Good day, and welcome to the Dow First Quarter 2020 Earnings Call. [Operator Instructions] Also, today’s call is being recorded. I would now like to turn the call over to Colleen Kay. Please go ahead, ma’am.

Good morning, everyone. Thank you for joining us to discuss the first quarter financial results for Dow. We’re making this call available via webcast, and we have prepared slides to supplement our comments during this conference call. They are posted on the Investor Relations section of Dow’s website and through the link to our webcast. I am Colleen Kay, Investor Relations Vice President for Dow and joining me on the call today are Jim Fitterling, Dow’s Chairman and Chief Executive Officer; and Howard Ungerleider, President and Chief Financial Officer. Please read the forward-looking statement disclaimer contained in the earnings news release and slides. During our call, we will make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Dow’s Forms 10-Q and 10-K include detailed discussions of principal risks and uncertainties which may cause such differences. Unless otherwise specified, first quarter 2019 historical financial measures presented today are on a pro forma basis, and all financials where applicable exclude significant items. We’ll also refer to non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures is contained in the Dow earnings release, in the slides that supplement our comments today, and on the Dow website. On Slide 2, you’ll see our agenda for the call. Jim will begin with the first quarter highlights, share details on Dow’s response to Covid-19 and discuss the operating performance of the segments. Howard will provide an update on Sadara, then move into a financial overview of the quarter, and provide our modeling guidance. And finally, Jim will close with some remarks on key factors that differentiate thereof. Following that, we will take your questions. With that, I’ll turn the call over to Jim.

Thank you, Colleen, and thanks, everyone for joining us this morning. Before we begin, I’d like to first recognize Neal Sheorey for the tremendous role he has played in our Investor Relations team over the past four years. We are glad to have him leading our Coatings & Performance Monomers business. And also a very warm welcome to Colleen Kay, who succeeded Neal as our new Investor Relations Vice President this quarter. Starting on Slide 3, I’ll begin with some notable highlights from the first quarter. We delivered net sales in line with our adjusted guidance. As we met strong demand in our consumer staple non-durable application, such as food, health and hygiene, packaging and surfactants and solvents for cleaning products. Our volume excluding Hydrocarbons & Energy declined 1% reflecting the impact of reduced economic activity in China with the onset of the Covid-19 pandemic and containment interventions. Our volume in China was down 25% sequentially as seasonal decline due to the Chinese New Year was intensified by the sudden demand reduction due to the virus. Cash flow was again a noteworthy headline. We generated a solid $1.2 billion in cash from continuing operations, a 79% conversion of operating EBITDA to cash from operation and our free cash flow increased by $240 million year-over-year. This was underpinned by three actions. One, our quick response to shifting trends in global energy prices and regional demand, which enabled us to liberate cash from working capital. Two, tight capital and expense controls including more than $30 million in stranded cost savings. And three, a non-operational cash inflow as we recovered a $259 million tax withholding from the Canadian Tax Authorities related to the 2019 judgment against Nova. We ended the quarter with approximately $12 billion of cash and available liquidity and we took…

Thanks, Jim, and good morning, everyone. Turning to Slide 10, I’ll start with an update on the key milestones reached at Sadara. On our last earnings call, we shared that Sadara was very close to signing its final logistics service agreement. I am pleased to report the JV has now achieved that milestone. This agreement was important as it was the final substantive step to project completion. As a result, Sadara and the JV partners have now begun the debt reprofiling process and are in parallel currently engaged in discussions with its lenders, we expect this dialogue to advance over the course of this year and we’ll provide further updates as that unfolds. While that financing discussion is progressing, Sadara is making good progress on executing its longer term operating structure improvements and from issue Dow remains on track with its planned loans to Sadara which remains in the range of $500 million. Moving to Slide 11, net sales were $9.8 billion, at the company level local price declined 8% year-over-year driven primarily by lower global energy prices, currency decreased sales by 1%, volume declined 2% year-over-year or 1% excluding the Hydrocarbons & Energy business. Equity losses were $89 million, primarily driven by lower results at the Kuwait and Thai joint ventures. Operating EBIT was $843 million and operating EPS was $0.59. Positive drivers during the quarter included demand growth in food packaging, health and hygiene and cleaning applications on resilient consumer purchasing trends in response to COVID-19, as well as continued stranded cost removal. These gains were more than offset by year-over-year margin compression, notably in the polyurethane and silicones chains, as well as lower equity earnings. Overall, the financial impact of COVID-19 and the substantial decline in crude oil prices was in line with our expectation of an…

