Dow Stock

Good morning, everyone, and welcome to Day 2 of the Morgan Stanley 14th Annual Laguna Conference. It's my pleasure today to have with me Jeff Tate, CFO of Dow. Before we dive into things, just a couple of things I need to remind everyone of. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative.

Jeff has a few prepared remarks to kick things off. And along with those remarks, there are slides that are posted at the Dow website that anybody online is welcome to follow along with. Jeff?

Great. Thank you, [ Mark. ] And good morning, everyone, and thank you for having me today. Before we get into your questions, I'd like to begin with just a few remarks to paint a picture of how the third quarter has evolved. I'll share Dow's views on the external factors and market conditions that have the greatest impact on our business as well as an overview of our self-help actions, continued financial discipline and our near-term priorities.

Now I'll start on Slide 2, with the current environment. The macro backdrop remains dynamic and largely unchanged from what we outlined in July at our earnings. Specific to Dow, our strategically advantaged global footprint and local supply chains in every region continue to be differentiators for us. The oil-to-gas spread remains elevated as geopolitical tensions in the Middle East continue, supported by recent material escalation of crude pricing, while gas remains largely unaffected. This reinforces the competitive advantage of Dow's purpose-built asset base and feedstock position that we've developed over decades. And while the tariff landscape has become more complex, Dow's direct exposure remains minimal.

That said, continued volatility and uncertainty in the early part of the third quarter have created some headwinds that we're working to offset.

Several market developments are working in our favor, which we expect to at least partially offset some of the impacts, but we've got more work to do. More specifically, July polyethylene prices in the Americas settled down $0.10 per pound. This reflected declining feedstock prices and margins in the early part of the month when initial expectations for a durable solution to the Middle East conflict began to surface.

In August, however, widespread reporting indicated those expectations were not realistic in the immediate term. In the month, we saw some improvement in the global operating environment along with higher oil prices. This ultimately led to polyethylene prices selling flat month-over-month.

So far in September, we are seeing a strengthening order book, including in Asia. Along with the recent sharp escalation in global feedstock costs, this supports our announced global price increases globally, including $0.10 to $0.12 per pound for polyethylene in the Americas. With a rapidly rising cost environment, we are implementing these price increases with urgency.

So looking at some of the key markets that Dow serves across our portfolio, consumers remain selective with spending trends favoring essential items. Additionally, the building and construction and automotive markets continue to face challenges amid a cautious monetary policy environment. Shipping through the Strait of Hormuz and other regional water was also remains constrained, tightening global supply further. And low water levels in Europe, including the Rhine, are constraining competitor supply across several products, which is leading to higher market prices across our Industrial Intermediates & Infrastructure segment.

So to summarize, the geopolitical and macro backdrops remain volatile and demand signals are mixed. While polyethylene price declines early in the quarter represent a headwind, Dow continues to lead with deliberate actions, and we remain focused on controlling what we can control. Our self-help actions and the breadth of our portfolio are helping to partially offset this impact, and we now expect to deliver EBITDA of $1.5 billion to $1.6 billion for the third quarter. This represents our best estimate based on what we see today, recognizing that a continued volatile environment this month could ultimately influence the outcome.

Next, I'll share some examples on Slide 3 that outline the ways in which we are taking decisive actions to improve our financial strength. First and foremost, we continue to enhance Dow's balance sheet and near-term financial performance. To start, our major planned maintenance for the year is now complete at several of our largest assets, which should provide a tailwind in the fourth quarter. In addition, we received the remaining tax withholding related to the NOVA litigation settlement earlier this quarter. We are also actively prioritizing deleveraging with excess cash, and we expect to release more than $500 million of net working capital in the second half of this year.

Looking longer term, we have no substantive debt maturities until 2029. And importantly, we continue to deliver our self-help actions, including our recently upsized in-year target for Transform to Outperform. With this, we now expect to deliver $1.3 billion in total benefits from self-help in 2026.

Our intentional actions continue to strengthen Dow's credit profile as improved earnings, balanced capital allocation and self-help actions drive higher cash generation and lower leverage. This was evident by a recent rating agency outlook upgrade.

Next on Slide 4. I'll unpack some additional details on how Transform to Outperform is delivering value as a significant contributor to our self-help improvements. We expect Transform to Outperform will deliver an upsized benefit of approximately $700 million this year, clearly demonstrating the early value we are capturing. Importantly, we remain confident in the more than $2 billion total opportunity that our transformation will deliver, and we're seeing significant early results from every work stream. A broad range of actions will contribute to the benefits we expect in the second half of this year. And let me highlight just a few examples.

We already implemented approximately 70%, 7-0, of the total Dow role reductions, and we expect to implement nearly all of them before the end of this year. This is expected to contribute more than $200 million of EBITDA uplift in the second half.

We're also leveraging advanced technology, which has identified more than 50 opportunities to streamline and strengthen our end-to-end processes, leading to improved decision quality, discipline and profitability. Additionally, we have completed our site transformation playbook at 6 of our largest sites, with 3 additional sites started this quarter. In total, this is expected to deliver approximately $50 million in the second half of this year.

The actions we're taking include improving production yields, driving maintenance productivity and energy inefficiency and optimizing third-party spending.

Our strategic sourcing and contract renegotiation initiatives are also delivering structural cost savings of more than $70 million in the second half of this year. This includes implementation of targeted RFPs across consumables, labor, corporate services and raw material purchasing contract renegotiations. And in our logistics and network optimization initiatives, we're reducing costs while also improving network efficiency and strengthening utilization of our logistics fleet, all of which we expect will deliver more than $30 million in benefit by the end of 2026.

On the growth side, we are seeing initial results from accelerated market-focused strategies. Our commercial teams are delivering increased profitability, supported by strong execution and business models that enable us to access markets that Dow has historically deprioritized. We're also evolving to serve fast-growing segments with one Dow approach and sharpening our focus to win even greater share with existing customers in markets we know well. We remain encouraged by these early wins and the value they're generating. These examples give us great confidence in the magnitude of the opportunities and our ability to deliver against them.

So closing on Slide 5. Given the external factors I described, we are staying focused on the areas that we can control. Self-help, like our transformation, will continue to underpin how we work, and our sites remain firmly set on the 3 priorities that we outlined in July. We will continue to hold ourselves accountable to deliver on our commitments and demonstrate tangible examples of our progress, all to ensure we're consistently creating value and that is grounded in that principle.

First, we will drive focused growth and innovation in the high-value markets where Dow can win and create differentiated value with our customers. We will prioritize targeted innovation, technology and commercial excellence to strengthen our competitive position, deepen customer relationships and accelerate growth where we have the greatest opportunity to lead.

Second, we're enhancing our portfolio competitiveness. This means operating with the best owner mindset. We're investing in our businesses and our technologies where we can grow and create value, and where we can't, we will continue to take actions like the noncore divestitures and asset shutdowns we've recently completed. And third, we will continue to hold ourselves accountable for taking a balanced approach to capital allocation. This includes using consistent principles to strengthen our balance sheet, driving a focus on cash flow and ensuring maximum financial flexibility.

So the key takeaway is this. Team Dow is executing with discipline. We're doing so in an uncertain environment and taking bold actions within our control to deliver lasting competitiveness. We have a strong portfolio, a world-scale global asset base, deep customer relationships and exceptional talent. And we have a clear path to creating long-term value with greater earnings durability and stronger cash flow throughout the cycle.

Thank you for listening. And [ Mark, ] I'll be happy to take your questions.

Great. Thank you, Jeff. A lot to unpack there. I guess let's dig in first a little bit more on the Transform to Outperform program, right? I mean of the $2 billion target that's out there, how much of that do you think is truly structural and permanent, right? I mean, meaning it can survive a return to even tougher macro environment versus just variable cost savings that could reverse should volumes or activities decline further?

Well, I'll tell you this, [ Mark, ] this is one of the unique things about our Transform to Outperform initiative, which we announced back in January. This is not a typical restructuring program. And so our expectations and the way that we are executing is that all of this will be structural. All of this will stick, all of this will be sustainable. 2/3 of that value generation will come from productivity and the other 1/3 will come from growth. And we're really focused on simplifying our operating model. We're focused on eliminating work, automating work as we move forward and ensuring that as we make the reductions in the workforce that I mentioned, that it's not a smaller number of colleagues that are doing the same amount of work and doing it the same way, but really effectively looking at how can we modify and enhance the way we do that work in a more efficient manner.

So what tools are you utilizing then to simplify that workflow? Is that more automation, more adoption of AI technology? Or is it just simply streamlining operations as you see it?

It's interesting. Some of this is fundamental looking at end-to-end processes. Across the company, we have identified those end-to-end processes that touch all elements of the company from an operations perspective, [ Mark. ] And then looking at the fundamentals of that, there are typically going to be some handoffs and some trade-offs that you make from one end to the next. And so we're going through a very detailed evaluation of each one of those processes and looking at ways to more effectively do that, some will come from automation, some will come from AI, some will come from elimination and standardization of those efforts around the globe.

Got you. That makes sense. Let's pivot over -- you touched on the portfolio competitiveness, right? And as I think about the optimization of the portfolio, in your Performance Materials & Coatings business, you've engaged in a multiyear strategy to shift the mix towards higher-value downstream products, while rightsizing higher cost upstream capacity. Where are you today in terms of the percentage of PM&C silicone revenues in higher value downstream applications versus more commodity upstream? And what's the target mix, you think, by '28?

Sure. No, this is an exciting one. And obviously, I spent a lot of time in my prepared remarks talking about Packaging and Specialty Plastics because that's typically one of the areas people like to engage in conversation when it comes to Dow. But we have so many other parts of our enhanced diversified portfolio such as PM&C and Silicones. One of the things that is really interesting about our Silicones business, it is the world's largest, most integrated Silicones business globally, first and foremost. And what we have done is we've continued to shift further downstream to higher value, higher growth markets associated with silicon. So you think about automotive, you think about health care, you think about different parts of data center, data centers and electronics. So for example, we just announced recently a $100 million investment around our Silicones business that will be focused on the U.S., China and Japan, with a lot of that going into end market applications such as the sensors, the radar sensors that go into autonomous vehicles.

You think about the advanced chips from a semiconductor perspective and ensuring that our Silicones products are part of that. When you think about how do you be successful in the silicones market, there are a couple of things that customers expect. They expect differentiated technology, they expect supply reliability, and they expect technical support. And our Silicones business is able to provide each one of those on a consistent basis.

Maybe let's double click on that a little bit more, right? You've talked about expecting 20% or higher returns on downstream silicone volumes, driven by double-digit growth in EVs, consumer electronics, data centers, as you just mentioned. But what's the capital intensity of the downstream silicon expansion investment in the U.S. and Asia? And then what do you foresee as the expected payback period relative to that 20% return target?

Well, that's one of the interesting things because in some of your more commoditized assets, you would expect a longer payback period and perhaps a smaller return. In silicones, first and foremost, our GDP growth is 1.5 to 2x on average, right? So significant growth, again, at much higher margins. The payback that we've seen on our project from a silicones perspective are typically in the 2- to 3-year time frame. And if I look at the $100 million investment that we just recently made that I mentioned, a significant portion of that will be here in the U.S. at our facility, but we also have facilities in China and Japan as well where we're really diversifying that investment across the globe.

Got you. Maybe let's just wrap it up on PM&C. Operating EBIT was around $133 million in Q2, down year-over-year despite the 11% net sales growth, largely because of plant maintenance, sorry, at the Barry shutdown. When do you expect PM&C EBIT margins to recover to and/or above prior year levels? And what do you think are some of the most important factors to kind of drive us there in that recovery?

Yes. One is the silicones growth that we just discussed, [ Mark. ] That will be a significant catalyst for that. The other is our Coatings business. Our Coatings business is one that continues to take market share. We are growing with the customers that are winning in the market. So you think about architectural coatings and the success that we're having there. Those will be 2 of the significant drivers. And silicones on the Barry U.K. shutdown, that will have an immediate EBITDA uplift. We completed that shutdown in the second quarter of this year. And that will deliver, by the second half of this year, about $60 million of EBITDA uplift improvement. And we will see significantly higher amount going into 2027. So we've got a number of self-help actions that are driving that, but also the way we're going to market with silicones as well as with coatings that will drive continuous year-over-year growth in PM&C.

Got you. On the comment you made there with coatings taking share, I guess what's driving that share gain? What differentiates your products versus the peer class?

A lot of it is the reliability that our products can offer. We -- from a supply chain perspective, a manufacturing standpoint, our customers want to know that when they need our products that are, again, differentiated that they can get them anywhere that they need them. And that has been one of the operational excellence, competitive advantages that Dow has continued to have. So one is the differentiated technology. The other is the supply reliability that we can offer.

Interesting. Let's shift gears maybe over to Industrial Intermediates & Infrastructure. You touched on some of the softness we're seeing in some of these markets, housing, obviously, being one of them. But you're expecting a normal seasonal decline in building and construction in Q3 with some margin pressures in Europe. We've all been waiting for this recovery now in the housing market for some time, and yet housing starts and existing home sales are still well below historic averages. What are you seeing thus far this quarter in building and construction? And how are you managing the business through the current higher-for-longer rate environment?

Sure. I mean when you look at building and construction for us and specifically in the II&I segment, there are a couple of dynamics that I think are worth mentioning. One, yes, building and construction is a significant portion of the portfolio, but it's a mixed bag from a demand perspective because data centers also do provide some level of a tailwind within that segment for us. The other thing that I would also mention, [ Mark, ] is we have our Dow Industrial Solutions business as well, that is an II&I segment. That's the alkoxylation investments that we've made over the past couple of years. So again, you think about home care, personal care, pharma, electronics as well, those are areas that are growing higher margin, faster than GDP, which will continue to provide that tailwind for us as we think about year-over-year growth.

Interesting. All right. Maybe just keeping on II&I, you flagged that normalization of peer MDI and PO capacity, which had been disrupted in Q2, is expected to be a headwind in Q3. Market commentary had indicated that the upstream carbon monoxide issue had flared up in early July before fading again. Can you help us size that perhaps? And how quickly have peers restarted, if they have even? And what's the EBITDA headwind from MDI and PO margin compression that's embedded in the Q3 guide?

Well, the interesting thing is that because of the industrial gas supply issue that I think you're referring to, the industry supply is still tight. So we're actually seeing some pricing momentum in this period of tighter supply, which we're being able to really execute on as we ramp up our operating rates on the U.S. Gulf Coast related to MDI. So that's one of the areas where if you looked at the beginning of the quarter versus where we are now, it's giving us a slight tailwind to close out third quarter, which is positive for us.

Perfect. Maybe let's take a step back and zoom out a little bit more on just the macro picture, right? Before the conflict had started, the last few years, it had really kind of been like the perfect storm in Europe, higher energy cost post Russia-Ukraine, higher interest rates, a weakening consumer and more imports from China. Can the supply constraints related to the conflict bridge us out of that environment, do you think? And how are you thinking about that region now strategically?

Well, for us, Europe still provides a profitable layer, right? We have announced a number of asset shutdowns, but those were higher cost, higher energy-intensive assets that will improve us on the cost curve as we move forward. So those are best owner mindset, value-generating decisions that we have made. One of those was the Barry U.K. siloxanes unit that we just discussed. The other things that we're looking at here, with that profitable layer, there are opportunities for improved margins in specific areas. One of the things that we did this quarter, [ Mark, ] was started our cracker in Terneuzen. This is our most flexible, most cost-effective cracker. We shut it down temporarily last year because there was some significant maintenance that needed to be done. We've completed that maintenance and restarted that cracker as of now. So we're in a really good position on the cost curve. We've got a really good product offering in the European area.

And what you're seeing right now is because feedstock costs are much higher, right, there it's going to provide a constructive opportunity for price increases, but it's going to take time for those price increases to work their way through the value chain. So temporarily, what we're seeing is that margin pressure in both Europe and Asia. But as it works its way through, you should start to see with the supply tightness as well as those price improvements, some level of a tailwind in the region.

Got you. I'll take a pause here and see if there's any questions from the audience. Going once. We got 1 right there at the back.

I know it was previously mentioned, but I was curious what you think about just the supply situation in China, not only just kind of short term, but kind of a little longer term, and how you see that impacting your business?

Thank you for the question. A couple of comments I would make there around China is China has fared better through this whole Middle East conflict than most would have anticipated probably at the beginning of the conflict earlier this year. And we've really done an evaluation of why that is. A couple of factors that I would note. One is the strategic ore reserves that China had in the early parts of the conflict were much higher than most would have expected. The other thing when you talk about the chemical industry is China has a very diversified cracker technology manufacturing expertise. So they have naphtha, they have ethane. They have CTO, coal-to-olefins as well. And that has provided another buffer in terms of working its way through.

Now the reality is you still have some level of feedstock cost increases, but they've been able to mitigate some of that. As we move forward, even near term, we've seen spot prices increasing in China and specifically overall in Asia. We've also seen our order book significantly increase from a volume perspective as well. And if you go look and take one of your industry experts like a CMA, they have said even longer term, to your question, that out to 2030, China will still be at least a net importer of product.

Any follow-up questions? Otherwise, maybe let's just zoom out a little bit. But on the 2Q call, you described roughly 50% of the global ethylene and polyethylene supply is either off-line, constrained or directly impacted with the Strait of Hormuz significantly impaired. As we sit here now in September, how do you think about the current scale of disruption? And what are the indicators Dow is most closely monitoring?

Yes. So we're continuing to obviously look at what's happening with the Strait, but also not only with the Strait, but you also look at the Red Sea. I mentioned even other supply constraints around the low water levels in Europe. So there are a number of supply chain challenges I would describe that we are continuing to evaluate. There's still a significant amount of oil that's off-line because of the Middle East conflict. And what does that do? That does a couple of things. That obviously creates a higher oil-driven cost curve that also looks at right now constrained supply, but those are mechanisms right now, [ Mark, ] that actually makes it more constructive for the price increases that I mentioned earlier.

So that's one of the reasons why if you can supply reliably, you have the product that you can export out, which we can, puts you in a much better position to be able to support the ongoing resilient demand that we still see in packaging, that we still see in electronics, that we still see in home care, personal care, et cetera.

Great. Maybe let's shift from the supply side of the discussion more towards the demand side. In your prepared remarks, you mentioned that the macro feels largely unchanged and yet you did start to see a strengthening order book in September. What are some of the key verticals you guys are watching? What do you think needs to occur to unlock more of this demand and kind of break us out of the stasis?

So maybe I'll go through the 4 verticals that we tend to create a thematic around, starting with packaging. Packaging and Specialty Plastics has continued to be very resilient for us. If you think about food and flexible packaging, those are areas regardless of the level of inflation that we're seeing or the affordability, there's been a pretty stable demand environment that we've seen throughout, and we expect that to continue. If we then look at infrastructure, and we talked about building and construction, we would expect that to still be a heavy lift when you got 30-year fixed mortgage rates at 7%. But again, there are pockets, data centers and others in the infrastructure space. that do provide some level of improvement in tailwinds.

On the consumer side, that's really one of the green shoots that I would say has continued to be a positive. So again, that personal care, home care, pharma are areas that have been anywhere from solid to strong consistently. And then automotive. I mean the latest forecast that we've seen is that year-over-year automotive builds will be down about 2.6%. There's an expectation that there will be about 91 million vehicles built this year.

Now what you're seeing is that shift from combustible engines to more hybrids and obviously, looking at those that are more EV. And that's one of the things that's a positive for Dow because going back to our silicones discussion, we typically have 3x as much of our silicones product in an EV versus in a combustible engine vehicle.

Interesting. So if I were to take a step back, right? I mean, it's difficult being a cyclical company in a cyclical industry. And yet I look at so many of your verticals, and I could argue there's underlying secular drivers behind some of this, right? As you touched on with the infrastructure, the data center side, automotive as well, mix shifts occurring. If you were to close your eyes today and imagine how you would like Dow to look in 3 to 4 years, be it positioned across those various 4 end markets or your current segmentation, how do you see flexing your priorities to kind of achieve what you would envision as a target model for this company going forward, really kind of leveraging the R&D work and the material sciences you guys put into it? Help the audience kind of understand what differentiates Dow?

Yes. So I don't even need to close my eyes for that one, [ Mark, ] because I think it's one that we think about often, right, as we're thinking longer term. First of all, Dow is a almost 130-year-old company. So I always like to start with what are the things that we have always had as a competitive advantage. One of those is our strong portfolio of differentiated products and technology. So I would -- if I closed my eyes and said 2030, that will sustain itself. Another is world-class, low-cost assets in the right locations around the world and maintaining that operational excellence. The third would be deepening those customer relationships that we already have and winning with the customers that are going to win in the market that we have decided to participate in that have the higher growth and higher value.

And then fourthly is to ensure that we've got that talent that can sustain itself that really focuses on long-term value. And by doing all those things, I would envision, no surprise being the CFO, that we will have higher earnings, stronger cash conversion, higher free cash flow that leads from a capital allocation perspective to greater returns for all of our stakeholders, if I could simplify it.

That's great. Any other closing questions from the audience? Otherwise, I think that's a perfect place to leave it. Thank you, Jeff. Thank you for the Dow team, and that's a wrap.

Great. Thank you.

Thank you, everybody.

Greetings, and welcome to the Dow Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I will now turn it over to Dow Investor Relations Vice President, Andrew Riker. Mr. Riker, you may begin.

Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I'm Andrew Riker, Dow's Investor Relations Vice President. Leading today's call are Karen E. Carter, Chief Executive Officer; and Jeff 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 risks and uncertainties. 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's call, Karen will begin with an overview of the actions we are taking to create long-term value over the cycle as well as details on our second quarter performance. Following that, Jeff will share more about each of our operating segments as well as our outlook for the third quarter. Karen will also share some timely updates about how we're advancing our priorities while also remaining focused on our actions to improve earnings and cash flow. And Jeff will share some insights about our continued commitment to financial discipline and our balanced capital allocation approach. And as always, we'll leave plenty of time for your questions at the end.

With that, let me turn the call over to Karen.

Good morning, and thank you for joining us. As I assumed the role of CEO this month, I couldn't help but reflect on the many fundamentals that have made Dow successful throughout our nearly 130-year history, many of which are still true today. We have a strong portfolio, a world-scale global asset base, deep customer relationships and exceptional talent. So before reviewing our near-term performance and outlook, I want to reiterate how we are using these strengths to continue building a more competitive company that consistently delivers long-term value. We have laid out our top priorities on Slide 3.

We will stay focused on the areas we can control while acting decisively in response to those we cannot. This means we will set our sights on these key priorities, holding ourselves accountable to deliver on our commitments and ensuring we are consistently grounded in creating value. First, we will drive focused growth and innovation in the high-value markets where Dow can win and create differentiated value with our customers. We will prioritize targeted innovation, technology and commercial excellence to strengthen our competitive position, deepen customer relationships and accelerate growth where we have the greatest opportunity to lead. Second, we're enhancing our portfolio competitiveness.

This means operating with the best owner mindset across our portfolio, investing in leading businesses, technologies and low-cost positions while also taking action where we are no longer competitive. And third, we will continue to hold ourselves accountable for taking a balanced approach to capital allocation. This includes using consistent principles to strengthen our balance sheet, driving a focus on cash flow and ensuring maximum financial flexibility. Jeff and I will share additional details later on today's call and in the coming months on each of these priorities.

But first, let's turn to Slide 4. We delivered solid results in the second quarter. This reflects our industry leadership as we translated improved market fundamentals and disciplined execution into meaningful earnings growth, margin expansion and cash generation. Net sales were $12.1 billion, reflecting a 20% increase versus the year ago period and operating EBITDA was $2.3 billion. We demonstrated meaningful progress toward ensuring lasting competitiveness, delivering more than $300 million of benefits in the quarter through our targeted self-help actions. This includes, first and foremost, the completion of our $1 billion 2025 cost savings program.

Additionally, transform to outperform is beginning to deliver meaningful impact, and we shut down our upstream siloxanes unit in Barry, United Kingdom. We also announced new product and innovation capabilities across our silicones franchise. This allows us to capitalize on higher-value downstream opportunities and grow in attractive end markets like consumer and mobility applications where Dow is providing a wide range of enhanced solutions. The key takeaway is this. Team Dow is executing with discipline. We are doing so in an uncertain environment and taking bold actions within our control to deliver lasting competitiveness for Dow and improve value creation. We advanced meaningful self-help actions, and we have a clear path to creating long-term value with greater earnings durability and stronger cash flow through the cycle.

Now I will hand it over to Jeff to cover our operating segments and third quarter outlook.

Thank you, and good morning to everyone joining today. As Karen mentioned, and before I get into segment results, Dow's second quarter earnings reflect pricing leadership, better integrated margins, improved cash flow and the benefit of our self-help initiatives. This all showed up in the bottom line. And as a result, we adjusted our expected performance-based compensation compared to recent years. Now turning to our Packaging & Specialty Plastics segment on Slide 5. Net sales were $6.4 billion, up 27% versus the year ago period.

Operating EBIT was approximately $1.3 billion, reflecting an increase over the same period last year. This was primarily driven by higher polyethylene pricing, which lifted local price by more than 40%. Benefits from these higher prices in the Packaging & Specialty Plastics business were seen broadly across all regions and all applications. This more than offset lower polyethylene volumes, which declined in Europe, the Middle East, Africa and India as well as Asia Pacific, while growing in the resilient Americas. The Hydrocarbons and Energy business reported higher net sales, driven by increased olefins pricing, which more than offset lower volumes from planned maintenance on the U.S. Gulf Coast.

Importantly, while operating rates in the Hydrocarbons and Energy business declined to 84% because of planned maintenance activity, we also successfully restarted our lowest cost, most flexible European cracker in Terneuzen to match market conditions and optimize margins. Turning to Industrial Intermediates & Infrastructure on Slide 6. The segment delivered a strong year-over-year improvement in the second quarter. Net sales were up 14% versus the year ago period, driven by a 15% increase in local price. This reflects gains across both businesses in all regions.

Operating EBIT improved to $246 million, up from the same quarter last year, supported by higher margins, our self-help initiatives and lower planned maintenance activity. Polyurethanes & Construction Chemicals benefited from local price gains. And our Industrial Solutions business delivered improved sales, continuing to benefit from the start-up of our [ alkoxylation ] growth investments, which serve attractive end markets such as home care, pharma and energy. We also generated incremental earnings this quarter from the sale of noncore land in Taiwan, where we had previously shut down production. This action aligns directly to our efforts to actively optimize our portfolio with the best owner mindset.

Moving to Performance Materials & Coatings on Slide 7. The segment delivered solid top line growth with net sales up 11% versus the year ago period. This improvement was supported by increased volume and price. Volume gains were led by continued growth in downstream silicones as well as improvements in acrylic monomers and Architectural Coatings. In addition, the Consumer Solutions business benefited from gains in attractive end markets, including consumer, electronics and home care applications. Operating EBIT was $133 million, which is down year-over-year. This is largely due to higher costs, including planned maintenance activity and the shutdown of our Barry siloxanes unit, which offset the price and volume gains as well as our self-help actions. So if you step back and look across the entire company, Dow continues to lead by remaining agile, staying close to our customers and capitalizing on our competitive advantages regardless of external factors.

Turning next to Slide 8. I'll share some context around the regional and macroeconomic conditions that are most impactful to Dow. First, we are benefiting from some key market-driven tailwinds. For example, packaging remains resilient globally and data center demand is outpacing supply. In addition, our teams are winning even in areas where the market is still challenged and less constructive. For example, we are gaining market share through our silicones business with electronics for mobility applications as adoption for EVs grows across both Europe and Asia.

This is also true in our coatings business in North America, where we continue to earn a seat at the design table with customers serving high-value markets and applications. And looking around the globe, in the Americas, consumers have remained steady, economic activity is constructive and spending has held up even as the U.S. housing market is still soft under the weight of affordability concerns and high mortgage rates. In the Middle East, geopolitical tensions remain elevated and logistics are still constrained. In addition to this, traffic through the Strait of Hormuz remains below historical levels, continuing to disrupt global supply chains.

The geopolitical impact on energy and feedstocks continue to support higher risk premiums, and we are seeing renewed value placed on supply security, including both reliability and logistics. In Europe, deeper structural pressures like high operating and labor costs persist. But with that, some constructive dynamics are beginning to emerge, including government support and trade protection measures. This includes recently announced support for EU antidumping and anti-subsidy actions, each of which support a more balanced environment for European produced products, including polyols that have been impacted by anticompetitive imports.

And across Asia Pacific, we continue to see mixed signals. Regional consumer demand remained soft with weakened retail sales in May, but industrial production and manufacturing activity have recently accelerated. In the energy space, refinery operations are normalizing in China, improving energy availability across the region. So globally, a supportive but higher cost feedstock environment paired with resilient but uneven demand leads us to expect a more measured but still solid third quarter.

So let's look at the specifics on Slide 9. Given the uncertainty across so many of our markets today, especially with the ongoing conflict in the Middle East, projecting the quarter ahead is difficult. If we become aware of any meaningful changes as the quarter unfolds, we will provide timely updates as appropriate and as you've come to expect from us. Our expectation for third quarter EBITDA is approximately $1.7 billion.

This sequential decline accounts for anticipated margin compression from the recent North American polyethylene price settlement in June as well as the normal patterns that typically follow high seasonal demand in the second quarter. We expect $130 million in sequential tailwinds from our self-help efforts, including transform to outperform and the initial uplift from our Barry shutdown. These benefits across the enterprise will more than offset headwinds associated with planned maintenance and nonrepeating benefit of a land sale in the second quarter.

