supply disruptions that lifted margins, plus the $50 million non-core land sale, leading to overall Q2 results hitting the updated guidance range. Overdelivery from self-help initiatives in the first half ($190 million delivered vs. the $100 million target) allowed the full year self-help target to be upsized by $200 million.

• Q: Why is SG&A higher YoY and sequentially, despite the Transform to Outperform cost-cutting program, and what is Dow's capital allocation priority for excess cash?

  A: Q2 SG&A was elevated by one-time Transform to Outperform implementation costs and higher performance-based compensation, which offset ongoing cost reduction from self-help. SG&A will decline in H2 2026 as self-help actions ramp. Dow's top capital allocation priority is maintaining its investment grade credit profile and deleveraging, following over $1 billion in debt taken on over the past year. Dow will continue to prioritize debt paydown with excess cash to strengthen the balance sheet and increase financial flexibility, and will evaluate share buyback opportunities only after deleveraging goals are met.

• Q: What is driving the stronger-than-expected IINI Q2 performance, and how large is the current data center growth opportunity for Dow?

  A: Most of the Q2 IINI margin upside came from temporary supply disruptions impacting peer production of MDI and PO, which lifted Dow's margins. These supply disruptions are expected to normalize in Q3, aligning with the Q3 guidance for lower IINI margins. Data center thermal management and related solutions are a fast-growing, high-margin end market for Dow's IINI segment, with new integrated service offerings like the Dow Coolant Care Network driving additional revenue and margin expansion beyond just product sales. Additional growth in IINI is coming from home care end markets, supported by recently completed capacity expansions for alkyl alkoxylates, PEGs, and surfactants.