Thank you, Howard. Turning to Slide 15, I want to emphasize several factors that we believe set Dow apart and support our competitive position. Given our more than a 120 year history, Dow has a strong track record of successfully navigating periods of uncertainty. And as a result, we have built competitive positions and asset flexibility to be prepared through situations like those that we are experiencing today. We call these are points of distinction and today, I will highlight a few points that set Dow apart. On Slide 16, Dow’s unmatched feedstock flexibility and superior product mix are key factors that underpin the higher and more resilient margins that we deliver across the cycle. We also have a geographic mix of assets to provide a structural hedge to feedstock dynamics. For example, in today’s environment, we are able to capture improved cracking margins in Europe and Southeast Asia, which offset some of the margin compression we see in other regions. We have a leading Packaging & Specialty Plastics portfolio with assets designed to be flexible, and adapt to feedstock volatility. Our feedstock flexibility enables us to crack a wider mix of feedstock. For example, we have two to three times more propane capability than our peers. We can implement this at a furnace-by-furnace level in our crackers as heavier feedstock by naphtha become advantaged, another limitation could be co-products. If not managed adequately, ethylene units may be forced to cut rates or switch feedstocks and we’ve seen some signs of these strains in the industry as demand for co-products are tied to automotive and fuel end-markets which are currently experiencing weak demand. But here too Dow has advantages. We have aromatic processing units in Europe and on the U.S. Gulf Coast, which give us flexibility to consume and process…

[Operator Instructions] And we’ll take our first question from Vincent Andrews with Morgan Stanley. Go ahead sir.

Thank you, and good morning, everyone. It sounds like everyone is doing well which is great. Maybe, I could just ask about how you are thinking about in Packaging especially Plastics, if you look at the price decline that you guided to for 2Q, could you just talk about how much of that’s coming out of – do you think it’s going to coming out of the U.S. market versus just the weak export market or the EU? And how are you thinking about ethane and propane through the quarter? There has been some volatility in ethane over the last month and propane seems to be pretty stuck – being pretty stubborn relative to move in crude, so far. Thanks.

Yes, good morning, Vince. Everybody is doing great here. And thanks for asking. We hope you are too. Most of the pricing – and I think what you are seeing on pricing is that, you are seeing things kind of come to a global kind of a price right now and that you would expect that with what’s happened. I think you are going to see a little bit more come out in Europe than in North America, little bit less in Latin America, and little bit less in the Pacific. Actually, we started to see exports to China stepping up pretty dramatically. China has reduced the tariffs coming in and the Chinese economy is turning to rebound versus March. I would say, we start to see activity there in late March and through the month of April. So the industrial part of the economy is trying to get rolling again. Consumer part still a little bit uneven. And then, obviously, we did what we did on supply, just to balance off demand. So, we had a good strong first quarter. Volumes were flat, slightly up in Packaging and Specialty Plastics. But we are going to see some impacts on volumes in the industrial part of the sector in the second quarter, which is why we tightened up some of the supply. And that was primarily due to industrial shipping, industrial applications, automotive applications. We are starting to see the automotive industry talk about coming back here in the month of May and also in the month of May in Europe. So, hopefully, we will see them May, June turn in the economy on the industrial side here in North America, Latin America.

And next we’ll move to John Roberts with UBS.

Thank you. And you all sound pretty well here, as well. So I am glad to hear that. Can you comment on other industry closures you might be seeing? We don’t usually think of Dow’s high cost although ethane is kind of flipped here currently, but, are we seeing other closures we haven’t heard about yet from competitors in the marketplace?