Turning to our operating segments. In Packaging & Specialty Plastics, we expect the averaging effect of the June price decline to work its way through the third quarter, but are not assuming any further price movement. On top of that, we expect the benefits from Transform to outperform to more than offset higher planned maintenance activity, mostly at our U.S. Gulf Coast assets. For Industrial Intermediates & Infrastructure, we expect to see normal seasonal declines in Building & Construction, along with some expected margin pressure in Europe.

With that, our continued implementation of self-help actions should provide a partial offset. And in Performance Materials & Coatings, we anticipate that declines will be driven by a typical seasonal slowdown in Coatings demand as well as a planned PDH turnaround in the quarter. Self-help actions, including the benefit from the Barry shutdown are expected to help offset some of the pressure in the quarter. Overall, Dow's third quarter outlook demonstrates that even as we navigate a dynamic macro environment, our disciplined execution continues to build, supporting improved earnings over time.

With that, I will turn the call back over to Karen to share some details about each of our near-term priorities, which aim to ensure long-term value creation.

Thank you, Jeff. As I outlined at the top of the call, our priorities are helping to enable a stronger and more resilient Dow with an enhanced ability to outperform across market cycles. Slide 10 outlines our first priority, focused growth and innovation, where we will prioritize our resources in attractive end markets and win with our customers. For example, rapid data center growth is creating new demand for solutions that address thermal management, water usage, energy demand and noise abatement needs.

Dow is partnering with hyperscalers and leaders in this industry, leveraging our closed-loop liquid cooling solutions, advanced thermal fluids, carbon mitigation technologies and acoustic materials. Last quarter, we launched the Dow Coolant Care Network, expanding our offering to support this fast-growing market. Our new integrated service model helps customers improve cooling system reliability, reduce operational risk and maximize uptime, all of which are critical to data center growth.

Separately, we progressed long-term agreements with both P&G and Univar, locking in durable, high-quality demand for low-carbon products across key markets like beauty and personal care, home care, food, pharmaceutical and a variety of industrial performance markets. This is another example of how we are translating innovation into commercial value while securing growth in attractive end markets. And lastly, in the second quarter, we announced that we are expanding our product and innovation capabilities in specialty silicones that allow us to meet growing global demand in mobility, electronics and health care applications. By expanding these capabilities, we are better able to meet increasing consumer demand, strengthen our global supply chain capabilities and enable customers to move faster from innovation to commercialization.

Next, on Slide 11. Our second priority focuses on enhancing the competitiveness of our portfolio. To start, aligned to our previously announced European asset actions, we shut down our upstream higher-cost siloxanes unit in Barry, United Kingdom. As a reminder, this represents approximately 25% of European siloxane industry capacity. Doing this further reshapes our Performance Materials & Coatings portfolio. It increases our focus on downstream differentiated product offerings, while importantly, maintaining integration in our silicones value chain. We expect this action to deliver $60 million of EBITDA uplift in the second half of this year.

Additionally, in our Packaging & Specialty Plastics operating segment, we restarted our lowest cost and most flexible European cracker in Terneuzen, the Netherlands that has been idled since mid-2025. Relatedly, the shutdown of our Böhlen cracker remains on track for completion in 2027. At the same time, the Alberta project is progressing as planned, where our focus remains on disciplined completion and maximizing returns. Taken all together, these actions will further improve our position on the cost curve while maintaining important flexibility across our global asset base.

Next, I'll turn the call back over to Jeff to share some details on our third priority, balanced capital allocation and how strengthening our financial position remains a critical priority for Dow's management team now and well into the future.

Thank you, Karen. On Slide 12, our approach to financial discipline is consistent, and our outlook for the year puts us in a stronger position than when we entered 2026. We continue to take actions that enhance Dow's balance sheet and financial performance. This includes meaningful improvement in our leverage metrics and overall credit profile. In addition, we are maintaining approximately $14 billion of total available liquidity, giving us the flexibility to invest through the cycle while protecting our balance sheet. And importantly, our approach to balanced capital allocation remains consistent with the framework we've shared over the last several years.

With improved earnings and cash conversion, we will prioritize any excess cash towards deleveraging. In addition to that, we have no substantive debt maturities due until 2029, and we recently extended our revolving credit facility out to 2031. Throughout this year, we will also continue to implement smart trade-off decisions to improve working capital. We currently expect a minimum release of more than $500 million in the second half of the year.

Furthermore, on the cash front, we received approximately $1 billion in compensation from the NOVA litigation in the first quarter and the remaining approximately $300 million early in the third quarter. We also continue to make progress with our partner, Aramco, related to Sadara, all aimed at ensuring long-term success that optimizes each shareholders' value. So before I turn the call back to Karen, I want to reiterate that each of the 3 priorities she and I covered over the past several minutes outline a clear path to enhance competitiveness. We'll get there through focused growth and innovation and decisive portfolio execution and our commitment to a balanced capital allocation approach remains consistent. Next, Karen will share more about how our near-term self-help actions are underpinning each of these priorities.

Turning to Slide 13. The actions outlined here demonstrate the tangible progress we are making against our self-help commitments, which we expect will generate a total of more than $1.3 billion in benefits this year, reflecting an increase of $200 million from our prior target. First, we have materially completed the remaining cost savings associated with the $1 billion program that we announced in January 2025. In addition, we continue to execute several strategic moves that will uniquely position Dow to win, including capitalizing on our recently completed incremental growth investments and advancing our previously announced European asset shutdowns, as I mentioned earlier on the call and moving to transform to outperform.

We expect this work will deliver an upsized benefit of approximately $700 million this year, clearly demonstrating the early value we are capturing. Importantly, we remain confident in the $2 billion total opportunity that these efforts will deliver by the end of next year. We are seeing significant early results from the productivity work aligned to transform to out perform, which, as a reminder, represents 2/3 of the total expected benefits. For example, we have implemented approximately 55% of the total Dow role reductions, which are expected to contribute more than $200 million of EBITDA uplift in the second half of this year.

Additionally, we have completed our site transformation playbook at 6 of our largest sites, which is expected to deliver approximately $50 million alone in the second half of this year. The actions we are taking include improving production yields, driving maintenance productivity and energy efficiency and optimizing third-party spending. On the growth side, which represents 1/3 of the expected benefits from transform to outperform, we are seeing initial results from accelerated commercial and market-focused strategies. Targeted growth platforms delivered increased profitability during the quarter, supported by strategic opportunity management, strong commercial execution and the deployment of digital pricing and demand planning capability. We remain encouraged by these early wins and the value they are generating for Dow. These examples give us confidence in the magnitude of the opportunities and in our ability to deliver against them.

Next, I'll close on Slide 14, which highlights what this quarter really demonstrates about Dow. This is a dynamic period. The geopolitical and macro backdrops remain volatile and demand signals are mixed. We are not waiting for conditions to turn in our favor.

We are leading with deliberate actions and controlling what we can control, and that rigor is clear in our second quarter results. Our self-help is delivering. Teams across the company are redesigning how work gets done, modernizing how we serve our customers and improving decision-making to drive both growth and productivity. This mindset will guide where we go from here, and it comes down to the 3 priorities we outlined today.

On focused growth and innovation, we are putting our capital and our talent behind attractive end markets where we can win with our customers. We are driving actions across our global portfolio to strengthen Dow's world-scale low-cost footprint in every region and across each of our operating segments. And lastly, we are enhancing our balance sheet and financial flexibility. This includes a consistent and unwavering approach to balanced capital allocation while also maintaining ample liquidity and prioritizing deleveraging with any excess cash.

Taken together, these priorities are designed to enhance Dow's lasting competitive advantages. And importantly, our self-help is not simply a onetime event. It is a mindset and a discipline, fundamentally resetting how we run our company, how we serve our customers and how we deliver lasting value. This discipline, combined with the strength of our portfolio and our people is exactly why Dow is a compelling investment opportunity.

Now I'll turn the call back to Andrew to get us started with the Q&A.

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&A instruction.

[Operator Instructions] Your first question comes from Hassan Ahmed with Alembic Global.

Look, a 2-part question, primarily on polyethylene. So the first part of it is that you guys obviously talked about flat polyethylene pricing for your Q3 guidance. So the first part of the question is, how are you sort of factoring in the recent rally that we've seen in crude oil prices and obviously, the continued sort of blockage of the Strait of Hormuz and the like, how that factors into the pricing assumption?

And then the second part, just around inventories. A lot of the energy industry executives are talking about sort of energy inventories being at critical levels. As I take a look at China, it seems China through the through Q2 at least, produced less, call it, polyethylene and other commodity chemical products, yet exported more. So it means at least to me that there's been a fairly substantial destock over there. So how should that be factored in? Could we expect maybe potentially a restock going forward?

Yes. Thank you for your question. Just a couple of things on that. Let's start with kind of the guide and what we have in the guide, and then I'll talk about where we go from here in terms of the current conditions. And so we try to take a pretty balanced view on the $1.7 billion guide. And just to be clear, what's in that in relation to polyethylene margins, that guide assumes $0.10 per pound decline in global integrated margins compared to the second quarter. So what that includes is the $0.15 down June settlement. And then that works its way through the third quarter. And as Jeff articulated earlier on the call, that also assumes no additional quarterly price movement.

Now to your point, a lot of things have changed. If you look at this week, oil is up $10 just the beginning of the week to now. Key feedstocks are also on the rise. Polyethylene prices are also up, particularly in China, and you mentioned this, their inventories are declining. And so that is reflected also in our order books. Just the last few days, we've really seen an increase in our order loading.

And so when we saw those market dynamics changing, we announced our $0.05 per pound in North America. If you look at the oil dynamics from now the Strait of Hormuz basically being blocked again, we saw yesterday the attack in the Red Sea. Those dynamics plus resilient demand in polyethylene and all the other things I've mentioned, really do set the ground for our price increases going up from here. So if they do occur, that would be an upside to the $1.7 billion guide. But what I would say is that things continue to be volatile. We're going to work on maximizing the quarter as we always do. And if things change materially, we'll be sure to come back to you and update you on that.

Your next question comes from Vincent Andrews with Morgan Stanley.

Karen, thank you for the capital allocation discussion. Just wanted to follow up a little bit on that, particularly as it relates to Alberta. Do you have any sort of high-level update on that project's progression? And then secondarily, given obviously, there's been a change in the global landscape, and clearly, North America is more attractive today. It was always attractive, but it's probably more attractive today than it was prior to the conflict. Is there any incremental opportunity to bring a partner in on that project or to do anything creative with it?

So our focus right now on Alberta is really disciplined execution and finishing the project and then also maintaining our accountability on the returns that we've committed to. So where we sit today is that about 60% of the CapEx has been spent. The project is progressing as planned. We have about 40% left to spend. Most of that is on labor. The other thing I would just reiterate is that the incentives remain intact, and most of the critical labor contracts have been awarded.

And so again, we're squarely focused on getting that project over the goal line. We've looked at potential partners before. I think we talked about it on this call, and we remain open to that. But they must be financially accretive and meet our return threshold. So in summary, what we're really focused on now is getting the project over the goal line, of course, safely, but also on the revised time line so that we can get both the growth and the returns on that investment.

Your next question comes from Frank Mitsch with Fermium Research.

Congrats on posting $2-plus billion. I'm a little bit puzzled with respect to P&SP. When you offered the guide back on April 23, you offered $1.75 billion EBITDA. Jeff gave an update in raising the total EBITDA from $2 billion to $2.2 billion. So I assume that, that increased the P&SP. So can you talk about why P&SP came in below the expectations that you had laid out back in April and then upgraded back in June?

So I'll make a couple of comments, and then, Jeff, if you have something else that you want to add here. There's a couple of things. First, the $0.15 price decline in June was not incorporated into the numbers that Jeff was talking about, particularly on second quarter, we're also going into the third quarter. The other thing is that we not only had some planned maintenance, but we also had a couple of UPEs that impacted the actual numbers in the second quarter. But Jeff, anything else you want to add to that?

Yes. The only thing I would add, Frank, is that you're spot on in terms of P&SP, but the offset that we saw occurred in II&I that brought us in pretty close to our overall updated guide number that I updated in June, where we saw margin increases there due to some of the supply disruptions that occurred as well as some of the feedstock constraints. And we also had a land sale that I mentioned in my prepared remarks in second quarter, that was approximately $50 million. So with the lower than expected on P&SP, which was offset by the better-than-expected II&I, we still came in very close to the updated guide number that we have for second quarter.

Just maybe one other thing before we go to the next question. I think it's important to mention is also that our self-help continues to over deliver. So if you look through the first half, we committed to $100 million, we've delivered $190 million, and that's why we're really confident in upsizing and particularly the transform to outperform portion of our self-help actions, which as we articulated before, will now deliver $700 million versus the $500 million guide. So that's the other thing, Jeff, that I would just mention that's helping us to not only achieve in the second quarter, but will also help to maximize EBITDA for the rest of the year.

Your next question is from Jeff Zekauskas with JPMorgan.

Your transform to outperform program is in full swing. But when I look at your SG&A expenses, they're up about $200 million year-over-year and $100 million sequentially. And as a percentage of sales, they've lifted about 1 percentage point. Is the [ 535 ] number that you reported a normal number or an abnormal number?

And second, for Jeff on the prioritization of where cash flows are going, does it make any sense to take some amount of cash flow and offset dilution from share issuance because of the high cost of equity and your share price is low relative to its history. And so the cash flow outflow is not really that much.

Jeff, this is Jeff. I'll take both parts of those questions here. First, starting with the SARD component. First of all, our SARD continues to be top quartile when you look across our peer group. We're close to 6%, which is best-in-class. But we had a couple of things that occurred in the second quarter related specifically to SARD. We had our onetime significant items associated with some of the costs related to transform to outperform, which you would see reflected in the SARD area as well as our increased performance-based compensation, which I mentioned in the prepared remarks.

So those were 2 sizable items that we had in the quarter that overshadowed the continued improvement that we see through our self-help actions, not only from transform to outperform, but also from the 2025 cost-out program that we materially completed during the course of second quarter. So as we ramp those self-help actions into the second half of the year, you will continue to see those SARD numbers come down from what you saw in the second quarter's results. Moving to your comments around capital allocation and the uses of cash. A couple of comments I would make there. One of the things that we are going to continue to stay committed to, Jeff, is our investment-grade credit profile.

So as we look at our prioritization here, our intent is to continue to pay down some of the debt that especially we've accumulated over the past 12 months or so, which is a little over $1 billion. And so that will be the first priority, which will give us the opportunity to increase our financial flexibility, manage our liability profile and obviously strengthen our balance sheet as we work our way through the economic cycle. And we actually paid off approximately $80 million of debt during the course of second quarter. So we're continuing to make progress with the excess cash that we have to continue to delever. And we'll continue to look at opportunities for share buybacks in the future, but the expectation is that we would not have those during the course of 2026.

Yes. Maybe just to add on to that, I do want to just address the headcount directly because to Jeff's point, you can't yet see it in the SARD number. But we committed as part of this that we would have 4,500 Dow role reductions as part of the program. 55% of those have been implemented. And so you will see a $200 million EBITDA uplift in the second half based on that action. So to your point, it is in full swing. It's not just about Dow role reductions. There's a number of actions that are in flight pertaining to both growth and productivity. The other one I just mentioned is that we are executing our site transformation playbook. We've done so across 6 of our largest sites. We plan to do it across 18. And that effort will also deliver about a $50 million EBITDA uplift in the second half as well.

Your next question is from John McNulty with BMO Capital Markets.

Just wanted to unpack II&I a bit more because it certainly seemed like you had a really chunky jump. And I understand some of it is on the asset sale, but it does seem still a bit stronger than what we were expecting. So I guess, can you help us to think about what drove some of the strength there and the sustainability of that? And then also, I mean, I think you spoke to some of the data center growth and opportunities. I guess, can you help us scale that in terms of how big that is now, the type of growth that you're seeing and how we should be thinking about that going forward?

Sure. So on II&I, the jump in second quarter was driven primarily by higher margins, and that was resulting from some supply disruptions that we saw in the Americas impacting our peers. So MDI and PO specifically. You asked about the durability. The fundamentals and particularly in building and construction are still pretty weak overall. And so I would say that as we expect, particularly going into the third quarter, and this is part of our 3Q guide that those supply disruptions will start to dissipate. So you'll start to see normalization on those margins. But to your point around data centers, I mean, this is a great new story for our DIS business, which, of course, is part of I&I. And they also helped to deliver that sequential jump in earnings. I mean we are seeing higher integrated margins across all product lines in DIS.

Data centers remains a really strong source of growth for our thermal cooling solutions in particular. We're also seeing growth in home care solutions, so think cleaning, laundry detergent. Of course, we announced growth investments last year in our alkoxylation capacity. that's directly impacting that. We're also seeing growth in pegs and surfactants, which also impact cleaning and laundry detergent applications. The other thing I'd say about data centers is not just the products that we're selling into it, but one of the things that we launched in the second quarter is something called our Dow Coolant Care Network that's servicing data centers in terms of their thermal management needs. These data centers are pretty hot. So managing the heat is one of the critical issues that they have. And so we're pretty excited about what this new integrated service model is going to bring to us in terms of additional margins, but also additional revenue.

Your next question comes from David Begleiter with Deutsche Bank.

Karen and Jeff, just on your U.S. polyethylene exports, can you talk to how much of your production was exported in Q2? What you expect for Q3 and how the decline in U.S. polyethylene export prices are manifesting themselves in your Q3 guide of down, I think, $0.10 for global integrated margins.

I'm going to go back to, again, just what we have in the guide for the third quarter because I just want to be really clear on what's happening there. So this $0.10 decline in integrated margin is a global number. That does incorporate the $0.15 per pound down in North America in June. And again, that works its way through. And so there's no further price movement that we have as part of that $1.7 billion guide for third quarter. So let me just talk a little bit about industry inventories and our view on what happened at the end of second quarter and how that's going to impact third quarter. So you did see another slight build in June on the back of the build that happened in May.

But a really important point is that DDI actually declined in June following the May spike. And so that actually reflected recovering sales volume in the period. You saw both exports as well as domestic sales rise. I mentioned earlier on the call that our order books already here in July have picked up. We are starting to see more orders coming in from China. And so we fully expect to sell the products that we were able to produce. We also have -- we're continuing to have a big cracker outage -- not outage, but a big cracker turnaround that's happening in the third quarter.

So some of that inventory that we built was also in advance of that turnaround that started in second quarter, but will end here in third quarter. So we are pretty optimistic about our ability to sell the demand that we have in inventory. And the $0.05 per pound, as I indicated before, the dynamics are there for us to get that. And so that's where we're squarely focused.

Your next question is from Patrick Cunningham with Citi.

This is Alex on for Patrick. Just a couple of questions on silicones. Maybe can you just help us understand what prompted the additional round of investments globally on the specialty side? And what sort of returns should we expect on some of those investments in U.S. and Asia?

So we continue to see really strong downstream demand on silicones. It's one of the reasons we took the action in Europe to rightsize our high-cost upstream siloxanes capacity to really liberate more investment for the downstream silicones. I mean we are seeing double-digit growth in EVs also in consumer electronics and industrial electronics. Data centers, of course, is also a really bright spot for us in siloxanes and silicones. So as we continue to focus on those downstream markets, which, by the way, are all growing above GDP, we expect to see 20% or higher returns on that volume that we are selling.

So the other point I just want to make is on the siloxanes capacity that we shut down in Europe, it's about 25% of the regional capacity. which is going to deliver $60 million in EBITDA uplift in the second half. But again, I just want to reiterate that, that was an action for us to further reshape that business so that we can continue to focus more on high-value markets downstream that are not only growing above GDP, but where we are also taking share. So think about it in the context of about 20% or higher returns.

Your next question is from Matthew DeYoe with Bank of America.

So I wanted to just ask a little bit on transform outperform and kind of the aggregate cost initiatives in general. So to Jeff's point earlier, I kind of would have expected a little bit more traction on SG&A and R&D. And this isn't necessarily a 2Q question. But as we grade your progress, like where do we see it? Are any of these line items going to drop on absolute terms?

And as a follow-up, say, Slide 13, if I choose 2025 EBITDA, just like $3.2 billion as a base, are you basically saying that by '28, EBITDA should be greater than $6 billion, all else equal, if we assume 2025 economics? Or are there other headwinds there? Is there inflation? Do you need volume growth to hit some of that or just a better macro, which is kind often the case when we hear about cost cuts and ability to capture stuff? So can you expand on that?

Absolutely. Let me walk through the $3 billion in self-help actions that we committed to, and then I'll ask Jeff to maybe talk a little bit about where you'll see it show up. So as you indicated, we ended last year around $3.3 billion. Our commitment is another $3 billion in self-help actions. These are largely independent of the macro. And so $1 billion from our -- from the cost-out program that we announced in 2025, that's materially complete. So that's the $1 billion. The second thing we announced were asset actions, both from a growth perspective, which we're largely seeing the benefit of that. That's both in polyethylene and then alkoxylation capacity.

Those projects are complete. The other part of the asset actions were the 3 European asset shutdowns that we announced in the middle of last year. The siloxanes capacity that I talked about that we just shut down in the second quarter in Barry U.K. is the first of those 3 actions. The other 2 actions, CAV, also the Cracker in Böhlen, we are on track to continue to shut those down at the end of next year. And then the third one is transform to outperform. And just as a reminder, 2/3 of that is coming from productivity, 1/3 of that is coming from growth, and that's the $2 billion that we're committed to delivering by 2028.

So as I indicated before, we're actually outpacing the original time line that we anticipated, delivered $190 million in the first half. We will deliver $700 million of benefit by the end of this year, which is $200 million better than we originally anticipated in-year benefit. So overall, $3 billion of self-help, largely independent from the market macro, all to deliver by 2029, if you include the European asset actions. So that's 3 plus 3, which is 6 -- a little north of [ 6 ], which gets us in this free cash flow breakeven range, which I will tell you that the Dow management team is squarely focused on. But Jeff, do you want to talk a little bit about where we should start to see it?

Yes. One of the things, Matthew, that we will be reporting each and every quarter in our Qs as well as our K at year-end will be the headcount movement that we're seeing through our transformation efforts. And that's one of the things we have not done previously, but we will start to provide that level of transparency so you can start to see, at least on the productivity side, specific to the headcount progress that we're making each and every quarter, how that is progressing. And then that will start to reflect itself not only in our SARD lines as we move forward, but also in other areas of the P&L, especially in cost of goods sold.

Your next question is from Kevin McCarthy with Vertical Research Partners.

Maybe a 2-part question for me on the subject of operating rates. Can you talk about what you're baking into your guide for U.S. Gulf Coast operations in the third quarter relative to where you ran in the second quarter? And then a similar question as it relates to your overseas assets. I think in recent months, there's been talk about various parts of Asia, in particular, being constrained for feedstock and so forth. Maybe you can talk a little bit about how your JVs are able to run nowadays and whether you would foresee any variance there in the third quarter versus the second quarter?

Thank you for the question. So operating rates should run above 90%. That's where we expect them to run as we get into the third quarter. Again, we have one of our crackers that are down in a planned maintenance turnaround. Once that gets back up, though, we'll be in above 90% range on operating rates. In terms of our JV in Thailand, that too, the margins there have improved. We expect that to continue into third quarter. They're able to get the feedstock that they need. So we're not seeing any constraints there as we move forward as well into third quarter.

Your next question is from Abigail Eberts with Wells Fargo.

One more on MDI. I think you kind of covered it in the last comment. But are you facing any issues with carbon monoxide or chlorine supply? And then also with oil prices coming back up, do you expect to give back some of that margin benefit you saw from lower benzene prices this quarter?

So thanks for the question. No, we're not having any issues on your first question. Again, things continue to be quite volatile. We are seeing benzene, of course, that's related to oil, that's starting to come back up. And so you could see some margin come back in into third quarter that we do not have baked into our third quarter guide. And as I indicated before, we're going to focus on maximizing the quarter just as we did in second quarter. And if things materialize greatly differently than the [ 1.7 ], then we'll come back to you with more information.

Your next question is from Josh Spector with UBS.

I wanted to do another follow-up on the II&I side of things. Just when you were talking about the delta versus expectations, you were talking a lot about volumes and some of the success you had there, but your reported II&I volumes are down about a couple of percent year-on-year. So I mean, it looks like more of the benefit was spread related. And I guess within the quarter, or maybe a couple of hundred million better.

About half of that seems like that's kind of onetime with the land sale and the other half, like are you assuming that you hold on to more of that? Is there something structural you would talk about that's helped II&I from the spread side here that we should be maintaining? Or is this more just a reflection that the markets still are tighter? What is your view there?

So thanks for the question. On the volume side, it's really Sadara. That's the gap that you're seeing that asset continues to be down. And so that's negatively impacting our volumes in the II&I segment, particularly on polyurethanes. But as we look at the third quarter guide, we are assuming lower margins overall, really driven by typical lower seasonal demand, but then also downward pressure -- pricing pressure in Europe. To the point that, again, we're in a really volatile environment. So we could see some of that margin come back in, in Europe, which would give us some upside to that $1.7 billion.

And then you mentioned the land sale that's also serving as a sequential tailwind and a headwind in third quarter. So let's see what happens. Again, we're also seeing some normalization on the MDI and PO that we said was impacting peers before, but we do have a bit of a tailwind baked into the $1.7 billion guide on that. If it takes the peers longer to get back up, then that too could be a positive for us versus the guide.

Your next question is from Duffy Fischer with Goldman Sachs.

Yes. I just want to go back, if we could, to polyethylene. I was surprised your volumes were down. And maybe that's because Terneuzen year-over-year was a benefit last year and isn't this year in the turnaround and stuff like that. But how much volume did you sell relative to what you had available in Q2? Were you constrained on volume to sell more? And then as we go from Q2 to Q3, you've got one more turnaround in Q3, but you anniversary Terneuzen and you get one turnaround back. So do you have more volume available to sell in Q3 than you do in Q2?

So when you look at the volumes in second quarter, we had planned maintenance. So again, I mentioned the cracker turnaround. And so that did constrain some of the volume that we had to sell. But the other thing that's just really important to highlight is that we were maximizing margins in the second quarter. So there were some volume that we just decided not to sell into in order to make sure that we restore the margins to where the levels they needed to be. You mentioned that we did restart Terneuzen 3. I'll just make a comment on that and then turn it over to Jeff for any additional comments. Terneuzen 3 is our lowest cost, most flexible cracker in Europe. It is a first quartile cracker in that region.

And so that's also going to provide some financial benefit for us as we get into the second half. Just a reminder that as naphtha has gone up again over the last week, that's in direct correlation with oil, propane has also gone up, but it's gone up less. So this is a dynamic that we were seeing in second quarter where you've got the pro naph spread that's widening. And we have 2x more flexibility in terms of what we can crack in Europe versus our closest peers. So having that first quartile cracker back up Terneuzen 3 in Europe is really beneficial for us, particularly given the current market dynamics. But Jeff, anything else from your side?

Yes, Duffy, the only thing that I would add is that the turnaround that we have in the U.S. Gulf Coast that Karen mentioned in the second quarter also goes over into the third quarter. And so as planned, -- and so it will wrap up during the course of this quarter. So you have a little bit of that overlay from 2Q to 3Q related to the Gulf Coast cracker turnaround.

Our next question is from John Roberts with Mizuho.

Did any empty or ballast ships for chemicals or refined products enter the Persian Gulf yet? And is that something we need to focus on? Do we need to have empty ships coming in before we can ramp capacity back up for refined products and chemicals in the Persian Gulf?

Yes. Thanks for the question. I don't have any intel or information on that particularly. I can tell you from a Dow perspective, we have been tracking that for our own shipments, and we're not aware of any of our shipments that are there. But that's a tough question for me to opine on. But Andrew, do you have a thought here?

Yes. John, we've been tracking it. I think what we're looking at right now just most closely is how the supply chain logistics network actually normalizes. And we've talked a lot about this. You will need vessels to come back through. We've talked about this probably for the last 3 to 4 months that there's going to have to be a clearing of everything in the region, and then that will naturally start letting other vessels come back in and refill. So that needs to transpire.

And then as that plays out, we'll give you our latest thinking. But I think right now, we're still expecting it's going to be a little bumpy to see what happens. And I think that's what you're seeing a little bit in third quarter when you're seeing pricing and maybe some of the Asian movements right now where things have gotten into pretty low levels. But we'll stay close on it and give you updates as we get more information.

We are seeing customers really focus on supply reliability, and this is where our global asset footprint has really been a benefit to us because we've been able to meet the demand across all of our businesses. So that's a benefit for us as well.

Your next question is from Matthew Blair with Tudor, Pickering.

Can I get your general thoughts on U.S. ethane going forward? And in particular, there's some new [ Permian ] natural gas pipes that are either recently started up or in the pipeline. Do you think those pipes will help improve pricing, help raise pricing for U.S. ethane on the Gulf Coast going forward?

Our view is that pricing will stay low. I mean there's ample supply. Again, this is a benefit where you've got oil going up, but natural gas and ethane in the U.S. are staying relatively low. And that's really because you've got ample supply. And so you're right, there's some growing infrastructure.

You've got gas plants, pipelines, fractionators, et cetera. But all of that is really meeting the supply needs of domestic crackers and some export demand. But our view is that those prices stay low as we move forward, which again is a benefit because we have so many of our assets that are in the feedstock advantage regions, actually over 60%, which is providing, again, that margin uplift that you saw in the second quarter. And even with the 1.7 guide, which is incorporated into that, that's 2x what we were able to deliver in the first quarter. So that's our view.

I'm sorry, go ahead.

