Dow Inc. Earnings Call: Cost Cuts, Cash, and Caution

Dow Inc. ((DOW)) has held its Q4 earnings call. Read on for the main highlights of the call.

Dow Inc.’s Latest Earnings Call: Cost Discipline Amid Tough Markets

Dow Inc.’s latest earnings call struck a cautiously constructive tone against a still-tough backdrop for chemicals and industrial demand. Management emphasized robust liquidity, aggressive cost-cutting, and a sweeping new “Transform to Outperform” program aimed at structurally lifting earnings. Yet the discussion also underscored the pressure on revenues and margins in key segments, a sharp dividend reduction, and delayed returns from major decarbonization investments. Overall, the message was clear: Dow is prioritizing cash, efficiency, and strategic repositioning to ride out the downturn and be ready for a recovery.

Fourth Quarter Earnings and Modest Near-Term Improvement

Dow delivered fourth-quarter operating EBITDA of $741 million, reflecting a tough environment across several end markets, particularly industrial and construction. Management guided first-quarter 2026 operating EBITDA to about $750 million, signaling only a modest sequential improvement. The small uptick is expected to come from margin expansion and usual seasonal demand uplift, but will be partly offset by higher turnaround spending and lower equity earnings, including headwinds from a Louisiana cracker outage and Kuwait joint venture and licensing impacts. Overall, Dow’s near-term earnings profile remains subdued, underscoring how dependent the company still is on a broader industrial recovery.

Substantial Cost Savings and Cash Support Already Delivered

A central theme of the call was Dow’s execution on cost and cash actions. The company has identified more than $6.5 billion in near-term cash support measures and has already delivered well over half of that by 2025. Dow also accelerated a $1.0 billion cost-out program, realizing more than $400 million of savings versus an original $300 million target, and plans to deliver the remaining more than $500 million by the end of 2026. These actions are helping to partially offset weak pricing and volumes, and they frame the company’s narrative that operational discipline will carry it through the downcycle.

“Transform to Outperform” Targets $2 Billion EBITDA Uplift

The new “Transform to Outperform” program is the backbone of Dow’s structural earnings story. Management expects the initiative to deliver at least $2.0 billion of near-term EBITDA improvement, with roughly two-thirds from productivity and one-third from growth initiatives. About $500 million of value is anticipated in 2026 alone. To get there, Dow is committing to major simplification and efficiency moves, but it will incur substantial one-time costs estimated at $1.1–$1.5 billion, including $600–$800 million of severance. The program is ambitious and carries execution risk, yet if successful, it would materially reset Dow’s earnings power ahead of a cyclical recovery.

Solid Liquidity and Balance Sheet Management

Despite challenging markets, Dow highlighted a strong liquidity position and proactive balance sheet management. The company ended 2025 with more than $3.8 billion in cash and cash equivalents and approximately $14 billion of available liquidity, supported by a revolving credit facility extended to 2030. Dow also completed around $3.0 billion of cash proceeds from its strategic partnership with Macquarie and issued $2.4 billion in bonds, while trimming capital expenditures by $1.0 billion. These moves underscore Dow’s focus on preserving financial flexibility, funding its transformation and strategic projects, and maintaining resilience if macro conditions remain weak.

Packaging & Specialty Plastics: Operational Strength Amid Volume Pressure

Packaging & Specialty Plastics (PASP) showed operational resilience in a mixed demand environment. Fourth-quarter net sales were $4.7 billion, with polyethylene volumes rising both year-over-year and sequentially, even though full-segment volumes were down 2% year-on-year due in part to lower merchant olefins sales in EMEA and India after cracker idling. Operating EBIT reached $215 million, up $16 million sequentially, supported by cost savings, higher licensing activity, and stronger energy sales. The segment also set an annual ethylene production record for the third year in a row and completed the startup of the Poly 7 polyethylene train, reflecting ongoing productivity and capacity milestones that should position PASP for operating leverage when pricing and demand recover.

Performance Materials & Coatings: Earnings Up Despite Lower Sales

In Performance Materials & Coatings (PM&C), Dow posted a mixed but encouraging picture. Fourth-quarter net sales declined 6% year-over-year to $1.9 billion, and volumes fell 2%, yet operating EBIT rose by $34 million versus the prior year. The profitability improvement was driven by strong demand in electronics and mobility markets and continued cost reductions. Silicones downstream volumes increased for the second consecutive year, signaling healthier demand in value-added applications. That said, the segment still faced sequential earnings pressure, with EBIT down $55 million from the third quarter, reflecting typical seasonal and margin compression effects.

Industrial Intermediates & Infrastructure: Revenue and Margin Squeeze

Industrial Intermediates & Infrastructure (II&I) remained a key sore spot. Fourth-quarter net sales dropped 9% year-over-year to $2.7 billion, with volumes down 1% and operating EBIT plunging $285 million versus a year ago and $154 million sequentially. Lower integrated margins and weak industrial demand, particularly in building and construction end markets, weighed heavily on results. The segment’s performance illustrates the depth of the macro headwinds facing Dow’s more cyclical businesses, and it is a primary area where the company expects its cost actions and portfolio optimization to eventually stabilize profitability.