Yes, John. Thanks for the question. We are not closing the high cost assets. We are closing the balance demand. So, look, all of these are reasonable cost assets, but the reality is, there has been a pretty significant amount of industrial capacity shutdown on the downstream. And so, we don’t feel like in this environment, really ploughing a lot of material into inventory is the right thing to do. So, that’s why we are dialing back the capacity. I have seen some delays and indefinite suspensions of projects, there was one this week in Ohio, the Thai project that was going to go ahead. So, we are starting to see some of those kinds of announcements. We are seeing reduced rates across polyurethanes, across the globe basically and we’ve got polyurethanes MDI capacity down in China right now, not us, but competitors do. Really to balance out the fact that downstream automotive and appliances and construction for insulation materials has been slow. So I think that’s what you are seeing. I think it has less to do with the cost position and more to do with the supply demand.

And David Begleiter with Deutsche Bank will have our next question. Please go ahead.

Thank you, Jim. On the same point, the idling of the Americas ethylene polyethylene plants, is you are efficiently influenced at all by the cost competitiveness of these plants given the recent drop in oil prices have not, are you concerned about losing any share to competitors who are not being as disciplined as you are? Thank you.

No, I don’t think we’ll lose share, David. Actually, we were glad to say we were in share in the first quarter across our plastics business and ethylene costs are still very low in the U.S. Gulf Coast. So we haven’t idled anything on the ethylene side. In fact, right now, probably 9% to 10% of ethylene production capacity is out on the U.S. Gulf Coast. So we will balance that out. We’ve been operating very well from a working capital standpoint and I think what we are trying to do here is, just make sure that we don’t plough a lot of material into inventory until we see a good demand signal coming on the back-end. We are starting to get good signs. We are starting to get positive signs out of many states in the United States for a May opening. And some parts of Europe like Germany, Austria, Switzerland. And then, I think as confidence builds, testing comes along, people are going to be more certain about going back into manufacturing and consumers will be back in the market. And at that point, it’s easy to fire these polyethylene units back up and meet that demand.

And next we’ll move to Jonas Oxgaard with Bernstein

Hi. Good morning, guys. I have a follow-up on the previous question there. The 5% to 10% no ethylene that seems to be higher than the industry at average. How much of that is reselling your own inventory from TX-9? And maybe a sort of a hypothetical if TX-9 have not been down, do you think you would be forced to reduce rates more in line with industry average?

Yes. Thanks, Jonas for the question. Texas 9 is back up. So it’s at the $2 million runrate right now. Most of that expansion on Texas 9 was for MEGlobal for their consumption for MEG, and so they’ve been buying ethylene in the markets to really get themselves started and up and running. So this supply has been in the marketplace. And I haven’t seen any reduction in volumes there. I think the other thing that’s happening is, as you see in the automotive industry, go down, people that are cracking naphtha or cracking heavier don’t have much place for some of the aromatics and some of the off grades to go. And so, the rubber industry has been slow. Automotive industry has been slow. So that has brought rates down in some other crackers and then you’ve had some more turnaround and outage in other crackers. So as we go into the quarter, we feel like the toughest quarter here is going to be Q2 and so, we want to make sure that we balance supply and demand through Q2 and position ourselves to be able to turn things back on and come up as the industry starts to come back.

And we’ll move on to Jeff Zekauskas with J.P. Morgan.

Thanks very much. What’s your cash tax rate? Is it between 30% and 35% or is it lower or higher? And in the United States, how will your feedstock slate in producing ethylene change versus 2019? In 2019, what were your rough percentages of ethane, propane and naphtha? And what do you think that’ll be this year?

Let me get to Howard to cover the tax rate, while I have to do some CEO math on your cracking question.

I’ll wait for you - the CEO math. Hey, Jeff. Good morning. So, look, the P&L tax rate that we published this morning for Q2 and for the full year is between 30% and 35%, slightly higher than what we had guided to earlier and really three issues, lower equity earnings, different geo mix of earnings and then some discrete items. But I would say, on your question on tax. Tax is lower than that range. I would guide you to something in the mid-20s.