Just wanted to close out the call and say thank you, and we really appreciate all of your questions today and look forward to answering more. If there's one message to take away, it's really this, that we continue to execute with discipline in a really uncertain environment. I talked about at the beginning of the week to now, you're seeing $10 in oil increase, but then also what's happening in the Red Sea and in other places. But what I really want you to know is that we're not only going to maximize the quarter, but we're going to take action to manage what's in our control and ensure lasting competitiveness for the company.

We also have a really clear path to creating long-term value for our investors, but also for our customers as well as our colleagues. And the actions that we are taking today are not just short term, but they're also longer term and positioning us to deliver greater earnings durability, stronger cash flow, which we are squarely focused on and then improving shareholder returns through the cycle. So I wanted to thank you for your continued interest and support of our company. Jeff and I both look forward to continuing to engage with you. Thanks for joining the call today.

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

This concludes today's conference call. You may now disconnect.

Yes. Good morning, everyone. This is Mike Sison with Wells Fargo. I cover the ever-exciting chemical industry for the company, which has outperformed the S&P 500. Our coverage universe is up 14% year-to-date versus the S&P 500, up 8%. Dow has been exceptional, has kept well paced above the sector, up 45% year-to-date now at $34 or so. But note that during the pandemic, Winter Storm Uri or the stock hit a decade high of near $70. Today, we have Jeff Tate, CFO, Dow, to tell us how we can get back to those levels and why it's much more exciting than some dinky little space IPO coming at the end of this week. Jeff, thanks for spending time with us. I know you wanted to open up with some opening remarks.

Great. Yes. Thanks, Mike, and I appreciate the opportunity to be here. So before we get into the Q&A, I'd just like to share some insights on the current macroeconomic backdrop, as well as Dow's execution, as well as our financial position. So on the macro side, global demand across our key end markets remains largely consistent with our prior updates and the supply picture continues to favor both Dow as well as the industry. On execution, all three of Dow's operating segments are performing well as the second quarter progresses. And as it relates to our financial position, Dow's balance sheet is solid, and our self-help actions were designed to build a more agile and resilient company that outperforms peers across the cycle.

So turning to Slide 2. Let me start with the macro backdrop. We're continuing to characterize the current environment as relatively stable on the demand side, but increasingly constrained and more complex on the supply side.

So far this quarter, we are seeing higher volumes when compared to the same period over the past several years. And specific to global polyethylene, which goes into essential applications like packaging for food preservation, demand remains resilient. And this is evidenced by our strong pricing actions continuing to take hold. Additionally, we are seeing stability in both consumer and infrastructure applications, largely due to typical seasonal demand uplifts that we expected. And while some reports are showing subdued consumer confidence in many regions, purchasing patterns tell a different story. Retail spending for do-it-yourself and coatings-related applications is stable going into traditionally high seasonal periods.

Now the one area that is showing signs of declining demand since April is across automotive markets as consumers continue to delay large purchases. And while high fuel prices are driving some increased interest in electric vehicles, we have not yet seen that translate into increased sales.

Now in terms of supply dynamics, a meaningful portion of global oil, ethylene and polyethylene capacity remains off-line, constrained or otherwise disrupted as a result of the ongoing conflict in the Middle East. Now given the scale of these supply constraints, we believe the fundamentals are increasingly supportive of tighter near- to medium-term markets. So a conflict resolution and subsequent reopening of the Strait of Hormuz would begin to restore supply, but the impact would not reverse overnight. With capacity disruptions and inventories depleted, it will take several quarters for supply chains to normalize and inventories to rebuild.

Additionally, significant infrastructure across the Middle East has been damaged, prolonging the impact of the conflict further out than the timing of any potential resolution. Rapidly escalating petrochemical prices have led to cautious buying behavior in select areas, which is to be expected. Global oil inventories are also rapidly declining, reaching multi-year lows following a large build throughout 2025. And as we enter peak demand season, stockpiles are being drawn down at a record pace and the world is quickly approaching operational floor levels. The Americas, however, remain advantaged. Dow continues to benefit from strong feedstock availability in the region, well-supplied natural gas markets and elevated oil-to-gas spreads, reinforcing the region's structural cost advantage and increasing export opportunities.

So in summary, demand remains largely stable and supply dynamics remain constructive. Over time, this combination should further support the current constructive pricing and margin environment.

Now turning to Slide 3. Constructive industry dynamics paired with our differentiated portfolio positions Dow well to capture meaningful earnings upside, both from an operational and commercial standpoint. We've already seen positive momentum from our global pricing actions, but with that, it's important to note that pricing still remains below prior peak levels despite what we would characterize as an unprecedented supply environment. So there is a disconnect between supply disruption and full price realization, which we expect to continue improving over time.

And this was evidenced in April when pricing in many parts of the portfolio settled stronger than consultant forecast. In our largest operating segment, Packaging & Specialty Plastics, roughly 80%, 8-0, of our portfolio is tied to higher value, more resilient applications. Global polyethylene demand remains robust, especially in the Americas. And while we saw some prebuying activity in Asia and Europe, it has been followed by normal customer purchasing behavior. Additionally, we have seen no change globally in our order books regarding order cancellations, which is a positive sign of underlying demand and support for future margin stability.

In addition to the price increase that was implemented in April, we have a $0.20 price increase announced for the month of June, supported by industry market dynamics and historically tight supply. At the same time, we're maintaining flexibility on our asset base, including progressing planned maintenance on our Terneuzen 3 cracker, our lowest cost asset in the European region, which we anticipate restarting this month. The work was completed on budget and on an adjusted time line that supported both idling of the asset in mid-2025 and a subsequent restart in line with the regional market demand.

And in our Industrial Intermediates & Infrastructure segment, supply-demand dynamics remain constructive, supporting positive pricing momentum across key value chains, and our order books for the segment are strong relative to prior periods.

Performance Materials & Coatings is entering a seasonally stronger demand period, especially in coatings, where we expect both near-term volume growth and margin expansion. Additionally, we are making significant progress against one of our largest near-term self-help actions, the shutdown of our higher-cost siloxanes unit in Barry, United Kingdom, which we began last month. The team executed the work safely, on budget and several weeks ahead of schedule.

So looking across the entire Dow portfolio, our key differentiators continue to be our feedstock flexibility in Europe, our geographic and asset integration, especially in the cost advantage Americas and the agile regional supply chains we built in every business that allow us to adapt and respond quickly. That combination allows us to capture upside when conditions improve while maintaining discipline during periods of volatility. Going forward, we're focused on executing with discipline, driving pricing in every business and in every geography and leveraging our structural advantages to deliver consistent performance.

So with all the puts and takes, we expect to deliver second quarter earnings of approximately $2.2 billion, which is above current consensus and roughly 10% above our prior guidance. This is largely driven by continued resilience in polyethylene demand and pricing as well as margin upside in Industrial Intermediates & Infrastructure.

So next, I'll close on Slide 4 with our financial priorities. We are maintaining Dow's strong liquidity position with approximately $14 billion available at the end of first quarter, and we have no substantive debt maturities until 2029, giving us significant flexibility to navigate near-term volatility while focusing on long-term value creation. Our capital allocation framework also remains consistent, beginning first and foremost, with enabling safe and reliable operations. We also remain focused on maintaining our investment-grade credit rating, funding our operations and our growth and returning cash to shareholders over time. And in the near term, we intend for any incremental cash to be directed towards deleveraging.

We're also implementing disciplined trade-offs to improve working capital and maximize cash generation as earnings recover, which is a critical lever in this environment. At the same time, we're executing on a number of self-help actions that are expected to deliver meaningful benefits this year. As a reminder, this includes delivering the remaining approximately $500 million from our 2025 cost savings program. And importantly, we expect to materially complete this program by the end of this quarter. It also includes approximately $500 million in growth and productivity benefits from Transform to Outperform. And we expect to realize approximately $100 million in additional benefits from the completion of our prior growth investments and our portfolio actions. And these actions are not just focused on cost, they represent structural improvements that enhance our long-term agility, lower our cost base and drive earnings growth across the cycle.

So to summarize, Dow is well positioned operationally, supported by a strong and flexible balance sheet and a team that is executing on clear and intentional self-help levers. All of this enables us to capture earnings upside while driving long-term value for our shareholders.

So with that, Mike, I'm happy to take your questions.

Great. Thanks, Jeff. We have about 4 hours for questions. I'm sure -- I'm joking, I'm joking.

Looking forward to...

But anybody on the webcast, I am live on Bloomberg Messenger, if you do have a question, just send it to me. But I guess just let's start with the better-than-expected 2Q, a little bit $200 million better than your initial guidance. Any color between the segments or the business units that is driving that upside?

Sure, Mike. Even when we announced our earnings back at the end of April, one of the things that we did highlight is that we saw more potential upside than we did downside to our original guide, which was $2 billion. And in that original guide, there were two key things that we felt like there could be that upside that will come to fruition. And we're seeing this materialize really across the entire portfolio, but two things really stand out. Obviously, the strong pricing momentum that we captured not only from the $0.10 in March, but also the $0.30 in April that we were capturing, which was higher than consultant forecast at the time. Consultant forecast were projecting $0.20 for April. And so capturing that $0.30 gave us a little bit more upside.

But we also, in our Industrial Intermediates & Infrastructure segment because of tightness that you continue to see in the industry on supply, have seen both polyols and MDI, really capture some of that upside for 2Q as well. So when you think about it, consensus right now is at $2.1 billion, which more than likely captured a lot of that polyethylene pricing for April. But then that additional upside that we're seeing above consensus right now is really driven by what we're seeing coming out of our II&I segment for both polyols and MDI.

Okay. We've seen price increases in MDI and the polyols side. Benzene is up though a lot. Is it the spread that has improved? Or is demand a little bit better?

Well, I would say, obviously, we're going into a higher demand season, right, here. And for us, and this is more of an overall Dow statement, for second quarter, June is really that peak demand month for us, where we capture about 40% of our volume during the month of June for the second quarter. So we're going to be going into that ramp of the high seasonal volumes in June, while at the same time, capturing a lot of the pricing activity that we had already in the marketplace for II&I, A lot of that driven again by the tightness of supply.

And then following up on polyethylene. I get a lot of questions of why is polyethylene demand strong. Consumer seems to be challenged right now with inflation. You had mentioned polyethylene demand is still pretty strong. So maybe a little bit of color there.

So when you think about -- and this is specific for Dow, let's look at even going back to the makeup of our portfolio, where we're continuing to see resiliency on flexible food and specialty packaging from an end market applications standpoint.

But if you want to maybe double-click out a little bit, let's just look at April ACC North American data. There are a couple of data points there that really prove out what we're seeing in terms of the demand. April on total sales was the fifth highest month from an April standpoint, okay? Domestic sales were the third highest month on record. Exports set a new April monthly record, which was 17% year-over-year improvement. Operating rates remains strong. Operating rates for April out of the ACC data were 94.4%. And we saw inventories down another 23 million pounds coming out of that April ACC data.

So you look at the market dynamics, you look at what we saw with a really strong April. We look at our order books, obviously. And as I mentioned in my prepared remarks, we haven't seen any let off in demand there. So you combine the ACC data for both March and April, looking at our order books, seeing the resiliency that we've continued to see across the portfolio of polyethylene, demand continues to be healthy for us as we continue to go through the quarter.

Got it. And then maybe we can step back a little bit. When I look back at Winter Storm Uri, the supply chain was kind of down for about 2 months and peak pricing and peak integrated margins lasted for about a year. Maybe walk through the challenges the global polyethylene has because of the Iran war, I think there's like 30% we've talked about out. And how long you think this pricing could last this time around? Well, I'm not sure if the war is over, but it's 2 months and a couple of weeks, and then you noted a $0.20 price increase for polyethylene, and I think the consultants say 0. So maybe kind of go through that real quick.

Sure. It is interesting because I go back to, again, we're going into this June heavy demand season from a volume perspective, which we anticipate to continue to be there for second quarter of this year. But a few things back to the Middle East conflict question from you, Mike, here is that I would like to note, even if there was a resolution, let's say, in the coming days related to the Middle East conflict, there's still based on even industry analysts and experts that it will take several quarters for the supply chain to normalize. And why is that? Well, you think about the sequencing of prioritization that would need to take place.

First of all, you've got to prioritize the ships that are currently in the Strait and how do you get those out of the Strait. Secondly, you have to prioritize and allocate the capital that would be needed to repair the damage that has been done in the region. Thirdly, you then got to prioritize the human capital that will be needed. And a lot of that expertise has actually left the region because of safety reasons when everything started to escalate. So you start to think about those elements of it. And then other components of it is you have to then think about the value chain, and the rebuilding of the inventory. And then once you start to get the Strait opening, how do you then prioritize the sequencing of what comes through from a supply chain perspective.

One of the first things you're going to look at is energy, from a prioritization perspective. Second would be food security, so fertilizers and other commodities. And more than likely then third, you would have petrochemicals and other commodities in our space that would then be prioritized. So you just think about the sequencing of all of those, the prioritization of it, the allocation of it, that would take several quarters for it to work its way through the system.

Okay. And then maybe a follow-up on the polyethylene pricing for $0.20 in June, and your thoughts about that, given where consensus is at. I think others are between $0.10 and $0.20 as well. So...

Yes. Well, for us, again, when we continue to look at our order books, we continue to look at the resiliency that we've continued to see around the packaging space, for us, the demand is still healthy. And really, when you look at the supply and not seeing any resolution on the supply side right now, the market dynamics would support actually that June price increase.

Okay. But within your guidance, it's 0.

For the guide right now, we did not assume a June $0.20 price increase.

Okay. And then maybe talk a little bit about export margins have been very little over the last 3 years. And because of the conflict, they've gone up, I think they're higher, maybe in some cases than Gulf Coast. Do you think structurally the export margin can stay healthy for a longer period of time because of the conflict? And would you consider exporting more than you do now?

Well, for us, we're going to continue to have as a top priority is going to be serving the Americas where we've had the sustainable margins for quite some time. If you look at prices in Asia and Europe per se, month-over-month, we've seen those start to stabilize, and actually, Europe is higher from April to May, which is encouraging as you look at demand and look at margin restoration from that vantage point. And so from our vantage point, we will continue to support the Americas first and then obviously, supporting the exports. And for us, that's been about 35% off of the U.S. Gulf Coast from an export prospective.

Right. Okay. Great. And then can we talk about -- I think what's been underappreciated a little bit is your cost savings, your productivity, that should boost your underlying earnings power mid-cycle to longer term. I think you were going to take $1 billion out of cost, here you've got $500 million this year. Any thoughts on that? And what could happen going beyond this year?

Sure. Mike, I would put it this way. We've got a portfolio of different self-help actions that are currently underway. And because we're seeing this near-term tailwind due to the Middle East conflict, we are not losing our commitment or our resolve to continue down the pathway of making those commitments and delivering on what we've already put out. First of all, you're right, our 2025 cost-out program is $1 billion. We captured half of that in 2025, and we're well on track to deliver the other $500 million here in 2026. And in fact, that program will reach full run rate by the end of this quarter, be materially complete.

The second thing is our Transform to Outperform. You've heard us talk about really that's going to be resetting our operating model, simplifying how we work, lowering our cost structure, while at the same time, looking at growth and productivity as we look across our end-to-end processes to really make us more agile across the cycle and more competitive. And that will generate over the next couple of years, a total of $2-plus billion of value with an expectation of $500 million of that being delivered in 2026.

So you take the 2025 program of $0.5 billion, take the Transform to Outperform contribution of $0.5 billion. We also have our growth investments and the asset actions that I mentioned earlier that will deliver another $100 million. So that will deliver in combination, over $1 billion of EBITDA uplift from 2025 to 2026 purely from our self-help actions.

Right. So when I looked at the SpaceX IPO, they're going to lose a lot of money. So clearly, investors are looking for longer term. So maybe you should lose more money, I don't know, but I'm joking. But when you think about how an investor should look at your earnings power from here, a lot of investors ask me about mid-cycle. But honestly, I'm kind of curious about peak, because when I look back 2 decades, it's either a trough or peak. I don't see a lot of mid-cycle. So when you think about where the earnings power could go, maybe include Canada in the possibility, where could EBITDA go longer term for Dow?

Sure. So even if we were to assume no significant macro recovery for a period of time, Mike, and if we look at just the things that we have in flight right now, and let's use our 2025 EBITDA, that's maybe the ground floor to build off of that. So we delivered $3.3 billion of EBITDA last year. That's coming off of a GDP of less than 3% for the past several years across the globe. That's also coming off of, obviously, oversupply from a supply standpoint, and then looking at the structural changes in Europe over that period of time. And if you look at our total near-term self-help actions between our $1 billion cost program of 2025 and our Transform to Outperform that I just mentioned of approximately $2 billion, that gets you near-term $3 billion of EBITDA uplift off of that $3.3 billion that we delivered in 2025. So that gets you quickly to $6 billion, right?

You mentioned our Alberta project, which will commission and come on stream by the end of 2029 with the first phase, that will give us another $1 billion in that time period from '29 to '30. So now you're talking about a total of $4 billion of EBITDA uplift from things that we control that are not impacted necessarily by an expectation of a macro recovery. So $3.3 billion plus $4 billion of self-help as well as growth investments gets you to a significantly higher number than where we are today. So I won't try to anticipate kind of what that mid-cycle number would be, but I think that gives you an idea of how we're building off of what we've contributed and delivered in the past year.

Right. I actually do have a couple of questions from the webcast. A little bit on the deleveraging bullet that you had. Are you going to build cash, pay down debt? Or was that just waiting for EBITDA to uplift? Maybe a little bit of color on the deleveraging.

Absolutely. For us, any incremental cash that we get through this earnings uplift that we're seeing in 2026, one of our top priorities beyond supporting our safe and reliable operations will be supporting deleveraging. And so that incremental cash would be contributed there. But our capital allocation priorities over the cycle remain consistent, which again, is safe, reliable operations, maintaining our investment-grade credit profile, supporting growth as we move forward while remunerating our shareholders in the future.

Okay. And then I did want to talk about Canada a little bit. It's supply out of the Middle East. It's probably easy to transport around the world, safety issues, one of the lower cost. It should be a very attractive asset for folks, or attractive area for folks to get their supply of polyethylene. You had said that the returns on this business at mid-cycle would be 8% to 10%. I mean, where would they be now? It would be much higher, I suppose. And do you think mid-cycle margins for polyethylene should be higher, given structurally, China will be using higher cost oil or naphtha? Where could this project really go if given what's happened with the Iran conflict?

Sure. First of all, a couple of things I would mention, Mike, is that the merits of the Alberta project have never been stronger from a benefit perspective, right? You're talking about a first quartile, low-cost asset that takes full advantage of the Alberta feedstock opportunity that we have there, number one. Secondly, packaging demand will continue to grow faster than GDP for the next several decades. Third, the government incentives remain true, right? We've said $1.5 billion of incentives. So we're going from a $7.5 billion growth CapEx to getting incentives of $1.5 billion, so net CapEx of $6 billion.

And then as you look at, again, being in a region that's away from the hurricane zone of the U.S. Gulf Coast and to your earlier point, it's not necessarily in other areas that may have higher risk around the globe. So it's positioned in a really nice location. And then our fleet and the low-cost location of all of these assets now positions us even better than we are today once it comes online.

So the second part of your question, do we see the margins potentially being better and the returns ultimately being better than 8% to 10%? Absolutely, we could as we move forward. And just as a reminder, the economics don't include any of the carbon potential value that we would get from this as well.

And then could you just remind investors, '29 is when the project is supposed to come on? How much CapEx do you have left? And would it make sense to accelerate that and get up and running sooner?

So what we've said is that you can expect our CapEx spending for the entire company to average about $2.5 billion over the next couple of years. So '26 through '28, $2.5 billion. Approximately $1.5 billion of that will be for Alberta and then the remainder would be for maintenance CapEx for our existing fleet. So as we look at it right now, we spend approximately 30% of the CapEx with the remainder to be -- a large part of the spending remaining will be on the labor side because a lot of the long lead time equipment has already been ordered. So we're in a good position from that standpoint. Moving faster, more than likely, we will stay on the time frame that we're on, again, with the first phase starting up by the end of 2029.

And then assuming nothing really changes from pricing or anything like that heading into the third quarter, I know it's a little bit early to give specific guidance, but how should investors think about what you've captured? And as that moves into the third quarter, it would seem to me that even with a little bit of seasonal decline, earnings could be better.

I think, obviously, it is early for us to talk 3Q. But if you just look at typical second quarter, third quarter for Dow, those tend to be pretty similar, right? Now we will continue to have some turnaround activity in third quarter, similar to what we have in second quarter as well. And so we'll be managing through that as we work our way through the quarter. We'll continue to focus on our self-help actions while at the same time, focusing on the pricing actions that fit the market dynamics that are out there today, and we'll see where third quarter takes us. But right now, as we just look at second quarter, the upside that we've identified and discussed here this morning, we feel reasonably confident in, and then we'll continue to progress on our self-help actions and pricing actions for third quarter.

And then unfortunately, wait even longer to give any specific outlooks. But given your stock set, it feels to me that investors or the market thinks '27 is going to go back to '25 or maybe not back to '25, but it's it feels like EBITDA -- investors feel EBITDA is just going to -- once the war is over, it goes back to where it was. So any thoughts on how to help investors think about '27? Again, in my feeling, I think a lot of these issues will last for a year. And any color on how to think about that? You've talked about the cost savings, all that stuff, that's additive. So...

Yes. And that's really where I'd like to ensure that we're really clear, Mike, is regardless of what happens in the macro, regardless of when the resolution occurs on the Middle East conflict, Dow has a portfolio of self-help actions that continue to ramp. They will ramp in the second half of 2026, and they will continue to accelerate going into 2027. So if you think about just the EBIT uplift and the EBITDA uplift for us, we will continue to see those self-help actions coming to fruition, whether it's through the asset actions from our European decisions that we've made. I mentioned to Barry, U.K. shutdown for siloxanes that is well ahead of schedule and will give us an EBITDA uplift in the second half of this year and full run rate going into 2027. Looking at, again, our cost programs as well and our growth investments that we've made that have already RTO-ed and commissioned, we feel like we have a number of items and actions that will deliver beyond what the macros may offer in '27.

A quick follow-up from folks on the webcast. Any thoughts on how much free cash flow should be generated this year based on the improved outlook for EBITDA?

Yes. When we continue to see the improvement in the EBITDA uplift, our cash conversion will also improve as well. Now I will tell you in the near term, because we're seeing the pricing going up at such the pace that we described earlier, especially what we've seen during the second quarter, we're going to have some of that use of cash for working capital, especially from a receivables standpoint. So as you think about the second half of '26 is when you really start to see us build momentum in terms of free cash flow.

Right. Well, that's all the questions I have. If you have any closing comments. If not, thank you very much. We appreciate your time.

Thank you, Mike. Appreciate it.

Greetings, and welcome to the Dow First Quarter 2026 Earnings Conference Call.

[Operator Instructions]

As a reminder, this conference call is being recorded. I'll now turn it over to Dow Investor Relations Vice President, Andrew Riker. Mr. Riker, you may begin.

Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I'm Andrew Riker, Dow's Investor Relations Vice President. Leading today's call are Jim Fitterling, Chair and Chief Executive Officer; Karen S. Carter, Chief Operating Officer; and Jeff 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 risks and uncertainties. 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's call. Jim and Karen will start with a summary of our first quarter performance, including details on each of our 3 operating segments. Karen will then provide an update on current industry dynamics, including how global supply disruptions are influencing market conditions. She will also discuss Dow's competitive advantages, particularly our purpose-built asset footprint and advantaged feedstock positions. We will then outline several actions underway to deliver a step change improvement in earnings across the cycle, including progress on transform to outperform and our other self-help initiatives. Jeff will close with our outlook for the second quarter and an overview of our capital allocation priorities and focus areas for disciplined financial management, both in 2026 and across the cycle. Following the prepared remarks, we'll open the call for Q&A. Now let me turn the call over to Jim.

Thank you, Andrew. I'd like to first take a moment to step back and recognize our colleagues, neighbors, customers and partners in the Middle East who are facing significant turmoil and uncertainty. Our thoughts are with everyone affected by this conflict, and we wish for their safety and well-being during these difficult times.

On Slide 3, I'll now cover additional details from the first quarter. The solid results we delivered reflect our commitment to controlling what we can control. While January and February, order books were solid, we experienced a sharp positive inflection in March with the beginning of the conflict in the Middle East. We expect this supply disruption will persist throughout 2026. During this quarter, we focused on Dow's strengths of prioritizing our customers, managing costs aggressively and operating with safety, reliability and long-term value creation. We delivered 3% sequential volume growth, net sales of $9.8 billion and operating EBITDA of $873 million. And with our self-help actions well underway, we delivered approximately $193 million in period cost savings. As we look ahead to the second quarter and beyond, we are taking actions to enhance Dow's agility and resilience. We're also entering a seasonally high demand period. providing additional tailwinds as we move through the next couple of quarters.

In addition, an increasingly positive margin backdrop continues to unfold, and we expect the pricing momentum that began in March to continue across every business and every region in Dow's portfolio. On the supply side, conflict in the Middle East has created constraints that are clearly evident in the near term. This includes supply chain disruption for an extended period of time. We also anticipate impact to future investments including potential delays or cancellations of planned industry capacity additions as well as increased pressure for capacity rationalization. And lastly, we expect that the higher global oil and naphtha prices will steepen the global cost curve. Against this backdrop, our in-flight actions serve to further strengthen Dow's competitiveness and position us to drive margin improvement and capture earnings upside. First, our incremental growth investments are delivering returns like our new world-scale polyethylene train in Freeport, Texas and we're making progress on our Alberta project, where the overarching merits of this investment and the cost advantage Americas are further reinforced by the current global dynamics. In addition, the benefits from our previously announced European asset shutdowns began this year.

And lastly, we are building a Dow that is more agile and resilient through any cycle, a company that delivers through periods of volatility and one that focuses on capturing upside, improving margins and outperforming our peers to effectively reset the competitive benchmark. We'll share more details on all of this later in the call, and Karen is going to cover our first quarter operating segment performance. But before that, I'd like to briefly address our recent leadership announcement. Effective July 1, Karen will assume the role of Chief Executive Officer, and I will move to the role of Executive Chair. This announcement follows a deliberate multiyear succession process in partnership with our Board and ensures continuity as we execute our strategy.

Serving as CEO of Dow has been the privilege of a lifetime and I'm incredibly proud of what our team has accomplished together. This transition comes at the right time as we transform our company for its next phase of growth. I have full confidence in Karen's leadership, her deep operational experience and her ability to drive performance and value creation. As CEO, she will continue our efforts to transform Dow positioning us for greater agility and resiliency through any phase of the cycle. She is exactly the right leader to guide our company and deliver on our strategic priorities with the discipline and rigor.

Thank you, Jim, and good morning to everyone joining today. I'm honored to step into the role of CEO of Dow. Having spent my entire career with the company, I have a deep appreciation for our people, our innovation capabilities and the critical role we play in enabling our customers' growth. As we look ahead, our priorities remain consistent. We will continue to drive operational excellence, maintain disciplined capital allocation and advanced high-value growth in our core markets. Dow is well positioned with our advantaged global portfolio, a strong balance sheet and a talented global team. My focus will be on driving execution, delivering value for our customers and ensuring consistent long-term value for our shareholders. I'm excited about the opportunities ahead and confident in our ability to continue to deliver for all stakeholders.

Turning now to our first quarter results by segment. As Jim mentioned, Team Dow remains focused on disciplined execution in every business throughout the first quarter. As the situation in the Middle East unfolded in March, we continue to manage costs and cash tightly while also prioritizing our customers. We delivered solid results in January and February and the dynamics in the Middle East quickly impacted industry supply/demand conditions. In fact, our operations outside the region experienced the largest percent sales gain from February to March that we've seen in our company's history. Our teams remain focused on balancing near-term dynamics with discipline while also progressing our long-term objectives, and this agility continues to be a key differentiator for Dow. In Packaging and Specialty Plastics on Slide 4. First quarter net sales were $4.9 billion, reflecting price decline versus the same period last year. Polyethylene volumes increased in all regions, both versus the prior year and last quarter, supported by continued global growth and flexible food and specialty packaging applications. Polyethylene volume gains were offset by lower merchant olefin sales following a turnaround in the U.S. Gulf Coast and lower licensing revenue.

With safety and reliability at the forefront of our priorities, this turnaround is now complete. The unit is fully operational and our team is shifting their focus to completing our second cracker turnaround for the year, which is planned for the second quarter. Operating EBIT was $208 million, driven by lower integrated margins and higher planned maintenance activity. This was partly offset by higher polyethylene volumes as well as tailwinds from the company's cost reduction efforts. Looking ahead, our significant Americas footprint, including our new [ PolySeven ] assets, will enable our teams to capture improved margins. Next, turning to our Industrial Intermediates & Infrastructure segment on Slide 5. Net sales were $2.6 billion, down 8% year-over-year. This was largely due to lower prices in both businesses as well as lower volumes in polyurethanes as a result of impacts from the Middle East conflict. Our proactive cost savings actions in both businesses provided tailwinds that offset some of the decline. Volume declined in the quarter as well, primarily due to our actions to reset our competitiveness by shutting down our higher cost, upstream propylene oxide assets late last year. As a reminder, this action rationalized approximately 20% of North American PO industry capacity. And while we are experiencing a prolonged weak demand landscape across building and construction, our new alkoxylation assets are driving growth in Industrial Solutions, which serves attractive end markets such as home care, pharma and energy.