Industry Rationalization and Strategic Asset Actions

Dow is actively reshaping its asset base to improve structural earnings. The company has shut down higher-cost upstream assets, including a propylene oxide unit in Freeport that effectively removed about 20% of North American PO capacity. It also announced planned European shutdowns that are expected to deliver roughly $200 million in annual EBITDA uplift by 2029, with some benefits starting in 2026. These rationalization steps are designed to take out structurally high-cost capacity, tighten supply in oversupplied markets, and focus capital on more competitive, higher-return assets.

Path to Zero: Decarbonization Plan Delayed and Returns Trimmed

Dow’s flagship decarbonization initiative, Path to Zero, is being reset to match the cycle. The company pushed the project’s phase-one timeline out by two years to late 2029, citing the need to align execution with market recovery and capital discipline. Around 30% of the project’s capital spending has already been deployed, and the expected returns are now modeled at roughly 8–10%, lower than prior expectations but with potential upside of 100–200 basis points from low-carbon product premiums. Dow reiterated that total capital spending will stay at or below depreciation and amortization until mid-cycle earnings return, signaling that large-scale growth and decarbonization investments will be paced carefully.

Market Headwinds, Trade Frictions, and Export Exposure

Management repeatedly referenced persistent macro headwinds and trade-related pressures. Weakness in building and construction, ongoing uncertainty in global industrial activity, and volatile trade and tariff dynamics are constraining pricing and volumes. Dow also pointed to anticompetitive and dumping behavior in some regions, particularly Europe and China-related tariff changes, as further complicating the backdrop. Compounding these challenges, roughly 30–40% of North American PASP volumes currently serve low-margin or near-zero-margin export markets for polyethylene. The company acknowledged the need to optimize product mix and regional exposure over time to reduce dependence on these pressured export channels.

Seasonal Weakness and Typical Fourth-Quarter Compression

Management was clear that some of the quarter’s softness reflected normal seasonality. Across several businesses, fourth-quarter results were hit by lower seasonal demand and the usual margin compression seen at year-end. Segments like PM&C posted sequential EBIT declines as customers destocked and orders slowed into the holidays. While this seasonality is not new, it amplified already weak fundamentals in cyclical downstream markets, making the reported numbers look particularly soft despite underlying operational improvements.

Transform Program Job Cuts and One-Time Charges

The Transform to Outperform initiative will come with significant human and financial costs. Dow plans to reduce its global workforce by approximately 4,500 positions as part of its structural productivity drive. The program’s one-time costs are estimated at $1.1–$1.5 billion, including $600–$800 million of severance and $500–$700 million in other implementation expenses. These near-term cash outflows and restructuring efforts add execution risk, but management argued they are necessary to reset the cost base and unlock the targeted $2 billion-plus EBITDA uplift.

Dividend Reduction to Preserve Flexibility

One of the most headline-grabbing moves was Dow’s decision to cut its dividend by 50%. For income-oriented shareholders, this represents a substantial near-term setback. Management framed the reduction as a deliberate step to preserve cash and support the transformation strategy, capital investments, and balance sheet strength. While the cut reinforces the seriousness of the current downturn, it also underscores Dow’s willingness to sacrifice near-term shareholder income to protect long-term strategic and financial flexibility.

Forward Guidance: Incremental Improvement and Structural Upside

Looking ahead, Dow guided to first-quarter operating EBITDA of roughly $750 million, slightly above the fourth quarter, driven by expected margin improvement and seasonal demand, yet tempered by heavier maintenance spending and weaker equity earnings. At the segment level, guidance includes a modest $10 million cost-savings tailwind and about a $15 million planned-maintenance headwind for II&I, and roughly $80 million of sequential tailwinds for PM&C. Beyond the quarter, management reiterated that it will complete the remaining more than $500 million of its $1 billion cost program and expects the Transform to Outperform initiative to deliver at least $2 billion in near-term EBITDA uplift, with around $500 million of that benefit targeted for 2026. Dow also highlighted more than $3 billion of potential earnings uplift before Path to Zero phase one comes online, alongside a liquidity buffer of about $14 billion and 2026 capital spending planned around $2.5 billion, at or below depreciation. The revised Path to Zero start in late 2029 and expected returns of 8–10%, plus possible low-carbon premium upside, round out a guidance framework that balances near-term caution with longer-term structural earnings ambitions.

In sum, Dow’s earnings call presented a mixed but forward-leaning picture: near-term results remain pressured by weak industrial demand, low-margin exports, and seasonal softness, while shareholders face a dividend reset and restructuring overhang. Against that backdrop, the company is leaning hard into cost reduction, asset rationalization, and a sizeable transformation program, backed by solid liquidity and disciplined capital spending. For investors, the story hinges on whether these actions can bridge the current downturn and translate into the sizable EBITDA uplift management is targeting once the cycle eventually turns.