And to your question on cracking, Jeff, and I’ll just focus on U.S. Gulf Coast here, because as for the bulk of a flexibility is, I would say, we were in the 75%, 80% ethane cracking through the year. The balance of the propane and butane and very little talk for the back half of the year is zero in naphtha. Naphtha has come down, but honestly, ethane is still the best crack. And so, if ethane gets tight and we start to see prices rise and propane comes into the slate, we will swing over to our propane flex. And it’s you know, we can swing 70% of the capacity over to propane. So, we got that flexibility built in to what we are modeling and I am optimistic that this is a more resilient gas market than people are estimating.

And we’ll move on to Hassan Ahmed with Alembic Global.

Morning, Jim and Howard. I just wanted to sort of continue with this team of the feedstock side of things. Let’s just assume for a second that the feedstock environment that we are in right now is the new normal in terms of roughly where crude oil pricing is. This assertion that in this lower crude oil pricing environment, obviously, you will see curtailments and cuts on the shale side of things, maybe ethane is advantaged as it used to be. So now, sort of beyond the extreme near-term, if that is the feedstock cost environment, how do you see the second wave of cracker in derivatives sort of units play out? I mean, in theory, the CTO, MTO side will not look that competitive and maybe naphtha looks a bit more competitive. Certainly, whoever has flexibility will be better off than those that don’t. And then, you have this whole sort of notion of a lot of capacity in theory coming online eventually in China. A lot of the facilities here in the U.S. just being pure ethane-based facilities. I mean, how do you see those – all of those sort of different factors playing out if feedstocks continue to act the way they have over the last couple of months?

Thanks, Hassan. That’s a lot in that question. But I would say, right now, if things continued where they are today, we’d say there is about 21 million metric tons, about 11% of C2 capacity is at risk. That’s either due to age or the scale or the high conversion cost or their feedstock, cracking capability. I think one of the assumptions that everybody made was, naphtha coming down was that the whole world was going to switch to naphtha cracking. But what people forget is that, you make so many byproducts on naphtha and there is no home for those byproducts. So those byproduct credits go away. At the end of the day, ethane and propane still remain the most competitive crack and we think that’s going to continue. The other assumption that goes into this then, is what happens to oil price and oil has responded to just an unbelievable slowdown in demand, which is primarily because we told everybody to stay at home and nobody is traveling. But what we are seeing in China is, people are going back, traffic rates in China, for car traffic and truck traffic are back up to 80% of what they were pre-COVID. And I think when people come back here, they are going to come back into their cars. That’s going to tighten up the demand side or the demand side on oil, at the same time some of these supply adjustments are going to come back in. So I am not predicting that we are going to go to this is the oil demand for the rest of the future. I think if you look over a long, long time, that oil demand grows tracks population and what’s going on around the world with the development of the economy. We’ll get back to that. The question for everybody is just what’s the timeframe? Are people going to – if we get a test and we get a treatment, our people going to get optimistic and go back faster or is this going to take longer than people think.

And Hassan, on your CTO, MTO question, I would say about $6.5 million of that $21 million is CTO, MTO, which with oil below 50 bucks that’s – those are really stressed assets.

And we’ll move on to P.J. Juvekar with Citi.

Yes, Jim and Howard. Good morning.

Good morning, P.J.

Just a quick question again on this co-product. You mentioned that there is no demand for co-products and prices are coming down. How would that change naphtha margins? And then, can you compare today’s ethylene margins in U.S. versus Europe? You are in a good position to do that. And any thoughts on new China ethylene crackers that were coming online. Thank you.

I think what we’ve seen so far P.J. in terms of the cost curves on ethylene is that, naphtha has come down, but lighter cracking ethane propane cracking is still advantaged to $100 and more than $100 a ton. And so, that is a byproduct of the byproduct credits. And when you learn these naphtha crackers, typically, you are running them to produce ethylene and you take credit for all the byproducts that you sell in the market and net that back against the ethylene capacity. When there is no margin on the byproducts, there is no netback credit. And so, that’s what we are looking at is, there is no place for the sea ores to go, the butadiene demand is down, rubber demand is down. And so, at some point, you flip those markets upside down and at that point, people just slowdown rather than crack more naphtha. So that’s what we are looking at and I think that’s what we are going to see play out.