Moving to the Performance Materials & Coatings segment on Slide 6. Net sales were $2.1 billion, which is flat compared to the same period last year, with higher volumes in both businesses. Volume increased 2% year-over-year, largely in downstream silicones, particularly in electronic and home and personal care end markets. Notably, downstream silicones continue to be a growth engine for the business, delivering high single-digit volume improvement versus last quarter. The business remains focused on advancing our multiyear asset and market strategy, which will help us grow with key customers. The strategy includes shifting our mix towards higher-value products and markets like electronics and mobility, while rightsizing higher cost upstream capacity. And this work is further advanced by our previously announced European asset actions including the shutdown of our basics siloxanes plant in Barry, U.K. by the middle of this year. This capacity represents approximately 25% of European siloxane industry capacity. Next, on Slide 7, I'll take a step back to frame further details on the current macroeconomic environment. The headline is this. Demand across many markets in fix at the same time, supply is short and arbitrage is increasing. On the demand side, for our core polyethylene packaging markets, conditions remain resilient but we are seeing mixed signals in other key markets that Dow serve. For example, in the U.S., inflationary pressures and higher interest rates are still weighing on existing home sales. This continues to be reflected in our industrial intermediates and infrastructure and Performance Materials & Coatings segments, both of which serve the building and construction market.

Consumer spending has shown some modest improvements but the landscape and behaviors are likely to remain cautious until we see a significant inflection in macroeconomic conditions. Moving to supply dynamics. We anticipate that shutdown feedstock limitations and logistical constraints will continue to reshape polyethylene product availability across regions. These conditions are creating ripple effects well beyond the Middle East including significant impacts to logistics costs and transit times. Supply and feedstock into Asia and Europe are constrained, which is triggering price increases globally. It is also leading to increased production in the Americas and is providing Dow the opportunity to capture new business in Europe. The duration and severity of these constraints increases the likelihood of lasting industry impacts, including the potential for accelerated capacity rationalization as well as delay or cancellation of planned capacity additions. In this context, expectations for higher U.S. supply are helping to ease some of the pressure and provide stability. North American LNG markets remain well supplied and regionally insulated from these disruptions. In addition, U.S. Gulf Coast NGLs, including ethane, continue to be largely unimpacted. All of these factors underscore the benefits of Dow's cost advantaged footprint in the Americas.

Next on Slide 8, we'll unpack some of the current regional and industry impacts in more detail. In the 2 months since the conflict began, the scale of disruption we have seen is unprecedented. Roughly 20% of global oil capacity is currently offline and approximately half of global ethylene and polyethylene supply is either offline, constrained or directly impacted. These are unparalleled numbers, reflecting a combination of physical infrastructure damage, feedstock limitations and severe logistics disruptions. Transit through the region remains significantly impaired, largely driven by the ongoing disruption in the Strait of Hormuz and the disruption has been amplified across Asia and Europe, tightening feedstock availability and pushing producers to reduce production or increase prices to cover the rapidly escalating costs occurring from the conflict. Looking across regions, a large portion of Middle East capacity remains offline with increasing risk of lasting infrastructure damage. In Asia Pacific, feedstock constraints are limiting operating rates and reducing export availability, challenging producers who are operating at uncompetitive levels. And in Europe, high costs will require continued price increases to justify additional production.

In contrast, the Americas continues to operate at high rates highlighting the importance of Dow's costs and feedstock advantages in the region. Currently, it is estimated that roughly 3/4 of announced global capacity additions would be either directly impacted by the conflict or dependent on supply chain that remain highly constrained. The longer these conditions persist, the greater the potential for further industry changes. And lastly, it is not likely that the pricing impact of these events will be temporary. We expect rising global production costs and a steepening global cost curve to continue influencing pricing and spreads. Next, I'll turn to Slide 9, where we will discuss how Dow-specific advantages drive near-term value. At the beginning of the Middle East conflict, petrochemical prices, especially polyethylene, were at multiyear unsustainable lows. Despite broader near-term market volatility, we anticipate packaging demand will remain resilient, providing meaningful pricing potential as evidenced by recent March settlements. That brings me to our advantaged global asset footprint. Dow operates a large portion of our light cracking capacity in the cost advantage Americas with assets in the U.S., Canada and Argentina, all of which continue to operate at high rates.

Our consistent focus on investing in the Americas gives us reliability, feedstock security and cost stability at a time when global supply chains are strained. In Europe, our feedstock flexibility remains a critical differentiator. With naptha supplies impaired and ProMat spreads increasing, Dow's ability to optimize across feedstocks provides a clear cost and availability advantage versus peers. This allows us to protect and expand margins through running our assets competitively even in a volatile energy and feedstock environment. And specific to our Packaging and Specialty Plastics segment, now has higher North American capacity than our closest peer, further supported by the 2025 start-up of our Polyseven, polyethylene train in Freeport, Texas. Additionally, approximately 80% of our P&SP product sales go into higher-value resilient applications, including packaging, consumer and health and hygiene. These end markets have historically demonstrated lower risk of demand destruction. The structural advantages we have deliberately built over time give us confidence in Dow's ability to manage through volatility and while capturing value at any point in the cycle. In addition to these portfolio advantages, Slide 10 outlines the key areas where we remain committed to self-help actions that will strengthen Dow's earnings power. First, we are on track to deliver the remaining cost savings from our previously announced $1 billion program by the end of this year. We are also executing a series of strategic moves that will uniquely position Dow to Win. This includes earnings upside following the completion of our remaining incremental growth investments and cost advantage region as well as benefits this year from the beginning of our European asset shutdown.

Additionally, Transform to outperform is expected to deliver at least $2 billion in near-term EBITDA improvement. As a reminder, we expect approximately 2/3 of that to come from productivity gains and the remaining 1/3 from growth. Next, I'll share a few examples of early opportunities that we have identified and are taking action on. First, we have begun transformation assessment at approximately 25% of our large sites with a goal to deliver sustained improvements and returns from all of them over the next 2 years. We are evaluating and driving improvements in production yields, asset utilization, maintenance productivity, energy efficiency and third-party spending, and we expect this work will result in more than $400 million of the $1.3 billion and productivity improvements that we committed to. The first site transformation identified approximately $80 million in run rate EBITDA improvement well exceeding our initial projections. We're also seeing early growth gains from expanded use of digital commercial capabilities and more disciplined opportunity management. Pilot efforts in these areas have meaningfully improved the quality, size and value capture from new opportunities. Learnings are quickly being scaled to support and accelerate targeted growth across the portfolio. And since completing comprehensive evaluation, our dedicated end-to-end process owners have shifted from assessment to execution.

For example, in our plan to fulfill work process, we defined a clear end state from demand planning to manufacturing operations all the way through to customer delivery. We are now redesigning work and leveraging technology to simplify workflow. This enables increased efficiency for Dow and service reliability to our customers. Additionally, in the first quarter, we announced a series of senior leadership changes that delivered an approximately 20% reduction in both headcount and cost at that level. We remain confident that our collective efforts and Transform to Outperform will ramp sharply to $400 million in the second half of the year, creating a down that is more resilient across the cycle while consistently delivering growth, customer success and improved shareholder value. And as an important reminder, all of our self-help actions and the upside they provide are additive to the potential upside we anticipate going into the second quarter.

Next, I'll turn the call over to Jeff, who will cover our second quarter modeling guidance and Dow's key financial strengths.

Thank you, Karen. As we look ahead, I'd like to provide some context around our earnings expectations for the second quarter and for the remainder of the year. As we've noted throughout today's prepared remarks, the situation in the Middle East has introduced volatility and uncertainty into the broader market environment, including how customers secure product. We remain committed to taking actions to position Dow for success amidst this ongoing turmoil. Karen shared the ways in which we are quickly pivoting to several of the areas that are directly within our control. This includes leveraging our advantaged manufacturing footprint and activating pricing levers across all businesses and all geographies, including our largest operating segment, Packaging and Specialty Plastics. These levers give down significant near-term advantages.

Our expectation for second quarter are approximately $12 billion of revenue and EBITDA of $2 billion. This sequential improvement is driven by pricing gains, expanding margins, increased asset utilization, typical seasonal demand improvement and our continued focus on reducing costs all of which are expected to more than offset rising feedstock and energy costs, planned maintenance activity and expected sequential decreases in licensing revenue. In Packaging and Specialty Plastics our global pricing strategies, especially for polyethylene are designed to capture value in key markets, helping to mitigate external pressures. We expect this to drive significant sequential improvement versus the first quarter. For Industrial Intermediates & Infrastructure, we expect normal seasonality and improve margins to provide sequential gains. With that, higher planned maintenance and lower licensing activity in the second quarter are expected to mute these tailwinds. And in the Performance Materials & Coatings segment, we anticipate a modest impact from the Middle East conflict. However, rising propylene costs are likely to delay seasonal demand uplift that we would normally see across building and construction end markets.

On equity earnings, several factors will impact Dow sequential earnings expectations. First, we anticipate a headwind from the safe proactive shutdown of our facilities in Kuwait as a result of the Middle East conflict. Lower feedstock availability at our Thailand joint ventures will also be a headwind. Additionally, beginning this quarter, we suspended the Sadara equity loss recognition in accordance with U.S. GAAP. A -- the carrying value of all liabilities on the balance sheet reached a total of Dow's existing relevant obligations and commitments. This is also reflected in our updated full year equity earnings expectations which can be found in the appendix of today's presentation. In summary, predicting global macroeconomic and end market dynamics in this period will continue to be difficult. But we expect more potential upside to these projections than downside. All of this represents our best assessment during a period of rapid change. We will provide updates later in the quarter if there are any significant developments compared to our current expectations.

Next, on Slide 12. I'll spend a few minutes on our consistent approach to disciplined financial management, which remains another core differentiator for Dow, especially in environments like we faced over the past few years. First and foremost, our capital allocation framework remains consistent. Everything starts with safe and reliable operations. In addition, we continue to maintain a solid balance sheet as well as our long-standing commitment to an investment-grade credit profile. On capital deployment, we remain focused on high-quality organic investments with capital expenditures expected to be at or below depreciation and amortization across the cycle. This includes prioritizing advantaged assets, regions, high-return projects and investments that strengthen our cost position and earnings durability. With our near-term growth investments behind us, [ past 0 ] remains our only planned major project. Returning cash to shareholders through dividends and share repurchases and also remains a clear priority across the cycle. Looking ahead to the balance of the year, our cash priorities are clear.

In March, we received a cash payment from the Nova litigation and we expect to receive the remaining tax withholdings of approximately $300 million later this year. At the same time, we remain focused on delivering the full benefits of our self-help actions which we expect to total approximately $1.1 billion this year. This includes the remaining $600 million from our 2025 program, as well as $500 million in growth and productivity improvements from Transform to Outperform. As we mobilize the teams and complete several assessments in the immediate term, we expect to demonstrate a significant portion of the end year value in the second half of this year. We will also continue to take a disciplined approach to working capital, making prudent trade-offs to support customers and operations while protecting our cash position as earnings improve. This was evident in the first quarter as we saw a year-over-year improvement in working capital of greater than $300 million. Importantly, all of this is underpinned by our strong liquidity position and well-laddered debt profile with no substantive maturities until 2029. We have approximately $14 billion of total liquidity and inclusive of cash on hand and committed bilateral credit lines.

Our revolving credit facility was recently renewed through 2030 and our committed accounts receivable securitization includes the recent renewal of our European facility through 2029. We also ended first quarter with over $4 billion of cash on hand. This liquidity positions us well to manage through macro or industry volatility without compromising our near-term priorities or Dow's long-term strategy. Our intentional actions give us confidence that Dow can continue to navigate the current environment, invest in the right opportunities and deliver sustained value to shareholders across the cycle. Next, I'll turn the call back to Jim to provide closing remarks on Slide 13.

Thank you, Jeff. As I look at Slide 13, it really captures how we position Dow not just for this quarter or this year, but for long-term value creation through the cycle. First, even in a disrupted industry environment, we are well positioned to navigate market dynamics which was apparent in our first quarter results. Our order books were solid in January and February, and we saw a sharp positive inflection in March, and we expect that to continue throughout 2026. As a result, the positive momentum from announced pricing actions across every business and every region is taking hold and building. At the same time, our mix continues to shift toward higher-value sales, including functional polymers, where Dow's differentiation clearly shows up in our pound for polyolefins benchmarking.

We published this peer benchmarking today on our Investor Relations website. This annual process provides important insights into our performance and that of the broader industry and it is what ultimately led to Dow's actions to effectively reset the competitive benchmark through Transform to Outperform, which is underway. This year's results demonstrate that Dow is delivering consistent outperformance in many areas. This includes superior performance in our advantaged polyolefins portfolio as well as outperforming the peer median on EBITDA growth for downstream silicones across all markets. That's not accidental. It's the result of disciplined execution and a focus on value. Our teams understand Dow's strengths and have aligned our R&D and innovation to the areas of our portfolio where Dow wins and our customers value at the most. Second, we focused relentlessly on building long-term agility and resilience. We are acting thoughtfully but decisively to improve the quality of our portfolio and improve our long-term earnings, and we are not backing off. Transform to Outperform is already driving new value that is additive to near-term market upside.

We are leveraging our strengths to enable faster, more efficient operations, improve innovation and modernize how we serve our customers in high-value markets. At the same time, we're seeing tangible benefits from decisive portfolio actions, including the completion of our incremental investments in high-growth areas of our portfolio as well as the shutdown of higher cost upstream assets in Europe that will begin later this year. And with the revised time line, our Alberta project will enable growth in resilient high-value applications like pressure pipe, wire and cable, and food packaging. We remain confident that Dow can capture outsized growth in these markets for years to come, which will create additional value for shareholders. And lastly, foundational to everything we do is the financial discipline and flexibility that we have built. That discipline matters. It's what allows us to be steady when others are reactive and to keep investing when it counts. So when we say Dow remains a compelling investment opportunity, we say it with confidence grounded in actions.

We entered 2026 in a strong position and we remain on solid footing. Our long-term vision, our strategic priorities and the steps we've taken to navigate a challenging down cycle inflected in a way that positions our company for stronger more resilient growth for years to come. I am incredibly proud of how Team Dow has navigated all the challenges that we've encountered over the years. They've adapted quickly to changing market signals while staying focused on cash generation and improving margins. Thank you for your continued interest and support of Dow. Now I'll turn the call back to Andrew to get us started with the Q&A.

Thank you, Jim. 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&A instructions.

[Operator Instructions]

Your first question comes from the line of Hassan Ahmed from Alembic Global.

First of all, congratulations to both of you on your new roles. A question around just the time lines associated with the normalization of supply chains in a let's hypothesize sort of post piece declaration sort of an environment and also the sustainability of some of these pricing initiatives, particularly for polyethylene that you guys have announced. I mean just to me, it seems that in a no damage to facilities environment, it would take at least probably 3 quarters, maybe for supply chains to normalize. And then there's obviously the questions around how much damage 2 facilities has actually been done, what impact that may have on the availability of supply.

And obviously, then there's numerous questions around availability of feedstocks as well and what rationalization sort of may happen? Would it be accelerated in a sort of higher oil, higher naphtha sort of pricing environment. So would love to sort of hear your views about the sustainability of pricing time lines associated with this normalization, particularly as I sit there and see consensus estimates for you guys, some of your competitors and the like, they seem to be just factoring in a V-shaped sort of normalization of the supply chain. So I would love to hear your thoughts around that.

Good morning Hassan, I'll take a shot, and then I'll ask Karen to talk about the pricing. Look, when I was at Sara week really at the very beginning of the conflate early March, I mentioned that we did some modeling at that time that it would be 275 days or longer for the supply chain disruption to unwind. And a lot's changed since then. There's been more attacks in the Middle East. There's been more assets have to be shut down. this week, the last cargoes of accrued to go to refiners landed at refiners. So the way I look at that is the first ripple effects of the shutdown of the straits hits the shores this month, 2 months later. And we don't have any sign in place that the straights are going to reopen.

In fact, any ships that have attempted have been turned back. The strait moved over 130, probably close to 150 cargoes a day and very different cargoes, very large crude carriers, LNG cargoes, marine pack cargo for moving plastics, bulk chemical shipments, refined fuel shipments, all that stopped and all that tankage is full and sitting in the Arabian Gulf. And so we have to clear that and I just gave you a pretty good estimate of what it takes to clear it and get it out to markets and then you've got to get vessels back in and get them offloaded. You're going to have to get a lot of empty vessels back in the Gulf before you can restart plans because the plants are at tank tops. So when we looked at it, we said shipments that go out of the straits are going to be prioritized, I don't think it's very likely that petrochemical and plastic shipments will be prioritized first. I think it's more likely that crude oil, fuel fertilizers would be prioritized first because those affect national security, those effect food security for a lot of countries. You've got repairs that have to be made.

In some cases, the repairs may be made because of the duration of this before the straits reopen. So I think if there's anything good here, you've got some time to get repairs made before the straights reopen. But you have to have human capital and you have to be able to get the equipment in that you need to repair some things. The logistics, the 275 days I mentioned was the logistics unwind from talking to our logistics providers. And I just turn it to Karen, we were going into this in March, at the end of February, low inventories, pricing momentum, good order books. We had 3% volume growth sequentially in the first quarter. and now we're seeing a tick up. So I think everything is poised for strong demand and really tight supply, and I think that bodes off our pricing outlook.

Yes, exactly, Jim. And on the pricing side, thanks for the question. I mean, I think we should go back to January. And remember that you would at $0.05 in January. And then in March in relation to the Middle East crisis, there was another $0.10 settlement. If you look at ACC data over the month of March, the way I would [indiscernible] it is that it was a record month. Demand has remained steady, but both exports and domestic sales the second highest month ever record. And then if you look at overall total sales, it was also a record as well. Industry operating rates surged to 97%, while DDI decline.

So all of that sets us up for strong price momentum. If you look at the announcements for the month of April, we have $0.30 per pound on the table, and then we have another price increase out there for the month of May of $0.20. So when you look at the $2 billion guide that we have for second quarter, there's $0.26 per pound of margin improvement. Globally that's baked in of that, and that's also aligned with SMA. So based on Jim's comment around the duration, we believe that there's more room for prices to move up and as we do that, that will present upside to the $2 billion guide.

Your next question comes from the line of Mike Sison from Wells Fargo.

Congrats on as well to Karen and Jim. When you think about the $1.75 billion for PSP in 2Q. Can you sort of frame -- I mean, do you think that's kind of a mid-cycle EBITDA? Is it a peak EBITDA? And then when you think about the sustainability of these integrated margins into '27 as supply chains come back, where do you think we could sort of end up post all this?

Karen, do you want to take it?

Sure. So I'll go back to the $26 per pound integrated margin improvement that we expect to get here in the second quarter. That's mid-cycle perhaps a bit above mid-cycle. I think it's important to go back to the impact of this, which is really 3x what we saw in 2021 from Winter Storm Yuri. And there, you really did see us move over about a 6-month period to mid-cycle and above prices. And so my response to that is it is mid-cycle moving to peak levels. But with the supply shock overnight, that is why you're seeing the ramp in price increases go faster than even what we saw in 2021. And again, as I indicated, in my last answer, we expect that this environment is going to continue in alignment with the duration of the recovery that we believe it's going to take 6 months, anywhere to 18 months to resolve.

Your next question comes from the line of Vincent Andrews from Morgan Stanley.

And I echo the sentiment on the leadership transition. Could I ask, Jim, if you think if we get to the other side of the conflict, do you think there could be any changes in the cost curve on a sustainable basis? And in particular, do you think Europe is positioned can improve at all on the other side? And then within that, and then more near term, how are you thinking about the profitability of your own European assets over the course of the next couple of quarters? Do you think prices will improve enough to really reset profitability there? Or how are you thinking about it?

Good morning, Vince. I think on Europe, a couple of things that are having an impact on Europe right now. the tightness in the marketplace from the shutdown of the straits is not just the inability to move the product, but it's the magnitude of the impact. So we talk about 20% of U.S. oil production being shut in, in the straits. About 40% of Asian naphtha production was shut in, in the straights. And so you saw that effect of that being for sure in Asia of the high-cost producers because they couldn't get feedstock. On top of that, we're seeing in China right now, restrictions on the refiners, they're being forced to produce fuel and jet fuel at the expense of something like naphtha. And so that's going to continue to keep pressure on the availability of naphtha there.

So that has helped in Europe. I mean Europe has a little bit closer access to some naphtha and they have some refining capacity. I'd say the biggest help on margins right now has been the tightness in byproducts. So you're starting to see positive byproduct credits in the crackers. And as you know, a naphtha cracker makes the third ethylene and 2/3 byproducts. So byproduct credits can be a big contribution to improve margins there. I think it will hold obviously through second quarter and third quarter. I think longer term, a lot is going to depend on decisions like countries and people make. I talked about 40% of Asian naphtha, 90% of Japan's LNG through the strait. So I think it's logical to expect that countries are going to step in and make some changes like we saw after Russia, Ukraine when the Germans worked hard to diversify and get 5 LNG facilities going to diversify their natural gas supplies. I think you're going to see some things like that.

Those will take obviously time to shake out. You can't get any of that in place in a 1- to 2-year period. But there will be decisions that will be made that don't have a longer-lasting impact on that. Europe, we returned to profitability, Karen, maybe a little bit on margins there and demand there?

Yes. So demand for our assets definitely has moved up. the Pronet spread has widened, and we have more flexibility from a cracking perspective than any of our peers in the region. So we've increased our operating rates and we are helping to fill the gap from a supply perspective that you just referenced him. So we anticipate that margins in the second quarter are also going to go up in Europe for us.

I think Europe will be under pressure when the Middle East supply comes back because with that being shut in now, obviously, it has to be supplied from domestic Europe. So when that comes back, I think, obviously, the cost position in Europe will move back. So I don't think it changes our long-term outlook on Europe. I think it gives us a little breathing room in the short term and some time to do things wisely and get a shut down in a really smooth fashion. Thanks, Vince.

Your next question comes from the line of Jeff Zekauskas from JPMorgan.

A 2-part question. the export price of polyethylene from Houston today is about $1,775 a tonne FOB, but the delivered price to Asia for polyethylene is less than $1,300 a tonne. Can you describe what's going on in terms of why our general export price is so high, but Asia seems to be a weaker region for pricing in the scheme of things. And for Jeff, could you let us know what the relationship that you expect between operating cash flow and EBITDA is in 2026. what the real cash commitments are to Sadara?

Yes, do you want to touch on what's going on with us prices of polyethylene?

Yes, Jeff, thanks for the question. What I can say is that our prices around the world are going up. The excellent price is the indication of real demand on not local price. And as Jim just indicated, in China, in particular, they are starting to restrict the feedstock that is going to pet chem production. So we continue to expect prices there to go up as well.

Yes, Jeff, on the cash side of things in terms of operating EBITDA relationship, a couple of things I would mention there, we entered and exited first quarter with a very strong cash position at slightly over $4 billion. And as we look at outlook for not only second quarter, but for the full year, we continue to see not only the self-help actions, but also all the activities related to our pricing momentum building as we work our way through the year and through the quarter. So with that, we would expect our cash conversion rate to steadily improve as we go from 1 quarter to the next year. So we're in a really good position to see that to cash flow and free cash flow increase from a cash conversion perspective.

In terms of your second or third question around the Sadara cash commitments, I'd like to make a couple of comments there. you will notice that in first quarter, [ Tao's ] cumulative equity losses for Sadara reached $1.4 billion. This matches our existing relevant obligations and commitments and so accordingly, under U.S. GAAP, we're in a position to suspend further recognition of the Sadara equity losses. Now the $1.4 billion of commitments that we have from a relevant obligation perspective, is comprised of $1.2 billion of debt. We have approximately $100 million related to our revolving credit facility and then approximately another $100 million related to our net of credit. Specific to your question around the cash commitments for 2026 and also through 2038, that would be approximately $100 million per year.

Next question comes from the line of Kevin McCarthy from Vertical Research Partners.

Jim, one of the most common questions that we field from investors is along the lines of assessing the durable supply side impacts from the conflict. So would love your thoughts on that subject in terms of physical damage to assets in the Middle East new plants that we thought might be starting up that are, in fact, unable to do so. And I think you also made a comment that you would expect increased rationalization of assets because of the conflict. So how would you frame out the lasting impact as opposed to the impacts related to feedstock and traffic through the strait?

Good morning Kevin, look, and I don't have all of the insight to what has happened there. I can go based on the incidents that I'm aware of and the things that have been shared that are public I think most of the attacks were relatively -- we saw information about like the East West Pipeline in Saudi, which is a pump station was attacked. We saw some situations in Kuwait, where some upstream assets were attacked. And I think in most of those cases, they have the capabilities, the people and the wherewithal to get that repaired and back up. So if you look at what I said about 275 days plus to reopen the straits and get things back to normal. I think a lot of that is going to be able to be repaired within that time frame. You had the situation with Qatar with the LNG plant. What got hit there was a very critical piece of equipment that takes 2.5 to 3 years to build. And then, of course, it's got to get installed.

And so that's the most significant attack that I've heard of, and there's not a lot that I think they're going to be able to do to fix that. But that doesn't have as much impact on the petrochemical side of things. And just talking with our partners, I think they are actively working on repairs, and I don't hear anything from them that leads me to believe it's going to extend longer than this duration of this logistics constraint.

Your next question comes from the line of Patrick Cunningham from Citi.

Could you perhaps walk through any impact of the conflict on maybe the 10% to 15% of non-polyolefin derivatives that are exposed to some of these tightening market dynamics and where you might see the biggest potential for additional export opportunities or advantaged footprint, taking advantage of some of the higher margins?

Well, ethylene, polyethylethylene, polyethylene, ethylene glycol has probably been the biggest impact of all of it. And so you see that already showing up in the market response and what's happening. And those should be able to repair quickly. It's also one of the things you see in the results Kuwait's earnings in the first quarter was. Remember, Kuwait has operations in Canada and Texas. And so they have a global footprint on MEG. So they're able to supply their customers and also take advantage of the price increases and that more than offsets the situation that they have to deal with locally. But they'll be able to get that back up and moving once the road block clears.

I would say on propylene derivatives, there are some. Obviously, we have some in the polyurethanes business that will be impacted. There's some polypropylene that will be impacted. I think in polypro, you had a little bit different situation in downstream demand dynamics, auto being slow appliance takes a little demand pressure off of polypro. So we haven't seen same kind of dynamics there, MDI similar other things you want to bring in, Karen?

No, I think you're absolutely right. I mean, on the EO side in particular, MDI working to get those prices up above the cost increases and MEG, as you referenced, those prices are moving up as well. I'd say on the siloxane side or on the silicon side, for sure, less impact. But there, I would just highlight, particularly on selecting, prices are moving up there as an early indication of what we're seeing on [indiscernible] in China, which we believe is a positive sign. And so we are working to move prices up across the board. Most of it is because of the Middle East crisis within in the silicones and select an side. It's a bit of a different story, but their prices are moving up as well.

Your next question comes from the line of Frank Mitsch from Fermium Research.

And also let me offer my congratulations to Jim and Karen. Coming back to Sadara, I was just curious if you could speak to the future of what your expectations are. for Sadara over the next couple of years. Can you speak to whatever damage may have been sustained so far to that facility? And also, Jeff, when you were speaking to the changes on a GAAP basis for Sadara, that unit had been running at a negative $120 million or so per quarter equity earnings to Dow. I would imagine that, that might have been higher had you not made the adjustment to GAAP. Can you comment on that?

Frank, I'll take the first part. I mean, one of the things I will continue to do, as Karen takes over a CEO role is finish up these negotiations with Saudi Aramco on the restructuring of Sadara and trying to address some of the challenges that we face there. I think the asset itself, we've sustained a little bit of damage. I think most of it is pretty straightforward. We're able to manage it. A lot of what was fired at that coast was intercepted and protected very well. A few stray things that got through, but we have a good team on the ground, and they've gone through all the damage assessments and they'll be able to get things back up and running.

I would say that our focus is going to be on getting the restructuring right, getting the participation in Sadara, right? And it's not really an operating problem. It's more of a leverage issue and a balance sheet issue that we've got to get right. And that's what we're working through with Aramco. And as I promised, I'll have more of an update for you midyear when we come back to earnings then. Jeff, do you want to comment on that last part?

Yes, Frank, in terms of looking at first quarter, specifically, you're spot on the equity loss impact, there was $115 million. And if you look at it on a full year basis, we would estimate that to be in the talking $400 million range from a Sadara impact perspective for Dow.

The next question comes from the line of David Begleiter from Deutsche Bank.

And again to Jim Karen, congrats on the new roles. Karen, just back to Q1 guidance, what is that $0.26 of global margin expansion imply for the $0.30 you have announced for May, sort of for April and the $0.20 for May. Does that include a portion of those or all those, that would be helpful.

So it includes our April price increase that's on the table, but it does not include May. So May would present upside to the guide that we have in second quarter.

This concludes our question-and-answer session. I'll now turn the conference back over to Andrew Riker for closing remarks.

Thank you, everyone, for joining our call, and we appreciate your interest in Dow. For your reference, a copy of our transcript will be posted on Dow's website within 48 hours. This concludes our call.

This concludes today's conference call. You may now disconnect.

Hi, good morning. I'm Jeff Zekauskas. I analyze chemicals for JPMorgan. It's my pleasure to introduce the management of Dow Chemical. And to introduce Jim Fitterling, who's been CEO of Dow since 2018, but he's a long-term veteran of Dow.

I think he began his tenure at Dow in 1984. I think Jim was 22 then. He's had long tours of duty managing the various businesses in Dow in Asia. He's a very experienced and competent executive. Previous to being named CEO, he was the Chief Operating Officer at Dow. I think Dow is going to do a few slides, and then what we'll do is we'll go into a fireside chat.