And we’ll move to John McNulty with BMO Capital Markets.

Yes. Thanks for taking my question. On the cost side, can you speak to the $350 million cost assets that you are looking to pull out, how quickly that can be phased in? And then, I guess, also in terms of the cost and efficiency improvements that you are looking for in Sadara, how can we be thinking about that play in through throughout the year, as well? And if that maybe expedited in any way?

Yes, let Howard can put a good timeframe to that.

Yes, yes. Hey, John. Good morning. On the $350 million, I would say, I would look at about 20% of that realized in the second quarter and then, the 80% pretty evenly split between the third quarter and fourth quarter, maybe a little bit of a lighter third quarter and a heavier fourth quarter just as we continue to take those cost out. Relative to Sadara, look these, if the naphtha margins hold, you’ll actually see a margin expansion in Sadara as the second quarter progresses. And then on the cost out, the team continues to do a good job of reducing cost pretty evenly through the year. In fact, if you looked at our equity earnings in the first quarter, it was a one JV that actually was flat or up on the same quarter last year or prior quarter basis and that’s really because, they saw the same thing that all of the other JVs saw, which was some margin compression, because of the demand disruption. But they were able to offset that with the cost. The other thing that they are also working on is just the sell up. Remember, we brought 26 operations on pretty much in about a twelve month period. So we sold them out. But now we’ve got to sell them up until the teams are working on that and that’s not going to be a one or two quarter activity. But that’s over the course of about three or four years.

And we’ll move on to Frank Mitsch with Fermium Research

Hey. Good morning. And Jim, I’d like to echo your appreciation and congrats to Neal and offer a warm welcome to Colleen. So, Dow has spoken in the past about multiple Monte Carlo simulations and I am not sure if you’ve factored in a pandemic or a oil collapse in those simulations. But here we are, if I am looking at the first half of 2020, we are running at a runrate below $6 billion in EBITDA. So, I guess, my question is, at what level decline in profitability do you start to get concerned about the dividend? And if you could offer any comments regarding that that would be very helpful.

Sure, let me have Howard do that, because he went through a tremendous amount of this work pre-spin as we came out of the spin. Howard?

Yes, Frank, good morning. Look, we are really smart. I don’t know that we factored in a pandemic into the Monte Carlo simulation. But let me use the current most bearish Wall Street number that’s out there on our 2020 earnings around $5.1 billion, $5.2 billion of EBITDA. If you take out interest and taxes, that leaves you with about $4 billion. And then, from there you got a $2.1 billion dividend. You’ve got what we said today was $1.25 billion of CapEx and $500 million of Sadara. So, you’ve got plenty of room even if that bearish number to do just with operating earnings and more than cover the dividend. We are also working on the non-operating side of the house. So, part of our cash flow in the first quarter was the $250 million that we got from the Nova judgment, on the tax side, obviously, if earnings are that kind of depressed and oil was down, we are going to see at least a $500 million release in cash on working capital. And then, we’ve got some of the other non-operating things that we are working on which is the all-in payments that’s expected in contractually obligated at the end of the year of about $500 million. So, even at that level, we are more than comfortable and adequately able to cover that dividend and we’ve got $12 billion of committed liquidity including $3.6 billion of cash on hand.

And we’ll move on to Chris Parkinson with Credit Suisse.

Great. Thank you. Can you just walk us through your various Sadara assumptions? Just regarding the structural op improvements you referenced and just also update us on your debt reprofiling discussions? Thank you.

Sure. Howard, do you want to hit Sadara, all our assumptions and our debt reprofiling?

Yes, so, look, I mean, what we said in the prepared remarks this morning, we are very pleased that Sadara got that last remaining rail agreement, logistics agreement signed. That is the final substantive step to achieve PCD. Now, we have a series of, what I would call administrative steps that Sadara has got to work through things like registration of their security docking until the lenders, verification of the project cost and some of those other things. Those should be well underway as we approach the end of the second quarter if not completely done. As a result of the logistics agreement being done, the Sadara, Saudi Aramco and Dow Treasury teams have jointly begun the lender reprofiling discussions. In fact, those discussions got actively started this week. I would say, for modeling purposes, it’s going to take the balance of the year to make that happen. You’ve got ECAs in the mix, you’ve got the co-financing and you’ve got international banks. So it’s going to be a complicated discussion. And that’s why we say look, $500 million of cash this year in line with last year makes sense from a modeling purpose standpoint. But we are pretty focused on making sure that we get that done by the end of the year. That is the goal.

And if you see, Chris, Sadara’s first quarter results were relatively flat with last year. We are taking lots of actions Sadara and Aramco and Dow to make sure that they can continue to deliver performance similar to last year and we put into model $500 million which is our contribution to repayment of principal for the year. So that’s how much cash we’ll be looking at putting in this year.

And we’ll move on to Steve Byrne with Bank of America.

Yes, thank you. I wanted to drill in a little more on the $350 million of cost cuts. Can you describe what functional areas and businesses these came from? And perhaps you can talk a little bit about the learnings from your benchmarkings analysis? Any specific productivity initiatives that have come out of that?

Yes, Steve. So let me try to hit it and then ask Howard if I miss anything to comment. So, it isn’t - I think most people go to this and say that it’s headcount-related. We have tried not to do that. Obviously, we’ve got almost all of our plans learning today. So, we are trying to support our customers. We are idling some capacity. But we aren’t laying off people in order to do that. We’ve cut discretionary spend and then obviously, big buckets of spend like travel and other things are near zero. And so, there has been a shift in some of the spending. We’ve moved out some turnaround activity. Factories with it obviously some discretionary expense that goes along. And so, we’ve looked at different types of activities like that where we can cut discretionary spend out and we’ve got that modeled out for the rest of the year. But we haven’t given that this is a pandemic and one of the biggest challenges around the world has been the number of people that are unemployed. We have not tried to add to that, because that’s a burden right now for a lot of governments around the world.

We’ve also done a fair amount of digitalization as we brought the DuPont assets in and set up four regional back-office centers. One in China, one in the Netherlands, one in the U.S. here in Michigan and then another in Sao Paulo. So, we’ve been able to do a lot of streamlining, as well.

And next we’ll move to Arun Viswanathan with RBC Capital Markets.

Hey, good morning. Thanks a lot. Thanks for what you are doing on the frontlines, as well. I guess, I just wanted to ask about both polyethylene and polyurethanes. Both markets have gone through some structural changes here polyethylene on the feedstock side and potentially demand side. Polyurethanes on the demand side with reduced demand for consumer discretionary items. I guess, would you agree with those characterizations and I guess, when you think about that, thinking longer-term, do you foresee any changes in your strategy and polyurethane as you talked about adding Systems Houses and PE, you talked about selling. Are those still valid in this environment? Have you seen new customers trade down or change their strategy, as well? Thanks.

Arun, I think, we’ll get back to the growth playbook as we mentioned in the script. And I think it’s just a matter of timing here. So, it doesn’t make sense right now to continue to plough cash and capacity when the demand in Europe and North America and Latin America has slowed down, because people are staying at home. So that’s why we are taking some of the actions that we are taking right now. It’s just to balance that demand. But that demand will come back. People are not going to stay at home forever. We are helping governments right now with safe ways to return to work and we are operating safely. 14,000 Dow people go to the sites every day and we are operating safely and people are healthy. So, we know it can be done. But it’s just going to take some time before the consumer confidence to come back and that’s why we are doing what we are doing. Downstream, expansions in our Industrial Solutions and in our Functional Silicones products are still continuing. Systems House will come back as the automotive business and the Installation and Construction business comes back and we’ll continue to look at downstream on plastics.

And that will conclude today’s Question-And-Answer Session. At this time, I would like to turn the call back over to Colleen Kay for any additional or closing remarks.

Thank you everyone for joining our call today. We appreciate your interest in Dow. For your reference, a copy of our transcript will be posted on Dow’s website within 24 hours. This concludes our call and have a safe day.

And that will conclude today's call. We thank you for your participation. You may now disconnect.