Jim, welcome.

Thanks, Jeff. Good morning, everybody, and thank you, Jeff, for having me. Before we get into Q&A, I'd just like to offer a few insights just to our -- what's happening in our key markets as well as some of the progress that we're making on our near-term actions and our self-help measures. We remain focused on what's firmly within our control regardless of the situation that's unfolding in the Middle East, in addition to our view on how the macroeconomic landscape is changing for 2026.

I'll provide some updates on the items that we're progressing to let -- to get Dow set up for long-term success, resilience and continued industry leadership. As we announced in January, this includes taking a transformative look at our businesses, our cost structure and the ways in which we grow with our customers.

First, I'd like to emphasize that our ongoing self-help actions are progressing well. We're continuing to build on the strong delivery and disciplined execution that we demonstrated throughout 2025, and we're realizing the benefits of this momentum into 2026.

Turning to the market dynamics. While the underlying demand conditions remain largely unchanged from our update in January, the rapidly evolving supply situation has started to positively impact our order books. We were already beginning to see market signs of improvement in the first quarter before the Middle East conflict began. And now pricing actions and supply dynamics have evolved at a very rapid and constructive pace.

Specific to polyethylene. January polyethylene pricing in the Americas provided some encouraging developments and total industry sales volumes reached record highs for the month. Industry inventory also remains well below the 5-year average, reflecting industry working capital discipline and 3 years of destocking. As we enter traditionally what is a busy demand season, we announced a $0.10 per pound polyethylene price increase across the globe in March with an additional increase in April, including $0.15 per pound in North America. And in March already, we've announced price increases in every business in every region.

Feedstocks are also rising outside of the Americas, notably naphtha into Asia, which is strengthening the global cost curve -- steepening the global cost curve, I should say. This has led to numerous operating rate reductions and force majeures for industry assets that are high cost or feedstock constrained, and we anticipate further actions could be taken.

Global logistics have become uncertain with up to 50% of polyethylene supply either offline constrained or being impacted following the events in the Middle East. In addition, inventory levels are historically low across the value chain. Given these dynamics, we continue to act with urgency and resolve in implementing our announced price increases while running our fleet hard and taking advantage of our geographic diversity and feedstock flexibility. And we're monitoring the post Lunar New Year demand scenario to see the potential for any uplift following a typically low demand period in Asia and early order book patterns look promising.

Recent feedstock volatility from a ramp in oil pricing is also expected to support a return to historic oil and gas ratios -- oil-to-gas ratios that benefit Dow's portfolio. And as we have done previously, our teams will continue to monitor these dynamics and remain focused on improving our progress.

We will leverage our leading low-cost position, our agile, regional supply chains and our world-class manufacturing sites to -- in every geography to continue to support our customers' needs and the needs of the broader market.

In Europe, higher co-product values, which have been depressed for several years, will once again improve competitiveness across the industry, leading to margin expansion in Europe. With all the puts and takes, we're becoming increasingly optimistic about the dynamics that could provide positive conditions as we go into second quarter. And as a reminder, March historically represents an outsized portion of Dow's first quarter earnings and our quarterly performance will largely be driven by the results of this month.

Our teams continue to leverage the benefits of our diverse market exposure and strategically advantaged manufacturing footprint on top of the disciplined cost and self-help actions that we've underway. And as we demonstrated in the past, we're committing to taking strong and decisive actions to improve earnings and that starts with pricing leadership.

Slide 3 outlines some more details on the levers we're advancing to drive earnings improvements and cash and cost support regardless of the near-term dynamics or a market recovery. The targeted actions that we have in flight to deliver approximately $3 billion of EBITDA uplift over the next few years. We're on track to achieve approximately $500 million in cost savings by the end of this year to complete our previously announced $1 billion program and Transform to Outperform, which is the initiative we announced in January, is expected to deliver at least $2 billion in near-term improvements in EBITDA, including $500 million of that this year.

We're also executing a series of strategic moves that will uniquely position Dow to win across the cycle, including further strengthening our global manufacturing footprint. This includes our previously announced plans to shut down upstream high-cost assets where we'll begin to see benefits this year. Taken together, the completion of our cost efforts, the beginning of Transform to Outperform and our in-flight asset actions will provide an approximately $1 billion EBITDA improvement in 2026.

Additionally, in late February, the Canadian Court of Appeals denied NOVA Chemicals request to stay the June 2025 infringement in Dow's favor. This reinforced Nova's obligation to immediately pay, and we've already received a substantial portion of the cash payment this month.

As we go a bit deeper on Transform to Outperform, we anticipate that about 2/3 of the benefits will come from productivity and about 1/3 will come from growth. The transformation will strengthen Dow's long-term competitive position across the economic cycle, and we're already seeing progress in early wins. For example, we've made changes at the top of the organization, including the consolidation of executive-level roles that will unify working capital ownership and also accelerate innovation commercialization.

In addition, with the help of AI and automation, we're redesigning our workflows across functions to reduce cycle times and improve connectivity across our teams and to strengthen how we partner and grow with our customers, we're upgrading our core commercial fundamentals with modern tools while keeping our customer needs at the forefront of every decision.

We're also focused on raw material sourcing and have already uncovered some areas where rising costs persist, and our teams are anticipating some upside opportunities to strategically renegotiate new price formulas in those areas. And lastly, this quarter, we began closely evaluating our target sites to uncover additional opportunities for sustainable, leverageable productivity and growth improvements. In summary, our actions represent a cohesive road map and a comprehensive plan to strengthen Dow's near- and long-term resilience, competitiveness and how we deliver for our customers.

We remain committed to maintaining operational and financial discipline, executing near-term actions for sustainable shareholder value and navigating the current environment, all to better position the company for higher shareholder returns.

And with that, I'm happy to take all your questions. Jeff?

Thanks very much, Jim. You're a very experienced chemical executive. When the conflict in Iran broke out, what did you think? And what were the first steps you took in order to strengthen Dow's competitive position and to limit its vulnerabilities?

Yes. The first thoughts, if you went through the Iraqi-Kuwait conflict, some of the first thoughts were back to those times and how disruptive that was. This is probably even stronger because the Straits of Hormuz are completely shut off and just came to a standstill overnight. And that puts some real immediate pressure on operations because not just oil, but all the petrochemical plants that are in that region get shut in. And pretty quickly, if you can't move product out, you start to tank top all the materials.

So supply chain teams swing into action, just like they did during COVID, for example, when you saw disruptive supply chains, they start working on alternatives. The commercial teams become extremely busy talking with customers because you've got customers that are in region, and the question is going to remain whether they can continue to operate or are they going to take demand? Are they able to ship product down? What physical possibilities do you have to open up other routes? Can you truck material to another port? You ever think everybody has heard the story of Aramco moving oil through pipeline over to Yanbu to ship it out, limited what you can do, but you want to do everything you can to try to keep running.

Meanwhile, in the rest of the world, the industry at the time was operating, and I'll use ethylene as an example. Global ethylene operating rates were probably in the mid-70s. And suddenly, you take 20% of the low cost -- 20% of the global capacity, which is all low cost out. And the price spike that happened in naphtha takes the top 5% to 10% of the producers out, not physically, but they can't get it. They bid the price, they're underwater and so they decide not to run. They declare force majeure. And suddenly, you go to things being very, very snug. And inventories, as I mentioned in the comments, were already low. That was part of what caused the January price increases to go through was inventories are tight, and they're going to continue to tighten through this period.

The second part of it would be, how long can this go on for? And I think that's the question everybody is trying to wrestle with. We see all the messages that people want it to be done sooner rather than later. And I think when you have a volatile conflict like this, you would like to see it resolved. But the reality is we don't have any indications yet that lead you to believe it's going to be sooner. And we shut the straits off almost overnight. We went to 0 moving through there.

As you start to reopen, there are going to be the obvious questions about safety and stability to move things through and what rate are things going to open up and what's that ramp-up going to look like. And I think, to me, based on past experience, that's not going to happen overnight. It's not going to open wide open. It's going to ramp, and it's probably going to slowly ramp up. And as these assets, these operating assets get shut in, they're not all going to start up at the same rate. And so you've got all these dynamics on top of each other that make a big impact.

I think in the markets, we're also starting to see people that are maybe not used to following the commodities markets are starting to understand the second derivative implication. So we start with oil and 20% of the world's oil supply. And likewise, petrochemical supply comes out of that region. But that oil goes to refineries all over the world. And so you've started to see it manifest. The airlines have been talking about shortages in jet fuel. New refining capacity has all been built in places like China and India. And so that's a source point.

In petrochemicals, if you go to Asia and Europe, naphtha is the feedstock, not -- our big advantage in the Americas, Canada, U.S., Argentina, for Dow is light cracking ethane. Like globally, we're close to 85% light cracking. So ethane fundamentals haven't changed, but oil fundamentals have changed dramatically. So that's widened the oil to gas spreads. But what it's done on the high end is even more spreads on the naphtha side because while 20% of the oil comes out of the Gulf, about 40% of the naphtha is sourced out of -- it either comes from the Gulf or it comes from crude out of the Gulf. And so when you think about it, that's an even bigger impact on those high-cost producers. And so that means the naphtha spread has gone up.

And that's probably what's going to help Europe with restoration of margins is that higher cost naphtha or in the case like where we've got assets in Terneuzen and Tarragona that can crack propane, the pro-nap spreads will widen and that will be beneficial.

And then lastly, I would say there's some positive even on the naphtha side of things at the bottom of the trough, depending on the demand on the certain value chains, a naphtha cracker produces 1/3 ethylene and 2/3 byproducts. And so the byproducts have not had much value for the last couple of years. And so you're looking at potential spreads coming back into the byproducts, which help the overall economics. So I think some of that's factored in to the analyst consensus on what they see happening in Europe.

So that's a big improvement. But it's going to have to manifest itself in higher chemicals pricing to realize that. And so that really is going to be dependent on the success in getting prices through in Asia.

So naphtha values in Japan, maybe they're up $400 a ton and polyethylene prices in Asia, maybe they're up $300 a ton. So the naphtha values are much, much higher. And when we talk to our colleagues in Asia, what they say is prices are going up, but they're not going up at the rate that raw materials have gone up, and so the margins are negative.

So for Dow, do you get more -- a sense of greater demand from your Asian customers? And do you think that there will be more Dow shipments to Asia over the coming quarters?

Demand has been -- we're booked out as much as we can supply into Asia right now. So I see that. To your point on naphtha, and this is something that I think on the commodity markets, everybody has to understand, when the cost rise, they rise immediately. When you're getting the price in the market, that typically has a lag effect. And ethylene has a pretty immediate pass-through. Like in the first month, it will recover 70-plus percent of that pricing.

So you're going to see, as we go into April, for example, you'll see a bigger impact in April than you'll see in March, but you'll see some impact in March as well. Where you've got a big advantage like naphtha crack or ethane cracking like in the U.S. Gulf Coast, then it's what does the order book look like for the exports? Because about -- about 30% of the U.S. capacity for polyethylene is export out of the United States. That's been in the money for some time.

But with these spreads increasing, it's going to even be more in the money. And so those players that have that ability to export and can see that pricing move up in the global market are going to see an immediate impact of that as they move more product into those regions. So we're seeing prices go up everywhere.

Like you say, Asia hasn't moved up as much, but Asian spot prices change on a weekly basis, a little more dynamic in those markets, still a little bit more of a trader mentality in those markets than in the U.S., where you tend to have bigger contract customers that tend to get a month notice when prices go up.

Is Asia a better return geography now for Dow going forward in the next quarter than Europe is?

I think that remains to be seen, right? I mean, with the cracker complex improving in Europe and the fact that there hasn't been much -- there's been no new capacity. There's been some rationalization of capacity. If the demand is there in Europe, you could actually see Europe come back to levels that we haven't seen for a while.

Asia, a lot will depend on demand post Lunar New Year. But typically going into this time of the year, it's strong. And as we've seen China, that material is consumed to make finished goods that are then export around the world, and China has been strong on the reexport business. So I would assume that the demand will be there. There hasn't been -- when the markets get volatile like this, like in a normal predictable market, you would see traders taking positions. This market is so volatile. You kind of see traders taking a step back because they don't want to take physical delivery of something and then be underwater it next month, and they can't exactly predict where this is going to go. So that dynamic has changed as well. So that could lead to Asia actually seeing a bigger market improvement.

So I think Dow has said that it has 25 billion pounds of advantaged integrated ethylene in the Americas. Is -- and you can begin each...

You're not going to do CEO math on me or... .

Well, no, I won't do CEO math on you. But every $10 change in a barrel of oil is $0.04 or $0.05 a pound, historically, in price change. Are there subtleties about Dow where we should be looking at something other than those 25 billion pounds of advantaged integrated ethylene pounds to see how Dow would perhaps benefit in this new environment that we're in?

Yes. I would say propane to naphtha spread in Europe is something that we watch very closely because propane is less affected by what's going on in the Middle East. So there's quite a large supply that comes out of the U.S. and northern parts of Africa. And so you'll see propane availability and probably lower relative prices to naphtha, so that could give us some advantage in Terneuzen and also in Tarragona. That's incremental to what you would see happening in the overall complex in Europe.

I would say we'll feel the same pressure in Asia as everybody because our exposure there is our Thai JVs through naphtha cracking. But we see an almost immediate positive impact on all the exports that we move.

Our advantaged position in Argentina, we crack ethane in Argentina. We're the largest producer there. Argentina has returned to relative stability. And the Mercosur region into Brazil from a trading standpoint, that's the advantaged source point. So we supply Latin America, Brazil out of Argentina, and we supply Mexico out of U.S. Gulf Coast. And so those will both see the impact, the positive impact of the price increases.

So I think over the past 3 years, Dow's growth in specialty plastics in volume terms has turned pretty flat. What about this year? If you look at your operating rates now and you look at where global demand is, what are the -- how would you frame the possibilities for volume growth for Dow and specialty plastics this year?

Specialty plastics, predominantly, the things that I think are going to continue to deliver good volume are anything into the wire and cable business. And so you see the demand for data centers, electrical infrastructure, which is continuing to ramp up. So that pull for both high and medium voltage for telecommunications applications, it puts a direct demand on us. And so those assets are running hard, and we're looking at ways that we can incrementally expand those assets.

If you look at high-pressure pipe, when you get into bimodal polyethylene for high-pressure pipe, whether that's for gas transmission or water distribution systems, that business is continuing well.

When you get into specialty elastomers, when it goes into compounded applications that are in good spaces, I feel okay, where it goes into construction. Elastomers will go into things like roofing membranes and some other areas like that. With housing being slower, that slows down demand a little bit. So I haven't seen a signal yet on housing globally, I could say. Europe, China, United States, all in the same kind of position, but some modest increases in what we see in residential housing. And that can sometimes drive a good demand for elastomers.

Well, if maybe Dow's operating rate in its ethylene derivatives in -- globally was 80%. Shouldn't you go up to 90% or above 90%?

It's going to be -- everything that we've got running is going to be flat out for the rest of the year. I mean it -- already in the Americas, every asset that we had was running full out. The demand for the export is going to be strong. So any increment that was in the U.S. Gulf is going to be there. Canada has been running flat out for quite some time. Cracker rates, I would say, on average, the Americas, our cracker rates were 90-plus percent.

Prewar?

Yes.

90.

So that's what I mean when you see this impact on taking out the low-cost producers in the Middle East and putting a really big spike on naphtha on the high-cost producers in Asia. The incentive is there for everything else in the fleet to run exceptionally hard, and the volume is there to move. And so what we're trying to do is make sure that we can keep up with the customers' demand.

We're typically not like force majeure is the last thing that we like to do. It's not a customer-friendly move. We have other ways to allocate volume like we have contracts with customers, and we have allocation methodology based on those contracts. We're going to try to keep up with the customers' demand to keep them satisfied and keep them moving.

So when you think about the way Dow will perform this year, obviously, as a base case, there will be a tremendous price lift.

Right.

But in North America, because you're running already at very high rates, the actual volume growth will be smaller?

The volume growth will be small. We had good volume growth last year. Our ethylene machine hit a new production record last year. So we produced another record in a bottom of the cycle year. That's probably a lot of people wouldn't think that. So we'll continue to run the assets hard and sweat the assets and get as much increment as we can, but it's all going to be core margin improvement. It will be integrated margin off the crackers from the low ethane cost and the higher oil spread. So that spread is going to improve, and that's across the entire base of business.

And then you'll have the integrated margin above that for the polyethylene because of the operating rates that you mentioned, that will improve as well. We had a -- for our base plan going into this year, we had $1 billion of improvement in EBITDA, which was up based on self-help actions like the ones that I mentioned. That is there. We're seeing that come through. We can see that on a monthly basis in the costs coming through.

And so on top of that, then you'll see these margin improvements. And I think people are starting to get their head around it. Our near term -- internally, our near-term objectives are to get ourselves to $1 billion a quarter of EBITDA. And then the next cab off the ranks would be $1.5 billion, $1.5 billion a quarter would be mid-cycle earnings from trough earnings. So I think we have line of sight to get to that kind of a run rate this year.

And then obviously, the other thing that people ask questions about is on cash flows. And so our view is that as we get to $5 billion of EBITDA generation, applying a conservative 50% move of that to cash flows and keeping our CapEx where it is today at the $2.5 billion should get us to a free cash flow breakeven standpoint. So that's what the team and the management team is doing on a daily, weekly, monthly basis is to drive to those objectives. And I think the current supply constraints are just going to help us get there, hopefully, a little bit sooner.

What's happening at Sadara? In that -- is Sadara continuing to produce at high rates? Its production is locked in. Can you talk about the situation there?

Sadara, like anybody that's located on the Arabian Gulf is slowing down rates because we're filling up inventory. So we essentially have to get down. And it's somewhere in the ballpark of being almost down because we can't move anything out. And so it will be that way until we see the straits open up, and we start to see products flowing again.

So the first indication that things are resolving will be the flow of oil tankers and then the flow marine pack cargo and other shipments out of the straits. And then the rate of that will determine what the ramp-up rate will look like on Sadara.

So there -- Sadara has various financial issues and Dow has various financial responsibilities toward Sadara. Do you have an idea of how those responsibilities might play out in both 2026 and in 2027?

Yes. We've been working very constructively with Aramco on dealing with the broader financial structural issues. I would say from a cash flow operating standpoint, like an operating margin standpoint, Sadara is a low cash cost asset. When you get into the fixed cost, which it brings in the financing on top of it, that's where you have some challenges, and we've been working with Aramco through that.

Our goal for the year for ourselves is to not have to put any cash into Sadara, no. And then Sadara has modest debt repayments, which they've been funding on their own this year. So we'll have to watch with the reduced rates, we'll have to watch the debt refunding and what does that cause Sadara to have to do to make those payments. So far, they've been able to manage through it. And a lot will depend on how quickly things reopen in the Middle East.

So in your 10-K, I think it said potentially Dow was responsible for $1.3 billion in Sadara liabilities. Is that -- is that cash out -- a possibility of cash out the door for Dow? Or it's something that Dow guarantees? How does that exactly work, Jim?

Yes. There's a tranche of lending that goes into Sadara and both Dow and Aramco have parent guarantees on that. And so we're a 35% owner, and our guarantees on that are $1.2 billion.

So it wouldn't be cash out for Dow.

No.

It's a responsibility that you would have in the event that...

It's a liability on our balance sheet.

It's a liability on your balance sheet.

And Sadara has not breached any covenants with its lenders. So it's been able to continue to meet its covenants. And that's the framework that we're working under with Aramco is to continue operations, but also to resolve the longer-term issues. And we're making good progress. And I promised in January when we had the earnings call that we'd have an update by midyear, and I still feel comfortable that we'll have an update then.

And you have these very, very large cost reduction programs. And historically, Dow has had large cost reduction programs where maybe the benefits have been less tangible. Why might the benefits be more tangible this time around?

Yes. I think one of the questions that we get asked, and I think it's a legitimate question is our costs don't all show up in the same place on the P&L. So what gets highlighted a lot of times is SG&A cost, and you can see what kind of controls we have there and what kind of ability we have to keep those competitive. But when you get into cost of goods sold, that's kind of part of the whole margin calculation.

If you look at last year, our EBITDA performance last year was down $2 billion. Pricing was down $3 billion. So everybody says, "Well, where is the $1 billion of cost savings?" It's in there. If you didn't have it, the pricing -- the EBITDA would have been down even more. So it's hard savings when we go through it, like our financial people and our auditors can track it and trace it back. And it's a lot in cost of goods sold and manufacturing.

So I talked a little bit about raw material purchasing, maintenance and MRO, although we still do $1 billion a year of maintenance. But we also have made asset decisions. We shut down 23 small satellite sites and businesses like polyurethanes and others brought some of that demand back to larger integrated sites. That removes a lot of costs and CapEx that can be deployed against other value-creating assets and keep the franchise whole. So we continue to make moves like that.

And the $1 billion that I talked about going into this year, last year, we saw $430 million of the $1 billion hit the bottom line. That was largely people reductions. But you have ongoing costs that take a while to get out like supply chain costs and other things that will come through. Working capital tends to need a quarter or 2 to start to see momentum on working capital. So that takes a while to come out. And that's what will be coming in this year, that other $500 million. And then as Transform starts to ramp up, you'll see $500 million of that at the end of this year, and you'll start to see bigger impacts in 2027.

Well, Jim, I very much look forward to seeing those cost reductions come through. Thank you very much.

You will. Thank you very much. I appreciate the time.

Greetings, and welcome to the Dow Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Dow Investor Relations Vice President, Andrew Riker. Mr. Riker, you may begin.

Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I'm Andrew Riker, Dow's Investor Relations Vice President.

Leading today's call are Jim Fitterling, Chair and Chief Executive Officer; Karen S. Carter, Chief Operating Officer; and Jeff 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 risks and uncertainties. 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's call. Jim will review our fourth quarter and full year results, Karen will provide an overview of our operating segment performance, and Jeff will share some details on the macroeconomic environment and our modeling guidance for the first quarter.

We will also provide updates on several of our strategic priorities, including the transformational work that we announced earlier today, an update on our Alberta project and several of our in-flight actions that aim to provide near-term cash support and ensure we maintain our financial flexibility. Following that, we will take your questions. Now let me turn the call over to Jim.

Thank you, Andrew. Beginning on Slide 3. Team Dow continued to execute with discipline during a year marked by persistent macroeconomic challenges and trade and policy volatility as well as anticompetitive behaviors by certain industry players. In the face of external pressures, we managed what was within our control.

Our fourth quarter operating EBITDA was $741 million, reflecting an expected sequential decline from lower seasonal demand and typical margin compression across many end markets.

Looking across 2025, we accomplished several impactful near and longer-term milestones, all while the market wasn't providing many tailwinds.

We identified more than $6.5 billion in near-term cash support items and delivered well over half in 2025, including the accelerated delivery of our in-year cost savings from our $1 billion cost out program.

And we further strengthened our global manufacturing footprint. This includes our announced plans to shut down upstream high-cost assets as well as the completion of our remaining incremental growth investments, which serve downstream higher-value markets that are growing above GDP.

We were also once again recognized as one of the world's best workplaces. This reflects direct feedback from our employees about the culture and talent that continues to drive Dow forward.

As we move into 2026, we recognize that many markets are fundamentally shifting. Geopolitical dynamics, rapid advances in AI and automation and economic volatility require new breakthrough approaches, greater agility and continued technological adoption. That's why we announced our Transform to Outperform program earlier today. This work builds on our track record of taking proactive measures to help Dow, and it represents a fundamental change in how we will operate and serve our customers. We believe this will strengthen our long-term competitive position through every part of the economic cycle.

And lastly, we have finalized a value-maximizing path forward for our Path2Zero project in Fort Saskatchewan. We'll share more details on all of this later in the call. But before that, Karen will cover our fourth quarter operating segment performance.

Thank you, Jim, and good morning to everyone joining today. Dow cost savings measures gained significant traction across every business in the second half of 2025, which is reflected in our fourth quarter performance. Despite continued industry pressures, we are delivering on our commitments and self-help actions.

Beginning with our Packaging and Specialty Plastics segment on Slide 4. Fourth quarter net sales were $4.7 billion, with year-over-year and sequential decreases that were largely driven by lower downstream polymer prices.

Volume decreased 2% year-over-year. This was primarily due to lower merchant olefin sales in Europe, the Middle East Africa and India, following our previously announced decision to idle one of our crackers in the Netherlands. Polyethylene sales volume increased year-over-year and grew sequentially, driven by continued global demand growth.

Operating EBIT was $215 million, down from the year ago period, driven by lower integrated margins. Sequentially, operating EBIT increased by $16 million. This was driven by the company's cost savings efforts throughout the quarter, which more than offset margin compression.

In addition to lower fixed costs, Packaging and Specialty Plastics benefited from higher licensing revenue increased energy sales and higher sequential volumes in polyethylene. In a challenging environment, Team Dow set an annual ethylene production record for the third consecutive year.

The strength of our cost-advantaged asset footprint, our focus on operational excellence and the early impact from the start-up of our new [ Poly-7 ] polyethylene train in the U.S. Gulf Coast, which serves high-value downstream markets.

Next, turning to our Industrial Intermediates & Infrastructure segment on Slide 5. Overall demand for industrial applications remain challenged, which continues to pressure the industry and our businesses. Net sales for the segment were $2.7 billion down 9% versus the same period last year.

Sequentially, net sales decreased 5%, mainly due to lower local prices and seasonally lower building and construction volumes. Volume decreased 1% year-over-year, primarily driven by lower volumes in polyurethanes and construction chemicals. This was partly offset by higher than typical seasonal demand for de-icing fluids which have continued into 2026.

Operating EBIT decreased $285 million versus the same quarter last year and $154 million sequentially and driven by lower integrated margins. Our cost savings in both businesses helped offset some of the decline.

We also completed the shutdown of our higher-cost upstream propylene oxide unit in Freeport, Texas, rationalizing approximately 20% of North American PO industry capacity.

Moving to the Performance Materials & Coatings segment on Slide 6. Net sales were $1.9 billion, representing a 6% decrease compared to the same period last year. This decline was primarily driven by a 4% reduction in local prices across both businesses.

Sequentially, net sales declined, reflecting typical seasonal slowdown, particularly in building and construction end markets. Volumes decreased 2% year-over-year driven by lower supply availability from planned maintenance and coatings and performance monomers while volumes and Consumer Solutions were flat.

Even with the impact from tariff uncertainties, we delivered increased volumes in 2025, marking the second consecutive year of growth for our downstream silicones franchise. The business remains focused on shifting our mix towards higher-value products while reducing upstream capacity. This strategy advances our previously announced European asset actions, including plans to shut down our basics siloxanes plant in [ Berry ] U.K. by mid-2026.

Operating EBIT for the segment increased by $34 million compared to the year ago period, driven by strong demand for our electronics and mobility applications as well as our ongoing efforts to reduce costs.

On a sequential basis, operating EBIT was down $55 million, largely driven by lower monomer supply availability from our planned turnaround in Deer Park, Texas as well as typical low seasonal demand.

To summarize our fourth quarter performance, even with continued industry challenges and normal seasonality throughout our portfolio, our self-help actions enabled us to deliver results ahead of expectations.

In 2026, we will continue to operate with discipline while taking decisive measures to adapt to market realities and transform our business for long-term resilience. I will touch on all of that shortly, but first, I'll turn the call over to Jeff, who will share some macroeconomic insights and our outlook for the first quarter.

Thank you, Karen. Good morning to everyone participating on today's call. Slide 7 shows that across the broader macroeconomic landscape, there are mixed signals in several of our end market verticals and key geographies. Recent developments are showing some encouraging signals in response to structural industry challenges as well as trade and tariff uncertainties.

This includes several announcements of further ethylene capacity rationalizations. As well as the elimination of VAT export rebates on select products in China.

Across our packaging market vertical, global polyethylene fundamentals are expected to remain stable heading into 2026.

From a price standpoint, [ ACC ] inventory shows a net drop in 2025, which should provide support for the price increases we've announced for January and February.

Across the infrastructure sector, building and construction conditions are likely to gradually improve as interest rate cuts over the past 12 months gained traction.

Housing starts and existing home sales remain well below historical averages, but there are some signs of positive momentum with existing home sales increasing for 4 months in a row.

Consumer confidence has improved slightly, but remains near historic lows, continuing to weigh on overall demand. At the same time, U.S. retail spending is holding steady in several categories. with resilient sales of electronics as a bright spot.

Mobility remains mixed. In China, EV sales are anticipated to moderate as subsidies expire and government support narrows. But growth rates are still expected to remain strong. And in the U.S., auto manufacturers anticipate a softer market in 2026 due to increasing costs.

Overall, our teams are continuing to navigate a variety of dynamics across the key markets that Dow serves, reinforcing the importance of our disciplined cost actions, diversified market exposure and strategically advantaged manufacturing footprint. As we've demonstrated in the past, we will continue to maximize value while making appropriate trade-offs.

Throughout 2026 and beyond, we will build on this momentum to enable even further improvements in our top and bottom line performance.

Next, I'll cover our outlook on Slide 8. Our expectations for first quarter EBITDA is approximately $750 million. This sequential improvement accounts for anticipated margin expansion as well as the normal seasonal uplift following typically low fourth quarter market demand conditions.

We also expect continued tailwinds from our efforts to reduce cost across every business, function and region. With that, some of these gains should be offset by higher planned spending on turnaround activities as well as lower equity earnings.

Turning to our operating segments. In Packaging and Specialty Plastics we anticipate that price increases and lower feedstock costs will provide higher sequential integrated margins. Lower equity earnings from a cracker turnaround at our Kuwait joint ventures as well as lower licensing activity will represent a collective headwind of approximately $75 million in the quarter.

Finally, planned maintenance at one of our crackers in Louisiana represents another headwind of approximately $125 million.

Moving to Industrial Intermediates & Infrastructure. We expect normal seasonal improvement in building and construction end markets. Additionally, positive demand momentum for de-icing fluids should continue into the first quarter, providing a tailwind for the segment.

Our cost savings efforts will provide an additional $10 million tailwind while approximately $15 million for planned maintenance activity throughout the quarter is expected to offset these gains.

And in the Performance Materials & Coatings segment, we anticipate typical seasonal improvements for architectural coatings as well as higher siloxane pricing following the increased market prices that happened in China late last year.

Selectively, this will provide roughly $80 million of sequential tailwinds this quarter. We'll also see a small uplift from lower maintenance activity following the completion of a planned turnaround at our Deer Park, Texas site as well as continued contributions from our cost reduction actions.

Across the portfolio, this combination of factors results in improved operational results for the quarter. Our continued efforts to structurally reduce costs in every area of the company paired with seasonal demand improvement and expectations for margin-related tailwinds are meaningful. However, higher planned turnaround spending will weigh on first quarter results.

Looking ahead, as our transformational work and continued cost reduction actions progress, our teams will remain focused on managing what's within our control to preserve our financial flexibility. Now I'll hand the call back to Jim.

Thank you, Jeff. Slide 9 outlines the key areas where we're focused on strengthening Dow's earnings power to ensure that we remain resilient through every cycle.

First, we expect to deliver the remaining more than $500 million in cost savings by the end of this year from our previously announced $1 billion program. We're also executing a series of strategic moves that will uniquely position Dow to win. This includes the startup of our remaining incremental growth investments in cost-advantaged regions. As well as our announced shutdowns of upstream higher-cost assets.

Additionally, Transform to Outperform is expected to deliver at least $2 billion in near-term EBITDA improvement. About 2/3 of that will come from productivity gains and the remaining 1/3 from growth. This work will radically simplify how we operate, streamline our end-to-end processes, reset our cost structure and modernize how we serve our customers. We anticipate the outcomes to deliver step change improvements in productivity, more growth with our customers and greater shareholder returns.

And lastly, a refined time line for our cost advantage Path2Zero project in Alberta will enable us to align capital deployment with market conditions and maximize project returns when demand improves.

The underlying enabler to all of this work is our focus on maintaining financial flexibility while preserving our investment-grade credit rating. Together, these actions form a cohesive road map that aims to strengthen our near- and long-term competitiveness. Next, Karen has more details about several of these key strategic priorities.

Thank you. Turning to Slide 10. As Jim mentioned, we are well on our way to delivering more than $500 million of cost savings, representing the remainder of our 2025 $1 billion cost savings program. This builds on our demonstrated ability to deliver higher-than-expected savings last year when we realized more than $400 million versus our original target of $300 million. .

In addition to that, we are executing several strategic moves that will uniquely position Dow to win, many of which will begin to materialize in 2026.

For example, in Packaging and Specialty Plastics, we completed the start-up of our [ Poly-7 ] world-scale polyethylene train last year. Using Dow's proprietary solution technology, [ Poly-7 ] is designed for lower cost and increased production capacity as well as improved efficiency and flexibility. The new asset is supporting customer-driven demand in specialty packaging, health and hygiene and industrial and consumer packaging applications.

Additionally, the completion of our new alkoxylation capacity will support growth in Industrial Solutions, which serves attractive end markets such as home care, pharma and energy. We're also progressing our plans to shut down higher cost upstream assets, including three in Europe, largely due to the ongoing structural challenges in the region.

Each of these assets represent a meaningful portion of our regional capacity and high on our cost curve. These shutdowns are cash accretive and expected to result in an annual EBITDA uplift of $200 million by 2029, with benefits beginning in 2026 with the shutdown of our basic siloxane capacity in [ Berry ] U.K. by mid this year.

Next, on Slide 11, I'll walk through additional details about some of the work that is already underway as well as what's next.

Transform to Outperform build upon the self-help actions that we have implemented over the past few years. But importantly, it goes a lot further representing a structural reengineering of our operating model and cost base. The goal of this transformation is to achieve significant growth and productivity gains that elevate Dow's competitive position. And while this transformation aims to simplify the way we work, it will not impact our long-standing commitment to our core values of safe and reliable operations.

In addition to simplification, we will focus on streamlining all of our end-to-end work processes and resetting our cost structure, and we'll continue to utilize the power of leading-edge practices and technologies to modernize how our teams serve customers in key fast-growing markets. We are bringing a full 360-degree view to this work, inclusive of external viewpoints lessons from other industries and robust benchmarking in addition to our own expertise. And we have established a dedicated Dow team to drive our transformation efforts across every part of the company.

We anticipate at least $2 billion of near-term EBITDA uplift from this work, and we've outlined a clear time line and understanding of the costs to achieve it, which we will hold ourselves accountable to. And 1/3 of this will come from new growth and the remaining 2/3 of the benefit will be in the form of productivity improvements.

This year, we expect to deliver approximately $500 million in value. And as a reminder, this is on top of the more than $500 million we will deliver in 2026 to round out our 2025 cost savings program. We anticipate onetime costs of approximately $1.1 billion to $1.5 billion, including $600 million to $800 million of severance and $500 million to $700 million of other onetime costs.

Next, I'll share a few examples of the early opportunities that we have already identified and are taking action on.

First, as part of our commitment to operational excellence, we will simplify Dow's operating model. We do anticipate this will include a global Dow workforce reduction of 4,500 roles. It will also result in a reduction of third-party roles and resources. And the way we work evolve, so will our expectations for where and how work gets done. This will allow us to speed up decision-making and put the right roles in the right areas of the company to better align with the changing market landscape, and with where our customers are investing.

We will also adopt new ways of working. This includes streamlining all of our end-to-end work processes by leveraging the power of automation and AI which we expect will result in lower cost and improved efficiency across the entire organization. We will modernize the way in which we grow with our customers through our industry-leading innovation capabilities, and deeper insights into customer and end market needs.

Finally, we will fundamentally reset our cost structure. This work will result in a renewed focus on improved raw material sourcing and logistics to drive further efficiency. These are just a few examples of how Transform to Outperform will deliver step change improvement in both growth and productivity. We're committed to providing you with updates every quarter as the work and value delivery progresses. And we are confident that these efforts will create a Dow that raises the competitive benchmark is more resilient across the cycle. And consistently delivers growth, customer success and shareholder value. Next, Jim will provide an update on our Path2Zero project.

Turning to Slide 12. In April last year, we announced that we would be delaying construction of our Path2Zero project in Fort Saskatchewan. This decision supported our near-term cash flow while also assuring the project timing would better align with the market recovery.

After careful analysis and collaboration with all of our project partners, we have determined that completing the project with a 2-year delay is the most value-creating option. This moves Phase 1 start-up to late 2029 and remains the best option in support of our long-term value creation goals. We remain committed to the strategic rationale of the project and the upside that it will enable in targeted applications like pressure pipe, wiring, cable and food packaging. And we're confident that Dow can capture outsized growth in these markets for years to come, which will create value for shareholders.

We are taking deliberate steps to ensure the new asset will be first quartile globally further enhancing our low-cost footprint. And importantly, we do not expect any material impact to the cash and tax incentives associated with this timeline.

On the execution front, several milestones have been achieved. This includes heavy equipment procurement and detailed engineering design. As we begin to ramp up workforce labor for the project, our robust risk mitigation strategies will help us ensure that it remains on track with current cost projections.

With the project delaying and resulting incremental CapEx increase associated with it, we now expect returns of at least 8% to 10%. We anticipate that our efforts to reduce and mitigate costs will provide further upside, and we continue to advance several additional levers within our control that could further improve our returns.

For example, the value from low-carbon product premiums is not included in our base model, representing potential further upside of 100 to 200 basis points. The low-carbon supply agreement that we signed last year is a testament to the value that brand owners and consumers placed on decarbonized products, and we have more in the queue.

Approximately 30% of the total project CapEx spend is complete, and we anticipate that Dow's CapEx spending will remain at or below [ D&A ] until we see mid-cycle earnings.

And while our intention is to continue this project on a stand-alone basis, we remain open to all options that could enhance value provided they benefit Dow's strategy and support shareholder returns.

Market conditions remain challenging, but the industry has made significant progress in 2025, including accelerating capacity rationalizations. We anticipate that the start-up of the Alberta project will align well with these industry operating rate improvements ahead of the next cycle peak. With that, I'll hand it over to Jeff to share more about how we're preserving near-term financial flexibility.

Thank you, Jim. On Slide 13, looking ahead, the strong financial actions we initiated in 2025, will help us continue to navigate a still challenging macro environment while executing with discipline and consistency.

Taken together, these actions give us line of sight to more than $3 billion in near-term earnings uplift potential before the Phase 1 start-up of our Path2Zero project.

In addition to this, our cash and cash equivalents balance was above $3.8 billion at the end of 2025. And Dow has approximately $14 billion of available liquidity and including a revolving credit facility that was recently renewed through 2030.

And in 2025, we completed multiple actions to strengthen out near-term cash flow, further reinforce our balance sheet, and achieve lasting operational improvements. For example, we received approximately $3 billion in total cash proceeds for our strategic partnership with Macquarie for the sale of a 49% equity stake in select U.S. Gulf Coast infrastructure assets. We lowered our cost by more than $400 million in the year, and we lowered our CapEx plans by $1 billion.

In addition to that, we completed two bond issuances at attractive spreads for a total of $2.4 billion, pushing our next material maturity to 2029. And we made the prudent decision to implement a 50% dividend reduction.

Collectively, the actions we took provide near-term financial flexibility and support while maintaining our commitment to an investment-grade credit profile.

Our teams will continue this momentum into 2026. This starts with delivering approximately $1 billion of benefit this year. As a reminder, this includes the more than $500 million of cost savings that remains in our 2025 program as well as an additional $500 million in operating EBITDA benefits from Transform to Outperform.

And we remain focused on completing the remainder of our more than $6.5 billion in near-term cash support actions. Our disciplined operating model commitment to capital efficiency and the decisive actions we've taken over the last few years ensure Dow is well positioned to continue navigating near-term volatility. At the same time, transformed to outperform will enable us to build towards sustained earnings power and a recovery. Next, Jim will provide closing remarks on Slide 14.

Thank you, Jeff. In summary, 2026 represents an inflection point where our long-term vision and the steps we've taken to navigate a challenging down cycle come together to position Dow for stronger, more resilient growth.

First and foundational to everything we do is our commitment to safe and reliable operations and financial flexibility. Transform to Outperform will become a central driver of new value creation. It builds on our core strengths and positions us to operate with greater speed and efficiency, while also enhancing our focus on innovation and value creation with our customers.

And with the revised time line, our Path2Zero project will enable growth in high-value packaging, infrastructure and wire and cable applications. The project represents a growth opportunity that is unique to Dow. It adds a first quartile cost asset in a globally competitive NGL basin and gives us the best portfolio of low-carbon product offerings.

We also expect to fully realize the benefits of our near-term incremental growth projects, which expand our ability to serve high-value markets from cost advantaged positions.

And lastly, as Jeff just outlined, we're progressing several cash and cost support actions to give us even further financial flexibility in the near term.

In summary, we're revamping our operating model resetting our cost structure and enabling new growth. Our strategic priorities are clear. We are delivering on near-term cash and cost savings levers, we're investing where we have lasting structural advantages, we are simplifying, streamlining and modernizing to enable greater agility, and we are building a more competitive Dow that is positioned to innovate faster and grow more effectively with customers. These are not new priorities. They are part of Dow's DNA. but it is a step change in how we operate, that is especially critical in today's environment. 2026 will be about execution, discipline and accelerating the work we've already begun. And with that, I'll turn it back to Andrew to get us started with the Q&A.

Thank you, Jim. 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&A instructions.

[Operator Instructions] Your first question comes from Hassan Ahmed with Alembic Global.

Jim, a question around -- well, a 2-part question around capacity curtailments. In the last call, you guys obviously talked at length about seeing roughly 20 million tonnes of capacity rationalization, so would love to sort of get an update with regards to where we stand on that figure.

And then that in parcel with that, about your decision to carry forward with the Alberta project. I mean how do you -- I mean, obviously, the returns seem favorable to Dow but in the broader landscape, what compels you to sort of go through with that decision, the fair obviously being that any sort of future up cycle if there's sort of "[indiscernible] capacity" that lingers on, that may impede the sustainability of any sort of future upcycle. So would love to hear your thoughts about that as well.

Thanks for the question. I don't think there's dramatically new data on the number of ethylene capacity rationalizations that have come out. We've seen more firm announcements out there. I think the total amount now is in the 15% to 20% of the European capacity that's coming out. I haven't seen anything substantive on anti [ involution ] in China. So nothing has changed there. .

On Path2Zero, I think several things in our view, the changes that are happening are going to lead to the next up cycle. We're at a point right now, and you've made this comment before in some of your writing that demand has been relatively lackluster, and we know what the supply situation is and where supply is going. And demand in some of the higher volume markets has been where things are soft. So as we see housing construction, infrastructure, other things pick up, that's typically where you see things start to take off on operating rates.

As we mentioned, the low-cost assets, we ran them hard. We set an ethylene production record even with a cracker idled -- the good cracker idle in Europe. So I think it speaks to running the low-cost assets hard.

Path2Zero, we put another cracker in the first quartile for us while we exit positions that are in the fourth quartile. I think that's something that we have to do in every cycle. We gave a guidance on the return on Path2Zero, which is at the low end, and there are some upsides in there. And those will be driven by things that we can do to mitigate costs. And obviously, continued success on bringing in the premiums for the low carbon product that's coming out of there. And we're able so far to see a good outlook on the cost picture. We've got the detailed engineering design essentially done. We've got the long lead time items procured. So we got a pretty good handle on how the costs are coming in. The remainder is going to be the labor when we start to ramp that up.

Your next question comes from Vincent Andrews with Morgan Stanley.

Thank you, and good morning, everyone. Jim, on Alberta, just a few clarifications. This is it. one more year of delay and then 100% moving forward? Or is there any potential off-ramp or other opportunity there? And then secondarily on that, it sounded like you may be saying you'd be interested in bringing a partner in maybe I'm putting words in your mouth or looking at project finance or something else, but maybe you could just expand on other sort of things you might look at there and whether you're getting incoming interest around that.

Yes, the 2-year delay, I think as we look at it, most of the change in the cost picture and the reduction in the returns is the capitalized interest on what happens with that delay. And so we had some of that and our partners had some of that as well.

So yes, I think that is it. I mean, you'd have to have a very Armageddon scenario to look at something different. We don't anticipate that happening.

When I mentioned about flexible arrangements. We haven't had any serious inquiry from a partner standpoint. I mentioned on the last call, we're always open to value-creating opportunities, and we still remain that way. I think there may be some creative finance opportunities there. As long as those are good return for shareholders, we'd be open to talk about those.

Your next question comes from Mike Sison with Wells Fargo.

So the export market has continued to be continue to have really low margins, margins, in most cases, for polyethylene. Can you help me understand how much of your [ P&SP ] capacity goes to the export market? And some companies have opted to reduce their capacity in the States because those markets remain low for quite some time. And any thoughts on how much of your capacity you want to be in the export market? And any thoughts about reducing that over time?

Yes. Michael, about 30% to 40% of our [ P&SP ] volumes currently from our North American assets go to the export market. I think as we look forward, two things that we have to take into consideration is the cost position, ethane cracking and the rate cost advantage we get from that is especially important. The second is the product mix. When you look at the product mix that we put on the assets and are all of those products available globally. And in many cases, they are not -- that has a big difference on the returns that we get on some of the exports.

It's going to be a shift. Obviously, there's a lot of shifts coming with all the trade talks with all the geopolitical tensions that are going on, but from our viewpoint, long term, the Americas are going to be advantaged from a gas cost position. The supply is there. They will be low cost. Middle East will continue to be advantaged and our position in Argentina looks to be -- continue to be advantaged. So that's where we want to maximize, and that's where our investments. If you look at our investments, not just plastics, but across the board, they've been in our home bases that are in those low-cost positions.

Your next question comes from Jeffrey Zekauskas with JPMorgan.

Thanks very much. Your cash flow from operations was $1 billion. And in reading your slides, I guess, Slide 13 and it looks like you got $450 million from long-term supply agreements and $250 million from divestitures. So excluding that cash flow from operations is $300 million? What are your expectations for 2026? And is that a correct assessment of what happened this year?

Yes, maybe I'll ask [indiscernible] to make some comments on the cash flow outlook. But Jeff Z, one of the things I would say is clearly, we're working hard on restoring margins. So that's one of the first priorities. And then obviously, the cost-out actions that we mentioned, which are worth about $1 billion for this year on self-help actions.

Jeff, a couple of comments I would make as you recognize, we're closing out 2025 with a really solid cash balance of almost $4 billion. If you add in those year-over-year earnings improvement opportunities that Jim just mentioned, one of the $500 million closeout of the $1 billion of cost reductions. Secondly would be the second -- the Transform to Outperform EBITDA uplift of $500 million.

We've also got our growth investments and our asset actions that will deliver at least $100 million of earnings uplift year-over-year. In addition to that, Jeff, we'll have the $1.2 billion from the [ NOVA ] proceeds as well as we're expecting a net working capital efficiency gain with the release of cash of $500 million during the course of 2026.

So with each one of those actions from an EBITDA uplift perspective as well as direct cash flow and Fusion, we're in a good position to be able to support our cash flow needs going through 2026 and beyond.

Your next question comes from Chris Parkinson with Wolfe Research.

Jim, if you could just take a step back, just given the $6 billion quoted in the PowerPoint and what you're seeing current polyethylene integrated margins. How do you see that evolving over, let's say, the first half or '26 through '27, '28 just given where we are in the cycle, what underpins those assumptions? And what do you think perhaps the Street is missing, if you believe people are, let's say, particularly too low? Just your updated thoughts on that would be greatly appreciated.

Yes. Thank you, Chris. Good question. I think we do expect integrated margins to improve even with the weather situations that we've had here, I think the input costs especially in the Americas has been very stable. The drawdown in inventories at the end of the year in North America has really helped as we lean into first quarter. We've gotten some pricing power and moving things up.

So I think one of the things we got to be careful is that we're not extrapolating from a fourth quarter, first quarter data point, where typically are not the strong parts of the quarter. So we're talking about bottom of the cycle integrated margins. and you don't want to extrapolate those forward. And we will see demand improvement as we continue to move through this and see the rationalizations come. Karen, any specific comments on what you're seeing in the marketplace right now on integrated margins?

Yes. I think the other thing I'd add, Jim, is that from a polyethylene demand perspective, it remains resilient. It's still growing above GDP. You mentioned towards the end of the year that through November, we saw industry inventories come down by [ GBP 400 million ]. I think the other important data point is that November was the highest monthly volume of 2025 and actually set a total sales record, both from a domestic perspective as well as exports. So exports out of the low-cost regions in North America continued to be strong.

And so -- we absolutely expect coming into the first quarter that integrated margins will improve. Prices will go up in January. And even before the recent spike in the feedstocks that you referenced, Jim, the situation was already there. The conditions were there for prices to go up.

And the other thing, last thing I'd mention is we have to keep in mind that industry integrated margins have been at this low level for a while. And so there's a lot of motivation and reason to move them up.

Your next question comes from Kevin McCarthy with Vertical Research Partners.

Your II&I segment trended a little bit weaker than I think you and I both expected 2 or 3 months ago. So maybe a 2-part question. Can you talk about the variances that manifested in that segment versus your prior expectations? And then the second part would be on polyurethanes. I think in the past, you had discussed the strategic review of that business. Is there any update on the efforts there? Is it active or dormant? I appreciate any color there.

Karen, do you want to touch on II&I and then I can come back on polyurethanes.

Sure. In the fourth quarter, we did see normal seasonal demand declines, particularly in the building and the construction market. And the reality is that, that market just continues to be under pressure, not just domestically, but around the world. And of course, that is putting down more pressure on pricing. But also, if you think about housing, if you think about automotive, those markets are just weak around the world.

And so as we went into fourth quarter, we saw that we had some lower fixed costs as well as lower planned maintenance, but the building and construction end markets and durables just really offset that.

As we think about first quarter, we do expect to see some modest seasonal demand improvements and also tailwinds from cost actions. But we have a bit of planned maintenance that's going to offset that and again, just continued downward pressure, particularly in the building and construction market.

On polyurethanes, we continue to look for the best options, Kevin, on a go-forward basis for the polyurethanes franchise. We're obviously making a lot of changes. We noted that we took out 20% of North American PO capacity at the end of first quarter. So we're having some rationalization in the industry and higher cost assets to kind of address the oversupply situation there.

I would say additionally, the team has been very busy on the trade front. I mentioned anticompetitive practices before, but Europe, especially has been hit very, very hard from dumping of material into the European continent. And this comes from regions that don't have any particular cost advantage to bring them in.

And so we've seen some actions, I think, are going to have a positive impact in China, for example, the announcement that the 13% duty drawback for exports out of China is going away at the end of first quarter in April, I believe, is when it goes away. So there were companies that don't have the cost position to be able to export under free trade, fair trade rules that we're getting 13% duty drawbacks for all their exports, that's going to go away, and you've got a whole host of cases on antidumping that are starting to take hold. There's been more traction in the Americas than there has been in Europe. Europe is a bit slower to respond, but it is on the radar screen is getting attention in Europe.

Your next question comes from Matthew Blair with TPH.

Could you talk a little bit more about your outlook for feedstock costs for your U.S. cracking business? I think you mentioned that Q1 should benefit from lower ethane costs, which makes sense based on just the quarter-to-date numbers. But are you concerned that ethane might rise later in 2026 with the start-up of three new natural gas pipelines from the Permian. And then long term, how do you feel about the overall availability and pricing for natural gas and ethane given all this competing demand from AI and LNG?

Matthew, good question. I mean energy sector is one we watch pretty closely. In general, I would say the electricity demand that drives that power demand for AI and tech is a good thing. America has the production capability, and it will drive the natural gas production. And as the natural gas needs rise, obviously, people would want to take the natural gas liquids out to get the maximum return they can. And we see about 8% growth in the fractionation capacity coming at the end of 2026 and into 2027. So I think there's going to be plenty of ability to take that ethane out and we'll have pretty good NGL prices through there.

We've got $0.20 to $0.23 right now in the price outlook, which is a frac spread of about $0.25 a million Btu, $0 to $0.25. It's pretty normal. And then I think the other thing that we have to watch is just what happens with LNG exports. And so LNG has been moving because of the exports. So we have to watch LNG export capacity and approvals and time line when those come on.

The short-term spike that we just witnessed was because of freeze-offs on -- in the Haynesville and some of the other basins that were pretty cold. And so that creates a kind of a short-term supply disruption and a very cold weather environment where we're drawing down natural gas. So we've seen some pretty wild movements in that market. But that market clears pretty quickly. And I think as this weather moderates, you'll see things come back to normal.

Your next question comes from Matthew DeYoe with Bank of America.

$2 billion, it's a really big number. I think one of the issues that we kind of see with productivity initiatives sometimes in commodity companies like it just kind of gets lost to the cycle, and we often hear you should have seen how bad things would have been if we didn't cut costs. So as we try to grade the curve where we begin to see the tangible evidence?

Like there's $400 million savings in 2025. Where was that registering across the line items? I know you had mentioned II&I saw some benefits, but it's candidly hard to tell. And then there was comments about lower cost quarter-over-quarter in P&SP. Is that where we're seeing some of the $400 million in the fixed costs?

As we look ahead with the $2 billion, does SG&A move lower on an absolute basis? What segments will we see the most tangible uplift?

It's a good question, Matt. And it's -- the $2 billion transformed outperformed target is 2/3 from productivity and 1/3 from growth. And so I think it's important to split those out. If I look back at last year and the cost out, of course, we had significant margin pressure, and we saw that on price. .

A lot of the savings that we saw came through came from cost to manufacture. And so when you look at our cost of goods sold, it would have come out and there. But obviously, in the face of declining margin environment. And I think we've also been in a low oil environment. And in general, for us, higher oil is a more constructive environment. And I think that's going to take some demand snap back in some of these bigger volume markets to see that. Karen, maybe you want to unpack a little bit about what's different about the approach on Transform to Outperform than what we've done in the past.

Thanks, Jim. I think it's important to just highlight what Jim mentioned is that this is not just about cost out. This is not just about productivity, but it's also about growth. Just a couple of other things that are going to be different about this versus even the $1 billion cost restructuring that we announced in 2025.

First is really the scale and the speed at which we intend to deliver. So at least $2 billion between now and the end of 2028. This is about our entire operation. And so this is going to touch every aspect of the company. And we expect to see the benefits in all of the businesses. We're also being proactive about ensuring that when we achieve the gains that we sustain the gains. We have a dedicated team at Dow that's driving these efforts. We are fundamentally looking at how we change the way we work. But also being careful about preserving the best parts of our culture and shifting where we need to.

And then we're also putting governance in place to ensure that there's complete alignment and accountability across the entire organization. And that we are focusing on things that are going to drive shareholder value.

So this is really a reset of our cost structure. It's also about streamlining our end-to-end processes and simplifying how we operate including looking at the management structure, the management layers to reduce bureaucracy and complexity.

Your next question comes from Duffy Fischer with Goldman Sachs.

Maybe I can sneak into. First one, I believe [ Sadara ] is up for its debt refi midyear this year. So can you just give us some details about operationally how [ Sadara ] is looking? And what does that debt refine mean for Dow? And then just the second one is, you gave us $1 billion on the Canada project at mid-cycle. What would that project be making in today's environment?

Duffy. Yes, on [ Sadara ], we continue to even close eye on [ Sadara ]. It's running safely and reliably. I'd say we had one small incident at the cracker this year. But the assets are in a good position on the global cash cost curve. Most of it has been around the financial structure and Dow and [ Aramco ] are conducting an ongoing strategic review of [ Sadara ], which is targeted to be completed during the first half of 2026.

And the JV obviously operates very safely and very reliably and we'll look at and evaluate the opportunities to enhance the long-term resilience of the joint venture. I don't anticipate any cash payments to [ Sadara ] lenders in 2026. [ Sadara ] has got ample liquidity through their facilities and including some that they utilized in the fourth quarter. And of course, [ Dolan ] [ Aramco ] have support behind that bearing guarantees behind that.

On the second part, I don't have a number for you on what that would be instantaneously. But I can ask the team to talk with you and see if they can get you an estimate of what that would look like. I do have the forward look, which we put in the slides, which is we still see the ability to generate $1 billion of uplift out of that project.

Your next question comes from Frank Mitsch with Fermium Research.

Just touching base again on this Transform to Outperform. Obviously, it's been a very difficult past couple of years and now you're unveiling this big project. And I understand that it's going to touch everything that you do. And you mentioned earlier how much AI is playing a role in this. Is the fact that are you getting confident on the ability of AI to help achieve these productivity savings? And in terms of how much you're spending on the AI? Have you seen a return as of yet? I mean, how is AI being integrated into this whole -- into the Transform to Outperform? And obviously, when demand comes back, I would imagine that you would anticipate seeing all of this drop to the bottom line? Is that the current thinking?

Yes. Frank, it's a good question. And I just want to make sure that we're clear that it's not all AI. So there are also going to be some fundamental changes. We're going to look at all of our integrated work processes from end to end and simplify those. So for example, in previous changes, we've looked at trimming third-party costs, we've looked at, obviously, always look at procurement and what we can do to do better in procurement and bring costs down for what we pay out to third parties.

But in this case, we're looking at how things are built into our system and how we do our work at the end and how can we take steps out, how can we automate things that are done either manually or handoffs within the system today? And AI is going to give us a lot of possibilities there.

Over the last couple of years, and then the first, we had a not in 2025, but we had $1 billion cost out program before that. And some of the money from that program actually went into digital capabilities and IT. So one of the things that we have is we have a lot of high-quality data. We've got an intelligent data hub that we've built inside the company that AI on top of that will allow us to take a look at these work processes and really take steps out and streamline the whole thing.

So we call it a reengineering or a rewiring of the way we do business globally. And then that can be baked into the system and automated. And that's one of the ways we'll keep cost out as we go forward.

We're seeing progress in many functions right now. Many different functions are using AI in ways that are speeding things up or reducing the cost to do things we see it in legal, for example, patent research work. I'm doing discovery on cases, on legal. There's a big cost savings there. We're seeing it in a lot of other applications. So I think it's going to be there.

And we haven't really started to get into yet robots and AI and robotics together. I think at some point, we will. On traditional AI, we've seen great progress, obviously, from using technology to make things safer and eliminate certain costs from turnarounds and things like cost of scaffolding is a big cost in a turnaround by using drones and crawlers with cameras and other kinds of technologies. We can eliminate big costs out of having to scaffold parts of plans to go in and do those turnarounds. So they're real numbers, and we're pretty confident that we can bring it to the all of that to the bottom line.

On the growth side, also be some refocus on where we have our people position. I would say the focus will be on still boots on the ground on the sales side. Sales, tech service application development. Our model is you've got to be at the design table with your customers and you've got to be on the ground to do that. So we'll look at how those are deployed? Are they in the right geographies and the geographies growing and then how we support that from behind the scenes inside the shop, see what we can do to automate to help them and bring better data to their fingertips.

Our next question comes from David Begleiter with Deutsche Bank.

Jim, just on CapEx, can you discuss how you will be able to keep CapEx below [ D&A ] as you ramp up the spending on the Path2Zero project. And just on the -- is that due to any timing from the Canadian cash and tax incentives?

Yes, David. Well, obviously, we've finished up in-flight growth projects. And so we've got a few of them rolling off our outlook for CapEx for this year is still $2.5 billion like we spent last year. So there will be some most of what we've spent on Path2Zero this year is receiving long lead time items that will be delivered into the site, mostly engineering work will get finished by the middle of the year. And so detailed engineering will be done. We'll have the roll off, obviously, of some of the growth projects that are already up and operating. And we have some small incremental growth projects that come along like in silicones that we need to support. And so that will get us through 2026.

And then as we look at '27, '28, '29, and that's where Path2Zero ramp up, we'll keep a pretty tight control on the rest of the CapEx spending and maintenance spending. And as you can see from maintenance spending, we're right in line with our traditional levels. Wanting to make sure, obviously, that we keep our asset footprint on the low-cost assets and keep them reliable. That's what's carried us through. So it helped us as well to deliver in the fourth quarter. And so we want to continue to do that, make sure that they're in good shape.

No change on the Canadian receipt of the goods. Canada has been very positive and continues to be very supportive. So as we near that time frame, obviously, we'll have discussions about timing, et cetera, on that.

This concludes our Q&A session. I will now turn the conference back over to Andrew Riker for closing remarks.

Thank you, everyone, for joining our call today, and we appreciate your interest in Dow. For your reference, a copy of the transcript will be posted on Dow's website within 48 hours. This concludes our call.

This concludes today's conference call. You may now disconnect.

Greetings, and welcome to the Dow Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded.

I will now turn it over to Dow Investor Relations Vice President, Andrew Riker. Mr. Riker, you may begin.

Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I'm Andrew Riker, Dow's Investor Relations Vice President. Leading today's call are Jim Fitterling, Chair and Chief Executive Officer; Karen S. Carter, Chief Operating Officer; and Jeff Tate, Chief Financial Officer.

Please note, our comments contain forward-looking statements and are subject to the related cautionary statements contained in the earnings news release and slides. Please refer to our public filings for further information about principal risks and uncertainties. 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's call. Jim and Karen will review our results and discuss how we are navigating current market conditions to restore our core earnings. Karen will also provide an overview of our operating segment performance. Jeff will share an update on our in-flight actions to provide near-term cash support as well as some details on the macroeconomic environment and our modeling guidance for the fourth quarter. Jim and Karen will close the prepared remarks with Dow's view on current industry actions while demonstrating how Dow is well positioned to win in a recovery. Following that, we will take your questions.

Now let me turn the call over to Jim.

Thank you, Andrew. Beginning on Slide 3. In the third quarter, we executed against now strategic priorities to deliver sequential earnings and cash flow improvement despite continued pressure across the industry. These results reflect our focus on navigating the near term while positioning the company for profitable growth when our industry recovers.

In the third quarter, we delivered net sales of $10 billion. Sequentially, gains in our Industrial Intermediates & Infrastructure segment were more than offset by declines in Packaging and Specialty Plastics and Performance Materials & Coatings. EBITDA was $868 million, and while this is lower than the same period last year, our earnings reflect an improvement over second quarter. This was driven by volume gains stemming from our new growth investments in the U.S. Gulf Coast, lower planned maintenance activity and the progress we're making on our cost reduction actions.

Cash provided by operating activities was up $1.6 billion sequentially, primarily driven by working capital improvements, and advanced payments for low carbon solutions and other long-term supply agreements. We also delivered $249 million of dividends, reflecting our commitment to competitive shareholder returns over the cycle.

Next, Karen will provide some additional context around the more than $6.5 billion in actions that we have completed or currently have in flight.

Thank you, Jim. We advanced several strategic actions in the third quarter. We announced an expansion of our strategic agreement [indiscernible] global to formalize the contractual offtake of an additional 100 kt of ethylene supply at attractive economics for both parts. We closed the second and final phase of our strategic infrastructure asset partnership in the U.S. Gulf Coast delivering $3 billion in total proceeds for Dow this year. We completed the second of 2 previously announced noncore divestitures, delivering a total of approximately $250 million at attractive EBITDA multiples of around [ SYNNEX ]. And we issued an additional $1.4 billion bond to take advantage of tight credit spreads, providing added financial flexibility.

We are progressing the delivery of at least $1 billion in targeted cost savings by the end of 2026. We are on track to deliver approximately $400 million of the cost savings this year, which was clearly visible in our third quarter performance. We have also lowered our CapEx spending in alignment with our $1 billion reduction target this year compared to our original plan of $3.5 billion. This reduction is largely due to our decision to delay the Alberta project until market conditions improve. As we announced in April, this decision supports our near-term cash flow and adjust our timing to align with the market recovery. We remain committed to the long-term strategic rationale of the Alberta project, which further improves our industry-leading cost position and the growth upside that it will enable and targeted applications like pressure pipe, wire and cable and food packaging.

However, our expectation for when this capacity will be needed have changed, given the prolonged down cycle our industry is facing. As we committed, we will provide an update on this during our fourth quarter earnings call in January. Any decisions related to the project time line will remain centered on maximizing value.

So taken all together, these near-term strategic actions demonstrating Dow's continued efforts to adjust our cost structure and response to the current operating environment. These actions also support our overarching goal to build a more simplified modern Dow that consistently delivers strong performance, profitable growth and lasting competitiveness.

Next, I'll turn to our operating segment performance on Slide 4. In the third quarter, we continued to focus on margin improvement, while prioritizing volume growth in attractive end markets such as food packaging, electronics, home care and pharma. We also took decisive actions to lower our cost base and progress our cost savings actions. So starting with the results for our Packaging and Specialty Plastics segment. Net sales were down compared to the year ago period. Higher demand for flexible packaging applications was more than offset by lower downstream polymer prices, lower merchant olefin sales and lower licensing revenue.

Sequentially, net sales declined, driven by lower prices for downstream polymers and olefins. Volume decreased 1% year-over-year and 2% sequentially. Notably, the polyethylene volumes increased in both comparison periods, particularly in flexible packaging applications, and as a result of our new polyethylene unit in the U.S. Gulf Coast. These items were more than offset by lower Olefins volumes in Europe, following our earlier decision to idle one of our crackers into [indiscernible].

Operating EBIT was $199 million, reflecting a decrease compared to the year ago period. This was primarily driven by lower integrated margins. Operating EBIT increased sequentially due to higher integrated margins and operating rates, lower fixed costs from our cost reduction actions and the benefit of the startup of our new polyethylene unit in the U.S. Gulf Coast, which is helping Dow to realize the full benefit of our integration.

Next, turning to our Industrial Intermediates & Infrastructure segment on Slide 5. Net sales were down 4% year-over-year driven by continued pricing pressures globally, resulting in an 8% impact on revenue. Sequentially, net sales increased, reflecting volume gains in both businesses and all regions. This was supported by lower planned maintenance activity and the start-up of one of our near-term growth projects, which partly offset lower prices. Volumes increased 2% compared to the year ago period, driven by gains in the U.S. and Canada and both businesses as well as in energy applications. Sequentially, volume increased 5% with improved supply availability following planned maintenance activities in both businesses as well as additional volumes from our new constellation unit in Seadrift, Texas.

Operating EBIT for the segment increased versus the year ago period, driven by higher volumes and operating rates as well as lower fixed costs, which were partly offset by lower prices. Sequentially, operating EBIT increased by $138 million. This was driven by lower planned maintenance activity and higher volume in both businesses. This volume growth was enabled by the startup of our new alkoxylation unit in the U.S. Gulf Coast, which serves more resilient home and personal care end markets.

Moving to the Performance Materials & Coatings segment on Slide 6. Net sales in the quarter were $2.1 billion, down 6% versus the year ago period and 2% sequentially, driven by pricing pressures on the upstream areas of the segment. In the third quarter, Architectural Coatings experienced normal seasonal patterns, but downstream silicones remained a bright spot, both compared to the year ago period and prior quarter, particularly in high-value applications such as home care and electronics. Operating EBIT decreased both year-over-year and sequentially, driven by upstream margin compression, partly offset by lower fixed costs from our cost reduction actions.

To conclude, Team Dow is focused on continuing to take actions to help navigate the challenges our industry is facing, while driving a streamlined, more modern and more simplified enterprise. We are protecting and growing our position in high-value markets while also realizing the benefit from our targeted and accelerated actions to deliver at least $1 billion in cost savings by 2026. We also continue to optimize our global manufacturing footprint as evidenced last quarter when we announced the outcome of our strategic review in Europe, resulting in the shutdown of 3 upstream assets in the region.

I will now turn the call over to Jeff, who will share more on the actions we are taking to ensure Dow's financial flexibility as well as some macroeconomic insights and our outlook for the fourth quarter.

Thank you, Karen. Good morning to everyone participating in today's call. Turning to Slide 7. We continue to advance several strategic priorities to support Dow's near-term cash flow, further enhance our balance sheet and deliver structural improvements. This positions the company for growth and better profitability and the recovery. For example, this quarter, we completed the second phase of our strategic partnership with Macquarie for the sale of a 49% equity stake in select U.S. Gulf Coast infrastructure assets, receiving approximately $3 billion in total cash proceeds this year, and we're making solid progress on several additional actions that support our near-term cash generation. This includes optimizing working capital, which we expect to be an approximately $200 million to $300 million release of cash in the second half of the year compared to the first half.

In addition to these items, we've completed 2 bond issuances at attractive spreads for a total of $2.4 billion this year. Doing so provides added flexibility and support while maintaining our commitment to investment-grade credit profile, and it extends our material debt maturities out to 2029. As of the end of the third quarter, our cash and cash equivalents balance is above $4.5 billion. We have an additional approximately $10 billion of available liquidity including a revolving credit facility that we recently renewed through 2030. With all these actions, we're building on our long history of navigating the cycles our industry faces. As we've demonstrated in the past, we will continue to take additional actions when and where warranted.

With that, I'll share some of the key indicators we're continuing to track on Slide 8. The broader macroeconomic landscape remains largely unchanged since our last update. As it relates to Dow's key market verticals, while we are seeing some pockets of stability of broader recovery has yet to take hold. Based on the visibility we have through current customer orders, we continue to see a cautious operating environment. Business investment and consumer spending are subdued due to ongoing economic uncertainty and affordability challenges. These dynamics are impacting demand across several key end markets Dow serves.

At the same time, recent monetary policy shifts and the beginning of a rate cutting cycle so it begin to more positively influence demand, and our packaging market vertical, global demand remains steady.

Industry growth in North America was supported by record September domestic and export volumes. Manufacturing activity in China continues to be modest, while Europe contracted in September. In the infrastructure sector, market conditions remain soft across the United States, Europe and China. In the U.S., 30-year mortgage rates have eased modestly, but remain above 6% this month. Demand is unlikely to increase in the near term due to limited affordability, but lower mortgage rates could spur a recovery in 2026 as conditions improve.

Consumer spending has remained resilient, but with that, confidence is low, which has been driving value-seeking behaviors. In September, U.S. consumer confidence declined to its lowest level since April and sentiment in the EU remains below historical averages. In China, retail sales grew year-over-year in August, but at its slowest pace since last November. And in mobility, we continue to see mixed demand signals across the industry and regions. In the U.S., auto sales rose in August as consumers moved ahead of the EV tax credit expiration. And in China, government incentives for EVs also continued to support higher auto sales and production.

This strength has helped offset weakness in internal combustion vehicles, including in Europe, where new car registrations are down year-to-date. Given this backdrop, we will continue to focus on the actions within our control. Doing so, we have Dow to navigate the complexities of this down cycle while strategically positioning the company to capitalize when the market conditions do improve.

Next, I'll turn to our outlook for the fourth quarter on Slide 9. The macroeconomic dynamics that I described continue to limit visibility into customer buying patterns, making projections challenging. As always, we're committed to maintaining transparency and will provide timely updates if they become available. Based on current indicators and normal seasonality, we anticipate our fourth quarter EBITDA to be approximately $725 million. Our disciplined and targeted cost actions and lower planned maintenance activities are expected to provide sequential tailwinds. Normal seasonality, especially in building and construction end markets should be a headwind for our Performance Materials & Coatings and Industrial Intermediates & Infrastructure segments.

Additionally, we anticipate some margin compression from our feedstock costs in the fourth quarter. In Packaging and Specialty Plastics, lower planned maintenance in the U.S. Gulf Coast in Europe will provide a $25 million sequential tailwind, along with another approximately $25 million in support from our cost reduction actions. Higher feedstock and energy costs are expected to be a headwind for the fourth quarter despite anticipating higher downstream volumes. Globally, we expect approximately $0.01 per pound of margin contraction in the quarter. This will be partly offset by higher equity earnings following an unplanned outage Estadao in July as the impacted asset is now back up and running.

Additionally, following a fire at our [indiscernible] polyethylene unit in Texas this month, we anticipate a $25 million unfavorable impact for the fourth quarter. Initially, the event required us to bring down 3 polyethylene units at the site. Two of those units have already resumed operations. However, we expect that [indiscernible] will remain offline for the remainder of the year. We are leveraging our global flexible asset footprint to mitigate impact and meet our customers' needs.

In Industrial Intermediates & Infrastructure, we expect fourth quarter EBITDA to be approximately $20 million lower than the third quarter. This is largely driven by seasonally lower demand in building and construction. Additionally, we anticipate margin compression from higher energy costs and pricing pressures. We'll see this primarily in Europe, the Middle East, Africa and India as Asian exporters redirect volumes into the region from prior U.S. locations where those volumes would now be subject to adopting duties.

Sequential tailwinds are expected to be provided by higher demand for deicing fluids, lower turnaround spending and our cost reduction actions.

And in Performance Materials & Coatings, we expect lower sequential EBITDA of approximately $100 million. Normal seasonally driven decreases in demand for building and construction and infrastructure end markets reflect an approximately $100 million headwind in the quarter. We expect this to be partly offset by continued strength for downstream silicones applications in electronics and home care.

Finally, the incremental tailwinds from our cost reduction actions will be partly offset by planned maintenance at our Deer Park Texas site.

So in summary, as we look ahead, Dow remains committed to delivering accelerated cost savings actions across the enterprise as we've demonstrated throughout the year. Doing so will help offset the impact of higher feedstock costs and normal seasonality. Now I'll turn the call back to Jim.

Thank you, Jeff. Turning to Slide 10. The prolonged down cycle continues to weigh on our entire industry, but we're starting to see some encouraging actions in response, most notably around addressing industry oversupply. Specifically, announcements to date include significant rationalization of global ethylene, propylene oxide and siloxane capacities, each of which will benefit Dow's diversified portfolio. The vast majority are occurring in Asia and Europe, targeting assets that sit high on the global cost curve. This includes Dow's decision to shut down 3 European assets across each of our operating segments in order to rightsize upstream regional capacity, reduced merchant sale exposure and remove higher-cost energy-intensive parts of our portfolio.

Dow's rationalization announcements and those from industry peers have exceeded the majority of consultant projections, paving the way for improved operating rates, which will also be supported by anticipated polyethylene demand growth remaining above GDP for the foreseeable future.

As we have experienced through prior down cycles, we expect to see additional announcements and actions until more visible signs of recovery begin to materialize. As it relates to anticompetitive oversupply activities, our teams continue to be actively engaged in conversations with governments around the world to mitigate impact, progressively defend local production and to ensure a fair trade environment remains. These discussions have led to various actions and duties to protect local industries, including MDI in the United States, polyols in Brazil and more.

Dow's global asset footprint and product portfolio position us well to win in the key markets that we serve, particularly as purchasing patterns trend for buying local products and materials to mitigate any potential tariff headwinds.

Next, Karen is going to unpack some of these advantages in more detail.

Thank you, Jim. We are pleased to see several of the industry actions that you described beginning to unfold. We continue to monitor both supply and demand signals, and we're staying close to our customers and key external stakeholders to understand their unique challenges while identifying opportunities to drive profitable growth. At the same time, our teams are working to lower Dow's cost structure, enhance our cash position and strengthen our manufacturing footprint through the shutdown of higher cost assets and the start-up of our advantaged growth investments serving high-value end markets. And as the macroeconomic environment improves, our actions will ensure Dow is best positioned to beat our competition, capitalizing on our key advantages.

First and foremost, we are committed to being a low-cost producer. Currently, more than 75% of our global cracking capacity is in a top quartile cost position. This number will increase to approximately 80% once we complete the announced shutdown of our [ Bowling cracker ]. In addition, we continue to upgrade our world-class asset footprint by rightsizing higher cost capacity across a variety of value chain, including the shutdowns of 500 Kt of PO capacity in North America, 150 kt of upstream siloxanes production in the U.K. and one of our CAB units in Germany.

Our downstream specialties capacity helps to differentiate and improve Dow's performance across the economic cycle, which will become more evident when our previously announced shutdowns are completed. And our innovation capabilities also enable strong earnings compared to our peers over the cycle as evidenced in this year's annual benchmarking report.

So to summarize, with the addition of our U.S. Gulf Coast investments, broad product range, leading cost efficiency and global scale that expect to gain share in premiums in markets that traditionally grow above GDP like packaging, electronics, mobility and consumer goods. And we are confident that Dow's differentiated portfolio paired with our team's strong execution will position us to outperform as the industry recovers.

In closing, on Slide 11, our priorities are clear, and our teams remain focused on restoring core earnings enhancing our long-term competitiveness and delivering more than $6.5 billion in strategic actions and cash support items to position Dow well for profitable growth and value creation and the recovery.

As a reminder, this includes the $3 billion we received for our strategic partnership with Macquarie as well as accelerating our in-year savings from the $1 billion in cost actions that we announced in January. In addition, our diverse product portfolio, strategically advantaged asset footprint and global scale will help now to capture demand in attractive end markets growing above GDP. And our new alkoxylation and polyethylene units in the U.S. Gulf Coast are already delivering returns, providing further evidence of the value of our integration and low-cost asset footprint in the Americas.

Importantly, we continue to engage in positive and productive conversations with several governments around the world as it relates to anticompetitive behaviors as well as changing trade and tariff policies. We remain confident that we're in a strong position to mitigate the impact of tariff costs.

In summary, we're focused, and we're taking strong actions to navigate the current environment while advancing our long-term strategic priorities. We remain committed to delivering strong performance, profitable growth and lasting competitiveness in key value chains. And as we have demonstrated in the past, we will continue to identify and implement the right actions that help us stay closer to our customers while outperforming the competition.

With that, I'll turn it back to Andrew to get us started with the Q&A.

Thank you, Jim. 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&A instruction.

[Operator Instructions] Your first question comes from Vincent Andrews with Morgan Stanley.

Wondering if we could just get a bit of a reconciliation about the third quarter. Ultimately, the results came in nicely ahead of what you expected when you gave the original guidance at 2Q. Obviously, about a month ago, you were anticipating things were going to fall short of that, particularly in Packaging and Specialty Plastics, but you wound up being able to exceed your original estimate there, likewise in III. So just wondering what happened. Was it just in September came in better than expected? Or were you better on costs or just what allowed this outcome to take shape?

Vincent, let me ask Karen to walk through the business results, and then maybe Jeff to comment on how things came in on cost and cash.

Yes. Thank you for the question. There were really 2 areas that I would like to highlight in terms of the sequential improvement. Higher integrated margins in both NSP and II&I, and that was, in part, driven by our new growth assets. So volume did come in better than we expected. And then the second thing is really around our cost efforts. And of course, we committed to those earlier in the year, the $1 billion. Originally, we thought that $300 million would be the number in 2025. We [indiscernible] accelerated that to $400 million and have clear line of sight to that. And that actually showed up in the bottom line in third quarter in a visible way.

So I would say that those 2 things were really the difference in terms of how we not only exceeded expectations from the last guide, but also sequential improvements quarter-over-quarter.

Vincent, this is Jeff. I'll just make a couple of additional comments here related to cash flow. And even on the cost reductions that Karen was just mentioning, initially in our guide for 3Q, we expect it to be approximately $50 million. Tailwind for us, it was actually better than that in September came in a little bit stronger on the cost reduction side at about $75 million. So about a $25 million improvement there. I do want to spend a second on the cash flow as well, though, because you'll notice that our cash from operations came in at $1.1 billion in third quarter, which was an improvement sequentially of $1.6 billion.

And that was really driven by 3 different areas here. Sizable improvement in our working capital. The team has done a phenomenal job of continuing to really double down on the working capital improvement going into the second half of the year. In fact, as you heard in my prepared remarks, we're expecting in the second half of the year, our working capital to deliver a release of cash of $200 million to $300 million, and we saw $80 million of that working capital improvement in terms of a source of cash during the third quarter. We also had the 2 long-term strategic supply agreements that Karen mentioned in her prepared remarks, as well as the improved earnings that we have sequentially from second quarter to third quarter.

Your next question comes from the line of Hassan Ahmed with Alembic Global Advisors.

Jim, really appreciate the industry sort of outlook you guys provided on Slide 10. So just a broader question around rationalization and new project cancellations. On the rationalization side of things, obviously, the South Korean side, the Japanese side and the European side, you can assign projects. You can see which capacity is being shut down. What's less clear is the anti-evolution side. China, in particular, what cancellations may transpire over there. So I'd really appreciate if you could sort of provide your thoughts around that.

And part and parcel with that, I keep hearing that, look, I mean, once China announces new facilities, they never canceled those projects. I mean they have a long track record of that. So is that also changing?

Hassan, thanks for the question. I would say a couple of things on the ethylene supply outlook. And I think most of your questions were geared toward that. We've got right now line of sight to about 9,300 kilotons of global capacity, which has been rationalized. You've got about 4,400 kilotons in Europe, Middle East and Africa, and those have been announced and I think are well documented, and that includes our [ Bolon asset ]. You've got 4,900 kilotons in Asia Pacific. That includes China, obviously, about Japan, China, Singapore and about 1,000 tonnes -- kilotons across the rest of Asia. We've got speculation on the closures of about 13 million metric tons from a combination of additional capacity in Asia, Japan and Korea to the tune of about 5 million tons and China from the [ anti-evolution ] policies to the tune of about 7 million tons. So that's what's out there.

Obviously, the 9,300 kilotons that I mentioned, I would say, much more confirmed than the 13 million. But all of that together starts to bring you toward 10% of the global capacity. And when you get into Europe, it's probably bringing you more into the 20% of European capacity range. And I think that's right in line with what the industry is seen.

Your comment on China in terms of once announced completed, I don't have any data to counter that. I would say, I think you might see some delays in some announced capacity in China just from a standpoint that the market in China is slow. And for certain grades of product, we're not as big and something like high-density polyethylene, for example. But for certain grades, they've reached self-sufficiently -- self-sufficiency. And they really don't have the cost position to export them. And as the world pushes back with antidumping duties and other measures to keep trade fair, that's going to put pressure on them. And so I think they'll look at the timing on those.

Your next question comes from the line of Michael Sison with Wells Fargo.

Nice quarter. In terms of PSP, I think you noted global integrated margins could be down $0.01 in the fourth quarter. Can you bifurcate that from whether pricing or cost in the U.S., Europe and export? And then just a quick follow-up. Slide 8, the pretty colors really haven't changed, well, they're not that pretty. But -- if those -- if the global demand backdrop stays similar in the first half of '26, does EBITDA improve? And I know you have more cost savings next year. Can you maybe just talk about what happens in the event that we have this same colors heading into next year?

Thanks, Michael. Karen, do you want to hit P&SP and I'll try to cover Slide 8.

Yes. So it's important to note that, first of all, in third quarter, take a look at how we ended the quarter from an industry perspective. So when we came in the third quarter, we expected that prices would move up. And of course, as you know, they settled flat even though we thought the market fundamentals were there. And so if you look at the ACC data in September, both domestic and export demand set record for the month, but then also industry inventories drew down. It was the second largest draw of the year.

And so that's why we expect and we anticipate that prices should go up in October. We have $0.05 on the table, and that should continue to occur even though it's a challenging market environment.

So when you look at why our integrated margins are predicted to be down by $0.01, it's really because of the higher feedstock cost that are expected based on weather, frankly. So natural gas and ethane are both expected to go up. At the beginning of the month, there was a spike on ethane. It has since come down. And so we could get some relief on that. But right now, our view is that integrated margins will decline by about $0.01 globally. But that also should provide some support for prices going up in October. And again, we've got $0.05 per pound on the table.

And Michael, if I could touch on Slide 8. I think the main reason for the no change that you see there is there's just a lot of uncertainty in the marketplace right now. And we don't have settlement yet on all of the trade deals that have been announced. And you see in the market, and I think everybody feels that every time there's a swing in an announcement from either side on one of the trade deals, there's usually a bit of a pullback and everybody is trying to figure out what the impact is going to be. We've seen throughout the year, our own supply chain team who's been doing a phenomenal job, really shifting gears to try to make sure we don't get caught out and product keeps moving. So that's the hardest part to project going forward.

The industries that are driving the demand are still good. If you look at electronics, if you look at data centers, tech AI and really in the construction side of things, that is what's driving the construction markets today. There's government spending on infrastructure. We've seen more government support for infrastructure projects that's helping to drive demand than we have seen, for example, in China, you see really no support for the housing industry there. So that's having a pretty heavy weight on the Chinese market.

And here, we've got, I would say, some interest rate declines in housing, like Jeff mentioned, but nothing yet that has caused an uptick in new mortgages or existing home sales or anything that would drive demand. So we're optimistic that things are moving in the right direction. And I think if we can see some completion of some of these trade deals by the end of the year, that should bode well for next year. If this lingers into next year, then obviously, we need some of that certainty to be able to have people make decisions, stop sitting on the sidelines and move forward with investment plans.

I think tech AI and data centers, that utility construction for power, I think that's all going to continue because that's new capacity that's needed. Those are decisions that can be made right now, and people are ready to move fast in that space and there's liquidity. And so there's good money to chase those projects. But I think when it comes to rebounds in some of the existing long-established global supply chains, we need to see some certainty.

Your next question comes from the line of Josh Spector with UBS.

I was wondering if you could talk a little bit more about kind of the range of CapEx as you think about 2026. I mean I think you made the comment that you're not going to make a decision on Alberta or at least you're not going to announce it until the January or February call. But can you help us think about maybe a low end range if you decide that you're not going to do it and bring basically everything down versus the high-end range if you say we are going to kind of continue what that ramp-up would look like?

Yes. I think the simple answer, Josh, is if we continue the way we are, you could see another $2.5 billion next year, and we can manage that. And within that, you've got about $1 billion of maintenance CapEx. We've obviously got less -- we just started up a unit down in Texas and our [ coxilation ] unit as well. So those come off the docket going into next year. We have some downstream silicones projects that are very good, that will be on the docket. But we're not starting anything else right now until we get a little bit better line of sight to demand and the question that Michael raised just previously.

So I think we could land it in that range. And we will come back in January. I think we've got teams working really hard on the triggers and what would cause us to declare when the start of construction would be on path to 0.

Your next question comes from the line of Jeff Zekauskas with Morgan Stanley.

One of the things that Dow hasn't really talked about is joint venturing the Alberta cracker. Why wouldn't that make sense and take pressure off the cash flows of the company? And then is that something that you're considering? Or why wouldn't you consider it? And then secondly, what's polyethylene demand been like for you in the third quarter and year-to-date?

Jeff, let me ask Karen to talk about polyethylene demand, and then I'll come back and talk about Alberta.

For us, polyethylene demand has been stable. I mean if you look at the market segments that we play into packaging, has remained relatively stable. I know there's been discussion around the consumer and although consumer sentiment is weaker. What we are hearing from both brands and our customers is that they are actually shifting down. So shifting from of course, the consumer branded labels down to private labels, but that's still good for us. We sell into all of those segments. So packaging has been stable.

Personal Care for us is another space that's been stable for us in packaging as well. You heard me say earlier that the industry set a quarter -- a record in September, both for domestic sales as well as exports. And so we continue to see those exports flow, and we grew in the third quarter. So we expect that packaging demand for us will continue to be stable to relatively strong depending on the segment.

The other thing I would just highlight again is [ Polyseven ]. And we brought up Polyseven early in the quarter and third quarter, and it's already sold out, and we expect that to continue to occur.

And on Alberta, Jeff, I don't have anything specific to say, and I don't have a pushback on your question on joint venturing. If you look back at Texas 9 at the time when we did it, our partners from Kuwait, I mean, Global came in and made an investment to consume up to 30% of that cracker and that's worked extremely well. In fact, we just contractualized the last increment of that in the third quarter. So that's worked extremely well. So we have experience to do something like that.

I think a couple of things I would say about Alberta, still a delay, not a cancellation. It's still an asset from an investor standpoint that you want in the fleet longer term. It has the scale, it has the cost position, and you're bringing an additional asset cracker and derivatives up into that pocket in Alberta, which has really a cost advantage on ethane over a long period of time, decades that you can lock in where the Gulf Coast is a little more exposed to market swings. And so I think that's a big advantage.

So we're looking at how to time it. We're looking at, obviously, the best value creation for it. We don't want to bring it on well ahead of demand. We want to bring it on with the market. Those are some of the things that we're factoring in. And don't have anything to talk about in terms of the JV, but certainly, all possibilities are things that we would consider.

Your next question comes from the line of Matthew Blair with TPH.

I was hoping you could talk a little bit more about some of the moving parts in your polyurethane business. Are you seeing any benefits to U.S. MDI margins from tariff impacts that have reduced imports from places like China. Also on the -- just on the construction end market side, I think you mentioned that rates are coming lower, but is it fair to say that's not really coming through in the market yet. And then finally, do you have any sort of commentary you can provide on the relative strength with your polyols business versus your isocyanates business. Is one holding up a little bit better than the other?

Thanks, Matthew. Karen, do you want to tackle that?

Sure. So let me start just with the building and construction market because you're right. We did see rates come down, but we definitely believe that they need to come down further for us to see really a recovery in that space. They're currently sitting in the mid-6% range. We believe they'll probably need to have a 5 handle on them before we see any reasonable recovery in that segment. And of course, as we said before, about 40% of our products are aligned to infrastructure across our entire portfolio. So it's a good start, but it's not good enough for us to see a recovery.

Let me answer your second question, maybe it was your first on MTI because we are encouraged by some of the recent rulings that we've seen around antidumping. And so in September, the U.S. Department of Commerce made a preliminary finding concluding that MDI dumping was occurring by Chinese producers in the United States. Chinese imports account for about 20% of the MDI market here. And so industry imports are reporting that on top of the preexisting duty that were already there, that the market for Chinese imports is dissipating quite quickly. And so we are seeing some starts of additional volume, not yet a lot of pricing there, but we are seeing some additional volume. And again, I have been encouraged by those initial findings.

Your next question comes from the line of Kevin McCarthy with Vertical Research Partners.

Jim, I was wondering if you could comment or elaborate a little bit more on the here and now in terms of the demand function. How are your October and November order book shaping up relative to normal seasonal patterns? Just trying to get a sense for your fourth quarter guide of $9.4 billion in sales, $725 million on EBITDA. How conservative or not, you think those levels are relative to the normal seasonal year-end movements?

Kevin, I'd say a couple of things and then I'll get into the order pattern stuff here in a second. On GDP, there was a report out. I think Harvard put a report out recently that if you looked at the U.S. economy and you backed out growth from data centers and all of the related investments that are going into that space, the rest of the economy grew at about 0.1% GDP for the year. So I think that tells you that in some manufacturing sectors where you're up against, and we know China's domestic -- gross domestic product has been under pressure as well because their domestic economy hasn't shown the kind of resilience that they saw.

Karen just mentioned what's going on with MDI, antidumping duties here. And while that means that MDI coming into the U.S. is down about 80%. The product has gone somewhere, right? It's showing up in Europe, it's showing up in other areas, and it's probably more than likely being dumped there. And so we have to pursue those same kind of cases around the world. And so that's the thing that we've got to look at is how does the rest of the GDP to recover. And when do we start to see durable goods move, when we see automobiles move again, appliances move again. Some of the other things that are really going to drive some of this economy.

September was a strong month, and I think October order books look good. A little bit early to call November. Usually, when we get to the beginning of the month, we have a really good line of sight to the order books and way too early to call December. But so far, so good on the order books. I don't think -- I wouldn't lean in too conservative or too optimistic, I'd say, kind of right down the middle with our experience year-to-date.

Your next question comes from the line of Chris Parkinson with Wolfe Research.

Jim, on Slide 10, we can all see that the cost curve is pretty steep when it gets to the third and the fourth quartile and we continue to see some of the rationalization of the asset footprint, presumably in the fourth quartile on an ongoing basis. But at the same time, that means certain third quartile assets become the operational fourth quartile assets. And the cost curve, the perceived cost curve could actually be a little bit flatter than previous estimates. How, if any way, whatsoever, does that filter in to your return assumptions, your longer-term term resumptions on Alberta? And how does that help you triangulate your decision-making process over the next 6 to 12 months? Or is it simply just too early to tell?

Yes, Chris, it's a good question. I mean you know these curves change over time. They get steep and they flatten out in different periods of time. I'd say it's been pretty steady in this kind of range. Just recently, I think you've seen some moves at naphtha that have brought some things down. But at the same time, propane's come down as well. And so that gives us a little bit of pro-nap advantage in Europe. So things move around. What I would say is that in any scenario on a Canadian asset, will be a low-cost asset and to be a first quartile assets. So I think we look at it that way.

And then we look at the rest of the footprint and through the cycle, peak-to-peak, trough-to-trough, you want to try to make sure you're in a position to maximize the next peak for the shareholders. And when you get to the next trough, you've got your high-cost assets out of there in the next trough, you have got more assets to the left of the center point of that line. And so that's our decision-making right now.

The focus in Europe has been rightsizing it to the European market. And I think the big question mark is going to be how long will the European market continues to stay at that size, we'll continue to [indiscernible] stop or continue to shrink. And then China, I think the other factor that comes in is the trade and how trade is going to be regulated because a lot of capacity that's been built there is not low cost. And if countries around the world are trying to keep their manufacturing industries, they're going to have to put up some protection barriers to keep product from being done. And we're starting to see that happen now as a result. Those are the big factors. And I think we try to factor in that. And then the timing of the demand to come back.

So if you think about what we were talking about on supply-demand rationalization before, you've got 10% of global capacity, either announced or talked about in terms of coming out. That would be a significant bump up in ethylene operating rate. Karen mentioned polyethylene demand, which has been for a low, slow growth economy has been pretty good volume. We haven't seen the pricing power yet. But I do think the world is not going to sit at the slow growth place forever. So that capacity comes out, that demand rate kicks up pretty quickly, you get yourself into that 85-plus percent operating rate, and then you start to see price power and you start to see move up that's going to really benefit the investors.

Your next question comes from the line of Duffy Fisher with Goldman Sachs.

First of all, 2 questions maybe. So one, just to be explicit, your guide for Q4, what are you baking in for ethane pricing doing in the U.S.? How much of that $0.05 do you have baked in and then your sequential operating rates, do they stay flat, would be question one, just around the fourth quarter. And then second question is, have you guys done work or do you have a view on what you think happens with natural gas pricing in the U.S. as we start to export more natural gas. So a view on where '26 natural gas price goes?

Duffy, on ethane, we got $0.04 in -- on the ethane in the quarter. Ethane is moving as you see. But I mean, natural gas production is good. The U.S. has plenty of natural gas liquids. So it's all going to be a function of operating rates. Our view on operating rates is the assets are going to run hard in the Americas. So I think that will come through.

Natural gas, weather is going to be a big factor, always is this time of year. And you've seen it, it has come off where the strip was for the beginning of the quarter. It's come off because we're still producing products still going into inventory. There hasn't been as much demand for heating. And so we've had this kind of warmer September, October, I think, which has helped into the strip starting to cool off a little bit now. So we'll watch the inventory levels. That will be the biggest factor there. But the near-term moves on gas have been positive. And as gas moves down, you'll probably see the frac spreads will stay about the same, so that they bring ethane down.

The other wildcard to watch is, does ethane get in the middle of a trade negotiation between U.S. and China. It did in the previous round. And so what happens with ethane exports. I'm not advocating for anything here. I'm just saying that China is a big receiver of ethane exports. And so it got treated a little bit like rare herbs in the last discussion and we have to watch that.

Your next question comes from the line of Patrick Cunningham with Citi.

You talked quite a bit about volume gains from new investments in the U.S. Gulf Coast and reference picking up share in better markets. I guess, first, can you help quantify the run rate earnings contribution from some of these growth investments? And are there any other incremental investments or tailwinds we should be aware of that gives additional uplift next year?

Maybe I'll ask Karen to make a few comments on the run rate investments.

Yes, absolutely. Thanks for the question. So just to clarify, the 2 growth assets that are now up and running are the Polys unit down in the U.S. Gulf Coast, and then the [indiscernible] capacity that's also down in the U.S. Gulf Coast. So we expect that from a full run rate perspective on an annualized basis that, that will deliver $100 million to $200 million. And so far this year, and so I'll talk about third quarter in particular, it's around $40 million in the quarter, and we expect that to continue into fourth quarter.

And the other factor, Patrick, that I would just add in is we're balanced now on ethylene in the marketplace. And so what that allows us to do is capture the full integrated margin on that ethylene versus selling merchant ethylene.

Yes.

Your next question comes from the line of Matthew DeYoe with Bank of America.

I appreciate the view that PE demand is going to grow in excess of GDP. But as we look across -- a lot of the chemical chain and trends you're seeing in China. Is it possible that multiplier has been diluted because domestic sales year-to-date are up 1%, which is below expectations on GDP, but I know there's a lot of noise and just to put in context, I guess, a higher level rate, inventories are down in September for polyethylene, but that's because the industry took rates down. But how do I rationales the plan or the expectation for that to keep going at lower rates? Because I know there's also the view that the U.S. will run harder.

And I guess I asked this because it reflects a larger question that we have. It's like if we're still going to be adding capacity in things like MDI and polyethylene, is it possible that U.S. assets just have to derate if we can't take capacity out in Europe anymore?

Yes, there's a lot there, Matthew. Let me take a couple of stabs at it. So domestic sales and production are 2 different things. And I think, as I mentioned before, the U.S. GDP ex data centers and that has been relatively low. So I think the multiplier is still there. It's been in around the 1.4x GDP multiplier. It feels like it's still there. I mean at the heyday of the big ramp-up in plastics, it was probably in the 1.5 range. I've seen estimates from third parties that could go as low as 1.2%. That wouldn't be surprising as the industry matures. And then I think product mix is the other thing that factors in. We're geared more towards elastomers, about 30% of the capacity being in Functional Polymers. And then obviously, a lot in flexible packaging, linear low density is a big part of what we do, low-density is a big part of what we do.

I think we're pushing for a lot of capacity adds and isocyanates here. I think the world has enough isocyanates capacity. So I don't think you're seeing that coming on. I think it's more a question of rebalancing of the trade and then taking people off the sidelines because there's a lot of people on the sidelines right now. I'd say the supply chain is more hand to mouth. There's not a lot of inventory build anywhere. Maybe in the year, we've seen a little bit of early moves on imports and exports because people are trying to get ahead of tariff dates like the first of October, you see that drive certain shifts we saw it in China with their production rates and exports. But those are the things. But at the high level, I don't think the GDP multiplier has shifted.

This concludes our Q&A session. I will now turn the conference back over to Andrew Riker for closing remarks.

Thank you, everyone, for joining our call, and we appreciate your interest in Dow. For your reference, a copy of our transcript will be posted on Dow's website within 48 hours, which concludes our call.

This concludes today's conference call. You may now disconnect.

Thank you, and good morning, everyone, or good afternoon, if you're on the East Coast. Next, we have Dow, and we're pleased to have Jim Fitterling, the CEO of Dow, with us today. I'm going to read some disclosures first and invite you to see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative.

I'm also going to let you know if you don't already know that there are some slides on the Dow website on the Investor Relations section of the site that you can refer to during this fireside chat. And I think Jim is going to make some prepared -- some opening remarks and address those slides. So I'll turn it over to you, Jim. Thank you.

Yes. Good morning, Vincent. Thank you, and welcome, everybody. Thanks for being here. Before we get into Q&A, I'd like to share some insights as it relates to our key end markets as well as some of the progress that we're making on our near-term actions since earnings. This includes our cost reduction activities, acting with our proven best owner mindset, adjusting our CapEx spending for the year and the protection and improvement of our margins as we navigate the prolonged industry downturn.

If you look at Slide 2 on that deck that Vincent mentioned, as we head into the back half of the year, our view of the global economy remains relatively consistent with what we've seen for the last few quarters. Many of our end markets continue to face challenges, which has delayed the recovery and continues to pressure industry earnings. Despite the largely unchanged macro environment, we expect our third quarter operating EBITDA to be higher than second quarter and in line with the current Wall Street forecasts.

While we anticipated a positive polyethylene price settlement in the Americas, supported by industry trade dynamics, we ultimately saw prices roll over for the last 2 months. Additionally, given the current market conditions, we recently adjusted the turnaround schedule at one of our U.S. Gulf Coast crackers. And as a result, the associated costs for that will be spread into 2026 in the first half of '26 when the maintenance activity will be completed. That decision is another example of the actions that we're taking to minimize expenses where possible and optimize our global network.

And we expect the tailwind in the third quarter from our in-flight actions to reduce costs. We're seeing a few additional positive developments in the marketplace, which should provide some benefits to Dow. This includes greater clarity on U.S. trade deals, including the recently announced framework between the U.S. and the European Union. As these trade deals unfold, greater certainty across the value chain should create an environment where our customers start to invest again ahead of consumer demand.

There have also been some recent announcements from countries that are taking additional actions to address overcapacity challenges. So in summary, while the global macro conditions remain largely unchanged, we're encouraged by the early positive developments that we're beginning to see take hold. If you look at Slide 3, we have several in-flight actions to support both our near-term cash and our longer-term operational improvements. We announced earlier this year that we would be reducing Dow's total enterprise CapEx for 2025 to approximately $2.5 billion, which is $1 billion below our original plan of $3.5 billion. This is largely attributed to our decision to delay construction at our project in Alberta until market conditions improve.

We will provide an update on that project by year-end, and I'll be happy to take questions that you have today. And consistent with our best owner mindset, we also completed 2 noncore product line divestitures totaling approximately $250 million at attractive EBITDA multiples of around 10x. We're also on track to deliver at least $1 billion in targeted cost savings on an annual run rate basis by the end of '26, and we've increased our expectations for this year's savings to approximately $400 million versus our original target of $300 million.

In addition, we continue to make solid progress on several unique to Dow items that support our near-term cash generation. In May, we finalized our strategic partnership with Macquarie Asset Management for the sale of a minority equity stake in select U.S. Gulf Coast infrastructure assets, receiving approximately $2.4 billion in initial cash proceeds from the transaction. And then earlier this quarter, at the end of August, Macquarie exercised an option to increase their stake to 49% for an additional $540 million, which increases that total cash proceed to approximately $3 billion for Dow this year.

The additional cash payment was received well ahead of the November deadline when the option would have expired, which is a clear indication of the value that both Dow and Macquarie see in this new growth partnership. That value is evidenced by the growth that Diamond is already delivering with announced agreements so far with Again, which is a circular economy customer and Third Pillar Solar.

We also expect to receive approximately $1.2 billion in cash for damages related to the litigation with Nova Chemicals regarding our joint ethylene cracker. In total, we expect these actions to provide more than $6 billion in near-term cash support. And in addition to these items, we continue to proactively drive other near-term levers. This includes the execution of a debt-neutral $1 billion bond, which we completed in the first quarter, and that extended our material debt maturities beyond 2027. And then earlier this month, we completed an additional debt-neutral $1.4 billion bond to take advantage of very tight credit spreads, which provides added flexibility and support while maintaining our commitment to an investment-grade credit profile.

We also continue to work on optimizing working capital, which we expect to be a release of cash in the second half of the year compared to the first half. And as we've consistently demonstrated, we'll continue to take further actions if and when they're needed.

Closing on Slide 4. Our priorities are clear that we're continuing to execute several strategic moves to support higher earnings, improve our competitive cost position and ensure Dow wins as the industry recovers. This includes continuing to shift our product portfolio to higher-growth end markets like food packaging, electronics, home care and pharma. And we've added downstream capacity in both our Packaging and Specialty Plastics and Industrial Solutions businesses, which further capitalize on our light cracking footprint in the cost-advantaged Americas.

This capacity helps us to maximize the value of both our ethylene and ethylene oxide by taking advantage of the full benefits of integration, and we'll begin to see EBITDA benefits for both of those investments in the third quarter and beyond. Also in July, we announced the shutdown of 3 upstream assets in Europe in response to the challenging cost and demand landscape in the region. Each of these represents a meaningful portion of our regional capacity, which is either not fully integrated, resulting in excess merchant sale exposure or is high on our cost curve where we have better options to supply derivative demand and optimize margins. The shutdowns will be cash accretive and are expected to result in an annual EBITDA uplift of $200 million by 2029.

Benefits will begin in '26, and we expect to achieve half of that by 2027. Dow's diverse portfolio and purpose-built asset footprint position us to capture demand in attractive end markets that grow above GDP, and this is evidenced in our annual benchmarking results, which detail our track record of generating higher polyolefin margins than our peers over the cycle.

And lastly, we anticipate that a reduction in interest rates will promote a recovery in end markets, which have been depressed for some time, such as housing and durable goods, which are highly rate sensitive and tied to affordability. As I've outlined today, we remain committed to continuing our track record of operational and financial discipline, executing near-term actions to maximize shareholder value and navigating the current environment, all to better position Dow for higher shareholder returns.

And with that, I'll be happy to take your questions, Vince.

Thank you, Jim. That was very comprehensive. And maybe the first place to start would be just unpacking the polyethylene market during the quarter. Obviously, we see the prices rolled over flat. But as you assess what's going on in the market, do you think that was a function of demand softening? We're hearing a lot about customers across the industry are already starting to back off and manage for cash earlier than normal. So do you think there was a little issue, a little less demand or some inventory has built, so maybe the industry produced a little bit too much? Or how do you assess how the July and August settlements played out?

Yes. From our perspective, volume has been okay. I don't want to characterize it as robust, but it's been positive. And export volumes have been moving well. So the fundamentals were there in our view that we should have seen a price increase. I would have said price increase in July, more than August. And I think the market is setting up for some positive action in September. We saw a price increase in June after -- if you look at second quarter, second quarter was pretty rocky because you had the announcement of Liberation Day. And for those that are not familiar with our market, it essentially froze our markets, much like COVID froze the markets at the beginning of COVID.

It frozen for the month of April. Nobody was willing to make commitments to export material, whether it was China exporting to the U.S. or U.S. exporting to China, everything just stopped. But by the time things started to -- the dialogue started to continue and people started to understand it, things started to move then in the month of May, and we saw price increase in June. We didn't have any of that in the third quarter. So we've seen none of that kind of activity. Actually have seen pretty stable volumes, really good export capabilities and the cost positions in the U.S. are low. So operating rates on U.S. Gulf Coast ethylene crackers are 90-plus percent. And because of the tremendous cost advantage, I think they will stay that way.

So the fundamentals are there. ACC looks at inventories that are in stock. They've been running 44 days. Historical average is somewhere around 49 days. There's no sign that there's a massive inventory build. There's no sign of anything getting locked up or China falling out of the market to the point where it backed up exports. So I think the fundamentals are there for the right kind of price movement.

However, it is -- we see the data just like everybody else, inflation is having an impact on demand and people are very cautious right now. There's a lot of people that are sitting on the sidelines and taking no risk. And I think that's what's leading into, say, the end of the month or the end of the quarter. Special deals that happened right at the end of the quarter that then undercut some activity.

So yes, so obviously, been a peculiar year. So as we think about going into 4Q, we have to get through hurricane season. That's obviously a wildcard and that might contribute to pricing in September. But how are you thinking about the fourth quarter? Do you think we're going to have the typical seasonality? Typically, we do get prices coming up in the second and third quarter and then we give a little bit back in 4Q and then traditionally kind of get it back in 1Q. So because we didn't really see it during the middle of peak season, is there just less to give back? Or does the industry need to manage production into the fourth quarter? Or how should we think about that?

There's -- right now, there's nothing to give back. I mean from a variable cost position, we're at that level where it doesn't make any sense to continue at this rate. I do think there's some momentum that we'll be able to get some pricing up in September. And then a lot will depend on what happens to demand in fourth quarter. At the end of the year, usually December is the month that really slows down. October, November typically are fairly normal months. But December is the one where if anybody is trying to manage inventories, they'll do it at the very end of the year.

And I just don't have good -- that far out, I couldn't give you good visibility at this point. I would say the end markets that I mentioned, food and specialty packaging in the durable side of things, so infrastructure related like high-pressure pipe, any of the higher molecular weight polymers that are in our functional polymers business, like our wire and cable business, very strong demand driven by tech, AI, data centers, electric transmission, that's all going well. You're seeing some softness in obviously, wind, which has some derivative impact. But solar, I think, continues to hold up pretty well. Maybe some pressures here in the U.S. market, but globally, there's pretty good solar demand that's still out there.

Okay. And then maybe as we look into '26, we are starting to see continued supply reform rationalization depending on how you want to frame it. We have maybe some things percolating in China, which I'd love to hear your view on. You've had an announcement out of South Korea, some significant reductions in that market potentially to come. Obviously, you mentioned what you're doing in Europe and others are doing similar things.

When I total it all up, it's helpful. It's moving us in the right direction, but it's not exactly a game changer tomorrow. We definitely still need help on the demand side of the equation. You mentioned maybe what's going to happen with interest rates finally, right? We've all been waiting for 3 years now to get some relief. So if we look at both sides of the equation, do you think we're going to see anything material out of China. Does what South Korea is doing, does it matter outside of South Korea? Or is that just going to help the sort of regional Asian market? How are you assessing that?

Yes. And so I would say on the ethylene side, we'll stick with that for a minute. The announcements out of Japan and Korea, I think, will happen. China has built a lot of capacity, and they've been under a gun to get capacity up by 2030. They would say for reasons of CO2 commitments and climate. I would say that's part of it and geopolitics is probably another part of it. But they have a cost position that's better than Korea and Japan. And so I think that's going to drive some of that capacity out.

That announcement is probably on a global basis is about 1% to 2% of global capacity. So on its own, not a huge number. And then if you look at Europe, almost everybody that produces in Europe has announced capacity reduction in ethylene in the range of 15% to 20% of the European ethylene capacity. That's getting you more like 5% to 7% of global ethylene capacity. When you put those 2 together, you're starting to get close to a 10% uptick in operating rates just from capacity reduction, which is good. And that's before you get into demand increase. And I think we're in the third year of the industry slowing down.

There's no there's no signs of any stocking happening, which could happen at these prices. I don't see that to your point, people are managing cash. I also don't think there's a huge stock out there and a huge destocking that has to happen either. It's more hand to mouth, which is why I think people are saying they have less visibility to what's happening. But when that demand does, I think the capacity rationalization is coming. It typically in a naphtha cracker would take a couple of years because there's a lot of -- there are a lot of byproducts that come off those crackers and a lot of deals that you have to unwind and make sure that you're not stranding a customer that's on the other end of that. But they do happen. And so now until the end of 2027, I think you're going to see that capacity come off. And then you're going to start to see the demand pick up.

Confidence is one of the biggest things that's missing right now. The trade deals, just the volatile nature of an announcement of a deal backing off, tariffs on again, all of that's just got people sitting on the sidelines. They're not making investments. And we have to consider as well that in the infrastructure-related industries, housing and construction, when they're moving, they're also driving a lot of demand, whether that is demand for raw materials or whether that demand is for oil and diesel and other products that they need to build, that has kind of a double negative effect. So when that starts to roll, then you get a couple of layers of demand increase that kind of tighten things up and then you'll start to see real pricing power and momentum come back into it.

I think the trade deals are moving positively. I don't know that we'll know exactly what China is going to do on capacity until we see how the U.S.-China deal works out. I would guess that they'll want to land that before there's any firm commitments. So far, what we've seen actions in things like aromatics chain, which is tremendously oversupplied. We've seen actions in a PDH unit that's been delayed and we think canceled. We've seen off and on actions in some other areas. Nothing specific yet in ethylene, but a lot of the ethylene capacity is relatively new and younger. There's some older, smaller units, and they would probably be at risk.

Okay. Now if we think about the demand side of the equation, and obviously, it remains to be seen, both the pace and the extent of rate cuts, but it seems likely something is going to happen next week. I kind of think about it 2 ways. I think there's obviously the end market stimulus is affordability of housing and autos and other things that have been constrained over the last 3 years. That certainly is easy to understand how that could improve. But I also wonder whether between you and the end product, there is a big supply chain, and there are lots of different folks that have to manage inventory levels of various products that have Dow components in them, full or in part. So do you think over the last 3 years, as the cost of carrying inventory increased massively, right, versus where it was during COVID and even before COVID, right, when rates were certainly 0, but they were nowhere close to where they are today.

So do you think there's also a scenario where as we get into '26 and '27 and rates are normalizing at whatever that neutral level winds up being, that there is actually going to be -- I don't want to call it a restock, but just sort of a normalization of flow of product within all those other layers between yourself and the final customer. Sometimes to me, it feels like a lot of supply that would normally -- a lot of production would normally be floating around the world somewhere has gotten backed up to the chemical company.

It does. And there were some good articles written coming out of COVID about the bullwhip effect and how it works through the supply chain. And really, sometimes we're 2 or 3 layers below that final end-use demand. We try to be out understanding what's happening at those end-use customers, whether it's auto OEMs or the packaging and food companies, the retailers and when it hits our -- comes back to our shelf. But there is that kind of a lag effect and a contagion effect. And we saw during COVID when the demand for everything pulled up at once. It's kind of an unusual situation because all markets are shut down and then all markets open up.

And when that pull occurred, you had the combination of the inability to mobilize labor fast enough to get the demand out. You had supply chains and shipping lines that had to get rerouted again because everything had been slowed down and you had raw materials and then you had prices escalating. And so everybody was just trying to catch that wheel. That created just an unbelievable spike in demand and earnings. We went from $12.5 billion of EBITDA, which was peak in any form of Dow before after DowDuPont, there was peak earnings, but that was every every single value chain that we had peak at the same time. So that can happen when you get that kind of a pull.

I don't expect that, but I do expect because we're third year into this and everybody is managing hard that when they start to see their cash flows improve, they don't necessarily have to go borrow money to build in that inventory. They can do it off their operating cash flows and then you're going to see a little bit more risk taking come into it. And they typically tend to try to get back to where they have the flexibility to take that incremental customer order. Today, they can do it because they know they can go to the market and get product. But in the future, they may not be so sure and they'll take that inventory.

So with all that said, and I know you're going to give us the fulsome update on Alberta after the end of the year. What is the team working on between now and then other than just sort of watching the market to sort of assess how you're going to move forward or further delay the project?

Sure. First, I just want to say on Alberta, we still think it's a good project. It's a low-cost project. Because of the feedstock cost advantage and because of just the tremendous scale that we already have there, we're adding additional capacity there. That incremental capacity leverages a lot of existing infrastructure that's at that site. So it is going to compete with our Texas-9 investment down in the Gulf Coast, which has been a fantastic investment.

It's just a matter of market timing. When you bring up -- when you ramp up the construction is when the big spend happens. And when you bring these projects up, the timing to the peak of the market is very critical for the IRR on the project. So what we didn't want to do was try to be bringing that up originally or the plan was to bring it up in '27. In this market environment, that doesn't feel like the right timing. But to ramp up the construction when we can bring it up commensurate with the market coming back. And so that -- we've announced a 1-year delay. I think a 1- to 2-year delay time frame is what we're looking at. And that, we believe, balances getting the engineering work done, which is what we're doing right now and getting the long lead equipment ordered so that we're -- we've got that on site, but not starting the major construction until we're ready to get into that and execute quickly and get it online.

Then the other factor is obviously working with our partners and our midstream partners and Linde, who's building out the hydrogen complex. And we've got good ongoing dialogue with both of them. We've been -- we've always, from the beginning, been managing the engineering and the labor part of things kind of hand in glove with Linde so that we both benefit from the efficiencies of that. And obviously, the midstream partner is involved in both the supply of the ethane as well as the sequestration of the CO2. So they're very critical, and we're navigating that.

Canadian government support is still there, and that's another big reason. And also the downstream customer demand is very positive. We've already announced one deal for low carbon ethylene and the ethylene derivatives that come off of that. and we have several others under negotiation. So there's a strong desire, especially for global customers to be able to access that material and tap into that market.

So we will have a fulsome update at the end of the year. It will have an impact then on what we think our 2026 CapEx is going to be and when we think the ramp-up on construction will be, and we'll come back to that before the end of the year.

Okay. Maybe one last one on my side, just to talk about the feedstock markets a little bit. We've had a lot of volatility in ethane this year within a reasonable range, and now we're shifting into a period of an increase in LNG exports. How do you think that's going to affect the natural gas liquids market over the next couple of years?

Well, in general, as natural gas production goes here, because the United States benefits from having the richest natural gas, the richest in natural gas liquids, it typically makes more available. Now whether it all gets fractionated out and there's enough incentive to do that is a question, but it's typically there, and it can be pulled out.

And when frac spreads get too high, typically, there's more capacity comes on to be able to strip that out and monetize it. So I think long term, the way we look at it, and we try on oil and gas markets, we try not to chase the tail of the market. We have to take long-term views and long-term positions. Our long-term view is the U.S. is plentifully supplied on natural gas. There's going to be plenty of ethane available and propane for that matter. It's just that propane has more competing end markets and ethane really only has 2 places where it can go. It either stays in the gas for BTU value or gets stripped out for chemicals production.

So typically, that gives you a little bit of a governing effect on the pricing of it, and that's what's led to the prices that we have today. If gas goes up, gas goes up like it does in the wintertime, yes, you see some impact on higher ethane costs, but typically, that will reverse itself. And the gas price in the wintertime is really a function of the storage capacity. And so until we see changes in that, I think that is going to be normal -- kind of normal pattern that we see.

We're seeing competing demand, obviously, for electricity. Most of the near-term electricity for tech, AI is going to be supplied by natural gas power. And so that's going to compete onshore demand. We'll compete with that LNG export. There are other producers out there for LNG that will put a governor on the market for what the LNG price is going to be. And then the rate-limiting step for all of it is how fast can you build that capacity because you're competing with the same engineering and shop floor capacity that we are when we're building something like Alberta.

So LNG, compressors and other things are built by the same manufacturers. You've got to be in that line. You've got to have that line to the long lead equipment. You've got to have the engineering teams working on those generations. You got to have your permits. All of that is a very highly orchestrated dance. And I think the U.S. is going to be tremendously advantaged gas feedstock position, Canada likewise for a long time. And that's our big advantage in ethylene and polyethylene.

Okay. Are there any questions in the audience? Anyone? Anyone? Okay. Well I think we'll leave it there then Jim. Thank you very much.

Thank you. Good to see you.